CAPSTAR BROADCASTING CORP, 424B4, 1998-05-27

CAPSTAR BROADCASTING CORP
424B4, 1998-05-27
RADIO BROADCASTING STATIONS

Previous: GALILEO TECHNOLOGY LTD, 6-K, 1998-05-27

Next: ZEROS USA INC /FA/, 10QSB, 1998-05-27

<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-48819

<TABLE>
<S> <C> <C>
LOGO 31,000,000 Shares
CAPSTAR BROADCASTING CORPORATION
Class A Common Stock
($.01 par value)
</TABLE>

------------------
All of the shares of Class A Common Stock, par value $.01 per share (the "Class
A Common Stock"), offered hereby are being sold by Capstar Broadcasting
Corporation (the "Company"). Of the 31,000,000 shares of Class A Common Stock
being offered, 24,800,000 shares are being offered initially in the United
States and Canada (the "U.S. Shares") by the U.S. Underwriters (the "U.S.
Offering") and 6,200,000 shares are being offered initially outside the United
States and Canada (the "International Shares") by the Managers (the
"International Offering" and together with the U.S. Offering, the "Offering").
The offering price and underwriting discounts and commissions of the U.S.
Offering and the International Offering are identical.

The net proceeds of the Offering will be part of the Financing (as defined) that
will be used to consummate the acquisition (the "SFX Acquisition") of SFX
Broadcasting, Inc. ("SFX") and related acquisitions for approximately $1.3
billion, to repay existing indebtedness under the SFX Credit Facility (as
defined) of approximately $313.0 million, to redeem $154.0 million aggregate
principal amount of the 10 3/4% SFX Notes (as defined), to redeem $119.6 million
aggregate liquidation preference of the outstanding shares of 12 5/8% SFX
Preferred Stock (as defined), and to pay related fees and expenses. The
consummation of the Offering is conditioned on the concurrent consummation of
the SFX Acquisition. See "Use of Proceeds" and "The Transactions -- The SFX
Transactions."

Prior to the Offering, there has been no public market for the Class A Common
Stock. For information relating to the factors that were considered in
determining the initial offering price to the public, see "Underwriting."

The Company's authorized common stock consists of Class A Common Stock, Class B
Common Stock, par value $.01 per share ("Class B Common Stock"), and Class C
Common Stock, par value $.01 per share ("Class C Common Stock" and, together
with the Class A Common Stock and the Class B Common Stock, the "Common Stock").
The rights of each share of Common Stock are essentially identical other than
with respect to voting rights. The Class A Common Stock entitles the holders
thereof to one vote per share, the Class B Common Stock has no voting rights,
except as otherwise required by law, and the Class C Common Stock entitles the
holders thereof to ten votes per share. Upon completion of the Offering, (i) the
holders of Class A Common Stock offered hereby will hold approximately 92.0% of
the outstanding Class A Common Stock, representing approximately 4.3% of the
total voting power of the outstanding Common Stock and (ii) the holders of the
Class C Common Stock will have approximately 95.3% of the total voting power of
the outstanding Common Stock. Thomas O. Hicks, the Company's Chairman of the
Board, R. Steven Hicks, the Company's President and Chief Executive Officer, and
affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") beneficially
own all of the outstanding Class C Common Stock. An affiliate of Hicks Muse owns
84.2% of the outstanding Class B Common Stock. Subject to any necessary approval
of the Federal Communications Commission (the "FCC"), the Class B Common Stock
and the Class C Common Stock are convertible in whole or in part at any time
into Class A Common Stock on a share-for-share basis. See "Description of
Capital Stock."

The Class A Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "CRB," subject to notice of issuance.

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE CLASS A COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE
15 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share....................................... $19.00 $1.069 $17.931
Total (2)....................................... $589,000,000 $33,139,000 $555,861,000
</TABLE>

(1) Before deduction of expenses payable by the Company estimated at $3,325,000.

(2) The Company has granted the U.S. Underwriters and Managers an option,
exercisable by Credit Suisse First Boston Corporation for 30 days from the
date of this Prospectus, to purchase a maximum of 4,650,000 additional
shares to cover over-allotments of shares. If the option is exercised in
full, the total Price to Public will be $677,350,000, Underwriting Discounts
and Commissions will be $38,109,850, and Proceeds to Company will be
$639,240,150.

The U.S. Shares are offered by the several U.S. Underwriters when, as and
if issued by the Company, delivered to and accepted by the U.S. Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
the U.S. Shares will be ready for delivery on or about May 29, 1998 against
payment in immediately available funds.

Joint Lead Managers

CREDIT SUISSE FIRST BOSTON BT ALEX. BROWN MORGAN STANLEY DEAN WITTER
------------------
BEAR, STEARNS & CO. INC. GOLDMAN, SACHS & CO.

NATIONSBANC MONTGOMERY SECURITIES LLC SALOMON SMITH BARNEY

Prospectus dated May 26, 1998.
<PAGE> 2

[A map of the United States depicting the markets in which the Company owns and
operates radio stations]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS, AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise specified, this Prospectus assumes (i) the consummation of the SFX
Transactions (as defined), (ii) a one for ten reverse stock split of the Common
Stock effected prior to the closing of the Offering and (iii) no exercise of the
over-allotment option. As used in this Prospectus, unless the context otherwise
requires, the "Company" and "Capstar" refer to Capstar Broadcasting Corporation
and its subsidiaries after giving effect to the consummation of the SFX
Transactions. The Company is a holding company, which conducts substantially all
of its operations through its subsidiary Capstar Broadcasting Partners, Inc.
("Capstar Partners"), which conducts substantially all of its operations through
its subsidiary Capstar Radio Broadcasting Partners, Inc. ("Capstar Radio"),
which conducts substantially all of its operations through its subsidiaries,
Atlantic Star Communications, Inc. ("Atlantic Star"), Southern Star
Communications, Inc. ("Southern Star"), GulfStar Communications, Inc.
("GulfStar"), Central Star Communications, Inc. ("Central Star"), and Pacific
Star Communications, Inc. ("Pacific Star"). See "Business -- The Company" for
additional information regarding the development of the Company. Certain
capitalized terms used in this Prospectus are defined herein under the caption
"Glossary of Certain Terms."

THE COMPANY

The Company is the largest radio broadcaster in the United States operating
primarily in mid-sized markets based on number of stations and, on a pro forma
basis after giving effect to the Completed Transactions (as defined), the SFX
Transactions and the Pending Acquisitions (as defined), based on 1997 revenue.
Since its first acquisition in October 1996, the Company has assembled, on a pro
forma basis after giving effect to the SFX Transactions, a nationwide portfolio
of 299 owned and operated or programmed stations in 75 mid-sized markets. This
portfolio includes clusters of four or more stations in 42 markets and comprises
the leading station group, in terms of revenue share and/or audience share, in
49 markets. Of the 299 stations, the Company owns and operates 209 stations and
programs 21 stations and, upon the consummation of the SFX Transactions, will
own and operate an additional 68 stations and sell commercial time on one
additional station. On a pro forma basis, after giving effect to the Completed
Transactions and the SFX Transactions, and the financing thereof, and the
application of the net proceeds therefrom, as if they had occurred on January 1,
1997, the Company would have had net revenue, BCF (as defined) and net loss from
continuing operations of $578.1 million, $223.8 million and $147.4 million,
respectively, for the twelve-months ended March 31, 1998. On a same station
basis, for all of the Company's stations owned or operated as of March 31, 1998,
BCF increased $4.3 million, or 32.8%, to $17.5 million in the three months ended
March 31, 1998 from $13.2 million in the three months ended March 31, 1997.

R. Steven Hicks, an executive with over 30 years of experience in the radio
broadcasting industry, and Hicks Muse, a Dallas-based private equity firm,
formed Capstar to capitalize on the consolidation opportunities produced by the
Telecommunications Act of 1996 (the "Telecom Act"). R. Steven Hicks and Hicks
Muse recognized that the Telecom Act created a unique opportunity to consolidate
stations in mid-sized markets and, accordingly, created a company that was
designed specifically to address this market opportunity. Because the Telecom
Act enabled operators in mid-sized markets for the first time to form clusters
of four or more stations in individual markets, R. Steven Hicks and Hicks Muse
believed that the Company could achieve the economies of scale necessary to
support an investment in higher quality managers, programming and systems in
these markets. The creation of sizable operations allows the Company to upgrade
its stations' programming, sales, promotions, engineering and administrative
operations to standards previously seen only in larger markets. Management
believes that this positions the Company to generate revenue growth in these
markets in excess of historical growth rates, to increase its audience and
revenue shares within these markets and, by capitalizing on economies of scale,
to achieve increases in its BCF growth rates and margins.

Management believes that Capstar's national portfolio of 299 stations
creates significant revenue and cash flow growth opportunities for the Company,
previously unavailable to mid-sized market operators. For example, the Company
is utilizing innovative computer networking technology to distribute high
quality programming created in centralized locations to selected stations
throughout the country, while maintaining the local character of each broadcast.
This allows management to reduce staffing and programming costs while
substantially increasing the quality of programming. In addition, the Company's
national audience of approximately 16.7 million listeners per week, one of the
largest national audiences among radio broadcasters,

3
<PAGE> 4

has created an opportunity for national, network and regional advertisers to
easily reach listeners in mid-sized markets. Furthermore, management believes
that the Company's well-developed infrastructure allows it to efficiently
acquire and integrate additional stations.

Because the Company has assembled its portfolio of 299 stations over the
past 20 months, management considers many of these newly formed station clusters
to be underdeveloped with the potential for substantial growth as the Company
capitalizes on the opportunities created by industry deregulation and the
implementation of its acquisition strategy.

STATION PORTFOLIO

To effectively and efficiently manage its station portfolio, the Company
has developed a flexible operating structure designed to manage a large and
growing number of radio stations throughout the United States. The station
portfolio is operationally organized into five regions: the Northeast (Atlantic
Star), the Southeast (Southern Star), the Southwest (GulfStar), the Midwest
(Central Star) and the West (Pacific Star), each of which is managed by regional
executives in conjunction with general managers in each of the Company's
markets.

The following table sets forth certain information regarding the Company's
station portfolio, assuming consummation of the SFX Transactions. The table does
not include ten large market SFX stations, for which Chancellor Media will
provide services under separate LMAs (as defined).

<TABLE>
<CAPTION>
NUMBER OF COMPANY COMPANY
STATIONS REVENUE AUDIENCE
MSA --------- SHARE SHARE
MARKET(1) RANK(1) FM AM RANK(1) RANK(1)
--------- ------- --- --- ------- --------
<S> <C> <C> <C> <C> <C>
NORTHEAST REGION (ATLANTIC STAR)
Providence, RI*........................................... 31 2 1 2 2
Hartford, CT*............................................. 42 4 1 2 2
Richmond, VA*............................................. 56 4 -- 2 2
Albany-Schenectady-Troy, NY*.............................. 57 3 2 1 1
Allentown-Bethlehem, PA................................... 65 2 2 1 1
Harrisburg-Lebanon-Carlisle, PA........................... 73 1 1 2 2
Wilmington, DE............................................ 74 2 2 3 2
Springfield, MA*.......................................... 77 2 1 1 3
New Haven, CT*............................................ 95 2 -- 1 1
Roanoke, VA............................................... 102 4 1 2 1
Worcester, MA............................................. 107 1 1 1 1
Fairfield County, CT...................................... 112 2 2 2 4
Portsmouth-Dover-Rochester, NH............................ 117 2 1 2 1
Huntington, WV-Ashland, KY................................ 139 5 5 1 1
Manchester, NH............................................ 193 1 1 2 2
Wheeling, WV.............................................. 216 5 2 1 1
Winchester, VA............................................ 219 2 1 1 1
Burlington, VT............................................ 221 1 -- 2 4t
Lynchburg, VA............................................. NA 3 1 1 1
--- ---
Subtotal............................................ 48 25
SOUTHEAST REGION (SOUTHERN STAR)
Charlotte-Gastonia-Rock Hill, NC*......................... 36 3 -- 2 2
Greensboro, NC*........................................... 40 2 2 4 4
Nashville, TN*............................................ 44 4 1 1 1
Raleigh-Durham, NC*....................................... 48 4 -- 1 1
Jacksonville, FL*......................................... 51 4 2 1 1
Birmingham, AL............................................ 55 2 1 3 3
Greenville, SC*........................................... 58 3 1 1 1
Columbia, SC.............................................. 90 4 2 1 1
Melbourne-Titusville-Cocoa, FL............................ 96 3 2 1 1
Huntsville, AL............................................ 113 4 2 1 1
Ft. Pierce-Stuart-Vero Beach, FL.......................... 119 5 1 1 1
Montgomery, AL............................................ 143 3 -- 2 1
Savannah, GA.............................................. 154 4 2 1 1
</TABLE>

4
<PAGE> 5

<TABLE>
<CAPTION>
NUMBER OF COMPANY COMPANY
STATIONS REVENUE AUDIENCE
MSA --------- SHARE SHARE
MARKET(1) RANK(1) FM AM RANK(1) RANK(1)
--------- ------- --- --- ------- --------
<S> <C> <C> <C> <C> <C>
Asheville, NC............................................. 176 1 1 1 1
Tuscaloosa, AL............................................ 215 3 1 1 1
Jackson, TN............................................... 260 2 1 1 1
Statesville, NC........................................... NA 1 1 NA NA
Gadsden, AL............................................... NA 1 1 NA NA
--- ---
Subtotal............................................ 53 21
SOUTHWEST REGION (GULFSTAR)
Austin, TX*............................................... 50 2 1 1 1
Baton Rouge, LA........................................... 81 3 3 1 1
Wichita, KS*.............................................. 89 2 1 3 2
Jackson, MS*.............................................. 118 3 1 1 2
Pensacola, FL............................................. 123 3 -- 1 1
Corpus Christi, TX........................................ 127 4 2 1 1
Beaumont, TX.............................................. 128 3 1 1 1
Shreveport, LA............................................ 129 1 1 2 3
Biloxi-Gulfport-Pascagoula, MS*........................... 137 2 -- 1 1
Tyler-Longview, TX........................................ 141 4 1 1 1
Killeen, TX............................................... 151 2 -- 1 1
Fayetteville, AR.......................................... 156 4 -- 1 1
Ft. Smith, AR............................................. 169 2 1 1 1
Lubbock, TX............................................... 173 4 2 1 1
Midland, TX............................................... 174 3 -- 2 2
Amarillo, TX.............................................. 188 3 1 2 2
Waco, TX.................................................. 192 4 2 1 1
Alexandria, LA............................................ 200 3 1 1 1
Texarkana, TX............................................. 241 4 2 1 1
Lawton, OK................................................ 249 2 -- 1 1
Lufkin, TX................................................ NA 3 1 NA 1
Victoria, TX.............................................. NA 2 -- NA 1
--- ---
Subtotal............................................ 63 21
MIDWEST REGION (CENTRAL STAR)
Milwaukee, WI*............................................ 30 1 1 4 5
Indianapolis, IN*......................................... 37 2 1 2 3
Grand Rapids, MI.......................................... 65 3 1 2 2
Des Moines, IA............................................ 88 2 1 3 3t
Madison, WI............................................... 120 4 2 1 1
Springfield, IL........................................... 190 2 1 3 3
Cedar Rapids, IA.......................................... 199 2 -- 2 2
Battle Creek-Kalamazoo, MI................................ 232 2 2 1 1
--- ---
Subtotal............................................ 18 9
WEST REGION (PACIFIC STAR)
Honolulu, HI.............................................. 59 4 3 1 1
Tucson, AZ*............................................... 61 2 2 1 2
Fresno, CA................................................ 64 6 3 2 2
Modesto-Stockton, CA...................................... 121 3 2 2 2
Anchorage, AK............................................. 170 4 2 2 1
Fairbanks, AK............................................. NA 2 1 NA 1
Farmington, NM............................................ NA 3 1 NA NA
Yuma, AZ.................................................. NA 2 1 NA 1
--- ---
Subtotal............................................ 26 15
Total............................................... 208 91
=== ===
</TABLE>

- ---------------

NA Information not available.
t Tied with another radio station group.
* Stations to be acquired in the SFX Transactions.

(1) See explanatory notes to this table beginning on page 59 of this
Prospectus.

5
<PAGE> 6

OPERATING STRATEGY

The Company's primary goals are (i) to achieve revenue growth rates at its
stations that are significantly in excess of historical growth rates achieved in
comparable markets and (ii) to increase its operating margins at these stations
at growth rates which exceed the average operating margin growth rates being
achieved in large markets. The Company intends to achieve these goals through
the implementation of the following strategies:

Enhance Revenue Growth through Multiple Station Ownership. The ownership of
multiple stations in a market allows the Company to coordinate its programming
to appeal to a broad spectrum of listeners. Once a station cluster has been
created, the Company can provide one-stop shopping to advertisers attempting to
reach a wide range of demographic groups in the Company's markets. Management
believes that simplifying the buying of advertising time for customers
encourages increased advertiser usage, thereby enhancing the Company's revenue
generating potential. The Company also believes this simplification of the
buying process is particularly effective outside the largest markets because
advertisers in smaller markets typically perform more functions in the buying
process for themselves (as opposed to outsourcing these functions to advertising
firms or other vendors). By offering broad demographic coverage, the Company can
also compete more effectively against alternative media, such as newspaper and
television, thus potentially increasing radio's share of the total advertising
dollars spent in a given market.

The Company believes that multiple station ownership will allow it to be
more effective in pursuing national, network and regional advertisers, a source
of revenues which was previously limited in mid-sized markets. For example, the
Company believes that its participation in the AMFM Radio Network, a national
radio network owned by Chancellor Media Corporation ("Chancellor Media"),
illustrates the Company's ability to attract new sources of network revenues to
its stations as a result of its large audience reach.

Utilize Sophisticated Revenue Generating Techniques. Following the
acquisition of a station or station group, the Company implements sophisticated
techniques such as advertising inventory management systems and centralized
sales training programs to allow such stations to serve their advertising
clients better and to compete more effectively with other media. It also
utilizes in-depth music research studies to improve the quality of the
programming and its responsiveness to the local market. Management believes that
many single station or single market operators cannot justify the costs
associated with utilizing these management techniques.

Use Innovative Computer Technology to Enhance Programming. The Company is
an industry leader in using computer network technology to deliver high quality
programming. The Company's StarSystem(TM), a Company-owned programming
distribution network, is designed to broadcast quality programming from
centralized locations to selected stations throughout its markets. With this
system, a single radio personality is able to introduce programming in multiple
markets by digitally transferring custom introductions for each local market and
inserting them into the playlist via the Company's wide area computer network.
StarSystem(TM) enables the Company to make high quality on-air talent available
on a cost-effective basis in markets that previously could not afford that level
of programming while still maintaining a station's local identity. Management
believes that in addition to the cost reductions associated with this system,
StarSystem(TM) provides the Company with a competitive advantage by allowing
management to implement format changes quickly and to integrate newly acquired
stations and clusters more efficiently. To date, the Company has installed this
digital technology at 88 stations at a one time cost of approximately $43,000
per station, which has resulted in average cost reductions of approximately
$44,000 at each such station on an annualized basis. The Company intends to
expand its StarSystem(TM) to an additional 132 stations by December 31, 1998,
and plans to develop additional regionalized programming centers during 1998 and
1999 to continue its expansion of StarSystem(TM).

6
<PAGE> 7

management, sales and administrative personnel and operating resources (such as
on-air talent, programming and music research) and through the elimination of
redundant corporate expenses. Furthermore, the Company, as a result of its large
station portfolio, combined with the consolidated purchasing power of other
companies affiliated with Hicks Muse, has realized volume discounts in such
areas as national representation commissions, employee benefits, casualty
insurance premiums and other operating expenses.

Capitalize on Extensive Regional Management Experience. Each of the
Company's regional presidents and chief executive officers has extensive
industry experience, having served as a senior executive and/or owner of, or
consultant to, one or more substantial station groups in mid-sized to large
markets. The Company has capitalized on this experience by designing a regional
organizational structure to manage its station portfolio effectively and to
accommodate future in-market or station group acquisitions. Each regional
operating executive reports directly to the Company's Chief Operating Officer.
The Company believes that each of its regional executives possesses considerable
knowledge of its region's other radio broadcasters and is, therefore, well
situated to identify strategic acquisition candidates.

ACQUISITION STRATEGY

The Company is the leading consolidator of radio stations in mid-sized
markets throughout the United States. Management has achieved this position
using an acquisition strategy that it believes allows the Company to develop
radio station clusters at reasonable prices. The Company first seeks to enter
attractive new mid-sized markets by acquiring a leading station (or a group that
owns a leading station). The Company then uses the initial acquisition as a
platform to acquire additional stations. Management believes that by leveraging
its existing infrastructure, knowledge of and relationships with advertisers and
substantial experience it can improve the operating performance and financial
results of acquired stations. From time to time, the Company may acquire station
groups or companies with one or more stations in large or small markets.
Although the Company's primary acquisition strategy is to acquire and operate
stations in mid-sized markets, the Company may in the future retain and operate
such large or small market stations. Any acquisitions made by the Company may be
for cash, debt, property or capital stock or stock equivalents of the Company or
a combination thereof. From time to time, management anticipates that it also
may have opportunities to purchase radio stations outside of the United States
and may pursue such opportunities. In addition, management from time to time
also evaluates other acquisition opportunities in media related businesses,
particularly businesses with significant after tax cash flow generating
potential, that it believes would complement the Company's radio broadcasting
business. The Company has entered into a long-term, approximately $500.0 million
station exchange agreement with Chancellor Media, pursuant to which Chancellor
Media will acquire certain of the SFX stations in large markets in exchange for
radio stations to be identified by the Company over a three-year period. See
"The Transactions -- The SFX Transactions" and "Certain Relationships and
Related Transactions -- Chancellor Exchange Agreement."

OWNERSHIP

The Company represents the largest investment of capital by Hicks Muse and
its affiliates. Hicks Muse is a private investment firm with offices in Dallas,
New York, St. Louis and Mexico City that specializes in acquisitions,
recapitalizations and other principal investing activities. Hicks Muse has a
distinctive investment philosophy emphasizing growth of sales and earnings in
existing portfolio companies by pursuing strategic acquisitions. Since the
firm's inception in 1989, Hicks Muse has completed or has pending more than 200
transactions having a combined transaction value exceeding $26.0 billion. In
1994, Hicks Muse made its first major investment in the radio broadcasting
industry when Hicks, Muse, Tate & Furst Equity Fund II, L.P. founded the
predecessor of Chancellor Media, which is currently the largest pure-play radio
broadcasting company in the United States based on net revenue. Hicks Muse and
its affiliates own approximately 11.1% of the outstanding common stock of
Chancellor Media, which is Hicks Muse's only other investment in the radio
industry.

7
<PAGE> 8

voting power of the outstanding Common Stock, and the existing holders of Class
A Common Stock will own the remaining approximately 8.0% of the outstanding
Class A Common Stock, representing approximately 0.4% of the total voting power
of the outstanding Common Stock. Thomas O. Hicks, the Company's Chairman of the
Board, R. Steven Hicks, the Company's President and Chief Executive Officer, and
affiliates of Hicks Muse beneficially own all of the outstanding Class C Common
Stock, representing approximately 95.3% of the total voting power of the
outstanding Common Stock. An affiliate of Hicks Muse owns 84.2% of the Class B
Common Stock. See "Risk Factors -- Control of the Company," "Security Ownership
of Certain Beneficial Owners" and "Description of Capital Stock."

Thomas O. Hicks has publicly stated that a possible combination of the
Company and Chancellor Media is under serious consideration by Hicks Muse.
However, no combination proposal is being prepared at this time by Hicks Muse,
the Company, or Chancellor Media. If made, any such proposal would require
various prior approvals, including approvals of the respective Boards of
Directors of the Company and Chancellor Media, the limited partners (or a
committee thereof) of the investment fund controlled by Hicks Muse that owns the
indirect majority economic interest of the Company, the FCC, and, under certain
circumstances, the stockholders of Chancellor Media. There can be no assurance
as to the terms or timing of such proposal or whether such proposal will be made
at all.

THE TRANSACTIONS

COMPLETED TRANSACTIONS

Since its formation in 1996, the Company has acquired 239 stations in 31
separate transactions with purchase prices ranging from $200,000 to $225.0
million, and for strategic or regulatory reasons has sold or shortly after the
consummation of the SFX Acquisition will have sold 22 stations in 10 separate
transactions with sale prices ranging from $100,000 to $40.0 million (together
with the acquisition of Prophet Systems, Inc., the "Completed Transactions").
See "The Transactions -- Completed Transactions" for a complete list of the
Completed Transactions and "Glossary of Certain Terms" for defined terms
representing each Completed Transaction.

THE SFX TRANSACTIONS

SFX Acquisition. Pursuant to a merger agreement dated as of August 24,
1997, as amended (the "Merger Agreement"), a subsidiary of the Company will be
merged, subject to certain conditions, with and into SFX, with SFX continuing as
the surviving corporation and an indirect wholly-owned subsidiary of the
Company. The total cash cost to the Company of the merger and related repayment
of existing indebtedness under the existing credit facility of SFX (the "SFX
Credit Facility") is expected to be approximately $1.5 billion if completed by
June 1, 1998. R. Steven Hicks co-founded SFX and served as its chief executive
officer for three years before resigning in 1996 to form the Company with Hicks
Muse.

SFX Related Transactions. Concurrently with or shortly after the SFX
Acquisition, the Company intends to acquire eight radio stations for $178.3
million and, due to multiple station ownership rules and regulations, the
Company and SFX intend to dispose of 15 radio stations for $306.7 million.
Chancellor Media has agreed pursuant to a long-term exchange agreement (the
"Chancellor Exchange Agreement") to provide services upon the consummation of
the SFX Transactions to ten SFX stations in large markets under separate LMAs
with the Company for approximately $49.4 million per year. As part of the
Chancellor Exchange Agreement, Chancellor Media has agreed to acquire such
stations in exchange for radio stations to be identified by the Company over a
three-year period, with corresponding decreases in the amount of the LMA fees
received by the Company as stations are exchanged. No assurances can be given
that stations acquired by the Company will generate cash flows comparable to the
LMA fees to be received from Chancellor Media in connection therewith, either
initially when such stations are acquired or at all. See "Risk Factors -- Risks
of Acquisition Strategy" and "Certain Relationship and Related
Transactions -- Chancellor Exchange Agreement."

8
<PAGE> 9

The following table summarizes the transactions that are expected to be
consummated concurrently with or shortly after the SFX Acquisition (together
with the programming of the ten SFX stations by, and the eventual sale of such
stations to, Chancellor Media and the sale of SFX stations WTAE-AM in
Pittsburgh, Pennsylvania and WJDX-FM in Jackson, Mississippi after the
consummation of the SFX Acquisition to comply with the SFX Consent Decree (as
defined), the "SFX Related Transactions" and, together with the SFX Acquisition,
the "SFX Transactions"). See "Business -- Federal Regulation of Radio
Broadcasting -- Federal Antitrust Laws." Upon completion of the SFX
Transactions, the Company will own and operate or program 299 radio stations (22
stations of which will be programmed by the Company) in 75 mid-sized markets
located throughout the United States.

<TABLE>
<CAPTION>
STATIONS TO BE
ACQUIRED/DISPOSED OF
--------------------
TRANSACTION(1) FM AM REGION
-------------- ----- ----- ---------
<S> <C> <C> <C>
Acquisitions
Austin................................................ 2 1 Southwest
Jacksonville.......................................... 2 -- Southeast
Nashville(2).......................................... 2 1 Southeast
-- --
Total....................................... 6 2
== ==
Dispositions
Greenville............................................ 3 1 Southeast
Upper Fairfield(3).................................... 2 2 Northeast
Daytona Beach-WGNE.................................... 1 -- Southeast
Houston-KODA.......................................... 1 -- Southwest
Long Island........................................... 3 1 Northeast
Houston-KKPN.......................................... 1 -- Southwest
-- --
Total....................................... 11 4
== ==
</TABLE>

- ---------------

(1) See explanatory notes to this table on page 84 of this Prospectus; see also
"Glossary of Certain Terms."

(2) The Nashville Acquisition closed on May 21, 1998. Due to restrictions on
borrowing under SFX's debt instruments, the Company provided the funds
required to consummate the acquisition from excess cash on hand.

(3) The Company will retain a minority interest in these stations. The stations
to be sold in the Upper Fairfield Disposition will be placed in trust
pending the disposition thereof after the consummation of the SFX
Acquisition. See "The Transactions -- The SFX Transactions -- SFX Related
Transactions" and "Glossary of Certain Terms."

PENDING ACQUISITIONS

In addition to the SFX Transactions, the Company has entered into eight
agreements to acquire 25 additional stations (18 FM and seven AM) in ten
mid-sized markets (including 15 stations in five markets for which the Company
currently provides services pursuant to a LMA) for $36.5 million (the "Pending
Acquisitions"). See "The Transactions -- Pending Acquisitions" for a complete
list of the Pending Acquisitions and see "Glossary of Certain Terms" for defined
terms representing each Pending Acquisition. Consummation of each of the Pending
Acquisitions is subject to numerous conditions, including governmental
approvals. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

THE FINANCING

In connection with the SFX Transactions and other related transactions, the
Company will borrow $150.0 million from Chancellor Media (the "Chancellor Loan")
and $811.8 million (the "Capstar Loan") under the Capstar Credit Facility (as
defined). The net proceeds from the Offering, together with cash on hand,
proceeds from the sale of certain radio stations and the proceeds from the
Chancellor Loan and the Capstar Loan, will be used (i) to finance the SFX
Transactions; (ii) to repay existing indebtedness under the SFX Credit Facility;
(iii) after the consummation of the SFX Transactions, (A) to redeem $154.0
million aggregate principal amount of the 10 3/4% SFX Notes and (B) to redeem
$119.6 million aggregate liquidation preference of the 12 5/8% SFX Preferred
Stock; and (iv) to pay related fees and expenses. The Offering, the cash on
hand, the proceeds from the sale of certain radio stations, the Chancellor Loan
and the Capstar Loan are collectively referred to in this Prospectus as the
"Financing." See "Use of Proceeds," "Certain Relationships and Related
Transactions" and "Description of Indebtedness."

9
<PAGE> 10

THE OFFERING

Class A Common Stock
offered hereby............. 31,000,000 shares(1)

Common Stock to be
outstanding after the
Offering:(2)

Class A Common Stock..... 33,698,675 shares(1)

Class B Common Stock..... 6,081,723 shares

Class C Common Stock..... 67,808,902 shares

Total............ 107,589,300 shares

Voting Rights.............. The Class A Common Stock entitles the holders
thereof to one vote per share; the Class B Common
Stock has no voting rights except as otherwise
required by law; and the Class C Common Stock
entitles the holder thereof to ten votes per share.
The Class A Common Stock and the Class C Common
Stock vote together as a single class on all
matters submitted to a vote of stockholders, except
as otherwise required by law and except that the
holders of Class A Common Stock, voting as a
separate class, are entitled to elect two members
of the Company's Board of Directors.
Notwithstanding the foregoing, upon the earlier to
occur of (i) the date on which Hicks Muse and its
affiliates cease to own beneficially more than 50%
of the number of shares of Class C Common Stock
owned by them upon completion of the Offering and
(ii) the third anniversary date of the completion
of the Offering, the holders of Class A Common
Stock and Class C Common Stock shall vote together
as a single class upon the election of all
directors (with the Class C Common Stock continuing
to vote on a ten-to-one basis with the Class A
Common Stock). Upon completion of the Offering, (i)
the holders of the Class A Common Stock offered
hereby will hold approximately 92.0% of the
outstanding Class A Common Stock, representing
approximately 4.3% of the total voting power of the
outstanding Common Stock, (ii) the holders of the
Class C Common Stock will have approximately 95.3%
of the total voting power of the outstanding Common
Stock and (iii) the holders of shares of Class A
Common Stock acquired prior to the Offering will
have approximately 0.4% of the total voting power
of the outstanding Common Stock. Thomas O. Hicks,
the Company's Chairman of the Board, R. Steven
Hicks, the Company's President and Chief Executive
Officer, and affiliates of Hicks Muse will
beneficially own all of the outstanding Class C
Common Stock. See "Risk Factors -- Control of the
Company" and "Description of Capital Stock." Also
see "Security Ownership of Certain Beneficial
Owners" and "Certain Relationships and Related
Transactions" as to the voting and other interests
of certain beneficial owners of the Company's
capital stock.

Other Rights............... Each class of Common Stock has the same rights to
dividends and upon liquidation. Subject to any
necessary FCC approval, shares of Class B Common
Stock and Class C Common Stock are convertible in
whole or in part at any time into shares of Class A
Common Stock on a share-for-share basis. Upon the
sale or transfer of shares of Class B Common Stock
or Class C Common Stock to any person or entity
other than Hicks Muse or its affiliates, such
shares shall automatically convert into shares of
Class A Common Stock on a share-for-share basis,
subject to

10
<PAGE> 11

certain conditions in the case of Class B Common
Stock. See "Description of Capital Stock."

Dividend Policy............ The Company intends to retain future earnings for
use in the Company's business and does not
anticipate declaring or paying any cash or stock
dividends on shares of its Common Stock in the
foreseeable future.

Symbol..................... "CRB"
- ---------------

(1) Does not include 4,650,000 shares of Class A Common Stock issuable pursuant
to the U.S. Underwriters' and Managers' over-allotment option.

(2) Excludes 2,362,600 shares of Class A Common Stock and 2,196,406 shares of
Class C Common Stock issuable upon exercise of the outstanding Warrants (as
defined) and stock options of the Company at a weighted average exercise
price of $14.33 per share. See "Certain Relationships and Related
Transactions -- Warrants" and "Management -- Benefit Plans -- Stock Option
Plan."

RISK FACTORS

Prospective purchasers of Class A Common Stock should consider carefully
all of the information set forth in this Prospectus and, in particular, should
evaluate the specific factors set forth under the caption "Risk Factors"
beginning on page 15 of this Prospectus.

11
<PAGE> 12

SUMMARY HISTORICAL FINANCIAL DATA

The following table presents summary historical financial data of the
Company for the periods indicated. The following financial information should be
read in conjunction with the Consolidated Financial Statements of the Company
and the related notes included elsewhere in this Prospectus.

In July 1997, the Company and GulfStar merged in a transaction between
entities under common control accounted for in a manner similar to a pooling of
interests. The table below presents only the financial data of GulfStar from
January 1, 1993 through October 16, 1996, the date the Company commenced
operations. Subsequent to October 16, 1996, the historical financial data of the
Company and GulfStar have been combined.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
------ ---------- -------- -------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenue...................... $4,002 $ 9,834 $ 15,797 $ 42,866 $ 175,445 $ 25,102 $ 64,075
Station operating expenses....... 2,818 6,662 11,737 30,481 122,135 18,304 47,760
Depreciation and amortization.... 307 712 1,134 4,141 26,415 3,725 11,032
Corporate expenses............... 158 339 513 2,523 14,221 1,942 3,757
LMA fees......................... 23 330 341 834 2,519 683 1,871
Non-cash compensation
expense(1)..................... -- -- -- 6,176 10,575 2,469 15,793
Operating income (loss).......... 696 1,791 2,072 (1,289) (420) (2,021) (16,138)
Interest expense................. 315 635 3,737 8,907 47,012 7,955 15,897
Net income (loss)................ 319 645 1,570 (11,957) (45,740) (8,203) (29,805)
Net income (loss) attributable to
common stock................... 319 645 1,562 (13,307) (52,811) (8,997) (29,805)
Basic and diluted loss per common
share(2)....................... $ -- $ 0.11 $ 0.25 $ (1.50) $ (2.07) $ (0.47) $ (0.65)
Weighted average common shares
outstanding(2)................. -- 5,940,000 6,286,248 8,880,488 25,455,211 19,288,014 46,130,912
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents............................................................................... $ 216,374
Intangible and other assets, net........................................................................ 1,202,002
Total assets............................................................................................ 1,612,601
Long-term debt, including current portion............................................................... 459,725
Redeemable preferred stock.............................................................................. 104,545
Total stockholders' equity.............................................................................. 775,782
OTHER DATA:
Broadcast cash flow(3)........... $1,184 $ 3,172 $ 4,060 $ 12,385 $ 53,310 $ 6,798 $ 16,315
Broadcast cash flow margin....... 29.6% 32.3% 25.7% 28.9% 30.4% 27.1% 25.5%
EBITDA (before non-cash
compensation expense and LMA
fees)(4)....................... $1,026 $ 2,833 $ 3,547 $ 9,862 $ 39,089 $ 4,856 $ 12,558
Cash flows related to:
Operating activities........... 411 1,833 1,259 (2,339) 6,699 507 (1,029)
Investing activities........... (324) (11,531) (19,648) (155,579) (487,002) (147,677) (267,709)
Financing activities........... 180 10,325 17,696 167,519 540,541 156,352 415,053
Capital expenditures............. 300 1,192 495 2,478 10,020 1,679 4,162
</TABLE>

- ---------------

(1) Consists of non-cash compensation charges resulting from the grant of
warrants and stock subscriptions.

(2) Reflects the effect of the one for ten reverse stock split.

(3) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses, LMA fees and non-cash compensation
expense. Although broadcast cash flow is not a measure of performance
calculated in accordance with generally accepted accounting principles
("GAAP"), management believes that it is useful to an investor in evaluating
the Company because it is a measure widely used in the broadcast industry to
evaluate a radio company's operating performance. Nevertheless, it should
not be considered in isolation or as a substitute for operating income, cash
flows from operating activities or any other measure for determining the
Company's operating performance or liquidity that is calculated in
accordance with GAAP. As broadcast cash flow is not a measure calculated in
accordance with GAAP, this measure may not be comparable to similarly titled
measures employed by other companies. See "Glossary of Certain Terms."

(4) EBITDA (before non-cash compensation expense and LMA fees) consists of
operating income before depreciation, amortization, LMA fees and non-cash
compensation expense. Although EBITDA (before non-cash compensation expense
and LMA fees) is not a measure of performance calculated in accordance with
GAAP, management believes that it is useful to an investor in evaluating the
Company because it is a measure widely used in the broadcast industry to
evaluate a radio company's operating performance. Nevertheless, it should
not be considered in isolation or as a substitute for operating income, cash
flows from operating activities or any other measure for determining the
Company's operating performance or liquidity that is calculated in
accordance with GAAP. As EBITDA (before non-cash compensation expense and
LMA fees) is not a measure calculated in accordance with GAAP, this measure
may not be comparable to similarly titled measures employed by other
companies. See "Glossary of Certain Terms."

12
<PAGE> 13

SUMMARY PRO FORMA FINANCIAL DATA

The following tables present summary pro forma financial data of the
Company for the year ended December 31, 1997 and the three months ended March
31, 1997 and 1998 and as of March 31, 1998. The pro forma summary reflects
adjustments to the summary historical financial data of the Company to
illustrate the effects of the following as if each had occurred on January 1,
1997: (i) the Completed Transactions and the Other Equity Transactions (as
defined), (ii) the SFX Transactions and (iii) the Financing and the application
of the net proceeds therefrom. The summary pro forma financial data are not
necessarily indicative of either future results of operations or the results
that would have occurred if those transactions had been consummated on the
indicated dates. The following financial information should be read in
conjunction with the Consolidated Financial Statements, the Unaudited Pro Forma
Financial Information and, in each case, the related notes included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------
PRO FORMA
FOR THE PRO FORMA
COMPLETED FOR THE
TRANSACTIONS SFX
AND THE TRANSACTIONS
THE OTHER EQUITY AND THE
COMPANY TRANSACTIONS(1) FINANCING
------------ ---------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Net revenue............................................... $ 175,445 $ 294,924 $ 569,994
Station operating expenses................................ 122,135 211,459 354,076
Depreciation and amortization............................. 26,415 47,933 125,044
Corporate expenses........................................ 14,221 22,660 29,497
LMA fees.................................................. 2,519 -- --
Non-cash compensation expense............................. 10,575 10,575 11,199
Other operating expenses.................................. -- -- 16,353
Operating income (loss)................................... (420) 2,297 33,825
Interest expense.......................................... 47,012 42,980 178,097
Net loss from continuing operations applicable to common
stock................................................... (50,408) (36,242) (109,357)
Basic and diluted loss from continuing operations per
common share(2)......................................... $ (1.98) $ (1.41)
Weighted average common shares outstanding(2)............. 25,455,211 77,661,870
OTHER DATA:
Broadcast cash flow(3)(4)................................. $ 53,310 $ 83,465 $ 215,918(4)
Broadcast cash flow margin................................ 30.4% 28.3% 37.9%
EBITDA (before non-cash compensation expense and LMA
fees)(4)(5)............................................. $ 39,089 $ 60,805 $ 170,068(4)
Cash flows related to:
Operating activities.................................... 6,699 48,752 67,312
Investing activities.................................... (487,002) (12,000) (24,000)
Financing activities.................................... 540,541 (36,752) (43,312)
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------
PRO FORMA
FOR THE PRO FORMA
COMPLETED FOR THE
TRANSACTIONS SFX
AND THE TRANSACTIONS
THE OTHER EQUITY AND THE
COMPANY TRANSACTIONS(1) FINANCING
------------ ---------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Net revenue............................................... $ 25,102 $ 60,532 $ 118,353
Station operating expenses................................ 18,304 48,428 80,421
Depreciation and amortization............................. 3,725 11,970 31,248
Corporate expenses........................................ 1,942 3,889 4,924
LMA fees.................................................. 683 -- --
Non-cash compensation expense............................. 2,469 2,469 2,625
Other operating expenses.................................. -- -- --
Operating income (loss)................................... (2,021) (6,224) (865)
Interest expense.......................................... 7,955 10,746 44,526
Net loss from continuing operations applicable to common
stock................................................... (8,399) (7,562) (23,570)
Basic and diluted loss from continuing operations per
common share(2)......................................... $ (0.44) $ (0.30)
Weighted average common shares outstanding(2)............. 19,288,014 77,661,870
OTHER DATA:
Broadcast cash flow(3)(4)................................. $ 6,798 $ 12,104 $ 37,932(4)
Broadcast cash flow margin................................ 27.1% 20.0% 32.1%
EBITDA (before non-cash compensation expense and LMA
fees)(4)(5)............................................. $ 4,856 $ 8,215 $ 33,008(4)
Cash flows related to:
Operating activities.................................... 507 25,373 27,747
Investing activities.................................... (147,677) (3,000) (6,000)
Financing activities.................................... 156,352 (22,373) (21,747)
</TABLE>

13
<PAGE> 14

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------
PRO FORMA
FOR THE PRO FORMA
COMPLETED FOR THE
TRANSACTIONS SFX
AND THE TRANSACTIONS
THE OTHER EQUITY AND THE
COMPANY TRANSACTIONS(1) FINANCING
------------ ---------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Net revenue............................................... $ 64,075 $ 67,776 $ 126,475
Station operating expenses................................ 47,760 50,367 80,627
Depreciation and amortization............................. 11,032 11,970 31,248
Corporate expenses........................................ 3,757 3,883 5,452
LMA fees.................................................. 1,871 -- --
Non-cash compensation expense............................. 15,793 15,793 15,931
Other operating expenses.................................. -- -- 5,235
Operating income (loss)................................... (16,138) (14,237) (12,018)
Interest expense.......................................... 15,897 10,746 44,526
Net loss from continuing operations applicable to common
stock................................................... (29,805) (28,556) (61,675)
Basic and diluted loss from continuing operations per
common share(2)......................................... $ (0.65) $ (0.79)
Weighted average common shares outstanding(2)............. 46,130,912 77,661,870
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................. $ 216,374 $ 182,476 $ 5,000
Intangible and other assets, net.......................... 1,202,002 1,227,409 3,788,010
Total assets.............................................. 1,612,601 1,609,275 4,274,314
Long-term debt, including current portion................. 459,725 378,761 1,669,945
Redeemable preferred stock................................ 104,545 104,545 230,014
Total stockholders' equity................................ 775,782 858,267 1,410,803
OTHER DATA:
Broadcast cash flow(3)(4)................................. $ 16,315 $ 17,409 $ 45,848(4)
Broadcast cash flow margin................................ 25.5% 25.7% 36.3%
EBITDA (before non-cash compensation expense and LMA
fees)(4)(5)............................................. $ 12,558 $ 13,526 $ 35,161(4)
Cash flows related to:
Operating activities.................................... (1,029) 20,755 14,131
Investing activities.................................... (267,709) (3,000) (6,000)
Financing activities.................................... 415,053 (17,755) (8,131)
</TABLE>

- ---------------

(1) Gives effect to (i) the Completed Transactions and (ii) (A) the equity
investment by Hicks Muse, (B) the equity investment by Capstar BT Partners,
L.P., (C) the stock subscription receivable due from Gerry House and (D) the
completed tender offer for the 13 1/4% Capstar Notes (as defined) (the
"Other Equity Transactions"). See "Certain Relationships and Related
Transactions" and "Description of Indebtedness."

(2) Reflects the effect of the one for ten reverse stock split.

(3) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses, LMA fees and non-cash compensation
expense. Although broadcast cash flow is not a measure of performance
calculated in accordance with GAAP, management believes that it is useful to
an investor in evaluating the Company because it is a measure widely used in
the broadcast industry to evaluate a radio company's operating performance.
Nevertheless, it should not be considered in isolation or as a substitute
for operating income, cash flows from operating activities or any other
measure for determining the Company's operating performance or liquidity
that is calculated in accordance with GAAP. As broadcast cash flow is not a
measure calculated in accordance with GAAP, this measure may not be
comparable to similarly titled measures employed by other companies. See
"Glossary of Certain Terms."

(4) The pro forma financial results exclude the effects of estimated cost
savings resulting from (i) the Completed Transactions and (ii) the SFX
Transactions. The Company expects to realize approximately $12.3 million of
cost savings resulting from the elimination of redundant operating expenses
arising from such transactions, including elimination of certain management
positions, the consolidation of facilities and new rates associated with
revised vendor contracts and savings related to automation of certain
station operations. Also, the Company expects to realize approximately $35.6
million of cost savings, resulting from the elimination of certain corporate
overhead functions, net of increased costs associated with the
implementation of the Company's corporate management structure. Corporate
cost savings reflect the expected level of annual corporate expenditures
arising from such transactions. There can be no assurances that any
operating or corporate cost savings will be achieved.

(5) EBITDA (before non-cash compensation expense and LMA fees) consists of
operating income before depreciation, amortization, LMA fees and non-cash
compensation expense. Although EBITDA (before non-cash compensation expense
and LMA fees) is not a measure of performance calculated in accordance with
GAAP, management believes that it is useful to an investor in evaluating the
Company because it is a measure widely used in the broadcast industry to
evaluate a radio company's operating performance. Nevertheless, it should
not be considered in isolation or as a substitute for operating income, cash
flows from operating activities or any other measure for determining the
Company's operating performance or liquidity that is calculated in
accordance with GAAP. As EBITDA (before non-cash compensation expense and
LMA fees) is not a measure calculated in accordance with GAAP, this measure
may not be comparable to similarly titled measures employed by other
companies. See "Glossary of Certain Terms."

14
<PAGE> 15

RISK FACTORS

This Prospectus contains forward-looking statements. The words
"anticipate," "believe," "expect," "plan," "intend," "estimate," "project,"
"foresee," "will," "could," "may" and similar expressions are intended to
identify forward-looking statements. Such statements reflect the Company's
current views with respect to future events and financial performance and
involve risks and uncertainties, including without limitation the risks
described in "Risk Factors." Should one or more of these risks or uncertainties
occur, or should underlying assumptions prove incorrect, actual results may vary
materially from those indicated. Investors should carefully consider the
following risk factors, in addition to the other information contained in this
Prospectus, before purchasing the shares of Class A Common Stock offered hereby.

LIMITED OPERATING HISTORY; HISTORY OF NET LOSSES; MANAGEMENT OF GROWTH

The Company was organized in October 1996 and, consequently, has a limited
operating history upon which investors may base their evaluation of the
Company's performance. The Company had net losses attributable to common stock
of $13.3 million and $52.8 million for the years ended December 31, 1996 and
1997, respectively, and $29.8 million for the three months ended March 31, 1998.
There can be no assurance that the Company will become profitable. On a pro
forma basis after giving effect to the Completed Transactions and the SFX
Transactions, and their related financing (including the Financing), and the
application of the net proceeds therefrom, as if each had occurred on January 1,
1997, the Company would have had a net loss from continuing operations
attributable to common stock of $61.7 million for the three months ended March
31, 1998.

The Company incurred or assumed, and will incur or assume, substantial
indebtedness to finance the Completed Transactions, the SFX Transactions and the
Pending Acquisitions for which it has, and will continue to have, significant
debt service requirements. In addition, the Company has, and will continue to
have, significant charges for depreciation and amortization expense related to
the fixed assets and intangibles acquired, or to be acquired, in its
acquisitions. Consequently, the Company expects that, for the foreseeable future
as it pursues its acquisition strategy, it will report net losses substantially
in excess of those experienced historically, which will result in decreases in
stockholders' equity. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."

The Company has grown and expects to continue to grow rapidly through
acquisitions, which places significant demands on its administrative,
operational, and financial resources. The Company's future performance and
profitability will depend in part on its ability to make additional radio
station acquisitions in mid-sized markets, to integrate successfully the
operations and systems of acquired radio stations and radio groups, to hire
additional personnel, and to implement necessary enhancements to its management
systems to respond to changes in its business. The inability of the Company to
do any of the foregoing could have a material adverse effect on the Company. See
"Business" and "The Transactions." In addition, although the Company expects to
increase advertising revenues by, among other things, offering advertisers broad
demographic coverage from multiple station ownership and to realize certain cost
savings and other operating efficiencies from multiple station ownership that
result from, among other things, programming coordination, centralized training
and advertising inventory management systems and consolidation of facilities,
management, sales and administrative personnel and operating resources, no
assurances can be given that revenues will increase or cost savings or other
operating efficiencies will be realized or that increased revenues or cost
savings or other operating efficiencies will be realized to an extent sufficient
to achieve profitability.

RISKS OF ACQUISITION STRATEGY

The Company pursues growth through the acquisition of radio broadcasting
companies, radio station groups and individual radio stations primarily in
mid-sized markets. The Company cannot predict whether it will be successful in
pursuing acquisition opportunities or what the consequences will be of any
acquisitions. Consummation of future acquisitions (including the Pending
Acquisitions) is subject to various conditions, including FCC and other
regulatory approval. No assurances can be given that any future acquisitions
(including the Pending Acquisitions) will be consummated or that, if completed,
they will be successful. The Company's acquisition strategy involves numerous
risks, including increasing debt service requirements,
15
<PAGE> 16

difficulties in the integration of operations and systems and the management of
a large and geographically diverse group of stations, the diversion of
management's attention from other business concerns and the potential loss of
key employees of acquired stations. There can be no assurance that the Company's
management will be able to manage effectively the resulting business or that
such acquisitions will benefit the Company. Depending on the nature, size and
timing of future acquisitions, the Company may be required to raise additional
financing necessary to consummate future acquisitions (including the Pending
Acquisitions). There can be no assurance that such financing will be permitted
under the agreements that govern the outstanding indebtedness of the Company, or
any other loan agreements or indebtedness to which the Company may become a
party. Moreover, there can be no assurance that such additional financing will
be available to the Company on terms acceptable to its management. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources" and "Description of Indebtedness."

Chancellor Media has agreed pursuant to the Chancellor Exchange Agreement
to provide services for ten SFX stations in large markets under separate local
marketing agreements ("LMA") with the Company for approximately $49.4 million
per year upon the consummation of the SFX Transactions. In addition, Chancellor
Media has agreed to acquire such stations in exchange for radio stations to be
identified by the Company over a three-year period, with corresponding decreases
in the amount of the LMA fees received by the Company as stations are exchanged.
No assurances can be given that stations acquired by the Company in exchange for
these ten SFX stations will generate cash flows comparable to the LMA fees to be
received from Chancellor Media in connection therewith, either initially when
such stations are acquired or at all. See "Certain Relationships and Related
Transactions -- Chancellor Exchange Agreement."

CONTROL OF THE COMPANY

Upon completion of the Offering, the purchasers of the Class A Common Stock
offered hereby will own approximately 92.0% of the outstanding Class A Common
Stock, representing approximately 4.3% of the total voting power of the
outstanding Common Stock. Thomas O. Hicks, R. Steven Hicks and affiliates of
Hicks Muse beneficially own all of the outstanding Class C Common Stock,
representing approximately 95.3% of the total voting power of the outstanding
Common Stock. Thomas O. Hicks is the controlling stockholder of Hicks Muse and
serves as its Chairman of the Board. Accordingly, immediately after the
consummation of the Offering, Thomas O. Hicks, through his control of Hicks Muse
and its affiliates, his personal holdings of Common Stock and his control of the
voting of R. Steven Hicks' holdings of Common Stock pursuant to the Affiliate
Stockholders Agreement (as defined), will be able to control the vote on all
matters submitted to the vote of stockholders, and, therefore, will be able to
direct the management and policies of the Company, except with respect to those
matters requiring a class vote by applicable law (including an amendment to the
Company's Certificate of Incorporation if such amendment would increase or
decrease the aggregate number of authorized shares of a specific class, increase
or decrease the par value of the shares of a specific class, or alter or change
the powers, preferences or special rights of a specific class so as to adversely
affect the holders thereof) and except that the holders of Class A Common Stock,
voting as a separate class, will be entitled for a limited time to elect two
members of the Company's Board of Directors at each annual meeting of the
stockholders. In addition, without the approval of Thomas O. Hicks, the Company
will be unable to consummate transactions involving an actual or potential
change of control of the Company, including transactions in which the holders of
Class A Common Stock might otherwise receive a premium for their shares over
then current market prices. Furthermore, only the vote of Thomas O. Hicks will
be required to effect a change of control in which the stockholders of the
Company would receive cash or capital stock of another company in exchange for
their shares, including a change of control in which an affiliate of Hicks Muse
is the acquiror. See "-- Potential Conflicts of Interest," "Security Ownership
of Certain Beneficial Owners," "Certain Relationships and Related
Transactions -- Stockholders Agreements" and "Description of Capital Stock."

16
<PAGE> 17

POSSIBLE COMBINATION WITH CHANCELLOR MEDIA

POTENTIAL CONFLICTS OF INTEREST

Hicks Muse is in the business of making significant investments in existing
or newly formed companies and may from time to time acquire and hold controlling
or noncontrolling interests in radio broadcasting assets (such as its investment
in Chancellor Media) other than through the Company, or in other broadcasting
businesses (such as its recent investment in LIN Television Corporation ("LIN")
and STC Broadcasting Corporation) that may directly or indirectly compete with
the Company for, among other things, advertising revenues and radio stations or
other broadcast related businesses. The interests of Hicks Muse (and Thomas O.
Hicks) may conflict with those of other stockholders of the Company. Hicks Muse
and its affiliates (including Chancellor Media) may from time to time identify,
pursue and consummate acquisitions of radio stations or other broadcast related
businesses that may be complementary to the business of the Company and,
therefore, such acquisition opportunities may not be available to the Company.
In addition, affiliates of Hicks Muse may from time to time identify and
structure acquisitions for the Company and will receive fees in connection with
such transactions. Certain affiliates of Hicks Muse have entered, and in the
future may enter, into business relationships with the Company. See "Certain
Relationships and Related Transactions."

As a result of the current or future ownership of radio and television
broadcast stations by entities in which Hicks Muse has significant equity
interests (other than through the Company), regulatory and other restrictions
may restrict or prohibit the Company from buying the stations in which those
other stations operate or intend to operate. See "Business -- Federal Regulation
of Radio Broadcasting." In addition, Hicks Muse (and Thomas O. Hicks) has
required, and in the future may require, the Company to divest itself of one or
more radio stations in a market to permit the ownership of radio and television
broadcast stations in such market by other entities in which Hicks Muse has
significant equity interests.

SUBSTANTIAL LEVERAGE

The Company has, and after giving effect to the SFX Transactions and the
Financing and the application of the net proceeds therefrom will continue to
have, consolidated indebtedness that is substantial in relation to its
stockholders' equity. As of March 31, 1998, after giving effect to the Completed
Transactions, the Other Equity Transactions, the SFX Transactions and the
financing, and the application of the net proceeds therefrom, as if each had
occurred on January 1, 1997, the Company would have had outstanding, on a
consolidated basis, long-term indebtedness (including current portions) of $1.7
billion and stockholders' equity of approximately $1.4 billion. See
"Capitalization," "Unaudited Pro Forma Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Indentures (as defined), the
Certificate of Designation (the "Capstar Partners Certificate of Designation")
that governs the outstanding shares of 12% Senior Exchangeable Preferred Stock,
par value $.01 per share (the "12% Capstar Partners Preferred Stock"), of
Capstar Partners, the Certificate of Designation (the "SFX Certificate of
Designation" and, together with the Capstar Partners Certificate of Designation,
the "Certificates of Designation") that governs SFX's 12 5/8% Series E
Cumulative Exchangeable Preferred Stock (the "12 5/8% SFX Preferred Stock"), the
credit facility that the Company will enter into in connection with the SFX
Acquisition to replace its existing credit agreement (the "Capstar Credit
Facility"), and the Chancellor Note (as defined) limit, or will limit, the
incurrence of additional indebtedness by the Company, in each case subject to
certain exceptions. See "Description of Indebtedness."

17
<PAGE> 18

The level of the Company's indebtedness could have several important
consequences to the holders of Class A Common Stock, including, but not limited
to, the following: (i) a substantial portion of the Company's cash flow from
operations will be dedicated to debt service and will not be available for other
purposes; (ii) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions and general corporate or other
purposes may be impaired in the future; (iii) borrowings under the Capstar
Credit Facility will be, and future indebtedness of the Company may be, subject
to variable rates of interest, which expose the Company to the risk of increased
interest rates; (iv) the Company's leveraged position and the covenants
contained, or to be contained, in the Indentures, the Certificates of
Designation, the Capstar Credit Facility, and the Chancellor Note could limit
the Company's ability to compete, expand and make capital improvements; (v) the
Company's level of indebtedness could make it more vulnerable to economic
downturns, limit its ability to withstand competitive pressures and reduce its
flexibility in responding to changing business and economic conditions; and (vi)
certain restrictive covenants contained, or to be contained, in the Indentures,
the Certificates of Designation, the Capstar Credit Facility, and the Chancellor
Note could limit the ability of the Company to pay dividends and make other
distributions to its stockholders. See "Capitalization" and "Description of
Indebtedness."

The Company's ability to satisfy its debt service and other obligations
will depend upon its future financial and operating performance, which, in turn,
are subject to prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control. If the Company's cash flow and
capital resources are insufficient to fund its debt service and other
obligations, the Company may be forced to reduce or delay planned expansion and
capital expenditures, sell assets, obtain additional equity capital or
restructure its debt. There can be no assurance as to the timing of such sales
or the proceeds that the Company could realize therefrom or that such sales or
other capital raising activities or debt restructuring can be effected on terms
satisfactory to the Company or at all. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition -- Liquidity and Capital
Resources," "Description of Capital Stock" and "Description of Indebtedness."

RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS

The Indentures, the Certificates of Designation, the Capstar Credit
Facility and the Chancellor Note contain, or will contain, certain covenants
that restrict, among other things, the ability of the Company and its
subsidiaries to incur additional indebtedness, issue preferred stock, incur
liens, pay dividends or make certain other restricted payments, consummate
certain asset sales, enter into certain transactions with affiliates, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company and
its subsidiaries. The Company is a holding company with no significant assets
other than the capital stock of its direct and indirect subsidiaries.
Consequently, the Company's sole source of cash from which to make dividend or
other payments will be dividends distributed or other payments made to it by its
operating subsidiaries. See "Dividend Policy." The Capstar Credit Facility will
also require the Company and its subsidiaries to maintain specified financial
ratios and to satisfy certain financial condition tests. The ability of the
Company and its subsidiaries to meet those financial ratios and financial
condition tests can be affected by events beyond their control, and there can be
no assurance that the Company and its subsidiaries will meet those tests. A
breach of any of these covenants could result in a default under the Indentures
and/or the Capstar Credit Facility. Upon an event of default under the
Indentures or the Capstar Credit Facility, the lenders thereunder could elect to
declare all amounts outstanding thereunder, together with accrued interest, to
be immediately due and payable. In the case of the Capstar Credit Facility, if
the Company were unable to repay those amounts, the lenders thereunder could
proceed against the collateral granted to them to secure that indebtedness. The
Company will secure the Capstar Credit Facility by granting a first priority
perfected pledge of Capstar Radio's assets, including, without limitation, the
capital stock of its subsidiaries, except for SFX and its direct and indirect
subsidiaries. The Company, Capstar Partners and all of the direct and indirect
subsidiaries of the Company (other than Capstar Radio and SFX and its direct and
indirect subsidiaries) will guarantee the Capstar Credit Facility and will
secure their guarantees by granting a first priority perfected pledge of
substantially all of their assets, including Capstar Partners' pledge of the
capital stock of Capstar Radio. Capstar Radio will also pledge a note evidencing
an intercompany loan to SFX as security for the Capstar Credit Facility and
collaterally assign any security

18
<PAGE> 19

pledged or granted to Capstar Radio in connection with such intercompany loan as
security for the Capstar Credit Facility. In addition, the Capstar Credit
Facility will be secured in part by a second lien on the common stock of Capstar
Partners, which is subordinate to Chancellor Media's lien thereon. In the case
of an event of default under the Chancellor Note, Chancellor Media could proceed
against the common stock of Capstar Partners, which will be pledged by the
Company as collateral for the Chancellor Note. The Company conducts all of its
operations through Capstar Partners. Any such event of default, therefore, could
have a material adverse effect on the Company. See "Description of
Indebtedness."

SFX TAX LIABILITY

SFX estimates that it has incurred a tax liability of approximately $84.0
million from SFX's distribution on April 27, 1998 of all of the capital stock
owned by SFX in SFX Entertainment, Inc. ("SFX Entertainment") to certain of
SFX's stockholders and other security holders (the "Spin-Off"). SFX
Entertainment has agreed to fully indemnify SFX from and against such tax
liability (including any tax liability of SFX arising from such indemnification
payments), which full indemnity payments are estimated to be approximately
$120.0 million. SFX's estimate of the amount of the indemnity payment are based
on certain assumptions which SFX believes are reasonable. The actual amount of
the tax liability and SFX Entertainment's indemnity obligation could vary
significantly. The Company expects that any such indemnity payments will be due
beginning on or about July 1, 1998. It is the Company's understanding that SFX
Entertainment intends to pay such indemnification amounts with the proceeds from
a public offering of SFX Entertainment's capital stock. No assurances can be
given that SFX Entertainment's public offering will be successful or, if
successful, that such payments will be made timely. See "Management's Discussion
and Analysis -- Liquidity and Capital Resources" and "The Transactions -- The
SFX Transactions -- SFX Acquisition."

COMPETITION; BUSINESS RISKS

Radio broadcasting is a highly competitive business. The Company's radio
stations, now owned or to be acquired upon completion of the SFX Transactions
and the Pending Acquisitions, compete for audiences and advertising revenues
within their respective markets directly with other radio stations, as well as
with other media, such as newspapers, magazines, cable television, outdoor
advertising and direct mail. Audience ratings and market shares are subject to
change and any adverse change in a particular market could have a material
adverse effect on the revenue of stations located in that market. While the
Company already competes with other stations with comparable programming formats
in many of its markets, if another radio station in the market were to convert
its programming format to a format similar to one of the Company's stations, if
a new station were to adopt a competitive format, or if an existing competitor
were to strengthen its operations, the Company's stations could suffer a
reduction in ratings and/or advertising revenue and could require increased
promotional and other expenses. The Telecom Act facilitates the entry of other
radio broadcasting companies into the markets in which the Company operates or
may operate in the future. Some of such companies may be larger and have more
financial resources than the Company. Future operations are further subject to
many variables which could have a material adverse effect on the Company. These
variables include economic conditions, both generally and relative to the radio
broadcasting industry; shifts in population and other demographics; the level of
competition for advertising dollars with other radio stations, television
stations, and other entertainment and communications media; fluctuations in
operating costs; technological changes and innovations; changes in labor
conditions; and changes in governmental regulations and policies and actions of
federal regulatory bodies, including the United States Department of Justice
("DOJ"), the Federal Trade Commission (the "FTC"), and the FCC. Although the
Company believes that substantially all of its radio stations, now owned or to
be acquired upon completion of the SFX Transactions and the Pending
Acquisitions, are positioned to compete effectively in their respective markets,
there can be no assurance that any such station will be able to maintain or
increase its current audience ratings and advertising revenues.

Radio broadcasting is also subject to competition from new media
technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems and the introduction of digital
audio broadcasting ("DAB"). DAB may deliver by satellite to nationwide and
regional audiences multi-channel, multi-format digital radio services with sound
quality equivalent to compact discs. The

19
<PAGE> 20

Company cannot predict the effect, if any, that any such new technologies may
have on the radio broadcasting industry or the Company. See
"Business -- Competition; Changes in Broadcasting Industry."

GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY

The radio broadcasting industry is subject to extensive federal regulation
by the FCC under the Communications Act of 1934, as amended (the "Communications
Act"), that, among other things, requires approval by the FCC for the issuance,
renewal, transfer of control and assignment of broadcasting station operating
licenses and limits the number of broadcasting properties that the Company may
acquire in any market. In addition, the Communications Act and FCC rules impose
limitations on alien ownership and voting of the capital stock of, and
participation in the affairs of, the Company. The Company's business is
dependent upon maintaining its broadcasting licenses issued by the FCC, which
are ordinarily issued for a maximum term of eight years. Although it is rare for
the FCC to deny a license renewal application, there can be no assurance that
the future renewal applications of the Company will be approved or that such
renewals will not include conditions or qualifications that could adversely
affect the Company. The non-renewal, or renewal with substantial conditions or
modifications, of one or more of the Company's licenses could have a material
adverse effect on the Company. Moreover, governmental regulations and policies
may change over time and there can be no assurance that such changes would not
have a material adverse impact upon the Company.

As a result of the passage of the Telecom Act, radio broadcasting companies
were permitted to increase their ownership of stations within a single market
from a maximum of four to a maximum of between five and eight stations,
depending on market size. The Telecom Act creates significant new opportunities
for broadcasting companies but also creates uncertainties as to how the FCC and
the courts will enforce and interpret the Telecom Act. Compliance with the FCC's
multiple ownership rules is expected to cause the Company and other radio
broadcasters to forego acquisition opportunities that they might otherwise wish
to pursue. Compliance with these rules by third parties may also have a
significant impact on the Company as, for example, in precluding the
consummation of swap transactions that would cause such third parties to violate
multiple ownership limitations. The consummation of radio broadcasting
acquisitions requires prior approval of the FCC with respect to the transfer of
control or assignment of the broadcast licenses of the acquired stations. None
of the Pending Acquisitions has received FCC approval. There can be no assurance
that the FCC will approve future acquisitions or dispositions by the Company
(including the Pending Acquisitions) or will not impose conditions or
qualifications in connection with such acquisitions or dispositions by the
Company (including the Pending Acquisitions). As a result of the recent
consolidation of ownership in the radio broadcast industry, the DOJ has been
giving closer scrutiny to acquisitions in the industry, including certain
transactions involving the Company. The DOJ has stated publicly that it has
established certain revenue and audience share concentration benchmarks with
respect to radio station acquisitions, above which a transaction may receive
additional antitrust scrutiny. However, to date, the DOJ has also investigated
transactions that do not meet or exceed these benchmarks and has cleared
transactions that do exceed the benchmarks. Although the Company does not
believe that its acquisition strategy as a whole will be adversely affected in
any material respect by antitrust review (including under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act")) or by additional
divestitures that the Company may have to make as a result of antitrust review,
there can be no assurance that this will be the case.

The number of radio stations the Company may acquire in any market is
limited by FCC rules and may vary depending upon whether the interests in other
radio stations or certain other media properties of certain individuals
affiliated with the Company are attributable to those individuals under FCC
rules. The FCC generally applies its ownership limits to "attributable"
interests held by an individual, corporation, partnership or other association.
The interests of the Company's officers, directors, and stockholders who have
the right to vote 5% or more of the Company's voting stock are generally
attributable to the Company. If any such attributable broadcast interests
overlap with the Company's directly-held radio broadcast interests in the
Company's markets, such interests are combined with the Company's interests in
such markets when determining compliance with the multiple ownership
limitations. In addition, under the FCC's "one-to-a-

20
<PAGE> 21

market" rule, a party may not have attributable interests in radio stations and
a television station in the same market unless a waiver is granted by the FCC.
Certain of the Company's officers, directors and 5% or more stockholders have
attributable broadcast interests, which will limit the number of radio stations
that the Company may acquire or own in any market in which such officers or
directors hold or acquire attributable broadcast interests. Moreover, the FCC's
cross-interest policy may prohibit one party from acquiring an attributable
interest in one media outlet and a substantial non-attributable economic
interest in another media outlet in the same market. Under certain circumstances
this policy may preclude FCC approval of a particular acquisition by the
Company. See "Business -- Federal Regulation of Radio Broadcasting" and "The
Transactions."

DEPENDENCE ON KEY PERSONNEL

The Company's business depends upon the continued efforts, abilities and
expertise of its executive officers and other key employees, including the
Company's regional presidents. The Company has employment agreements with
several of the Company's key employees, including R. Steven Hicks and the
Company's regional presidents. The Company believes that the loss of any of
these individuals could have a material adverse effect on the Company. See
"Management."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Upon completion of the Offering, the Company will have outstanding
33,698,675 shares of Class A Common Stock, 6,081,723 shares of Class B Common
Stock, and 67,808,902 shares of Class C Common Stock. Of these shares, the
31,000,000 shares of Class A Common Stock sold in the Offering (35,650,000
shares if the U.S. Underwriters' and Managers' over-allotment option is
exercised in full) will be freely transferable without restriction under the
Securities Act of 1933 (the "Securities Act") by persons other than "affiliates"
of the Company within the meaning of Rule 144 promulgated under the Securities
Act ("Rule 144"). The remaining 2,698,675 shares of Class A Common Stock, all
6,081,723 shares of Class B Common Stock, and all 67,808,902 shares of Class C
Common Stock were issued in reliance on exemptions from the registration
requirements of the Securities Act, and those shares are "restricted" securities
under Rule 144. The number of shares of Common Stock available for sale in the
public market is limited by restrictions under the Securities Act and lock-up
agreements under which all of the holders of such shares have agreed not to sell
or otherwise dispose of their shares for a period of 180 days after the date of
this Prospectus (the "Lock-Up Period") without the prior written consent of
Credit Suisse First Boston Corporation, except for certain limited exceptions.
Because of these restrictions, on the date of this Prospectus, no shares other
than those offered hereby will be eligible for sale. Upon expiration of the
Lock-Up Period, all of the restricted securities will be eligible for sale in
the public market, subject to compliance with the manner-of-sale, volume and
other limitations of Rule 144 and Rule 701 of the Securities Act (other than
120,000 shares of Class A Common Stock which will become eligible for sale in
May 1999, 558,496 shares and 1,905,301 shares of Class B Common Stock which will
become eligible for sale in January and April 1999, respectively, and 7,518,797
shares, 11,278,195 shares, 21,428,571 shares and 3,571,428 shares of Class C
Common Stock which will become eligible for sale in January, February, March and
April 1999, respectively).

Notwithstanding the foregoing, the Company is a party to a stockholders
agreement (the "Affiliate Stockholders Agreement") with certain of its
stockholders, including R. Steven Hicks and certain affiliates of Hicks Muse,
and also to a stockholders agreement (the "GulfStar Stockholders Agreement")
with certain of its other stockholders, including Thomas O. Hicks, each of which
grants those stockholders, who will hold an aggregate of 273,227 shares,
5,119,724 shares and 63,171,989 shares of Class A Common Stock, Class B Common
Stock and Class C Common Stock, respectively, in the case of the Affiliate
Stockholders Agreement, and 1,616,662 shares, 961,999 shares and 4,636,913
shares of Class A Common Stock, Class B Common Stock and Class C Common Stock,
respectively, in the case of the GulfStar Stockholders Agreement, the right to
require the Company, subject to certain limitations, to effect up to three
"demand" registrations under the Securities Act for the sale of such
stockholders' shares of Common Stock. The Company is also a party to another
stockholders agreement (the "Management Stockholders Agreement"

21
<PAGE> 22

and, together with the Affiliate Stockholders Agreement and the GulfStar
Stockholders Agreement, the "Stockholders Agreements") with its other
stockholders pursuant to which 688,787 shares of Class A Common Stock are
subject. The Stockholders Agreements provide that in the event that the Company
proposes to register any shares of its Common Stock under the Securities Act,
whether or not for its own account, at any time or times, the stockholders that
are parties to the Stockholders Agreements will be entitled, with certain
exceptions, to include their shares of Common Stock in such registration unless
the managing underwriters of such offering exclude some or all of such shares
from such registration under the circumstances specified in the Stockholders
Agreements. The parties to the Stockholders Agreements have waived their rights
to participate as selling stockholders in the Offering and, to the extent that
such parties possess "demand" registration rights, they have waived such rights
for a period of 180 days after the date of this Prospectus.

Future sales of substantial amounts of Class A Common Stock, or the
perception that such sales could occur, may affect the market price of the Class
A Common Stock prevailing from time to time. See "Shares Eligible for Future
Sale" and "Underwriting."

DILUTION

Persons purchasing shares of Class A Common Stock in the Offering will
incur immediate dilution in the net tangible book value per share of Class A
Common Stock of approximately $41.76 per share. In addition, the exercise of
vested stock options and warrants would result in further dilution. This
dilution is calculated based on the initial public offering price of $19.00 per
share. Dilution for this purpose represents the difference between the per share
initial public offering price of the Class A Common Stock and the pro forma net
tangible book value per share of Class A Common Stock after giving effect to the
Completed Transactions that were completed after March 31, 1998, the Other
Equity Transactions, the SFX Transactions and the Financing and the application
of net proceeds therefrom. See "Dilution."

NO PRIOR PUBLIC MARKET

Prior to the Offering, there has been no public market for the Class A
Common Stock and there can be no assurance that an active public market will
develop or be sustained after the Offering or that the initial public offering
price corresponds to the price at which the Class A Common Stock will trade in
the public market subsequent to the Offering. The initial public offering price
for the Class A Common Stock was determined by negotiations among the Company
and the representatives of the Underwriters based upon the consideration of
certain factors set forth herein under "Underwriting." Market conditions in the
radio industry and market fluctuations in the stock market generally may have an
adverse impact on the market price of the Class A Common Stock.

22
<PAGE> 23

USE OF PROCEEDS

The Company estimates that it will receive net proceeds from the Offering
of approximately $552.5 million (after deducting underwriting discounts and
commissions and estimated offering expenses) based on the initial public
offering price of $19.00 per share. The net proceeds from the Offering will be
used to finance in part the SFX Transactions and to pay related fees and
expenses. In connection with the SFX Transactions and other related
transactions, the Company will borrow $150.0 million from Chancellor Media and
$811.8 million under the Capstar Credit Facility. The net proceeds from the
Offering, together with cash on hand, the proceeds from the sale of certain
radio stations and the proceeds from the Chancellor Loan and the Capstar Loan,
will be used (i) to finance the SFX Transactions; (ii) to repay existing
indebtedness under the SFX Credit Facility; (iii) after the consummation of the
SFX Transactions, (A) to redeem $154.0 million aggregate principal amount of the
10 3/4% SFX Notes and (B) to redeem $119.6 million aggregate liquidation
preference of the 12 5/8% SFX Preferred Stock; and (iv) to pay related fees and
expenses. See "Certain Relationships and Related Transactions" and "Description
of Indebtedness."

SOURCES AND USES OF FUNDS

The following table sets forth the estimated sources and uses of funds as
if the Financing and the use of proceeds thereof occurred on March 31, 1998. The
actual amounts of sources and uses of funds may differ from those shown.

<TABLE>
<CAPTION>
AMOUNT
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
SOURCES:
Net Proceeds from the Offering............................ $ 552,536
Chancellor Loan(1)........................................ 150,000
Capstar Loan(2)........................................... 802,012
Gross Proceeds from Station Sales(3)...................... 256,250
Cash on Hand.............................................. 215,940
----------
Total Sources...................................... $1,976,738
==========
USES:
Consummation of SFX Transactions(4)....................... $1,349,170
Repayment of SFX Credit Facility(5)....................... 313,000
Redemption of 10 3/4% SFX Notes(6)........................ 176,763
Redemption of 12 5/8% SFX Preferred Stock(7).............. 137,805
----------
Total Uses......................................... $1,976,738
==========
</TABLE>

- ---------------

(1) The Company will borrow $150.0 million from Chancellor Media pursuant to the
Chancellor Exchange Agreement, which the Company will use to finance in part
the SFX Transactions. The Chancellor Loan will be evidenced by a note (the
"Chancellor Note") and will bear interest at a rate of 12% per annum
(subject to increase in certain circumstances), payable quarterly, of which
5/6 shall be payable in cash and 1/6 shall, at the Company's option, either
be payable in cash or added to the principal amount of the Chancellor Note.
In addition, the Company may elect to defer the 5/6 portion payable in cash,
in which case the Chancellor Note would bear interest at a rate of 14% per
annum. The Chancellor Note will mature on the twentieth anniversary of the
date of issuance, provided that the Company may prepay all or part of the
outstanding principal balance and, in certain circumstances, Chancellor
Media will have the right to require the Company to prepay part of the
outstanding principal balance. See "Certain Relationships and Related
Transactions -- Chancellor Exchange Agreement" and "Description of
Indebtedness."

(2) The Company will enter into the Capstar Credit Facility concurrently with
the SFX Acquisition. The Capstar Credit Facility will consist of a $550.0
million revolving loan facility (the "Revolving Loan"), a $600.0 million
term loan facility (the "A Term Loan"), a $250.0 million term loan facility
(the "B Term Loan") and additional term loans and revolving loans in an
aggregate amount up to $500.0 million subject to future commitment
availability. The amount shown includes borrowings of approximately $600.0
million under the A Term Loan and $211.8 million under the B Term Loan, net
of fees and expenses relating to the Capstar Credit Facility. The actual
amount of the borrowings under each facility will depend on the actual cost
of the consummation of the SFX Transactions and other related transactions
and whether all of the SFX Related Transactions are actually consummated
before or concurrently with the consummation of the SFX Acquisition. See
"The Transactions -- The SFX Transactions" and "Description of
Indebtedness -- Capstar Credit Facility." The existing credit agreement,
which has no outstanding balance, will be terminated when the Company enters
into the Capstar Credit Facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

(3) Represents the gross proceeds received by the Company from the consummation
of the Greenville Disposition, the Upper Fairfield Disposition, the Daytona
Beach-WGNE Disposition, the Long Island Disposition, the Houston-KKPN
Disposition, the Houston-KODA Disposition and the sale of SFX stations
WTAE-AM and WJDX-FM (after the consummation of the SFX Acquisition). See
"The Transactions." The Company will not receive FCC approval for the Upper
Fairfield Disposition prior to the consummation of the SFX Acquisition;
accordingly, the Company will borrow an additional $14.9 million under the
Chancellor Note. See "The Transactions -- The SFX Transactions -- SFX
Related Acquisitions."

(4) Includes estimated fees and expenses relating to the SFX Transactions and
$1.2 billion for the SFX Acquisition, $90.3 million for the Austin
Acquisition, and $35.0 million for the Nashville Acquisition. The purchase
price for the SFX Acquisition is subject to adjustment under the
circumstances described in "The Transactions -- The SFX Transactions -- SFX
Acquisition."

(5) The Merger Agreement requires that the SFX Credit Facility be repaid
concurrently with the consummation of the SFX Acquisition. See "The
Transactions -- The SFX Transactions -- SFX Acquisition." The loans under
the SFX Credit Facility are subject to variable rates of interest and the
maturity date of such loans is June 30, 2005. SFX used the borrowings under
the SFX Credit Facility to finance permitted acquisitions, to provide
working capital and to issue letters of credit. As of March 31, 1998, the
SFX Credit Facility had a weighted average effective interest rate of 8.13%.

(6) Pursuant to the terms of the 10 3/4% SFX Notes Indenture (as defined), on a
pro forma basis at March 31, 1998, the Company intends to redeem $154.0
million aggregate principal amount of the 10 3/4% SFX Notes for an aggregate
purchase price of $176.8 million, including a $16.6 million redemption
premium and $6.2 million of accrued interest. The Company will deliver a
notice of redemption to each holder of the 10 3/4% SFX Notes from whom notes
will be redeemed as soon as practicable after the SFX Acquisition. See
"Description of Indebtedness." The Company anticipates that $154.0 million
aggregate principal amount of the 10 3/4% SFX Notes will actually be
redeemed for an aggregate purchase price of $173.3 million, including a
$16.6 million redemption premium and $2.8 million of accrued interest.

(7) Pursuant to the terms of the SFX Certificate of Designation, on a pro forma
basis at March 31, 1998, the Company intends to redeem $119.6 million
aggregate liquidation preference of the 12 5/8% SFX Preferred Stock for an
aggregate purchase price of $137.8 million, including a $15.1 million
redemption premium and $3.1 million of accumulated dividends. The Company
will deliver a notice of redemption to each holder of the 12 5/8% SFX
Preferred Stock from whom preferred stock will be redeemed as soon as
practicable after the SFX Acquisition. See "Description of Capital Stock --
SFX." The Company anticipates that $119.6 million aggregate liquidation
preference of the 12 5/8% SFX Preferred Stock will actually be redeemed for
an aggregate purchase price of $141.6 million, including a $15.1 million
redemption premium and $6.9 million of accumulated dividends.

23
<PAGE> 24

DIVIDEND POLICY

The Company is a holding company with no significant assets other than the
capital stock of its direct and indirect subsidiaries. Consequently, the
Company's sole source of cash from which to make dividend payments will be
dividends distributed or other payments made to it by its operating
subsidiaries. The right of the Company to participate in any distribution of
earnings or assets of its subsidiaries is subject to the prior claims of
creditors of the Company's subsidiaries and the holders of preferred stock. The
Indentures, the Certificates of Designation, the Capstar Credit Facility, and
the Chancellor Note contain, or will contain, certain covenants that restrict or
prohibit the Company's ability to pay dividends and make other distributions.
The Company intends to retain future earnings for use in the Company's business
and does not anticipate declaring or paying any cash or stock dividends on
shares of its Common Stock in the foreseeable future. Further, any determination
to declare and pay dividends will be made by the Company's Board of Directors in
light of the Company's earnings, financial position, capital requirements and
credit agreements and such other factors as the Board of Directors deems
relevant. See "Risk Factors -- Restrictions Imposed by Terms of Indebtedness,"
"Description of Capital Stock" and "Description of Indebtedness."

24
<PAGE> 25

DILUTION

As of March 31, 1998, the Company had a deficit in net tangible book value
of $407.4 million, or approximately $5.74 per share of Common Stock. Net
tangible book value per share is determined by dividing the tangible net worth
of the Company (tangible assets less total liabilities) by the total number of
shares of Common Stock outstanding. After giving effect to the Completed
Transactions that were completed after March 31, 1998, the Other Equity
Transactions, the SFX Transactions and the net proceeds received by the Company
from completion of the Financing and the application of the net proceeds
therefrom, but without taking into account any other changes in such net
tangible book value after March 31, 1998, the Company's deficit in net tangible
book value on a pro forma as adjusted basis as of March 31, 1998, would have
been $2.3 billion, or $22.76 per share. This represents an immediate increase in
pro forma net tangible book value of $1.22 per share to existing holders of
Common Stock based on the initial public offering price of $19.00 per share and
an immediate dilution in pro forma net tangible book value of $41.76 per share
to new investors purchasing shares at the initial offering price. The following
table illustrates the per share dilution in pro forma net tangible book value to
new investors:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $ 19.00
--------
Net tangible book value (deficit) per share at March 31,
1998................................................... $ (5.74)
Decrease per share attributable to the acquisitions(1).... (19.23)
Increase per share attributable to Other Equity
Transactions........................................... 0.99
Increase per share attributable to the Financing.......... 1.22
-------
Pro forma net tangible book value (deficit)................. (22.76)
--------
Net tangible book value dilution per share to new
investors................................................. $ 41.76
========
</TABLE>

- ---------------

(1) Amount gives effect to the following acquisitions of the Company: the
Completed Transactions that were completed after March 31, 1998 and the SFX
Transactions.

The following table sets forth on a pro forma basis at March 31, 1998, the
number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price per share paid by existing
stockholders and to be paid (at the initial public offering price of $19.00 per
share) by new investors purchasing shares of the Class A Common Stock offered
hereby (before deducting estimated underwriting discounts and commissions and
estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ --------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
----------- ---------- -------------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 76,589,300 71.2% $ 942,367 61.5% $ 12.30
New investors.................... 31,000,000 28.8% 589,000 38.5% 19.00
----------- ----- ---------- -----
Total.................. 107,589,300 100.0% $1,531,367 100.0%
=========== ===== ========== =====
</TABLE>

The preceding table excludes (i) outstanding stock options to purchase up
to 2,062,600 shares of Class A Common Stock at a weighted average exercise price
of $13.44 per share, 335,485 shares of which are currently exercisable, and (ii)
Warrants to purchase 2,496,406 shares of Common Stock at a weighted average
exercise price of $15.06 per share, 1,047,051 shares of which are currently
exercisable to purchase shares of Class C Common Stock. To the extent that these
stock options or Warrants are exercised at exercise prices below the initial
public offering price, there will be further dilution to purchases of shares of
the Class A Common Stock offered hereby. See "Management -- Benefit Plans" and
"Management -- Warrants."

25
<PAGE> 26

CAPITALIZATION

The following table sets forth (i) the historical capitalization of the
Company at March 31, 1998, (ii) the unaudited pro forma capitalization of the
Company, after giving effect to the Completed Transactions and the Other Equity
Transactions, and (iii) the unaudited pro forma capitalization of the Company,
after giving effect to the SFX Transactions and the Financing (including the
Offering), and the application of the net proceeds therefrom, and each of the
foregoing transactions.

<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------
PRO FORMA FOR
THE COMPLETED PRO FORMA
TRANSACTIONS FOR THE SFX
AND THE OTHER TRANSACTIONS
THE EQUITY AND THE
COMPANY TRANSACTIONS FINANCING
---------- -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and Cash Equivalents............................... $ 216,374 $ 182,476 $ 5,000
========== ========== ==========
Long-term Debt (including current maturities):
Company:
Chancellor Note(1)................................. $ -- $ -- $ 150,000
Capstar Partners:
12 3/4% Capstar Notes(2)........................... 172,251 172,251 172,251
Capstar Radio:
9 1/4% Capstar Notes............................... 199,250 199,250 199,250
13 1/4% Capstar Notes(3)........................... 80,964 -- --
Existing Credit Facility(4)........................ -- -- --
Capstar Credit Facility(4)......................... -- -- 811,762
Other Indebtedness(5).............................. 7,260 7,260 8,296
SFX:
10 3/4% SFX Notes (including $296,000 of principal
obligations and $31,820 of premium)(6)........... -- -- 327,820
11 3/8% SFX Notes.................................. -- -- 566
---------- ---------- ----------
Total Long-term Debt.......................... 459,725 378,761 1,669,945
---------- ---------- ----------
12% Capstar Partners Preferred Stock.................... 104,545 104,545 104,545
12 5/8% SFX Preferred Stock (includes $115,203 of
liquidation preference and $10,266 of premium)(7)..... -- -- 125,469
Stockholders' Equity:
Class A Common Stock.................................. 25 26 336
Class B Common Stock.................................. 54 56 56
Class C Common Stock.................................. 630 634 634
Paid-in Capital....................................... 862,887 950,054 1,502,280
Stock Subscription Receivable......................... (2,842) (2,842) (2,842)
Accumulated Deficit(8)................................ (84,972) (89,661) (89,661)
---------- ---------- ----------
Total Stockholders' Equity.................... 775,782 858,267 1,410,803
---------- ---------- ----------
Total Capitalization.......................... $1,340,052 $1,341,573 $3,310,762
========== ========== ==========
</TABLE>

- ---------------

(1) The Company will borrow $150.0 million from Chancellor Media pursuant to the
Chancellor Exchange Agreement, which the Company will use to finance in part
the SFX Transactions. The Chancellor Loan will be evidenced by a note (the
"Chancellor Note") and will bear interest at a rate of 12% per annum
(subject to increase in certain circumstances), payable quarterly, of which
5/6 shall be payable in cash and 1/6 shall, at the Company's option, either
be payable in cash or added to the principal amount of the Chancellor Note.
In addition, the Company may elect to defer the 5/6 portion payable in cash,
in which case the Chancellor Note would bear interest at a rate of 14% per
annum. The Chancellor Note will mature on the twentieth anniversary of the
date of issuance, provided that the Company may prepay all or part of the
outstanding principal balance and, in certain circumstances, Chancellor
Media will have the right to require the Company to prepay part of the
outstanding principal balance. The Company will not receive FCC approval for
the Upper Fairfield Disposition prior to the consummation of the SFX
Acquisition; accordingly, the Company will borrow an additional $14.9
million under the Chancellor Note. See "The Transactions -- The SFX
Transactions -- SFX-Related Transactions" and "Description of Indebtedness."
(2) The 12 3/4% Capstar Notes were issued by the Company at a substantial
discount from their aggregate principal amount at maturity of $277.0 million
and generated gross proceeds to the Company of approximately $150.3 million.
The 12 3/4% Capstar Notes pay no cash

26
<PAGE> 27

interest until August 1, 2002. Accordingly, the carrying value will increase
through accretion until August 1, 2002. Thereafter, interest will be payable
semi-annually, in cash, on February 1 and August 1 of each year.

(3) The actual amount at March 31, 1998 of approximately $81.0 million includes
an unamortized premium of $4.2 million. Pursuant to a tender offer, the
Company purchased all of its outstanding 13 1/4% Capstar Notes on April 27,
1998 for an aggregate purchase price of approximately $90.2 million,
including a $10.7 million purchase premium and $2.7 million of accrued
interest.

(4) The Company will enter into the Capstar Credit Facility concurrently with
the SFX Acquisition. The Capstar Credit Facility will consist of a $550.0
million Revolving Loan, a $600.0 million A Term Loan, a $250.0 million B
Term Loan and additional term loans and revolving loans in an aggregate
amount up to $500.0 million subject to future commitment availability. The
Company expects to borrow approximately $600.0 million under the A Term Loan
and $211.8 million under the B Term Loan. The actual amount of the
borrowings under each facility will depend on the actual cost of the
consummation of the SFX Transactions and other related transactions and
whether all of the SFX Related Transactions are actually consummated before
or concurrently with the consummation of the SFX Acquisition. See "The
Transactions -- The SFX Transactions" and "Description of Indebtedness --
Capstar Credit Facility." The existing credit agreement, which has no
outstanding balance, will be terminated when the Company enters into the
Capstar Credit Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

(5) Includes capital lease obligations and other notes payable of the Company.

(6) The 10 3/4% SFX Notes bear interest at a rate of 10 3/4% per annum. Interest
is payable semi-annually, in cash, on May 15 and November 15 each year. On a
pro forma basis at March 31, 1998, the Company intends to redeem $154.0
million aggregate principal amount of the 10 3/4% SFX Notes for an aggregate
purchase price of $176.8 million, including a $16.6 million redemption
premium and $6.2 million of accrued interest. The Company will deliver a
notice of redemption to each holder of the 10 3/4% SFX Notes from whom notes
will be redeemed as soon as practicable after the SFX Acquisition. See
"Description of Indebtedness." The Company anticipates that $154.0 million
aggregate principal amount of the 10 3/4% SFX Notes will actually be
redeemed for an aggregate purchase price of $173.3 million, including a
$16.6 million redemption premium and $2.8 million of accrued interest. In
connection with the SFX Acquisition, the 10 3/4% SFX Notes will be adjusted
to their fair market value. On a pro forma basis, the 10 3/4% SFX Notes have
been adjusted to their fair value of $327.8 million at March 31, 1998, after
giving effect to the redemption. Of this amount, $296.0 million will be
repaid at maturity and the premium of $31.8 million will be amortized as a
component of interest expense over the remaining term of the 10 3/4% SFX
Notes.

(7) The 12 5/8% SFX Preferred Stock accrue dividends at a rate of 12 5/8% per
annum. Dividends may be paid in cash or additional shares of 12 5/8% SFX
Preferred Stock on January 15 and July 15, each year. On a pro forma basis
at March 31, 1998, the Company intends to redeem $119.6 million aggregate
liquidation preference of the 12 5/8% SFX Preferred Stock for an aggregate
purchase price of $137.8 million, including a $15.1 million redemption
premium and $3.1 million of accumulated dividends. The Company will deliver
a notice of redemption to each holder of the 12 5/8% SFX Preferred Stock
from whom preferred stock will be redeemed as soon as practicable after the
SFX Acquisition. See "Description of Capital Stock -- SFX." The Company
anticipates that $119.6 million aggregate liquidation preference of the
12 5/8% SFX Preferred Stock will actually be redeemed for an aggregate
purchase price of $141.6 million, including $15.1 million redemption premium
and $6.9 million of accumulated dividends. In connection with the SFX
Acquisition, the 12 5/8% SFX Preferred Stock will be adjusted to their fair
market value. On a pro forma basis, the 12 5/8% SFX Preferred Stock has been
adjusted to its fair value of $125.5 million at March 31, 1998, after giving
effect to the redemption. Of this amount, $115.2 million will be repaid at
maturity and the premium of $10.3 million will be amortized as a component
of dividends and accretion over the remaining term of the 12 5/8% SFX Notes.

(8) If the tender offer of the 13 1/4% Capstar Notes had occurred on March 31,
1998, the Company would have recognized an extraordinary charge on the early
extinguishment of debt of $4.7 million, net of tax benefit of $2.1 million,
including prepayment penalties and expenses.

27
<PAGE> 28

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information (the "Pro Forma
Financial Information") is based on the audited historical financial statements
of the Company, Osborn, Benchmark, Madison, Community Pacific, Ameron, Patterson
and SFX (each as defined in "Glossary of Certain Terms") and, in each case, the
related notes included elsewhere in this Prospectus.

The pro forma statements of operations for the year ended December 31, 1997
and the three months ended March 31, 1997 and 1998 have been prepared to
illustrate the effects of (i) the Completed Transactions and the Other Equity
Transactions, (ii) the SFX Transactions and (iii) the Financing and the
application of the net proceeds therefrom, as if each had occurred on January 1,
1997. The pro forma balance sheet as of March 31, 1998 has been prepared as if
any such transaction not yet consummated on that date had occurred on that date.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. The Pro Forma
Financial Information and accompanying notes should be read in conjunction with
the consolidated financial statements and other financial information included
elsewhere herein pertaining to the Company, Osborn, Benchmark, Madison,
Community Pacific, Ameron, Patterson and SFX, including "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Pro Forma Financial Information is not necessarily indicative
of either future results of operations or the results that might have been
achieved if such transactions had been consummated on the indicated dates.

All acquisitions, except the acquisition of GulfStar, given effect in the
Pro Forma Financial Information are accounted for using the purchase method of
accounting. The aggregate purchase price of each transaction is allocated to the
tangible and intangible assets and liabilities acquired based upon their
respective fair values. The allocation of the aggregate purchase price reflected
in the Pro Forma Financial Information is preliminary for transactions to be
closed subsequent to March 31, 1998. The final allocation of the purchase price
is contingent upon the receipt of final appraisals of the acquired assets and
the revision of other estimates; however, the allocation is not expected to
differ materially from the preliminary allocation. The acquisition of GulfStar
was accounted for at historical cost, on a basis similar to a pooling of
interests, as the Company and GulfStar were under common control.

28
<PAGE> 29

CAPSTAR BROADCASTING CORPORATION

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR THE FOR THE ADJUSTMENTS
COMPLETED COMPLETED FOR THE
TRANSACTIONS TRANSACTIONS SFX
COMPLETED AND THE AND THE SFX TRANSACTIONS
TRANSACTIONS OTHER EQUITY OTHER EQUITY TRANSACTIONS AND THE
THE COMPANY COMBINED(A) TRANSACTIONS TRANSACTIONS COMBINED(H) FINANCING
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................... $ 175,445 $119,479 $ -- $294,924 $275,070 $ --
Station operating expenses.... 122,135 89,324 -- 211,459 142,617 --
Depreciation and
amortization................ 26,415 11,770 9,748(B) 47,933 35,378 41,733(B)
Corporate expenses............ 14,221 8,439 -- 22,660 6,837 --
LMA fees...................... 2,519 -- (2,519)(C) -- -- --
Non-cash compensation
expense..................... 10,575 -- -- 10,575 624 --
Other operating expenses...... -- -- -- -- 20,174 (3,821)(I)
----------- -------- -------- -------- -------- --------
Operating income (loss)..... (420) 9,946 (7,229) 2,297 69,440 (37,912)
Interest expense.............. 47,012 15,735 (19,767)(D) 42,980 64,998 70,119(J)
Gain (loss) on sale of
assets...................... (908) 5,214 -- 4,306 -- --
Increase in fair value of
redeemable warrants......... -- (2,022) 2,022(E) -- -- --
Other (income) expense........ 157 (2,483) -- (2,326) (3,886) --
----------- -------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes..................... (48,497) (114) 14,560 (34,051) 8,328 (108,031)
Provision (benefit) for income
taxes....................... (11,720) 1,818 5,533(F) (4,369) 810 (41,052)(F)
Dividends, accretion and
redemption of preferred
stock of subsidiary......... 6,560 -- -- 6,560 -- 13,654(K)
----------- -------- -------- -------- -------- --------
Net income (loss) from
continuing operations....... (43,337) (1,932) 9,027 (36,242) 7,518 (80,633)
Redeemable preferred stock
dividends and accretion..... 7,071 -- (7,071)(G) -- 38,510 (38,510)(K)
----------- -------- -------- -------- -------- --------
Net loss from continuing
operations applicable to
common stock................ $ (50,408) $ (1,932) $ 16,098 $(36,242) $(30,992) $(42,123)
=========== ======== ======== ======== ======== ========
Basic and diluted loss from
continuing operations per
common share(L)............. $ (1.98)
Weighted average common shares
outstanding(L).............. 25,455,211

PRO FORMA
FOR THE
SFX
TRANSACTIONS
AND THE
FINANCING
------------
<S> <C>
Net revenue................... $ 569,994
Station operating expenses.... 354,076
Depreciation and
amortization................ 125,044
Corporate expenses............ 29,497
LMA fees...................... --
Non-cash compensation
expense..................... 11,199
Other operating expenses...... 16,353
-----------
Operating income (loss)..... 33,825
Interest expense.............. 178,097
Gain (loss) on sale of
assets...................... 4,306
Increase in fair value of
redeemable warrants......... --
Other (income) expense........ (6,212)
-----------
Income (loss) before
provision for income
taxes..................... (133,754)
Provision (benefit) for income
taxes....................... (44,611)
Dividends, accretion and
redemption of preferred
stock of subsidiary......... 20,214
-----------
Net income (loss) from
continuing operations....... (109,357)
Redeemable preferred stock
dividends and accretion..... --
-----------
Net loss from continuing
operations applicable to
common stock................ $ (109,357)
===========
Basic and diluted loss from
continuing operations per
common share(L)............. $ (1.41)
Weighted average common shares
outstanding(L).............. 77,661,870
</TABLE>

See accompanying notes to pro forma financial information.

29
<PAGE> 30

CAPSTAR BROADCASTING CORPORATION

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR THE FOR THE ADJUSTMENTS
COMPLETED COMPLETED FOR THE
TRANSACTIONS TRANSACTIONS SFX
COMPLETED AND THE AND THE SFX TRANSACTIONS
TRANSACTIONS OTHER EQUITY OTHER EQUITY TRANSACTIONS AND THE
THE COMPANY COMBINED(M) TRANSACTIONS TRANSACTIONS COMBINED(N) FINANCING
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.................... $ 25,102 $35,430 $ -- $ 60,532 $57,821 $ --
Station operating expenses..... 18,304 30,124 -- 48,428 31,993 --
Depreciation and
amortization................. 3,725 3,971 4,274(B) 11,970 6,628 12,650(B)
Corporate expenses............. 1,942 1,947 -- 3,889 1,035 --
LMA fees....................... 683 -- (683)(C) -- -- --
Non-cash compensation
expense...................... 2,469 -- -- 2,469 156 --
Other operating expenses....... -- -- -- -- -- --
----------- ------- ------- -------- ------- --------
Operating income (loss)...... (2,021) (612) (3,591) (6,224) 18,009 (12,650)
Interest expense............... 7,955 4,147 (1,356)(D) 10,746 9,502 24,278(J)
Gain (loss) on sale of
assets....................... -- 5,356 -- 5,356 -- --
Increase in fair value of
redeemable warrants.......... -- (5,882) 5,882(E) -- -- --
Other (income) expense......... (63) (278) -- (341) (1,387) --
----------- ------- ------- -------- ------- --------
Income (loss) before
provision for income
taxes...................... (9,913) (5,007) 3,647 (11,273) 9,894 (36,928)
Provision (benefit) for income
taxes........................ (2,308) (2,789) 1,386(F) (3,711) 285 (14,033)(F)
Dividends, accretion and
redemption of preferred stock
of subsidiary................ -- -- -- -- -- 2,722(K)
----------- ------- ------- -------- ------- --------
Net income (loss) from
continuing operations........ (7,605) (2,218) 2,261 (7,562) 9,609 (25,617)
Redeemable preferred stock
dividends and accretion...... 794 -- (794)(G) -- 7,952 (7,952)(K)
----------- ------- ------- -------- ------- --------
Net income (loss) from
continuing operations
applicable to common stock... $ (8,399) $(2,218) $ 3,055 $ (7,562) $ 1,657 $(17,665)
=========== ======= ======= ======== ======= ========
Basic and diluted loss from
continuing operations per
common share(L).............. $ (0.44)
Weighted average common shares
outstanding(L)............... 19,288,014

PRO FORMA
FOR THE
SFX
TRANSACTIONS
AND THE
FINANCING
------------
<S> <C>
Net revenue.................... $ 118,353
Station operating expenses..... 80,421
Depreciation and
amortization................. 31,248
Corporate expenses............. 4,924
LMA fees....................... --
Non-cash compensation
expense...................... 2,625
Other operating expenses....... --
-----------
Operating income (loss)...... (865)
Interest expense............... 44,526
Gain (loss) on sale of
assets....................... 5,356
Increase in fair value of
redeemable warrants.......... --
Other (income) expense......... (1,728)
-----------
Income (loss) before
provision for income
taxes...................... (38,307)
Provision (benefit) for income
taxes........................ (17,459)
Dividends, accretion and
redemption of preferred stock
of subsidiary................ 2,722
-----------
Net income (loss) from
continuing operations........ (23,570)
Redeemable preferred stock
dividends and accretion...... --
-----------
Net income (loss) from
continuing operations
applicable to common stock... $ (23,570)
===========
Basic and diluted loss from
continuing operations per
common share(L).............. $ (0.30)
Weighted average common shares
outstanding(L)............... 77,661,870
</TABLE>

See accompanying notes to pro forma financial information.

30
<PAGE> 31

CAPSTAR BROADCASTING CORPORATION

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR THE FOR THE ADJUSTMENTS PRO FORMA
COMPLETED COMPLETED FOR THE FOR THE
TRANSACTIONS TRANSACTIONS SFX SFX
COMPLETED AND THE AND THE SFX TRANSACTIONS TRANSACTIONS
TRANSACTIONS OTHER EQUITY OTHER EQUITY TRANSACTIONS AND THE AND THE
THE COMPANY COMBINED(O) TRANSACTIONS TRANSACTIONS COMBINED(P) FINANCING FINANCING
----------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $ 64,075 $ 3,701 $ -- $ 67,776 $ 58,699 $ -- $ 126,475
Station operating
expenses................ 47,760 2,607 -- 50,367 30,260 -- 80,627
Depreciation and
amortization............ 11,032 312 626(B) 11,970 8,369 10,909(B) 31,248
Corporate expenses........ 3,757 126 -- 3,883 1,569 -- 5,452
LMA fees.................. 1,871 -- (1,871)(C) -- -- -- --
Non-cash compensation
expense................. 15,793 -- -- 15,793 138 15,931
Other operating
expenses................ -- -- -- -- 24,974 (19,739)(I) 5,235
----------- ------- ------- -------- -------- -------- ----------
Operating income
(loss)................ (16,138) 656 1,245 (14,237) (6,611) 8,830 (12,018)
Interest expense.......... 15,897 648 (5,799)(D) 10,746 19,186 14,594(J) 44,526
Other (income) expense.... (320) 3,126 -- 2,806 (328) -- 2,478
----------- ------- ------- -------- -------- -------- ----------
Income (loss) before
provision for income
taxes................. (31,715) (3,118) 7,044 (27,789) (25,469) (5,764) (59,022)
Provision (benefit) for
income taxes............ (4,962) -- 2,677(F) (2,285) 210 (2,190)(F) (4,265)
Dividends, accretion and
redemption of preferred
stock of subsidiary..... 3,052 -- -- 3,052 -- 3,866(K) 6,918
----------- ------- ------- -------- -------- -------- ----------
Net income (loss) from
continuing operations... (29,805) (3,118) 4,367 (28,556) (25,679) (7,440) (61,675)
Redeemable preferred stock
dividends and
accretion............... -- -- -- -- 10,350 (10,350)(K) --
----------- ------- ------- -------- -------- -------- ----------
Net income (loss) from
continuing operations
applicable to common
stock................... $ (29,805) $(3,118) $ 4,367 $(28,556) $(36,029) $ 2,910 $ (61,675)
=========== ======= ======= ======== ======== ======== ==========
Basic and diluted loss
from continuing
operations per common
share(L)................ $ (0.65) $ (0.79)
Weighted average common
shares outstanding(L)... 46,130,912 77,661,870
</TABLE>

See accompanying notes to pro forma financial information.

31
<PAGE> 32

CAPSTAR BROADCASTING CORPORATION

UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR THE FOR THE ADJUSTMENTS
COMPLETED COMPLETED FOR THE
TRANSACTIONS TRANSACTIONS SFX
COMPLETED AND THE AND THE SFX TRANSACTIONS
TRANSACTIONS OTHER EQUITY OTHER EQUITY TRANSACTIONS AND THE
THE COMPANY COMBINED(Q) TRANSACTIONS TRANSACTIONS COMBINED(X) FINANCING
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>

ASSETS
Current Assets:
Cash and cash equivalents............. $ 216,374 $ 1,664 $ (1,664)(R) $ 182,476 $ 38,532 $ (68)(Y)
(33,898)(S) (215,940)(S)
Accounts receivable, net.............. 53,806 3,553 (3,173)(R) 54,186 65,675 (1,228)(Y)
Prepaid expenses and other............ 5,797 3,433 (3,433)(R) 5,797 167,511 (38,342)(Y)
---------- -------- -------- ---------- ---------- ----------
Total current assets............ 275,977 8,650 (42,168) 242,459 271,718 (255,578)
Property and equipment, net............. 134,622 (1,123) 5,908(R) 139,407 67,781 20,517(Y)
Intangible and other assets, net........ 1,202,002 (12,073) 26,980(R) 1,227,409 931,536 1,614,815(Y)
10,500(T) 4,500(Z)
9,750(AA)
---------- -------- -------- ---------- ---------- ----------
Total assets.................... $1,612,601 $ (4,546) $ 1,220 $1,609,275 $1,271,035 $1,394,004
========== ======== ======== ========== ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses............................ $ 38,136 $ 1,395 $ (1,395)(R) $ 35,396 $ 179,806 $ (545)(Y)
(2,740)(U) (6,208)(BB)
Current portion of long-term debt..... 82,598 2,793 (2,793)(U) 1,634 617 --
(80,964)(U)
---------- -------- -------- ---------- ---------- ----------
Total current liabilities....... 120,734 4,188 (87,892) 37,030 180,423 (6,753)
Long-term debt, less current portion.... 377,127 5,016 (5,016)(U) 377,127 763,985 (467,000)(BB)
31,820(Y)
150,000(CC)
811,762(CC)
Other long-term liabilities............. 234,413 -- (2,107)(V) 232,306 77,781 445,016(Y)
---------- -------- -------- ---------- ---------- ----------
Total liabilities............... 732,274 9,204 (95,015) 646,463 1,022,189 964,845
Redeemable preferred stock.............. 104,545 -- -- 104,545 376,615 (146,209)(DD)
(115,203)(DD)
10,266(Y)
Minority interest....................... -- -- -- -- 56,200 (56,200)(Y)
Stockholders' equity (deficit).......... 775,782 (13,750) 13,750(W) 858,267 (183,969) 183,969(EE)
87,174(W) 552,536(FF)
(4,689)(V)
---------- -------- -------- ---------- ---------- ----------
Total liabilities and
stockholders' equity.......... $1,612,601 $ (4,546) $ 1,220 $1,609,275 $1,271,035 $1,394,004
========== ======== ======== ========== ========== ==========

PRO FORMA
FOR THE
SFX
TRANSACTIONS
AND THE
FINANCING
------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ 5,000
Accounts receivable, net.............. 118,633
Prepaid expenses and other............ 134,966
----------
Total current assets............ 258,599
Property and equipment, net............. 227,705
Intangible and other assets, net........ 3,788,010
----------
Total assets.................... $4,274,314
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses............................ $ 208,449
Current portion of long-term debt..... 2,251
----------
Total current liabilities....... 210,700
Long-term debt, less current portion.... 1,667,694
Other long-term liabilities............. 755,103
----------
Total liabilities............... 2,633,497
Redeemable preferred stock.............. 230,014
Minority interest....................... --
Stockholders' equity (deficit).......... 1,410,803
----------
Total liabilities and
stockholders' equity.......... $4,274,314
==========
</TABLE>

See accompanying notes to pro forma financial information.

32
<PAGE> 33

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)

(A) The schedule below gives effect to the following for the period from
January 1, 1997 through December 31, 1997: (i) acquisitions by the Company
completed prior to March 31, 1998; (ii) the historical acquisitions and
dispositions of the indicated entities consummated prior to March 31,
1998; and (iii) the acquisitions and dispositions of the indicated
entities which were pending at March 31, 1998 and will be consummated
prior to the consummation of the SFX Acquisition.

COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>

HISTORICAL
HISTORICAL COMMUNITY HISTORICAL HISTORICAL HISTORICAL HISTORICAL
OSBORN(1) PACIFIC(2) BENCHMARK(3) MADISON(4) AMERON(5) PATTERSON
---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................................. $3,577 $2,458 $19,566 $4,130 $6,095 $53,053
Station operating expenses.................. 2,937 1,315 12,956 2,588 4,352 37,334
Depreciation and amortization............... 418 713 3,657 752 506 5,273
Corporate expenses.......................... 268 373 348 75 -- 4,946
------ ------ ------- ------ ------ -------
Operating income (loss)................... (46) 57 2,605 715 1,237 5,500
Interest expense............................ 385 469 4,689 686 659 7,574
Gain (loss) on sale of assets............... 5,348 -- -- -- -- --
Increase in fair value of redeemable
warrants.................................. -- -- -- -- -- (2,022)
Other (income) expense...................... (212) 3 (64) -- 147 50
------ ------ ------- ------ ------ -------
Income (loss) before provision for income
taxes................................... 5,129 (415) (2,020) 29 431 (4,146)
Provision (benefit) for income taxes........ 32 -- -- -- -- 1,704
------ ------ ------- ------ ------ -------
Net income (loss) from continuing
operations.............................. $5,097 $ (415) $(2,020) $ 29 $ 431 $(5,850)
====== ====== ======= ====== ====== =======

<CAPTION>
ADJUSTMENTS OTHER
FOR COMPLETED COMPLETED
HISTORICAL TRANSACTIONS TRANSACTIONS
TRANSACTIONS(6) COMBINED(7) COMBINED
--------------- ------------ ------------
<S> <C> <C> <C>
Net revenue................................. $5,357 $25,243 $119,479
Station operating expenses.................. 3,011 24,831 89,324
Depreciation and amortization............... -- 451 11,770
Corporate expenses.......................... -- 2,429 8,439
------ ------- --------
Operating income (loss)................... 2,346 (2,468) 9,946
Interest expense............................ -- 1,273 15,735
Gain (loss) on sale of assets............... -- (134) 5,214
Increase in fair value of redeemable
warrants.................................. -- -- (2,022)
Other (income) expense...................... -- (2,407) (2,483)
------ ------- --------
Income (loss) before provision for income
taxes................................... 2,346 (1,468) (114)
Provision (benefit) for income taxes........ -- 82 1,818
------ ------- --------
Net income (loss) from continuing
operations.............................. $2,346 $(1,550) $ (1,932)
====== ======= ========
</TABLE>

- ---------------

(1) The column represents the consolidated results of operations of Osborn
from January 1, 1997 through February 20, 1997, the date of the Osborn
Acquisition.

(2) The column represents the results of operations of Community Pacific
from January 1, 1997 through June 30, 1997, prior to the date of the
Community Pacific Acquisition.

(3) The column represents the results of operations of Benchmark from
January 1, 1997 through June 30, 1997, prior to the date of the
Benchmark Acquisition.

(4) The column represents the results of operations of Madison from
January 2, 1997 through June 30, 1997, prior to the date of the
Madison Acquisition.

(5) The column represents the results of operations of Ameron from January
1, 1997 through September 30, 1997, prior to the date of the Ameron
Acquisition.

(6) The adjustments give effect to the historical operating results and/or
LMA or JSA expense and/or revenue of the following stations which were
acquired or sold prior to December 31, 1997: WYNU-FM, WTXT-FM,
WSCQ-FM, WZHT-FM, WMCZ-FM, KTRA-FM, KCQL-AM, KDAG-FM, KKFG-FM,
WMEZ-FM, KRDU-AM, KJOI-FM and WQFN-FM.

(7) The column represents the historical results of operations for the
following transactions which will be consummated prior to the
consummation of the SFX Acquisition: (i) the Knight, Quass, COMCO,
Osborn Tuscaloosa, Osborn Huntsville, Space Coast, WRIS, Cavalier,
Griffith, Emerald City, American General, Booneville, KJEM, McForhun,
Livingston, KLAW, Grant, East Penn, IRS, KOSO, Commonwealth, KDOS,
Prophet Systems and the Reynolds Acquisitions,(ii) Americom
Acquisition, (iii) Americom Disposition and (iv) Wilmington, Osborn
Ft. Myers, Bryan, Allentown, Jackson, Westchester, Dayton,
Salisbury-Ocean City (this disposition actually will be consummated
shortly after the consummation of the SFX Acquisition) and KASH
Dispositions.

33
<PAGE> 34

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(B) The adjustment reflects (i) a change in depreciation and amortization
resulting from conforming the estimated useful lives of the acquired
stations and (ii) the additional depreciation and amortization expense
resulting from the allocation of the purchase price of the acquired
stations including an increase in property and equipment, FCC licenses and
intangible assets to their estimated fair market value and the recording
of goodwill associated with the acquisitions. Goodwill and FCC licenses
are being amortized over 40 years.

(C) The adjustment reflects the elimination of LMA fees paid by the Company
attributable certain acquisitions consummated prior to the Offering.

(D) The adjustment reflects interest expense associated with (i) the 9 1/4%
Capstar Notes (as defined), (ii) the 12 3/4% Capstar Notes (as defined),
(iii) other indebtedness of the Company and (iv) the amortization of
deferred financing fees associated with the 9 1/4% Capstar Notes, the
12 3/4% Capstar Notes and the Capstar Credit Facility, net of interest
expense related to the existing indebtedness of the Company and the
companies included within Completed Transactions Combined. Deferred
financing fees are amortized over the term of the related debt.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------
1997 1997 1998
------------ ------- --------
<S> <C> <C> <C>
9 1/4% Capstar Notes...................................... $ 18,430 $ 4,608 $ 4,608
12 3/4% Capstar Notes..................................... 21,962 5,491 5,491
Other indebtedness........................................ 417 104 104
-------- ------- --------
Interest expense before amortization of deferred financing
fees.................................................... 40,809 10,203 10,203
Amortization of deferred financing fees................... 2,171 543 543
-------- ------- --------
Pro forma interest expense.............................. 42,980 10,746 10,746
Historical interest expense for the Company............... (47,012) (7,955) (15,897)
Historical interest expense for Completed Transactions
Combined................................................ (15,735) (4,147) (648)
-------- ------- --------
Net adjustment.......................................... $(19,767) $(1,356) $ (5,799)
======== ======= ========
</TABLE>

A 1/8% change in the weighted average interest rate on total indebtedness
would result in a $471 change in interest expense for the year ended
December 31, 1997 and a $118 change for the three months ended March 31,
1997 and 1998.

(E) The adjustment reflects the elimination of the increase in the fair value
of the redeemable warrants which were repurchased in connection with the
Patterson Acquisition. The increase in the fair value of the warrants was
determined based upon the sales price of Patterson Broadcasting, Inc. to
Capstar Broadcasting Corporation in January 1998.

(F) The adjustment reflects the tax effect of the pro forma adjustments at the
Company's statutory tax rate of 38% for the periods presented. The pro
forma tax benefit is primarily the result of the reversal of temporary
differences related to the difference in the carrying amounts of FCC
licenses for financial reporting purposes and the amounts used for income
tax purposes. The deferred tax liability resulting from the temporary
differences, which have arisen out of the Company's various purchase
business combinations, has been recognized in connection with the purchase
accounting for the related acquisitions. The Company has not recorded a
valuation allowance for its pro forma tax benefit as it believes that, in
accordance with Financial Accounting Standards Board Statement No. 109, on
a pro forma basis, it is more likely than not to have adequate future
taxable income to utilize its deferred tax assets.

(G) The adjustment reflects the elimination of the redeemable preferred stock
redeemed in connection with the GulfStar Acquisition.

34
<PAGE> 35
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(H) The column represents the combined income statements for the year ended
December 31, 1997 of the transactions which (i) SFX completed prior to
March 31, 1998, (ii) were pending at March 31, 1998 and have been
consummated by SFX prior to the consummation of the SFX Acquisition and
(iii) were pending at March 31, 1998 and will close subsequent to the
consummation of the SFX Acquisition in connection with the SFX
Transactions.

SFX TRANSACTIONS COMBINED

<TABLE>
<CAPTION>
SFX SFX
HISTORICAL PENDING SFX
HISTORICAL TRANSACTIONS TRANSACTIONS CHANCELLOR TRANSACTIONS
SFX(1) COMBINED(2) COMBINED(3) EXCHANGE(4)(5) COMBINED
---------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenue............................. $270,364 $16,552 $(61,271) $49,425 $275,070
Station operating expenses.............. 167,063 14,042 (38,488) -- 142,617
Depreciation and amortization........... 38,232 -- (2,854) -- 35,378
Corporate expenses...................... 6,837 -- -- -- 6,837
Non-cash compensation expense........... 624 -- -- -- 624
Other operating expenses................ 20,174 -- -- -- 20,174
-------- ------- -------- ------- --------
Operating income (loss)............ 37,434 2,510 (19,929) 49,425 69,440
Interest expense........................ 64,506 -- 492 -- 64,998
Other (income) expense.................. (2,821) -- (1,065) -- (3,886)
-------- ------- -------- ------- --------
Income (loss) before provision for
income taxes..................... (24,251) 2,510 (19,356) 49,425 8,328
Provision for income taxes.............. 810 -- -- -- 810
-------- ------- -------- ------- --------
Net income (loss) from continuing
operations....................... (25,061) 2,510 (19,356) 49,425 7,518
Redeemable preferred stock dividends and
accretion............................. 38,510 -- -- -- 38,510
-------- ------- -------- ------- --------
Net income (loss) from continuing
operations applicable to common
stock............................ $(63,571) $ 2,510 $(19,356) $49,425 $(30,992)
======== ======= ======== ======= ========
</TABLE>

- ---------------

(1) Excludes the results of operations of SFX Entertainment which were
classified as income from operations to be distributed to shareholders,
net of taxes in the historical financial statements of SFX. SFX
Entertainment was distributed to certain of the SFX stockholders in the
Spin-Off, which was consummated in April 1998. Consequently, SFX
Entertainment will not be acquired by the Company in the SFX
Transactions.

(2) The adjustments represent the combined historical results of operations
of the following station acquisitions and dispositions completed by SFX
prior to the consummation of the SFX Acquisition: WPYX-FM, WHFS-FM,
KTXQ-FM, KRRW-FM, WDSY-FM, WRFX-FM, WWYZ-FM, WISN-AM, WLTQ-FM, WVGO-FM,
WLEE-FM, WKHK-FM, WBZU-FM, WFBQ-FM, WRZX-FM and WNDE-AM.

(3) The adjustments reflect the combined historical operating results of
(i) the following pending acquisitions, dispositions and LMAs in
connection with the SFX Transactions: Nashville, Austin, Jacksonville,
Greenville, Upper Fairfield, Daytona Beach-WGNE, Houston-KODA, Long
Island, Houston-KKPN, and the stations included in the Chancellor
Exchange Agreement and (ii) stations WJDX-FM and WTAE-AM, which the
Company will sell after the consummation of the SFX Acquisition to
comply with the SFX Consent Decree.

(4) The adjustment represents the LMA revenue attributable to the ten SFX
stations to be sold to Chancellor Media in connection with the
Chancellor Exchange Agreement. Chancellor Media will provide services
to ten SFX stations in the Dallas, Houston, San Diego and Pittsburgh
markets under separate LMAs until such stations are exchanged. See
"Certain Relationships and Related Transactions -- Chancellor Exchange
Agreement."

(5) The historical interest expense, depreciation and amortization of the
stations to be sold to Chancellor Media pursuant to the Chancellor
Exchange Agreement have been eliminated from the pro forma financial
statements as described in footnote 3, above. In accordance with the
Company's policy, since the Company's ownership costs, comprised of
interest expense, depreciation and amortization, exceed the LMA revenue
for these stations, the entire LMA fee described by footnote 4 above,
has been recognized. This column does not give effect to pro forma
interest expense, depreciation and amortization as a result of the
foregoing transactions. Note B to the pro forma financial statements
describes the aggregate adjustment to depreciation and amortization
based upon the purchase accounting for the SFX Transactions and
includes depreciation and amortization related to the stations included
in the Chancellor Exchange. Note J to the pro forma financial
statements describes the aggregate adjustment to interest expense based
upon the financing of the SFX Transactions and includes interest
expense related to the stations included in the Chancellor Exchange.

35
<PAGE> 36
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(I) The adjustment reflects the elimination of non-recurring
transaction-related charges of $3.8 million and $3.1 million in the year
ended December 31, 1997 and the three months ended March 31, 1998,
respectively, recorded by SFX in connection with the SFX Acquisition and
the Spin-Off. These charges consist primarily of legal, accounting and
regulatory fees. In addition, the adjustment reflects the elimination of
$16.6 million relating to the consent solicitations from the holders of
the 10 3/4% SFX Notes and 12 5/8% SFX Preferred Stock in connection with
the Spin-Off in the three months ended March 31, 1998. The Spin-Off was
consummated in April 1998.

(J) The adjustment reflects interest expense associated with (i) the 9 1/4%
Capstar Notes, (ii) the 12 3/4% Capstar Notes, (iii) the Capstar Credit
Facility, (iv) the Chancellor Loan, (v) the 10 3/4% SFX Notes, (vi) other
indebtedness of the Company and SFX and (vii) amortization of deferred
financing fees associated with the 9 1/4% Capstar Notes, the 12 3/4%
Capstar Notes, the Capstar Credit Facility and the 10 3/4% SFX Notes, all
net of interest expense related to the existing indebtedness of the
Company, the companies included within the Completed Transactions Combined
and the SFX Transactions. Deferred financing fees are amortized over the
term of the related debt.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------------
1997 1997 1998
------------ -------- --------
<S> <C> <C> <C>
9 1/4% Capstar Notes..................................... $ 18,430 $ 4,608 $ 4,608
12 3/4% Capstar Notes.................................... 21,962 5,491 5,491
Capstar Credit Facility at 9 3/4%........................ 79,147 19,787 19,787
Chancellor Loan at 12%................................... 18,000 4,500 4,500
10 3/4% SFX Notes........................................ 31,820 7,955 7,955
Other indebtedness....................................... 519 130 130
-------- -------- --------
Interest expense before amortization of deferred
financing fees......................................... 169,878 42,471 42,471
Amortization of deferred financing fees.................. 8,219 2,055 2,055
-------- -------- --------
Pro forma interest expense............................. 178,097 44,526 44,526
Pro forma interest expense for the Completed Transactions
Combined............................................... (42,980) (10,746) (10,746)
Historical interest expense for the SFX Transactions
Combined............................................... (64,998) (9,502) (19,186)
-------- -------- --------
Net adjustment......................................... $ 70,119 $ 24,278 $ 14,594
======== ======== ========
</TABLE>

A 1/8% change in the weighted average interest rate on total indebtedness
would result in a $2,065 change in interest expense for the year ended
December 31, 1997 and a $516 change for the three months ended March 31,
1997 and 1998.

(K) The adjustment reflects the elimination and reclassification of a portion
of the redeemable preferred stock dividends and accretion due to the SFX
Acquisition and redemption of $115,203 of the 12 5/8% SFX Preferred Stock.

(L) Pro forma net loss per share is based on the weighted average shares of
common stock and common stock equivalents during the pro forma period. The
pro forma weighted average common shares include all shares of common
stock outstanding prior to the Offering, shares to be issued in the
Offering and the additional shares issued in connection with certain other
transactions given effect in the pro forma financial statements, all
adjusted for the one for ten reverse stock split.

36
<PAGE> 37

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(M) The schedule below gives effect to the following for the period from January
1, 1997 through March 31, 1997: (i) acquisitions by the Company completed
prior to March 31, 1998; (ii) the historical acquisitions and dispositions
of the indicated entities consummated prior to March 31, 1998; and (iii) the
acquisitions and dispositions of the indicated entities which were pending
at March 31, 1998 and will be consummated prior to the consummation of the
SFX Acquisition.

COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>

HISTORICAL
HISTORICAL COMMUNITY HISTORICAL HISTORICAL HISTORICAL HISTORICAL
OSBORN(1) PACIFIC(2) BENCHMARK(3) MADISON(4) AMERON(5) PATTERSON
---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................................. $3,577 $1,681 $ 6,444 $2,028 $1,856 $10,727
Station operating expenses.................. 2,937 1,311 5,338 1,246 1,616 8,552
Depreciation and amortization............... 418 350 1,336 376 167 1,162
Corporate expenses.......................... 268 197 265 47 -- 1,151
------ ------ ------- ------ ------ -------
Operating income (loss)................... (46) (177) (495) 359 73 (138)
Interest expense............................ 385 238 937 348 218 1,716
Gain (loss) on sale of assets............... 5,348 -- -- -- -- --
Increase in fair value of redeemable
warrants.................................. -- -- -- -- -- (5,882)
Other (income) expense...................... (212) 2 (61) -- 5 (3)
------ ------ ------- ------ ------ -------
Income (loss) before provision for income
taxes................................... 5,129 (417) (1,371) 11 (150) (7,733)
Provision (benefit) for income taxes........ 32 -- -- -- -- (2,861)
------ ------ ------- ------ ------ -------
Net income (loss) from continuing
operations.............................. $5,097 $ (417) $(1,371) $ 11 $ (150) $(4,872)
====== ====== ======= ====== ====== =======

<CAPTION>
ADJUSTMENTS OTHER
FOR COMPLETED COMPLETED
HISTORICAL TRANSACTIONS TRANSACTIONS
TRANSACTIONS(6) COMBINED(7) COMBINED
--------------- ------------ ------------
<S> <C> <C> <C>
Net revenue................................. $2,117 $ 7,000 $ 35,430
Station operating expenses.................. 1,601 7,523 30,124
Depreciation and amortization............... -- 162 3,971
Corporate expenses.......................... -- 19 1,947
------ ------- --------
Operating income (loss)................... 516 (704) (612)
Interest expense............................ -- 305 4,147
Gain (loss) on sale of assets............... -- 8 5,356
Increase in fair value of redeemable
warrants.................................. -- -- (5,882)
Other (income) expense...................... -- (9) (278)
------ ------- --------
Income (loss) before provision for income
taxes................................... 516 (992) (5,007)
Provision (benefit) for income taxes........ -- 40 (2,789)
------ ------- --------
Net income (loss) from continuing
operations.............................. $ 516 $(1,032) $ (2,218)
====== ======= ========
</TABLE>

- ---------------

(1) The column represents the consolidated results of operations of Osborn
from January 1, 1997 through February 20, 1997, the date of the Osborn
Acquisition.

(2) The column represents the results of operations of Community Pacific
from January 1, 1997 through March 31, 1997, prior to the date of the
Community Pacific Acquisition.

(3) The column represents the combined results of operations of Benchmark
from January 1, 1997 through March 31, 1997, prior to the date of the
Benchmark Acquisition.

(4) The column represents the results of operations of Madison from
January 2, 1997 through March 31, 1997, prior to the date of the
Madison Acquisition.

(5) The column represents the results of operations of Ameron from January
1, 1997 through March 31, 1997, prior to the date of the Ameron
Acquisition.

(7) The column represents the historical results of operations for the
following transactions which will be consummated prior to the
consummation of the SFX Acquisition: (i) the Knight, Quass, COMCO,
Osborn Tuscaloosa, Osborn Huntsville, Space Coast, WRIS, Cavalier,
Griffith, Emerald City, American General, Booneville, KJEM, McForhun,
Livingston, KLAW, Grant, East Penn, KOSO, Commonwealth, KDOS, Prophet
Systems and the Reynolds Acquisitions,(ii) Americom Acquisition, (iii)
Americom Disposition and (iv) Wilmington, Osborn Ft. Myers, Bryan,
Allentown, Jackson, Westchester, Dayton, Salisbury-Ocean City (this
disposition actually will be consummated shortly after the
consummation of the SFX Acquisition) and KASH Dispositions.

37
<PAGE> 38

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(N) The column represents the combined income statements for the three months
ended March 31, 1997 of the transactions which (i) SFX completed prior to
March 31, 1998, (ii) were pending at March 31, 1998 and have been
consummated by SFX prior to the consummation of the SFX Acquisition and
(iii) were pending at March 31, 1998 and will close subsequent to the
consummation of the SFX Acquisition in connection with the SFX Transactions.

SFX TRANSACTIONS COMBINED

<TABLE>
<CAPTION>
SFX SFX
HISTORICAL PENDING SFX
HISTORICAL TRANSACTIONS TRANSACTIONS CHANCELLOR TRANSACTIONS
SFX(1) COMBINED(2) COMBINED(3) EXCHANGE(4)(5) COMBINED
------------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenue............................. $ 44,991 $ 8,401 $(7,927) $12,356 $57,821
Station operating expenses.............. 29,916 6,488 (4,411) -- 31,993
Depreciation and amortization........... 7,485 204 (1,061) -- 6,628
Corporate expenses...................... 1,035 -- -- -- 1,035
Non-cash compensation expense........... 156 -- -- -- 156
Other operating expenses................ -- -- -- -- --
--------- ------- ------- ------- -------
Operating income (loss)............ 6,399 1,709 (2,455) 12,356 18,009
Interest expense........................ 12,712 -- (3,210) -- 9,502
Other (income) expense.................. (1,654) 246 21 -- (1,387)
--------- ------- ------- ------- -------
Income (loss) before provision for
income taxes..................... (4,659) 1,463 734 12,356 9,894
Provision for income taxes.............. 285 -- -- -- 285
--------- ------- ------- ------- -------
Income (loss) from continuing
operations....................... (4,944) 1,463 734 12,356 9,609
Redeemable preferred stock dividends and
accretion............................. 7,952 -- -- -- 7,952
--------- ------- ------- ------- -------
Net income (loss) from continuing
operations applicable to common
stock............................ $ (12,896) $ 1,463 $ 734 $12,356 $ 1,657
========= ======= ======= ======= =======
</TABLE>

- ---------------

(1) Excludes the results of operations of SFX Entertainment which were
classified as income from operations to be distributed to shareholders, net
of taxes in the historical financial statements of SFX. SFX Entertainment
was distributed to certain of the SFX stockholders in the Spin-Off, which
was consummated in April 1998. Consequently, SFX Entertainment will not be
acquired by the Company in the SFX Transactions.

(2) The adjustments represent the combined historical results of operations of
the following station acquisitions and dispositions completed by SFX prior
to the consummation of the SFX Acquisition: WPYX-FM, WHFS-FM, KTXQ-FM,
KRRW-FM, WRFX-FM, WWYZ-FM, WISN-AM, WLTQ-FM, WVGO-FM, WLEE-FM, WKHK-FM,
WBZU-FM, WFBQ-FM, WRZX-FM and WNDE-AM.

(3) The adjustments reflect the combined historical operating results of (i) the
following pending acquisitions, dispositions and LMAs in connection with the
SFX Transactions: Nashville, Austin, Jacksonville, Greenville, Upper
Fairfield, Daytona Beach-WGNE, Houston-KODA, Long Island, Houston-KKPN, and
the stations included in the Chancellor Exchange Agreement and (ii) stations
WJDX-FM and WTAE-AM, which the Company will sell after the consummation of
the SFX Acquisition to comply with the SFX Consent Decree.

(4) The adjustment represents the LMA revenue attributable to the ten SFX
stations to be sold to Chancellor Media in connection with the Chancellor
Exchange Agreement. Chancellor Media will provide services to ten SFX
stations in the Dallas, Houston, San Diego and Pittsburgh markets under
separate LMAs until such stations are exchanged. See "Certain Relationships
and Related Transactions -- Chancellor Exchange Agreement."

(5) The historical interest expense, depreciation and amortization of the
stations to be sold to Chancellor Media pursuant to the Chancellor Exchange
Agreement have been eliminated from the pro forma financial statements as
described in footnote 3, above. In accordance with the Company's policy,
since the Company's ownership costs, comprised of interest expense,
depreciation and amortization, exceed the LMA revenue for these stations,
the entire LMA fee described by footnote 4 above, has been recognized. This
column does not give effect to pro forma interest expense, depreciation and
amortization as a result of the foregoing transactions. Note B to the pro
forma financial statements describes the aggregate adjustment to
depreciation and amortization based upon the purchase accounting for the SFX
Transactions and includes depreciation and amortization related to the
stations included in the Chancellor Exchange. Note J to the pro forma
financial statements describes the aggregate adjustment to interest expense
based upon the financing of the SFX Transactions and includes interest
expense related to the stations included in the Chancellor Exchange.

38
<PAGE> 39
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(O) The schedule below gives effect to the following for the period from
January 1, 1998 through March 31, 1998: (i) acquisitions by the Company
completed prior to March 31, 1998; (ii) the historical acquisitions and
dispositions of the indicated entities consummated prior to March 31,
1998; and (iii) the acquisitions and dispositions of the indicated
entities which were pending at March 31, 1998 and will be consummated
prior to the consummation of the SFX Acquisition.

COMPLETED TRANSACTIONS COMBINED

<TABLE>
<CAPTION>
OTHER
COMPLETED COMPLETED
HISTORICAL TRANSACTIONS TRANSACTIONS
PATTERSON(1) COMBINED(2) COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
Net revenue...................................... $ 3,503 $ 198 $ 3,701
Station operating expenses....................... 2,523 84 2,607
Depreciation and amortization.................... 497 (185) 312
Corporate expenses............................... 171 (45) 126
------- ------- -------
Operating income (loss)........................ 312 344 656
Interest expense................................. 645 3 648
Other (income) expense........................... 3,163 (37) 3,126
------- ------- -------
Net income (loss) from continuing operations... $(3,496) $ 378 $(3,118)
======= ======= =======
</TABLE>

- ---------------

(1) The column represents the results of operations of Patterson from
January 1, 1998 through January 29, 1998, the date of the Patterson
Acquisition.

(2) The column represents the historical results of operations for the
following transactions which will be consummated prior to the
consummation of the SFX Acquisition: (i) the Quass, Commonwealth,
KDOS, Prophet Systems and the Reynolds Acquisitions, (ii) Americom
Disposition and (iii) Allentown, Jackson, Westchester, Dayton and
Salisbury-Ocean City (this disposition actually will be consummated
shortly after the consummation of the SFX Acquisition)
Dispositions.

39
<PAGE> 40
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(P) The column represents the combined income statements for the three months
ended March 31, 1998 of the transactions which (i) SFX completed during
the period, (ii) were pending at March 31, 1998 and have been consummated
by SFX prior to the consummation of the SFX Acquisition and (iii) were
pending at March 31, 1998 and will close subsequent to the consummation
of the SFX Acquisition in connection with the SFX Transactions.

SFX TRANSACTIONS COMBINED

<TABLE>
<CAPTION>
SFX
PENDING SFX
HISTORICAL TRANSACTIONS CHANCELLOR TRANSACTIONS
SFX(1) COMBINED(2) EXCHANGE(3)(4) COMBINED
---------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Net revenue............................. $ 65,751 $(19,408) $12,356 $ 58,699
Station operating expenses.............. 44,636 (14,376) -- 30,260
Depreciation and amortization........... 10,653 (2,284) -- 8,369
Corporate expenses...................... 1,569 -- -- 1,569
Non-cash compensation expense........... 138 -- -- 138
Other operating expenses................ 24,974 -- -- 24,974
-------- -------- ------- --------
Operating income (loss)............ (16,219) (2,748) 12,356 (6,611)
Interest expense........................ 19,190 (4) -- 19,186
Other (income) expense.................. (202) (126) -- (328)
-------- -------- ------- --------
Income (loss) before provision for
income taxes..................... (35,207) (2,618) 12,356 (25,469)
Provision for income taxes.............. 210 -- -- 210
-------- -------- ------- --------
Income (loss) from continuing
operations....................... (35,417) (2,618) 12,356 (25,679)
Redeemable preferred stock dividends and
accretion............................. 10,350 -- -- 10,350
-------- -------- ------- --------
Net income (loss) from continuing
operations applicable to common
stock............................ $(45,767) $ (2,618) $12,356 $(36,029)
======== ======== ======= ========
</TABLE>

- ---------------

(1) Excludes the results of operations of SFX Entertainment which were
classified as income from operations to be distributed to
shareholders, net of taxes in the historical financial statements
of SFX. SFX Entertainment was distributed to certain of the SFX
stockholders in the Spin-Off which was consummated in April 1998.
Consequently, SFX Entertainment will not be acquired by the Company
in the SFX Transactions.

(2) The adjustments reflect the combined historical operating results
of (i) the following pending acquisitions, dispositions and LMAs in
connection with the SFX Transactions: Nashville, Austin,
Jacksonville, Greenville, Upper Fairfield, Daytona Beach-WGNE,
Houston-KODA, Long Island, Houston-KKPN and the stations included
in the Chancellor Exchange Agreement and (ii) stations WJDX-FM and
WTAE-AM, which the Company will sell after the consummation of the
SFX Acquisition to comply with the SFX Consent Decree.

(3) The adjustment represents the LMA revenue attributable to the ten
SFX stations to be sold to Chancellor Media in connection with the
Chancellor Exchange Agreement. Chancellor Media will provide
services to ten SFX stations in the Dallas, Houston, San Diego and
Pittsburgh markets under separate LMAs until such stations are
exchanged. See "Certain Relationships and Related
Transactions -- Chancellor Exchange Agreement."

(4) The historical interest expense, depreciation and amortization of
the stations to be sold to Chancellor Media pursuant to the
Chancellor Exchange Agreement have been eliminated from the pro
forma financial statements as described in footnote 3, above. In
accordance with the Company's policy, since the Company's ownership
costs, comprised of interest expense, depreciation and
amortization, exceed the LMA revenue for these stations, the entire
LMA fee described by footnote 4 above, has been recognized. This
column does not give effect to pro forma interest expense,
depreciation and amortization as a result of the foregoing
transactions. Note B to the pro forma financial statements
describes the aggregate adjustment to depreciation and amortization
based upon the purchase accounting for the SFX Transactions and
includes depreciation and amortization related to the stations
included in the Chancellor Exchange. Note J to the pro forma
financial statements describes the aggregate adjustment to interest
expense based upon the financing of the SFX Transactions and
includes interest expense related to the stations included in the
Chancellor Exchange.

(Q) The column represents the combined balance sheets as of March 31, 1998 of
the acquisitions and dispositions of the Company which will be
consummated subsequent to March 31, 1998, but prior to the date of the
consummation of the SFX Acquisition, including: Grant Acquisition, KOSO
Acquisition, KDOS Acquisition, Prophet Systems Acquisition, Americom
Acquisition, Westchester Disposition, Americom Disposition and
Salisbury-Ocean City Disposition (this disposition actually will be
consummated shortly after the consummation of the SFX Acquisition).

40
<PAGE> 41

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(R) The adjustments reflect the allocation of the purchase prices, net of the
proceeds from the stations disposed of in connection with the Completed
Transactions, of the Completed Transactions, to the assets acquired and
liabilities assumed resulting in adjustments to property and equipment and
FCC licenses to their estimated fair values and the recording of goodwill
associated with the acquisitions as follows:

<TABLE>
<CAPTION>
ALLOCATION OF CARRYING
PURCHASE PRICES(1)(2) VALUE ADJUSTMENTS
--------------------- -------- -----------
<S> <C> <C> <C>
Cash and cash equivalents.................... $ -- $ 1,664 $(1,664)
Accounts receivable, net..................... 380 3,553 (3,173)
Prepaid expenses and other................... -- 3,433 (3,433)
Property and equipment, net.................. 4,785 (1,123) 5,908
Intangible and other assets, net............. 14,907 (12,073) 26,980
Accounts payable and other accrued
expenses................................... -- (1,395) (1,395)
-------
Total purchase prices................... $20,072
=======
</TABLE>

- ---------------

(1) Included in the allocation of purchase prices to the intangibles and
other assets acquired, approximately $12,671 relates to FCC licenses
and $2,236 relates to goodwill.

(2) The significant components of the Company's deferred tax assets and
liabilities on a pro forma basis after giving effect to the Completed
Transactions as of March 31, 1998 are as follows:

<TABLE>
<S> <C>
Deferred tax liabilities:
Property and equipment basis differences and related
depreciation............................................ $ 2,094
FCC licenses and other intangible asset basis differences
and related amortization................................ 289,875
--------
Total deferred tax liabilities...................... 283,319
Deferred tax assets:
Miscellaneous............................................. 4,307
Unamortized discount of long-term debt.................... 10,589
Net operating loss carryforwards.......................... 42,660
--------
Total deferred tax assets........................... 57,556
Valuation allowance for deferred tax assets............... --
--------
Net deferred tax asset.............................. 57,556
--------
Net deferred tax liability.......................... $234,413
========
</TABLE>

(S) Adjustments represent available cash which will be used in connection with
the SFX Transactions.

(T) The adjustment represents the loan receivable due to the Company issued in
connection with the Westchester Disposition of $10,500.

(U) The adjustments reflect (i) the completion of the April 1998 tender offer
of the 13 1/4% Capstar Notes of $80,964, including accrued interest of
$2,740, and (ii) the elimination of the historical debt of the stations
acquired in the Completed Transactions of $7,809, including the current
portion of $2,793.

(V) The adjustment reflects the extraordinary charge on the early
extinguishment of debt of $4,689, net of tax benefit of $2,107, related to
the purchase of the 13 1/4% Capstar Notes in the period the refinancing
occurred. See "Management's Discussion and Analysis -- Liquidity and
Capital Resources."

(W) The adjustments reflect (i) the net effect of the elimination of the
historical deficit of $13,750 of the Completed Transactions, based on the
purchase method of accounting, (ii) an equity investment in April 1998 by
Hicks Muse of $50,000, (iii) equity investments by Capstar BT Partners,
L.P. in April 1998 and Gerry House of $26,674 and $500, respectively, and
(iv) Common Stock to be issued sometime after the Offering in connection
with the Prophet Systems Acquisition valued at $10,000 (based upon the
issuance of 285,714 shares of Class A Common Stock with a deemed value of
$35.00 per share).
\

41
<PAGE> 42
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(X) The column represents the combined balance sheets as of March 31, 1998 of
SFX and the acquisitions and dispositions which will be completed in
connection with the SFX Transactions.

SFX TRANSACTIONS COMBINED

<TABLE>
<CAPTION>
SFX SFX
HISTORICAL PENDING TRANSACTIONS
SFX(1) TRANSACTIONS(2) COMBINED
---------- --------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 38,464 $ 68 $ 38,532
Accounts receivable, net................. 64,447 1,228 65,675
Prepaid expenses and other............... 167,437 74 167,511
---------- --------- ----------
Total current assets............. 270,348 1,370 271,718
Property and equipment, net................ 75,296 (7,515) 67,781
Intangible and other assets, net(3)........ 1,048,251 (116,715) 931,536
---------- --------- ----------
Total assets..................... $1,393,895 $(122,860) $1,271,035
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued
expenses.............................. $ 179,261 $ 545 $ 179,806
Current portion of long-term debt........ 617 -- 617
---------- --------- ----------
Total current liabilities........ 179,878 545 180,423
Long-term debt, less current portion....... 763,985 -- 763,985
Other long-term liabilities................ 77,781 -- 77,781
---------- --------- ----------
Total liabilities................ 1,021,644 545 1,022,189
Redeemable preferred stock................. 376,615 -- 376,615
Minority interest.......................... 56,200 -- 56,200
Stockholders' deficit...................... (60,564) (123,405) (183,969)
---------- --------- ----------
Total liabilities and
stockholders' equity........... $1,393,895 $(122,860) $1,271,035
========== ========= ==========
</TABLE>

- ---------------

(1) In connection with the SFX Transaction, a portion of the 10 3/4% SFX Notes
and the 11 3/8% SFX Notes will remain outstanding. Neither the Company, nor
any of its subsidiaries, excluding SFX and its subsidiaries, will guarantee
the aforementioned notes.

(2) The column reflects the combined balance sheets of (i) the following
entities to be acquired or sold in connection with the SFX Transactions:
Nashville, Austin, Jacksonville, Greenville, Upper Fairfield, Daytona
Beach-WGNE, Houston-KODA, Long Island and Houston-KKPN and (ii) stations
WJDX-FM and WTAE-AM, which the Company will sell after the consummation of
the SFX Acquisition to comply with the SFX Consent Decree.

(3) Historical intangible and other assets, net includes the $11,454 of net
assets of SFX Entertainment which were classified in the historical
financial statements of SFX as net assets to be distributed to
shareholders. These assets were distributed in the Spin-Off in April of
1998 and no value has been assigned to the SFX Entertainment assets in the
purchase accounting for the SFX Transactions described in pro forma note Y.

42
<PAGE> 43
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(Y) The adjustment reflects (i) the increase of $31,820 in carrying value of
the 10 3/4% SFX Notes to their estimated fair value of $327,820, (ii) the
increase of $10,266 in carrying value of the 12 5/8% SFX Preferred Stock
to their estimated fair value of $125,469, and (iii) the allocation of the
purchase prices, net of the proceeds from the stations disposed of in
connection with the SFX Transactions, of the SFX Transactions to the
assets acquired and liabilities assumed resulting in adjustments to
property and equipment and FCC licenses to their estimated fair values and
the recording of goodwill associated with the acquisitions as follows:

<TABLE>
<CAPTION>
ALLOCATION OF CARRYING
PURCHASE PRICES(1)(2) VALUE ADJUSTMENTS
--------------------- --------- -----------
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 38,464 $ 38,532 $ (68)
Accounts receivable, net..................... 64,447 65,675 (1,228)
Prepaid expenses and other................... 129,169 167,511 (38,342)
Property and equipment, net.................. 88,298 67,781 20,517
Intangible and other assets, net(3).......... 2,546,351 931,536 1,614,815
Accounts payable and other accrued
expenses................................... (179,261) (179,806) (545)
Other long-term liabilities.................. (522,797) (77,781) 445,016
Minority interest............................ -- (56,200) (56,200)
----------
Total purchase prices.............. $2,164,671
==========
</TABLE>

--------------------

(1) Of the allocation of purchase prices to the intangibles and other
assets acquired, approximately $1,877,872 relates to FCC licenses and
$668,479 relates to goodwill. In connection with the allocation of
$1,877,872 to FCC licenses, the Company recorded an additional
deferred tax liability of $445,016 to other long-term liabilities.

(2) The significant components of the Company's deferred tax assets and
liabilities on a pro forma basis after giving effect to the SFX
Transactions as of March 31, 1998 are as follows:

<TABLE>
<S> <C>
Deferred tax liabilities:
Property and equipment basis differences and related
depreciation............................................ $ 10,369
FCC licenses and other intangible asset basis differences
and related amortization................................ 764,213
--------
Total deferred tax liabilities...................... 744,055
Deferred tax assets:
Miscellaneous............................................. 17,939
Unamortized discount of long-term debt.................... 10,589
Net operating loss carryforwards.......................... 66,625
--------
Total deferred tax assets........................... 95,153
Valuation allowance for deferred tax assets............... --
--------
Net deferred tax asset.............................. 95,153
--------
Net deferred tax liability.......................... $679,429
========
</TABLE>

(3) In connection with the SFX Transactions, no value has been assigned to
the net assets of SFX Entertainment which were distributed to certain
of the SFX stockholders in the Spin-Off in April of 1998. Prior to the
SFX Transactions, the net assets of SFX Entertainment of $11,454 were
classified in the historical financial statements of SFX as net assets
to be distributed to shareholders. This amount is included in
intangible and other assets, net in the table above.

(Z) The adjustment represents the loan receivable due to the Company issued in
connection with the Upper Fairfield Disposition of $4,500.

(AA) The adjustment represents the estimated deferred financing costs of $9,750
incurred in connection with the Capstar Credit Facility.

(BB) The adjustments reflect (i) the redemption of $154,000 aggregate principal
amount of the 10 3/4% SFX Notes and the payment of related accrued
interest of $6,208 and (ii) the repayment of borrowings under the SFX
Credit Facility of $313,000. A portion of the 10 3/4% SFX Notes and the
11 3/8% SFX Notes will remain outstanding. Neither the Company, nor any of
its subsidiaries, excluding SFX and its subsidiaries, will guarantee the
aforementioned notes.

43
<PAGE> 44
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)

(CC) The adjustments reflect (i) borrowings of $150,000 under the Chancellor
Note and (ii) borrowings of $811,762 under the Capstar Credit Facility
with a weighted average annual interest rate of 9 3/4%.

(DD) The adjustment reflects (i) the purchase and cancellation of SFX's Series
B Redeemable Preferred Stock, Series C Redeemable Preferred Stock, and
Series D Cumulative Convertible Exchangeable Preferred Stock with a
carrying value of $146,209 in connection with the SFX Acquisition and (ii)
the redemption of the 12 5/8% SFX Preferred Stock with a carrying value of
$115,203 in connection with the Financing.

(EE) The adjustment reflects the net effect of the elimination of the
historical deficit of $183,969 of the SFX Transactions based on the
purchase method of accounting.

(FF) The adjustment reflects proceeds of $552,536 from the Offering, net of
estimated fees and expenses.

44
<PAGE> 45

SELECTED HISTORICAL FINANCIAL DATA

The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," "Business," the Consolidated Financial Statements of the Company and
the related notes thereto, included elsewhere in this Prospectus.

In July 1997, the Company and GulfStar merged in a transaction between
entities under common control which was accounted for in a manner similar to a
pooling of interests. The table below presents only the financial data of
GulfStar from January 1, 1993 through October 16, 1996, the date the Company
commenced operations. Subsequent to October 16, 1996, the historical financial
data of the Company and GulfStar have been combined.

The financial results of Commodore, the Company's predecessor, are included
on the following page and are presented through October 16, 1996, the data of
its acquisition by the Company.

The operating and other data in the following table have been derived from
audited financial statements of the Company for the years ended December 31,
1997, 1996 and 1995 and from unaudited financial statements of the Company for
the three months ended March 31, 1998 and 1997, all of which are included
elsewhere in this Prospectus, and from audited financial statements for the
years ended December 31, 1994 and 1993. The selected balance sheet data in the
following table have been derived from audited financial statements of the
Company as of December 31, 1997 and 1996 and from unaudited financial statements
of the Company as of March 31, 1998 and 1997 all of which are included elsewhere
in this Prospectus, and from audited financial statements of the Company as of
December 31, 1995, 1994 and 1993.

In management's opinion, the unaudited financial statements from which such
data have been derived include all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly, in all material respects,
the results of operations and financial condition of the Company as of and for
the periods presented.

THE COMPANY

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
------ ---------- ---------- ---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenue.................... $4,002 $ 9,834 $ 15,797 $ 42,866 $ 175,445 $ 25,102 $ 64,075
Station operating expenses..... 2,818 6,662 11,737 30,481 122,135 18,304 47,760
Depreciation and
amortization................. 307 712 1,134 4,141 26,415 3,725 11,032
Corporate expenses............. 158 339 513 2,523 14,221 1,942 3,757
LMA fees....................... 23 330 341 834 2,519 683 1,871
Non-cash compensation
expense(1)................... -- -- -- 6,176 10,575 2,469 15,793
Operating income (loss)........ 696 1,791 2,072 (1,289) (420) (2,021) (16,138)
Interest expense............... 315 635 3,737 8,907 47,012 7,955 15,897
Net income (loss).............. 319 645 1,570 (11,957) (45,740) (8,203) (29,805)
Net income (loss) attributable
to common stock.............. 319 645 1,562 (13,307) (52,811) (8,997) (29,805)
Basic and diluted loss per
common share(2).............. $ -- $ 0.11 $ 0.25 $ (1.50) $ (2.07) $ (0.47) $ (0.65)
Weighted average common shares
outstanding(2)............... -- 5,940,000 6,286,248 8,880,488 25,455,211 19,288,014 46,130,912
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents...... $ 286 $ 913 $ 220 $ 9,821 $ 70,059 $ 19,003 $ 216,374
Intangible and other assets,
net.......................... 5,019 15,094 39,003 344,524 900,045 508,602 1,202,002
Total assets................... 8,424 20,991 49,000 402,632 1,121,456 627,044 1,612,601
Long-term debt, including
current portion.............. 7,448 18,719 37,427 191,170 594,572 312,515 459,725
Redeemable preferred stock..... -- -- 758 23,098 101,493 23,081 104,545
Total stockholders' equity..... 323 970 2,563 93,736 232,085 144,452 775,782
OTHER DATA:
Broadcast cash flow(3)......... $1,184 $ 3,172 $ 4,060 $ 12,385 $ 53,310 $ 6,798 $ 16,315
Broadcast cash flow margin..... 29.6% 32.3% 25.7% 28.9% 30.4% 27.1% 25.5%
EBITDA (before non-cash
compensation expense and LMA
fees)(4)..................... $1,026 $ 2,833 $ 3,547 $ 9,862 $ 39,089 $ 4,856 $ 12,558
Cash flows related to:
Operating activities......... 411 1,833 1,259 (2,339) 6,699 507 (1,029)
Investing activities......... (324) (11,531) (19,648) (155,579) (487,002) (147,677) (267,709)
Financing activities......... 180 10,325 17,696 167,519 540,541 156,352 415,053
Capital expenditures........... 300 1,192 495 2,478 10,020 1,679 4,162
</TABLE>

- ---------------
(1) Consists of non-cash compensation charges resulting from the grant of
warrants and stock subscriptions.
(2) Reflects the effect of the one for ten reverse stock split.
(3) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses, LMA fees and non-cash compensation
expense. Although broadcast cash flow is not a measure of performance
calculated in accordance with generally accepted accounting principles
("GAAP"), management believes that it is useful to an investor in evaluating
the Company because it is a measure widely used in the broadcast industry to
evaluate a radio company's operating performance. Nevertheless, it should
not be considered in isolation or as a substitute for operating income, cash
flows from operating activities or any other measure for determining the
Company's operating performance or liquidity that is calculated in
accordance with GAAP. As broadcast cash flow is not a measure calculated in
accordance with GAAP, this measure may not be comparable to similarly titled
measures employed by other companies. See "Glossary of Certain Terms."
(4) EBITDA (before non-cash compensation expense and LMA fees) consists of
operating income before depreciation, amortization, LMA fees and non-cash
compensation expense. Although EBITDA (before non-cash compensation expense
and LMA fees) is not a measure of performance calculated in accordance with
GAAP, management believes that it is useful to an investor in evaluating the
Company because it is a measure widely used in the broadcast industry to
evaluate a radio company's operating performance. Nevertheless, it should
not be considered in isolation or as a substitute for operating income, cash
flows from operating activities or any other measure for determining the
Company's operating performance or liquidity that is calculated in
accordance with GAAP. As EBITDA (before non-cash compensation expense and
LMA fees) is not a measure calculated in accordance with GAAP, this measure
may not be comparable to similarly titled measures employed by other
companies. See "Glossary of Certain Terms."

45
<PAGE> 46

COMMODORE

The operating and other data in the following table have been derived from
audited consolidated statements of operations and cash flows of Commodore, the
Company's predecessor, for the period January 1, 1996 through October 16, 1996
and for the year ended December 31, 1995, included elsewhere in this Prospectus,
and from audited financial statements for the years ended December 31, 1994,
1993 and 1992. The selected balance sheet data in the following table have been
derived from audited financial statements of Commodore as of December 31, 1995,
1994, 1993 and 1992.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, JANUARY 1, 1996-
-------------------------------------------- OCTOBER 16,
1992 1993 1994 1995 1996(1)
-------- -------- -------- -------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenue............................. $ 17,961 $ 19,798 $ 26,225 $ 30,795 $ 31,957
Station operating expenses.............. 12,713 13,509 16,483 19,033 21,291
Depreciation and amortization........... 1,676 1,129 2,145 1,926 2,158
Corporate expenses...................... 1,602 2,531 2,110 2,051 1,757
Other operating expenses(2)............. -- 1,496 2,180 2,007 13,834
Operating income (loss)................. 1,970 1,133 3,307 5,778 (7,083)
Interest expense........................ 4,614 4,366 3,152 7,806 8,861
Net income (loss)....................... (2,580) (3,782) (527) (2,240) (17,836)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............... $ 1,045 $ 887 $ 2,042 $ 10,891
Intangible and other assets, net........ 13,819 22,419 21,096 27,422
Total assets............................ 27,508 36,192 36,283 52,811
Long-term debt, including current
portion............................... 51,934 41,773 36,962 66,261
Redeemable preferred stock.............. 5,800 10 8,414 --
Total stockholders' deficit............. (28,766) (8,097) (18,038) (18,555)
OTHER DATA:
Broadcast cash flow(3).................. $ 5,248 $ 6,289 $ 9,742 $ 11,762 $ 10,666
Broadcast cash flow margin.............. 29.2% 31.8% 37.1% 38.2% 33.4%
EBITDA (before non-cash compensation
expense and LMA fees)(4).............. $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 8,909
Cash flows related to:
Operating activities.................. (406) 477 4,061 1,245 1,990
Investing activities.................. (458) (10,013) (50) (4,408) (34,358)
Financing activities.................. 951 9,377 (2,855) 12,013 26,724
Capital expenditures.................... 371 333 623 321 449
</TABLE>

- ---------------
(1) The historical financial data set forth includes the results of operations
from January 1, 1996 through October 16, 1996, the date of the Commodore
Acquisition.

(2) Other operating expenses consist of separation compensation in 1993 and
long-term incentive compensation under restructured employment agreements
with Commodore's former President and Chief Executive Officer and its former
Chief Operating Officer in 1995 and 1994. In 1996, it consists of merger
related compensation charges in connection with the Commodore Acquisition.
Such expenses are non-cash and/or are not expected to recur.

46
<PAGE> 47

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto of the Company included elsewhere
in this Prospectus. Periodically, the Company may make statements about trends,
future plans and the Company's prospects. Actual results may differ materially
from those described in such forward looking statements based on the risks and
uncertainties facing the Company, including but not limited to, the following:
business conditions and growth in the radio broadcasting industry and the
general economy; competitive factors; changes in interest rates; the failure or
inability to renew one or more of the Company's broadcasting licenses; and the
factors described in "Risk Factors."

A radio broadcast company's revenues are derived primarily from the sale of
time to local and national advertisers. Those revenues are affected by the
advertising rates that a radio station is able to charge and the number of
advertisements that can be broadcast without jeopardizing listener levels (and
resulting ratings). Advertising rates tend to be based upon demand for a
station's advertising inventory and its ability to attract audiences in targeted
demographic groups, as measured principally by Arbitron. Radio stations attempt
to maximize revenues by adjusting advertising rates based upon local market
conditions, controlling advertising inventory and creating demand and audience
ratings.

Seasonal revenue fluctuations are common in the radio broadcasting industry
and are due primarily to fluctuations in advertising expenditures by local and
national advertisers, with revenues typically being lowest in the first calendar
quarter and highest in the second and fourth calendar quarters of each year. A
radio station's operating results in any period also may be affected by the
occurrence of advertising and promotional expenditures that do not produce
commensurate revenues in the period in which the expenditures are made. Because
Arbitron reports audience ratings on a quarterly basis, a radio station's
ability to realize revenues as a result of increased advertising and promotional
expenses and any resulting audience ratings improvements may be delayed for
several months.

The Company's results of operations from period to period have not
historically been comparable because of the impact of the various acquisitions
and dispositions that the Company has completed. For a description of the
transactions completed by the Company, see "Capstar Broadcasting Partners, Inc.
and Subsidiaries -- Notes to Consolidated Financial Statements -- Acquisitions
and Dispositions of Broadcasting Properties" set forth in Part II.

In the Pending Acquisitions, the Company has agreed to purchase 25 radio
stations serving ten mid-sized markets. The Company anticipates that it will
consummate the Pending Acquisitions; however, the closing of each such
acquisition is subject to various conditions, including FCC and other
governmental approvals, which are beyond the Company's control, and the
availability of financing to the Company on acceptable terms. No assurances can
be given that regulatory approval will be received, that the Indentures, the
Certificates of Designation, the Capstar Credit Facility, the Chancellor Note or
any other loan agreements to which the Company will be a party will permit
additional financing for the Pending Acquisitions or that such financing will be
available to the Company on acceptable terms. See "Risk Factors -- Risks of
Acquisition Strategy."

In the following analysis, management discusses broadcast cash flow and
EBITDA (before non-cash compensation expense and LMA fees). Broadcast cash flow
consists of operating income before depreciation, amortization, corporate
expenses, LMA fees and non-cash compensation expense. EBITDA (before non-cash
compensation expense) consists of operating income before depreciation,
amortization, LMA fees and non-cash compensation expense. Although broadcast
cash flow and EBITDA (before non-cash compensation expense and LMA fees) are not
measures of performance calculated in accordance with generally accepted
accounting principles ("GAAP"), management believes that they are useful to an
investor in evaluating the Company because they are measures widely used in the
broadcast industry to evaluate a radio company's operating performance. However,
broadcast cash flow and EBITDA (before non-cash compensation expense and LMA
fees) should not be considered in isolation or as substitutes for operating
income, cash flows from
47
<PAGE> 48

operating activities and other income or cash flow statement data prepared in
accordance with GAAP or as a measure of liquidity or profitability. See
"Glossary of Certain Terms."

Results of Operations

The following table presents summary historical financial data of the
Company and should be read in conjunction with the consolidated financial
statements of the Company and, in each case, the related notes included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------- -------------------------------------
1995 % 1996 % 1997 % 1997 % 1998 %
------- ----- -------- ----- -------- ----- -------- ----- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenue......... $15,797 100.0% $ 42,866 100.0% $175,445 100.0% $ 25,102 100.0% $ 64,075 100.00%
Station operating
expenses.......... 11,737 74.3 30,481 71.1 122,135 69.6 18,304 72.9 47,760 74.5
Depreciation and
amortization...... 1,134 7.2 4,141 9.7 26,415 15.1 3,725 14.9 11,032 17.2
Corporate
expenses.......... 513 3.2 2,523 5.9 14,221 8.1 1,942 7.7 3,757 5.9
LMA fees............ 341 2.2 834 1.9 2,519 1.4 683 2.7 1,871 2.9
Non-cash
compensation
expense........... -- -- 6,176 14.4 10,575 6.0 2,469 9.8 15,793 24.7
Operating income
(loss)............ 2,072 13.1 (1,289) (3.0) (420) (0.2) (2,021) (8.0) (16,138) (25.2)
Interest expense.... 3,737 23.7 8,907 20.8 47,012 26.8 7,955 31.7 15,897 24.8
Net income (loss)... 1,570 9.9 (11,957) (27.9) (45,740) (26.1) (8,203) (32.7) (29,805) (46.5)
OTHER DATA:
Broadcast cash
flow.............. $ 4,060 25.7% $ 12,385 28.9% $ 53,310 30.4% $ 6,798 27.1% $ 16,315 25.5%
EBITDA (before non-
cash compensation
expense and LMA
fees)............. 3,547 22.5 9,862 23.0 39,089 22.3 4,856 19.3 12,558 19.6
</TABLE>

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

Net Revenue. Net revenue increased $39.0 million or 155.3% to $64.1 million
in the three months ended March 31, 1998 from $25.1 million in the three months
ended March 31, 1997. This increase was attributable primarily to the
acquisition of radio stations and revenue generated from JSAs and LMAs entered
into during 1997 and 1998. On a same station basis, for stations owned or
operated as of March 31, 1998, net revenue increased $3.7 million or 5.8% to
$67.7 million in the three months ended March 31, 1998 from $64.0 million in the
three months ended March 31, 1997. This increase was primarily attributable to
growth in the sale of time to local and national advertisers.

Station Operating Expenses. Station operating expenses increased $29.5
million or 160.9% to $47.8 million in the three months ended March 31, 1998 from
$18.3 million in the three months ended March 31, 1997. The increase was
attributable to the station operating expenses of the radio station acquisitions
and JSAs and LMAs entered into during 1997 and 1998. On a same station basis,
for stations owned or operated as of March 31, 1998, operating expenses
decreased $600,000 or 1.2% to $50.2 million in the three months ended March 31,
1998 from $50.8 million in the three months ended March 31, 1997 and, as a
percent of revenue, on a same station basis, operating expenses declined from
79.4% for the three months ended March 31, 1997 to 74.1% for the three months
ended March 31, 1998 as a result of (i) cost savings measures implemented by the
Company in connection with its acquisitions and (ii) the spreading of fixed
costs over a larger revenue base.

Corporate Expenses. Corporate expenses increased approximately $1.9 million
or 93.5% for the three months ended March 31, 1998 to $3.8 million from $1.9
million for the three months ended March 31, 1997 as a result of higher salary
expense for additional staffing.

Other Operating Expenses. Depreciation and amortization increased $7.3
million or 196.2% to $11.0 million for the three months ended March 31, 1998
from $3.7 million for the three months ended March 31, 1997, primarily due to
radio station acquisitions consummated in 1997 and 1998. LMA fees increased

48
<PAGE> 49

$1.2 million, or 173.9%, to $1.9 million for the three months ended March 31,
1998 from $700,000 for the three months ended March 31, 1998. Non-cash
compensation expense related to certain warrants issued to the Company's Chief
Executive Officer in 1996 and 1997 in connection with certain transactions and
certain stock subscriptions increased $13.3 million or 539.7% to $15.8 million
in the three months ended March 31, 1998 from $2.5 million in the three months
ended March 31, 1997 due to the increase in the fair value of the Common Stock
as determined based on the midpoint of the estimated offering range.

Other Expenses (Income). Interest expense increased $7.9 million or 99.8%
to $15.9 million in the three months ended March 31, 1998 from $8.0 million
during the same period in 1997 primarily due to indebtedness incurred in
connection with the Company's acquisitions. Other income, net, increased
$200,000 to $300,000 in the three months ended March 31, 1998 from $100,000 in
the same period in 1997. An extraordinary loss of $600,000 on extinguishment of
debt was recorded in 1997, related to the write-off of deferred financing fees
associated with the GulfStar credit facility, which was refinanced during the
period.

Net Loss. As a result of the factors described above and preferred stock
dividends resulting from the 12% Capstar Partners Preferred Stock issued by
Capstar Partners in June 1997, net loss increased $21.6 million in the three
months ended March 31, 1998 to a net loss of $29.8 million from a net loss of
$8.2 million in the three months ended March 31, 1997.

Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $9.5 million or 140.0% to $16.3 million in the three months
ended March 31, 1998 from $6.8 million in the three months ended March 31, 1997.
The broadcast cash flow margin was 25.5% in the three months ended March 31,
1998 as compared to 27.1% in the same period in 1997. The inclusion of broadcast
cash flow from acquisitions and JSAs and LMAs accounted for $9.0 million of the
increase. On a same station basis, for stations owned or operated as of March
31, 1998, broadcast cash flow increased $4.3 million or 32.8% to $17.5 million
in the three months ended March 31, 1998 from $13.2 million in the three months
ended March 31, 1997.

EBITDA (before non-cash compensation expense and LMA fees). As a result of
the factors described above, EBITDA (before non-cash compensation expense and
LMA fees) increased $7.7 million or 158.6% to $12.6 million in the three months
ended March 31, 1998 from $4.9 million in the three months ended March 31, 1997.
EBITDA (before non-cash compensation expense and LMA fees) margin increased to
19.6% for the three months ended March 31, 1998 from 19.4% for the same three
month period in 1997 as a result of lower corporate expenses as a percentage of
net revenue as described above.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Net Revenue. Net revenue increased $132.5 million or 309.3% to $175.4
million in the year ended December 31, 1997 from $42.9 million in the year ended
December 31, 1996. This increase was attributable to the acquisition of radio
stations and revenue generated from JSAs and LMAs entered into during the years
ended December 31, 1997 and 1996. On a same station basis, for stations owned or
operated as of December 31, 1997, net revenue increased $9.0 million or 4.2% to
$223.5 million in the year ended December 31, 1997 from $214.5 million in the
year ended December 31, 1996. This increase was primarily attributable to growth
in the sale of time to local and national advertisers.

Station Operating Expenses. Station operating expenses increased $91.6
million or 300.7% to $122.1 million in the year ended December 31, 1997 from
$30.5 million in the year ended December 31, 1996. The increase was attributable
to the station operating expenses of the radio station acquisitions and JSAs and
LMAs entered into during the years ended December 31, 1997 and 1996. On a same
station basis, for stations owned or operated as of December 31, 1997, operating
expenses decreased $1.4 million or 0.9% to $157.6 million in the year ended
December 31, 1997 from $159.0 million in the year ended December 31, 1996 and,
as a percent of revenue, historical operating expenses declined from 71.1% in
1996 to 69.6% in 1997 as a result of (i) cost savings measures implemented by
the Company in connection with its acquisitions and (ii) the spreading of fixed
costs over a larger revenue base.

49
<PAGE> 50

Corporate Expenses. Corporate expenses increased $11.7 million or 463.7%
during 1997 to $14.2 million from $2.5 million in 1996 as a result of higher
salary expense for additional staffing.

Other Operating Expenses. Depreciation and amortization increased $22.3
million or 537.9% to $26.4 million in 1997 from $4.1 million in 1996 primarily
due to radio station acquisitions consummated in 1997 and 1996. LMA fees
increased $1.7 million or 202.0%, to $2.5 million in the year ended December 31,
1997 from $800,000 in the year ended December 31, 1996. Non-cash compensation
expense increased $4.4 million or 71.2% to $10.6 million in the year ended
December 31, 1997 from $6.2 million in the year ended December 31, 1996 due to
compensation charges in connection with certain warrants issued to the Company's
Chief Executive Officer and certain stock subscriptions.

Other Expenses (Income). Interest expense increased $38.1 million or 427.8%
to $47.0 million in the year ended December 31, 1997 from $8.9 million during
the same period in 1996 primarily due to indebtedness incurred in connection
with the Company's acquisitions. Other expense, net, increased $3.8 million to
$4.7 million in expense in the year ended December 31, 1997 from $900,000 in
other income in the same period in 1996. The increase in other expense was
primarily due to $3.5 million in transaction costs incurred as a result of the
GulfStar Acquisition. An extraordinary loss of $2.4 million on extinguishment of
debt was recorded in 1997, related to the write-off of deferred financing fees
associated with the GulfStar credit facility, which was refinanced during the
period.

Net Loss. As a result of the factors described above and preferred stock
dividends resulting from the 12% Capstar Partners Preferred Stock issued by
Capstar Partners in June 1997, net loss increased $33.7 million in the year
ended December 31, 1997 to a net loss of $45.7 million from a net loss of $12.0
million in the year ended December 31, 1996.

Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $40.9 million or 330.4% to $53.3 million in the year ended
December 31, 1997 from $12.4 million in the year ended December 31, 1996. The
broadcast cash flow margin was 30.4% in the year ended December 31, 1997 as
compared to 28.9% in the same period in 1996. The inclusion of broadcast cash
flow from acquisitions and JSAs and LMAs accounted for $40.1 million of the
increase. On a same station basis, for stations owned or operated as of December
31, 1997, broadcast cash flow increased $10.4 million or 18.8% to $65.9 million
in the year ended December 31, 1997 from $55.5 million in year ended December
31, 1996.

EBITDA (before non-cash compensation expense and LMA fees). As a result of
the factors described above, EBITDA (before non-cash compensation expense and
LMA fees) increased $29.2 million or 296.4% to $39.1 million in the year ended
December 31, 1997 from $9.9 million in the year ended December 31, 1996. The
EBITDA (before non-cash compensation expense and LMA fees) margin decreased to
22.3% in 1997 from 23.0% in 1996 as a result of higher corporate expenses as
described above.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Net Revenue. Net revenue increased $27.1 million or 171.4% to $42.9 million
in the year ended December 31, 1996 from $15.8 million in the year ended
December 31, 1995. This increase was attributable to the acquisitions of radio
stations and revenue generated from JSAs and LMAs entered into during the years
ended December 31, 1996 and 1995. On a same station basis, for stations owned or
operated as of December 31, 1996 net revenue increased $13.3 million or 17.7% to
$88.8 million in the year ended December 31, 1996 from $75.5 million in the year
ended December 31, 1995. The increase was primarily attributable to growth in
the sale of time to local and national advertisers.

Station Operating Expenses. Station operating expenses increased $18.8
million or 159.7% to $30.5 million in the year ended December 31, 1996 from
$11.7 million in the year ended December 31, 1995. The increase was attributable
to the station operating expenses of the radio station acquisitions and the JSAs
and the LMAs entered into during the years ended December 31, 1996 and 1995,
which contributed $20.8 million to the increase. On a same station basis, for
stations owned or operated as of December 31, 1996, operating expenses increased
$9.1 million or 16.8% to $63.4 million from $54.3 million in the year ended
December 31, 1995. As a percent of revenue, historical operating expenses have
declined from 74.3% in 1995

50
<PAGE> 51

to 71.1% in 1996 as a result of (i) cost savings measures implemented by the
Company in connection with its acquisitions and (ii) the spreading of fixed
costs over a larger revenue base.

Corporate Expenses. Corporate expenses increased $2.0 million or 391.8% to
$2.5 million in the year ended December 31, 1996 from $500,000 in the same
period in 1995 as a result of higher salary expense for additional staffing.

Other Operating Expenses. Depreciation and amortization increased $3.0
million or 265.2% to $4.1 million in the year ended December 31, 1996 from $1.1
million in the same period in 1995 primarily due to radio station acquisitions
consummated in 1996 and 1995. LMA fees increased $500,000 or 144.6%, to $800,000
in the year ended December 31, 1996 from $300,000 in the year ended December 31,
1995. The Company incurred non-cash compensation expense of $6.2 million in the
year ended December 31, 1996 as a result of certain warrants issued to the
Company's Chief Executive Officer and certain stock subscriptions.

Other Expenses (Income). Interest expense increased $5.2 million or 138.4%
to $8.9 million in the year ended December 31, 1996 from $3.7 million in the
same period in 1995 primarily due to the interest expense associated with
indebtedness incurred in connection with the Company's acquisitions. Other
expense, net, increased $800,000 to $900,000 in the year ended December 31, 1996
from $100,000 in income in the same period in 1995. An extraordinary loss of
$1.2 million on extinguishment of debt was recorded in 1996, related to the
write-off of deferred financing fees associated with the GulfStar credit
facility which was refinanced during the period.

Net Income (Loss). As a result of the factors described above, net income
decreased $13.6 million to a $12.0 million net loss in the year ended December
31, 1996 from net income of approximately $1.6 million in the year ended
December 31, 1995.

Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $8.3 million or 205% to $12.4 million in the year ended
December 31, 1996 from $4.1 million in the year ended December 31, 1995. The
broadcast cash flow margin was 28.9% in the year ended December 31, 1996 as
compared to 25.7% in the same period in 1995. The inclusion of broadcast cash
flow from acquisitions and LMAs accounted for $7.4 million of the increase. On a
same station basis, for stations owned or operated as of December 31, 1996,
broadcast cash flow increased $4.3 million or 20.0% to $25.4 million in the year
ended December 31, 1996 from $21.1 million in year ended December 31, 1995,
primarily attributable to growth in the sale of time to local and national
advertisers.

EBITDA (before non-cash compensation expense and LMA fees). As a result of
the factors described above, EBITDA (before non-cash compensation expense and
LMA fees) increased $6.4 million or 178.0% to $9.9 million in the year ended
December 31, 1996 from $3.5 million in the year ended December 31, 1995. The
EBITDA (before non-cash compensation expense and LMA fees) margin increased to
23.0% in 1996 from 22.5% in 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's acquisition strategy has required a significant portion of
the Company's capital resources. The Completed Transactions were funded from one
or a combination of the following sources: (i) equity investments in the Company
from Hicks Muse and its affiliates and management of the Company of
approximately $872.7 million; (ii) assumption of indebtedness of acquired
companies, including the 13 1/4% Capstar Notes, of approximately $76.8 million
of principal; (iii) net proceeds from the issuance of the 12 3/4% Capstar Notes
in February 1997 of approximately $150.3 million; (iv) net proceeds from the
issuance of the 12% Capstar Partners Preferred Stock in June 1997 of
approximately $100.0 million; (v) net proceeds from the issuance of the 9 1/4%
Capstar Notes in June 1997 of approximately $199.2 million; (vi) borrowings
under the existing credit agreement and other bank indebtedness of the Company
of approximately $141.7 million; and (vii) net proceeds from dispositions of
certain assets of the Company of approximately $107.7 million.

In October 1996, the Company assumed the 13 1/4% Capstar Notes in
connection with the financing of the Commodore Acquisition. On April 28, 1998,
the Company (through its subsidiary Capstar Radio) purchased
51
<PAGE> 52

all of the outstanding 13 1/4% Senior Subordinated Notes due 2003 of the Company
(the "13 1/4% Capstar Notes") for an aggregate purchase price of $90.2 million,
including a $10.7 million purchase premium and $2.7 million of accrued interest,
which amount was funded with the proceeds of an equity investment in the Company
by an affiliate of Hicks Muse in 1998. In connection with the financing of the
Osborn Acquisition in February 1997, the Company (through its subsidiary Capstar
Partners) issued the 12 3/4% Capstar Notes at a substantial discount from their
aggregate principal amount at maturity of $277.0 million, generating gross
proceeds to the Company of approximately $150.3 million. The 12 3/4% Capstar
Notes pay no cash interest until August 1, 2002. Accordingly, the carrying value
will increase through accretion until August 1, 2002. As of March 31, 1998, the
outstanding principal balance was $172.3 million. On August 1, 2002 and
thereafter, interest of approximately $17.7 million will be payable
semi-annually on February 1 and August 1 of each year until maturity on February
1, 2009. In June 1997, the Company (through its subsidiary Capstar Radio) issued
the 9 1/4% Capstar Notes in connection with certain Completed Transactions that
were completed during the third quarter of 1997. As of March 31, 1998, the
outstanding principal balance was $199.2 million. Interest on the 9 1/4% Capstar
Notes of approximately $9.3 million is payable semi-annually on January 1 and
July 1 of each year until maturity on July 1, 2007. See "Description of
Indebtedness."

In June 1997, the Company (through its subsidiary Capstar Partners) issued
1,000,000 shares of the 12% Capstar Partners Preferred Stock in connection with
the financing of the GulfStar Acquisition. Dividends on the 12% Capstar Partners
Preferred Stock accumulate from the date of issuance and are payable
semi-annually on January 1 and July 1 of each year at a rate per annum of 12% of
the $100.00 per share liquidation preference. Dividends may be paid, at Capstar
Partners' option, on any dividend payment date occurring on or before July 1,
2002, either in cash or in additional shares of 12% Capstar Partners Preferred
Stock. Capstar Partners paid the required dividend on January 1, 1998 by issuing
an additional 64,667 shares of 12% Capstar Partners Preferred Stock and intends
to pay in kind dividends, rather than cash, through July 1, 2002. See
"Description of Capital Stock -- Capstar Partners."

In 1998, the Company received proceeds in the amount of $634.1 million from
equity investments of Hicks Muse and its affiliates, of which (i) approximately
$467.7 million was used to consummate station acquisitions, to repay
indebtedness under the Company's existing credit agreement and to purchase all
of the outstanding 13 1/4% Capstar Notes and (ii) approximately $166.4 million
will be used to consummate in part the SFX Transactions. See "Certain
Relationships and Related Transactions -- Management and Affiliate Equity
Investments."

In May 1998, the Company purchased a $8.5 million letter of credit
reimbursement obligation owing from R. Steven Hicks to Bankers Trust Company.
The $8.5 million indebtedness of R. Steven Hicks currently owing to the Company
will be satisfied upon the transfer by R. Steven Hicks to the Company of a
construction permit issued by the FCC to construct a new FM broadcast station on
Channel 290C2 located in Round Rock, Texas. See "Certain Relationships and
Related Transactions -- Round Rock, Texas Construction Permit."

The Company will fund the cash payments required for the SFX Transactions,
the repayment of the SFX Credit Facility, the redemption of $154.0 million
aggregate principal amount of the 10 3/4% SFX Notes, the redemption of $119.6
million aggregate liquidation preference of the 12 5/8% SFX Preferred Stock, and
the fees and expenses related thereto, with the net proceeds of the Offering,
anticipated borrowings from Chancellor Media, anticipated borrowings under the
Capstar Credit Facility, the net proceeds from the anticipated sale of certain
radio stations, and cash on hand. As a result of the financing of its
acquisitions (including the anticipated financing of the SFX Transactions), the
Company has a substantial amount of long-term indebtedness, and for the
foreseeable future, the Company will use a large percentage of its cash to make
payments under the Capstar Credit Facility, the Chancellor Note and the Notes
(as defined in "Glossary of Certain Terms").

Concurrently with the Offering, the Company (through its subsidiary Capstar
Radio) will enter into the Capstar Credit Facility. The Capstar Credit Facility
will consist of a $550.0 million Revolving Loan, a $600.0 million A Term Loan, a
$250.0 million B Term Loan and additional term loans and revolving loans in an
aggregate amount up to $500.0 million subject to future commitment availability
(the Company will be required to obtain additional loan commitments from lenders
in order to be able to borrow an additional

52
<PAGE> 53

$500.0 million of term loans and revolving loans). Borrowings under the Capstar
Credit Facility will bear interest at floating rates and require interest
payments on varying dates depending on the interest rate option selected by the
Company. After the consummation of the SFX Transactions and other related
transactions, including the partial redemptions of the 10 3/4% SFX Notes and the
12 5/8% SFX Preferred Stock, the Company expects to have borrowings of
approximately $811.8 million outstanding under the Capstar Credit Facility
($600.0 million under the A Term Loan and $211.8 million under the B Term Loan)
with a weighted average effective interest rate of 9.75% per annum. The A Term
Loans will require scheduled annual principal payments. Quarterly principal
payments on the A Term Loans could begin as early as August 31, 1999 and would
be payable quarterly thereafter. Quarterly payments on A Term Loans from August
31, 1999 through May 31, 2000 will be in an amount equal to $15,000,000.
Quarterly payments on A Term Loans from August 31, 2000 through May 31, 2002
will be an amount equal to $22,500,000. Quarterly payments on A Term Loans from
August 31, 2002 through May 31, 2004 will be in an amount equal to $30,000,000.
The final two quarterly payments on the A Term Loans on August 31, 2004 and the
A Term Loan maturity date, November 30, 2004, will be in an amount equal to
$60,000,000. The B Term Loans will also require scheduled annual principal
payments. Quarterly principal payments on the B Term Loans could begin as early
as August 31, 1998 and would be payable quarterly thereafter. Quarterly payments
on B Term Loans from August 31, 1998 through May 31, 2003 will be in an amount
equal to $625,000. Quarterly payments on B Term Loans from August 31, 2003
through May 31, 2004 will be in an amount equal to $28,125,000. Quarterly
payments on B Term Loans from August 31, 2004 through the B Term Loan maturity
date, May 31, 2005, will be in an amount equal to $34,375,000. The stated
maturity date for the Revolving Loans is November 30, 2004. The Capstar Credit
Facility also requires certain mandatory prepayments with respect to the A Term
Loans, the B Term Loans and the Revolving Loans. Such mandatory prepayments will
be applied first to the A Term Loans and the B Term Loans on a pro rata basis
against remaining scheduled principal payments. After the A Term Loans and the B
Term Loans have been repaid, any mandatory prepayments required under the
Capstar Credit Facility will be applied against any outstanding principal
balances under the Revolving Loans, and if there are no outstanding Revolving
Loans, then the commitments for Revolving Loans will be permanently terminated
by an amount equal to such mandatory prepayments. The Company's existing credit
agreement, which has no outstanding balance, will be terminated when the Company
enters into the Capstar Credit Facility. See "Description of
Indebtedness -- Capstar Credit Facility."

Concurrently with the Offering, the Company also expects to borrow $150.0
million from Chancellor Media. The Chancellor Note will bear interest at a rate
of 12% per annum (subject to increase in certain circumstances), payable
quarterly, of which 5/6 shall be payable in cash and 1/6 shall, at the Company's
option, either be payable in cash or added to the principal amount of the
Chancellor Note. In addition, the Company may elect to defer the 5/6 portion
payable in cash, in which case the Chancellor Note would bear interest at a rate
of 14% per annum. If the Company elects to pay interest when due, quarterly
interest payments will equal $4.5 million, payable until maturity. The
Chancellor Note will mature on the twentieth anniversary of the date of
issuance, provided that the Company may prepay all or part of the outstanding
principal balance and, in certain circumstances, Chancellor Media will have the
right to require the Company to prepay part of the outstanding principal
balance. See "Description of Indebtedness -- Chancellor Note."

SFX will remain liable after the consummation of the SFX Transactions for
the outstanding indebtedness of SFX under the 10 3/4% SFX Notes and the 11 3/8%
SFX Notes (as defined) in connection with the SFX Acquisition. The Company
expects that the outstanding principal balance under the 10 3/4% SFX Notes and
the 11 3/8% SFX Notes will be $296.0 million and $600,000, respectively, after
giving effect to the Company's redemption of $154.0 million aggregate principal
amount of the 10 3/4% SFX Notes as described below. After giving effect to the
contemplated redemption, interest payments of approximately $15.9 million will
be payable on the 10 3/4% SFX Notes semi-annually on May 15 and November 15 of
each year until maturity on May 15, 2006. Interest payments of approximately
$32,000 will be payable on the 11 3/8% SFX Notes semi-annually on April 1 and
October 1 of each year until maturity on October 1, 2000. After the consummation
of the SFX Acquisition, the Company intends to redeem $154.0 million aggregate
principal amount of the 10 3/4% SFX Notes for an aggregate purchase price of
$173.3 million, including a $16.6 million redemption premium and $2.8 million of
accrued interest. The Company will deliver a notice of redemption to each holder
of the 10 3/4% SFX Notes from whom notes will be redeemed as soon as practicable
after the SFX Acquisition. The
53
<PAGE> 54

SFX Acquisition will result in a change of control under the indentures
governing the 10 3/4% SFX Notes and the 11 3/8% SFX Notes, and accordingly, SFX
will be obligated to offer (a "change of control offer") to purchase such notes
from the holders thereof pursuant to which each holder of the 10 3/4% SFX Notes
or 11 3/8% SFX Notes will have the right to require that SFX purchase all or a
portion of such holder's notes pursuant to the change of control offer at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and liquidated damages, if any, thereon to the date
of purchase. The Company anticipates that such repurchases, if any, will be
funded with borrowings under the Capstar Credit Facility. See "Description of
Indebtedness."

All 2,250,000 shares of the 12 5/8% SFX Preferred Stock will be outstanding
for at least 30 days after the consummation of the SFX Acquisition. Dividends on
the 12 5/8% SFX Preferred Stock accumulate from the date of issuance at the rate
per share of $12.625 per annum, and are payable semi-annually on January 15 and
July 15 of each year. Dividends may be paid, at SFX's option, on any dividend
payment date occurring on or before January 15, 2002, either in cash or in
additional shares of 12% Capstar Partners Preferred Stock having a liquidation
preference equal to the amount of such dividend. The Company intends to cause
SFX to pay in kind dividends, rather than cash, through January 15, 2002. After
the consummation of the SFX Acquisition, the Company also intends to redeem
$119.6 million aggregate liquidation preference of the 12 5/8% SFX Preferred
Stock for an aggregate purchase price of $141.6 million, including a $15.1
million redemption premium and $6.9 million of accumulated dividends. The
Company will deliver a notice of redemption to each holder of the 12 5/8% SFX
Preferred Stock from whom preferred stock will be redeemed as soon as
practicable after the SFX Acquisition. The SFX Acquisition will result in a
change of control under the SFX Certificate of Designation, and accordingly, SFX
will be obligated to make a change of control offer to the holders of the
12 5/8% SFX Preferred Stock pursuant to which each holder will have the right to
require that SFX offer to purchase all or a portion of such holder's shares of
12 5/8% SFX Preferred Stock pursuant to the change of control offer at an offer
price in cash equal to 101% of the aggregate liquidation preference thereof plus
accrued and unpaid dividends, if any, thereon to the date of purchase. The
Company anticipates that such repurchases, if any, will be funded with
borrowings under the Capstar Credit Facility. See "Description of Capital
Stock -- SFX."

SFX estimates that it has incurred a tax liability of approximately $84.0
million from the Spin-Off. Pursuant to a Tax Sharing Agreement (as defined in
"The Transactions -- The SFX Transactions -- SFX Acquisition"), SFX
Entertainment has agreed to fully indemnify SFX from and against such tax
liability (including any tax liability of SFX arising from such indemnification
payments), which full indemnity payments are estimated to be approximately
$120.0 million. SFX's estimate of the amount of the indemnity payment are based
on certain assumptions which SFX believes are reasonable. The actual amount of
the tax liability and SFX Entertainment's indemnity obligation could vary
significantly. The Company expects that SFX's tax liability will be due on or
about June 15, 1998. If such indemnification payments are not received from SFX
Entertainment, the Company expects that SFX will pay its tax liability when due
with borrowings under the Capstar Credit Facility. See "Risk Factors -- SFX Tax
Liability."

Chancellor Media has agreed pursuant to the Chancellor Exchange Agreement
to provide services for ten large market SFX stations under separate LMAs with
the Company for approximately $49.4 million per year for up to three years after
the consummation of the SFX Transactions. In addition, Chancellor Media has
agreed to acquire such stations in exchange for radio stations to be identified
by the Company over a three-year period, with corresponding decreases in the
amount of the LMA fees received by the Company as stations are exchanged. No
assurances can be given that stations acquired by the Company will generate cash
flows comparable to the LMA fees to be received from Chancellor Media in
connection therewith, either initially when such stations are acquired or at
all. See "Certain Relationships and Related Transactions -- Chancellor Exchange
Agreement."

In addition to debt service and the consummation of the change of control
offers to be made by SFX, the Company's principal liquidity requirements will be
for working capital and general corporate purposes, including capital
expenditures estimated at $18.0 million for fiscal year 1998 and payment of the
tax liability resulting from the Spin-Off, to consummate the Pending
Acquisitions and, as appropriate opportunities arise, to acquire additional
radio stations or complementary broadcast-related businesses. Management
believes that
54
<PAGE> 55

the disposition of certain assets of the Company, cash from operating
activities, LMA fees from Chancellor Media and SFX Entertainment's satisfaction
of its indemnity obligation to pay SFX for SFX's tax liability resulting from
the Spin-Off, together with available revolving credit borrowings under the
Capstar Credit Facility, should be sufficient to permit the Company to meet its
obligations under the agreements governing its existing indebtedness, to fund
its operations, and to consummate the Pending Acquisitions. The Company may
require financing, either in the form of additional debt or equity securities,
for additional future acquisitions, if any, and there can be no assurance that
it would be able to obtain such financing on terms considered to be favorable by
management. Management evaluates potential acquisition opportunities on an
on-going basis and has had, and continues to have, preliminary discussions
concerning the purchase of additional stations. The Company expects that in
connection with the financing of future acquisitions, it may consider disposing
of stations in its markets. The Company has no current arrangements or
intentions to dispose of any of its stations other than as described in "The
Transactions."

Other than the obligations of its subsidiaries, the Company's only current
cash obligation will be the repayment of the Chancellor Loan upon completion of
the Offering; provided, however, that the Company has guaranteed, or will
guarantee, the Capstar Credit Facility and the outstanding bank indebtedness of
three limited liability companies in the amount of approximately $28.6 million,
$26.0 million and $11.0 million, respectively, in each of which entities the
Company holds a 30% non-voting equity interest, and may in the future be
required to repay such indebtedness. The Company is a holding company with no
significant assets other than the capital stock of its direct and indirect
subsidiaries. Consequently, the Company's sole source of cash from which to
service its indebtedness will be dividends distributed or other payments made to
it by its operating subsidiaries. The Indentures, the Certificates of
Designation, and the Capstar Credit Facility contain, or will contain, certain
covenants that restrict or prohibit the ability of the Company's subsidiaries to
pay dividends and make other distributions. With respect to the Indentures and
the Certificates of Designation, dividends may be paid or loans or advances made
by a subsidiary to the Company only if such payments are not in excess of
certain capital contributions to and earnings of such subsidiary. With respect
to the Capstar Credit Facility, any dividend paid or loan or advance made to the
Company would require the approval of the Company's lenders; provided, however,
that dividends paid in order to permit the Company to meet its cash obligations
under the Chancellor Note do not require such approval if there are no defaults
under the Capstar Credit Facility at such time (and such dividend would not
cause noncompliance with certain financial covenants). These restrictions are
not anticipated to have an impact on the Company's ability to meet its cash
obligations. See "Dividend Policy" and "Description of Indebtedness."

Net cash provided by operating activities was approximately $500,000 for
the three months ended March 31, 1997, and $6.7 million and $1.3 million for the
years ended December 31, 1997 and 1995, respectively, and net cash used by
operating activities was $1.0 million for the three months ended March 31, 1998
and $2.3 million for the year ended December 31, 1996. Changes in the Company's
net cash provided by operating activities are primarily the result of the
Company's completed acquisitions and station operating agreements entered into
during the periods and their effects on income from operations and working
capital requirements.

Net cash used in investing activities was $267.7 million and $147.7 million
for the three months ended March 31, 1998 and 1997, and $487.0 million, $155.6
million, and $19.6 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Net cash provided by financing activities was $415.1 million and
$156.4 million for the three months ended March 31, 1998 and 1997, and $540.5
million, $167.5 million, and $17.7 million for the years ended December 31,
1997, 1996 and 1995, respectively. These cash flows primarily reflect the
borrowings, capital contributions and expenditures for station acquisitions and
dispositions.

In April 1998, the Company amended and restated the Original Regular
Warrants (as defined) and the Original Incentive Warrants (as defined) that were
granted to R. Steven Hicks, the Company's President and Chief Executive Officer,
in 1996 and 1997 and also granted a fourth warrant to Mr. Hicks. The Company
expects to recognize a non-cash compensation charge of approximately $270,000 in
the second quarter of 1998 in connection with the grant of the Fourth Warrant
(as defined) to Mr. Hicks. The total non-cash compensation charge to be
recognized will be calculated based upon the difference between the initial
offering
55
<PAGE> 56

price per share of the shares of Class A Common Stock offered hereby and the
exercise price of the warrants. Since the Fourth Warrant vests in 39 months, the
total charge of $3.6 million will be recognized (i) ratably, or approximately
$270,000 per fiscal quarter, over the vesting period of such warrants, or (ii)
ratably until there is a Sale of the Company (as defined in
"Management --Warrants") whereupon the entire unrecognized charge will be
recognized immediately. In addition, the Company granted a fifth warrant to Mr.
Hicks and two warrants to certain other executives of the Company in April 1998,
all of which vest over a five-year period and become exercisable upon the
occurrence of a triggering event described in "Management -- Warrants." Once the
triggering event occurs, the Company will recognize a charge calculated based
upon (i) the difference between the price per share of the Class A Common Stock
on that date and the exercise price per share of the warrants and (ii) the
portion of the warrants which have vested. The remaining unrecognized charge
will be recognized pro rata over the remaining vesting period, if any. See
"Management -- Warrants."

On April 1, 1998, the Company granted stock options under the Stock Option
Plan (as defined) to certain key employees, which stock options are exercisable
for the purchase of up to 585,339 shares of Class A Common Stock at a per share
exercise price of $17.50. The Company expects to record a non-cash compensation
charge of $58,500 in the second quarter of 1998 in connection with such stock
option grants. This charge will be calculated based on the difference between
the initial offering price per share of the shares of Class A Common Stock
offered hereby and the exercise price per share of the stock options and will be
charged ratably, or $58,500 per fiscal quarter, over the five-year vesting
period of such stock options. See "Management -- Stock Option Plan."

The Company anticipates a substantial number of options that are available
for grant under the Stock Option Plan will be granted shortly after consummation
of the Offering. The amount and exercise price of the options has not been
determined. The Company believes that the exercise price will be at the price to
the public in the Offering or at the fair market value of the stock at the date
of grant. If the exercise price is set at the price to the public in the
Offering and such price is less than the fair market value at the date of grant,
the Company will recognize a non-cash compensation charge over the vesting
period equal to the product of (i) the difference between the fair market value
of the option and the price to the public in the Offering and (ii) the number of
shares of Common Stock underlying the options.

RECENT PRONOUNCEMENTS

The Company adopted SFAS No. 130 "Reporting Comprehensive Income" during
the first quarter of 1998. The Company has no items of other comprehensive
income as described in SFAS No. 130. Therefore, net income is equal to
comprehensive income for all periods presented.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.

In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which significantly changes
current financial statement disclosure requirements form those that were
required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132 does
not change the existing measurement or recognition provision of SFAS Nos. 87, 88
or 106.

These pronouncements are effective for fiscal years beginning after
December 15, 1997. Management does not believe the implementation of these
accounting pronouncements will have a material effect on its consolidated
financial statements.

56
<PAGE> 57

EXTRAORDINARY ITEMS

During 1997, the Company recognized an extraordinary charge of
approximately $2.4 million, net of tax benefit of $1.5 million, related to the
repayment of the GulfStar credit facility. In connection with the completed
tender of the 13 1/4% Capstar Notes in the second quarter of 1998, the Company
will recognize an extraordinary charge on the early extinguishment of debt of
$4.7 million, net of tax benefit of $2.1 million, including prepayment penalties
and expenses in the second quarter of 1998.

IMPACT OF THE YEAR 2000 ISSUE

The Year 2000 Issue is whether the Company's computer systems will properly
recognize date sensitive information when the year changes to 2000, or "00."
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail. The Company uses purchased software programs for
a variety of functions, including general ledger, accounts payable and accounts
receivable accounting packages. Responsibility for Year 2000 compliance has been
analyzed and testing is currently ongoing for many of the financial
applications, individual work stations, and broadcasting systems. Preliminary
tests on applications have proven them to be compliant, but further testing is
warranted. The Company believes that the Year 2000 Issue will not pose
significant operational problems for the Company's computer systems and,
therefore, will not have a material impact on the financial position or the
operations of the Company.

57
<PAGE> 58

BUSINESS

THE COMPANY

The Company is the largest radio broadcaster in the United States operating
primarily in mid-sized markets based on number of stations and, on a pro forma
basis after giving effect to the Completed Transactions, the SFX Transactions
and the Pending Acquisitions, based on 1997 revenue. Since its first acquisition
in October 1996, the Company has assembled, on a pro forma basis after giving
effect to the SFX Transactions, a nationwide portfolio of 299 owned and operated
or programmed stations in 75 mid-sized markets. This portfolio includes clusters
of four or more stations in 42 markets and comprises the leading station group,
in terms of revenue share and/or audience share, in 49 markets. Of the 299
stations, the Company owns and operates 209 stations and programs 21 stations
and, upon the consummation of the SFX Transactions, will own and operate an
additional 68 stations and sell commercial time on one additional station. On a
pro forma basis, after giving effect to the Completed Transactions and the SFX
Transactions, and the financing thereof, and the application of the net proceeds
therefrom, as if they had occurred on January 1, 1997, the Company would have
had net revenue, BCF and net loss from continuing operations of $578.1 million,
$223.8 million and $147.4 million, respectively, for the twelve-months ended
March 31, 1998. On a same station basis for all of the Company's stations owned
or operated as of March 31, 1998, BCF increased $4.3 million, or 32.8%, to $17.5
million in the three months ended March 31, 1998 from $13.2 million in the three
months ended March 31, 1997.

R. Steven Hicks, an executive with over 30 years of experience in the radio
broadcasting industry, and Hicks Muse, a Dallas-based private equity firm,
formed Capstar to capitalize on the consolidation opportunities produced by the
Telecom Act. R. Steven Hicks and Hicks Muse recognized that the Telecom Act
created a particularly attractive and unique opportunity to consolidate stations
in mid-sized markets and, accordingly, created a company that was designed
specifically to address this market opportunity. Because the Telecom Act enabled
operators in mid-sized markets for the first time to form clusters of four or
more stations in individual markets, R. Steven Hicks and Hicks Muse believed
that the Company could achieve the economies of scale necessary to support an
investment in higher quality managers, programming and systems in these markets.
The creation of sizable operations allows the Company to upgrade its stations'
programming, sales, promotions, engineering and administrative operations to
standards previously seen only in larger markets. Management believes that this
positions the Company to generate revenue growth in these markets in excess of
historical growth rates, to increase its audience and revenue shares within
these markets and, by capitalizing on economies of scale, to achieve increases
in its BCF growth rates and margins.

The Company is a holding company with no significant assets other than the
capital stock of its direct and indirect subsidiaries. Accordingly, the Company
conducts substantially all of its operations through its sole direct subsidiary
Capstar Partners, which conducts substantially all of its operations through its
direct subsidiary Capstar Radio, which conducts substantially all of its
operations through its subsidiaries, Atlantic

58
<PAGE> 59

Star, Southern Star, GulfStar, Central Star, and Pacific Star. Capstar Partners
was formed in October 1996 and completed the acquisition of Commodore (which has
subsequently been renamed Capstar Radio Broadcasting, Partners Inc.) during the
same month. During 1997, Capstar Partners and Capital Radio incurred a
substantial amount of indebtedness in completing several leveraged acquisitions.
Capstar was formed in June 1997 and became the sole common stockholder of
Capstar Partners. The resulting three-tiered capital structure of the Company
has facilitated the Company's acquisition strategy by maximizing the Company's
borrowing capacity. The indebtedness of Capstar is not considered indebtedness
for purposes of the debt incurrence limitations of Capstar Partners' debt
facilities, and the indebtedness of Capstar and Capstar Partners are not
considered indebtedness for purposes of the debt incurrence limitations of
Capstar Radio's debt facilities, except for the Capstar Credit Facility;
accordingly, the Company has been able to maximize its borrowing capacity by
adding tiers to its capital structure.

STATION PORTFOLIO

<TABLE>
<CAPTION>
STATIONS COMPANY COMPANY
MSA ----------- REVENUE SHARE AUDIENCE SHARE
MARKET(1) RANK(2) FM AM RANK(2) RANK(3)
--------- ------- ---- ---- ------------- --------------
<S> <C> <C> <C> <C> <C>
NORTHEAST REGION (ATLANTIC STAR)
Providence, RI*............................................ 31 2 1 2 2
Hartford, CT*.............................................. 42 4 1 2 2
Richmond, VA*.............................................. 56 4 -- 2 2
Albany-Schenectady-Troy, NY*............................... 57 3 2 1 1
Allentown-Bethlehem, PA.................................... 65 2 2 1 1
Harrisburg-Lebanon-Carlisle, PA............................ 73 1 1 2 2
Wilmington, DE............................................. 74 2 2 3 2
Springfield, MA*........................................... 77 2 1 1 3
New Haven, CT*............................................. 95 2 -- 1 1
Roanoke, VA................................................ 102 4 1 2 1
Worcester, MA.............................................. 107 1 1 1 1
Fairfield County, CT(4).................................... 112 2 2 2 4
Portsmouth-Dover-Rochester, NH............................. 117 2 1 2 1
Huntington, WV-Ashland, KY(5).............................. 139 5 5 1 1
Manchester, NH............................................. 193 1 1 2 2
Wheeling, WV(5)............................................ 216 5 2 1 1
Winchester, VA............................................. 219 2 1 1 1
Burlington, VT............................................. 221 1 -- 2 4t
Lynchburg, VA.............................................. NA 3 1 1 1
--- ---
Subtotal............................................. 48 25
SOUTHEAST REGION (SOUTHERN STAR)
Charlotte-Gastonia-Rock Hill, NC*.......................... 36 3 -- 2 2
Greensboro, NC*............................................ 40 2 2 4 4
Nashville, TN*............................................. 44 4 1 1 1
Raleigh-Durham, NC*........................................ 48 4 -- 1 1
Jacksonville, FL*.......................................... 51 4 2 1 1
Birmingham, AL............................................. 55 2 1 3 3
Greenville, SC*............................................ 58 3 1 1 1
Columbia, SC............................................... 90 4 2 1 1
Melbourne-Titusville-Cocoa, FL............................. 96 3 2 1 1
Huntsville, AL............................................. 113 4 2 1 1
</TABLE>

59
<PAGE> 60

<TABLE>
<CAPTION>
STATIONS COMPANY COMPANY
MSA ----------- REVENUE SHARE AUDIENCE SHARE
MARKET(1) RANK(2) FM AM RANK(2) RANK(3)
--------- ------- ---- ---- ------------- --------------
<S> <C> <C> <C> <C> <C>
Ft. Pierce-Stuart-Vero Beach, FL(5)........................ 119 5 1 1 1
Montgomery, AL............................................. 143 3 -- 2 1
Savannah, GA............................................... 154 4 2 1 1
Asheville, NC.............................................. 176 1 1 1 1
Tuscaloosa, AL............................................. 215 3 1 1 1
Jackson, TN................................................ 260 2 1 1 1
Statesville, NC............................................ NA 1 1 NA NA
Gadsden, AL................................................ NA 1 1 NA NA
--- ---
Subtotal............................................. 53 21
SOUTHWEST REGION (GULFSTAR)
Austin, TX*................................................ 50 2 1 1 1
Baton Rouge, LA............................................ 81 3 3 1 1
Wichita, KS*............................................... 89 2 1 3 2
Jackson, MS*............................................... 118 3 1 1 2
Pensacola, FL.............................................. 123 3 -- 1 1
Corpus Christi, TX......................................... 127 4 2 1 1
Beaumont, TX............................................... 128 3 1 1 1
Shreveport, LA............................................. 129 1 1 2 3
Biloxi-Gulfport-Pascagoula, MS*............................ 137 2 -- 1 1
Tyler-Longview, TX(5)...................................... 141 4 1 1 1
Killeen, TX(5)............................................. 151 2 -- 1 1
Fayetteville, AR........................................... 156 4 -- 1 1
Ft. Smith, AR.............................................. 169 2 1 1 1
Lubbock, TX................................................ 173 4 2 1 1
Midland, TX(5)............................................. 174 3 -- 2 2
Amarillo, TX(5)............................................ 188 3 1 2 2
Waco, TX................................................... 192 4 2 1 1
Alexandria, LA(5).......................................... 200 3 1 1 1
Texarkana, TX(5)........................................... 241 4 2 1 1
Lawton, OK................................................. 249 2 -- 1 1
Lufkin, TX(5).............................................. NA 3 1 NA 1
Victoria, TX............................................... NA 2 -- NA 1
--- ---
Subtotal............................................. 63 21
MIDWEST REGION (CENTRAL STAR)
Milwaukee, WI*............................................. 30 1 1 4 5
Indianapolis, IN*.......................................... 37 2 1 2 3
Grand Rapids, MI........................................... 65 3 1 2 2
Des Moines, IA............................................. 88 2 1 3 3t
Madison, WI................................................ 120 4 2 1 1
Springfield, IL............................................ 190 2 1 3 3
Cedar Rapids, IA........................................... 199 2 -- 2 2
Battle Creek-Kalamazoo, MI................................. 232 2 2 1 1
--- ---
Subtotal............................................. 18 9
WEST REGION (PACIFIC STAR)
Honolulu, HI............................................... 59 4 3 1 1
Tucson, AZ*................................................ 61 2 2 1 2
Fresno, CA................................................. 64 6 3 2 2
Modesto-Stockton, CA(4).................................... 121 3 2 2 2
Anchorage, AK.............................................. 170 4 2 2 1
Fairbanks, AK(4)........................................... NA 2 1 NA 1
Farmington, NM............................................. NA 3 1 NA NA
Yuma, AZ................................................... NA 2 1 NA 1
--- ---
Subtotal............................................. 26 15
Total(6)............................................. 208 91
=== ===
</TABLE>

- ---------------

NA Information not available.
t Tied with another radio station group.
* Stations to be acquired in the SFX Acquisition.

60
<PAGE> 61

(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) Metropolitan Statistical Area ("MSA") rank and Company revenue share rank
obtained from BIA Research-Master Access, Version 2.0 Radio Analysis
Database (current as of February 27, 1998). Revenue figures based upon 1997
gross revenue for the indicated markets.
(3) Company audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the last available reporting
period ending either Spring or Fall 1997 for the demographic of persons ages
25-54, listening Monday through Sunday, 6 a.m. to midnight, except for the
Yuma, Arizona market which was obtained from AccuRatings. To account for
listeners lost to other nearby markets, a radio station's "local" audience
share is derived by comparing the radio station's average quarter hour share
to the total average quarter hour share for all stations whose signals are
heard within the MSA, excluding audience share for listeners who listen to
stations whose signals originate outside the MSA.
(4) Fairfield County, Connecticut is a custom survey area ("CSA") as defined by
Arbitron. The CSA includes the Arbitron markets of Bridgeport,
Stamford-Norwalk and Danbury, Connecticut with market rankings of 112, 134
and 191, respectively. MSA rank is listed for the Bridgeport market only.
The combined rank for the CSA has not been estimated. Modesto-Stockton, CA
is also a CSA as defined by Arbitron and includes the Arbitron markets of
Modesto, CA and Stockton, CA with market rankings of 121 and 83,
respectively. Fairbanks, Alaska is a CSA as defined by Arbitron; share rank
and audience share rank were obtained from Arbitron's Fall 1997 CSA Market
Report.
(5) The Company provides certain sales and marketing services to stations
WPAW-FM in Ft. Pierce-Stuart-Vero Beach, Florida, WEEL-FM in Wheeling, West
Virginia, and KLFX in Killeen, TX pursuant to JSAs. The Company provides
certain sales, programming and marketing services to stations WHRD-AM in
Huntington, West Virginia and KTFS-AM and KTWN-FM in Texarkana, Texas; and
pending consummation of the respective acquisitions, to stations; KKTX-AM
and KKTX-FM in Tyler-Longview, Texas; KCDQ-FM, KCHX-FM and KMRK-FM in
Midland, Texas; KMML-FM, KBUY-FM, KNSY-FM and KIXZ-AM in Amarillo, Texas;
KRRV-FM, KKST-FM, KZMZ-FM and KDBS-AM in Alexandria, Louisiana; and KTBQ-FM
and KSFA-AM in Lufkin, Texas pursuant to LMAs. The chart includes these
stations.
(6) The table does not include (i) the ten large market SFX stations for which
Chancellor Media will provide services pursuant to separate LMAs upon the
consummation of the SFX Acquisition and (ii) SFX stations WTAE-AM and
WJDX-FM, which the Company will sell to comply with the requirements of the
SFX Consent Decree. See "-- Federal Regulation of Radio
Broadcasting -- Federal Antitrust Laws," "The Transactions" and "Certain
Relationships and Related Transactions -- Chancellor Exchange Agreement."

OPERATING STRATEGY

The Company's primary goals are (i) to achieve revenue growth rates at its
stations that are significantly in excess of historical growth rates achieved in
comparable markets and (ii) to increase its operating margins at these stations
at growth rates which exceed the average in operating margins growth rates being
achieved in large markets. The Company intends to achieve these goals through
the implementation of the following strategies:

The Company believes that multiple station ownership will allow it to be
more effective in pursuing national, network and regional advertisers, a source
of revenues which was previously limited in mid-sized markets. For example, the
Company believes that its participation in the AMFM Radio Network, a national
radio network owned by Chancellor Media, illustrates the Company's ability to
attract new sources of network revenues to its stations as a result of its large
audience reach.

Use Innovative Computer Technology to Enhance Programming. The Company is
an industry leader in using computer network technology to deliver high quality
programming. The Company's StarSystem(TM), a

61
<PAGE> 62

Company-owned programming distribution network, is designed to broadcast quality
programming from centralized locations to selected stations throughout its
markets. With this system, a single radio personality is able to introduce
programming in multiple markets by digitally transferring custom introductions
for each local market and inserting them into the playlist via the Company's
wide area computer network. StarSystem(TM) enables the Company to make high
quality on-air talent available on a cost-effective basis in markets that
previously could not afford that level of programming while still maintaining a
station's local identity. Management believes that in addition to the cost
reductions associated with this system, StarSystem(TM) provides the Company with
a competitive advantage by allowing management to implement format changes
quickly and to integrate newly acquired stations and clusters more efficiently.
To date, the Company has installed this digital technology at 88 stations at a
one time cost of approximately $43,000 per station, which has resulted in
average cost reductions of approximately $44,000 at each such station on an
annualized basis. The Company intends to expand its StarSystem(TM) to an
additional 132 stations by December 31, 1998, and plans to develop additional
regionalized programming centers during 1998 and 1999 to continue its expansion
of StarSystem(TM).

Create Low Cost Operating Structure. Management believes that it can create
a low cost operating structure in mid-sized markets for several reasons. First,
because stations in mid-sized markets typically have less direct format
competition, the Company is less reliant on expensive on-air celebrities and
costly advertising and promotional campaigns to capture listeners. Second, the
ownership of multiple stations within a market allows the Company to achieve
substantial cost savings through the consolidation of facilities, management,
sales and administrative personnel and operating resources (such as on-air
talent, programming and music research) and through the elimination of redundant
corporate expenses. Furthermore, the Company, as a result of its large station
portfolio, combined with the consolidated purchasing power of other companies
affiliated with Hicks Muse, has realized volume discounts in such areas as
national representation commissions, employee benefits, casualty insurance
premiums and other operating expenses.

ACQUISITION STRATEGY

The Company is the leading consolidator of radio stations in mid-sized
markets throughout the United States. Management has achieved this position
using an acquisition strategy that it believes allows the Company to develop
radio station clusters at reasonable prices. The Company first seeks to enter
attractive new mid-sized markets by acquiring a leading station (or a group that
owns a leading station). The Company then uses the initial acquisition as a
platform to acquire additional stations. Management believes that by leveraging
its existing infrastructure, knowledge of and relationships with advertisers and
substantial experience it can improve the operating performance and financial
results of acquired stations. From time to time, the Company may acquire station
groups or companies with one or more stations in large or small markets.
Although the Company's primary acquisition strategy is to acquire and operate
stations in mid-sized markets, the Company may in the future retain and operate
such large or small market stations. Any acquisitions made by the Company may be
for cash, debt, property or capital stock or stock equivalents of the Company or
a combination thereof. From time to time, management anticipates that it also
may have opportunities to purchase radio stations outside of the United States
and may pursue such opportunities. In addition, management from time to time
also evaluates other acquisition opportunities in media related businesses,
particularly businesses with significant after tax cash flow generating
potential, that it believes would complement the Company's radio broadcasting
business, including television, outdoor advertising and international media
opportunities. The Company has entered into a long-term, approximately $500
million

62
<PAGE> 63

station exchange agreement with Chancellor Media, pursuant to which Chancellor
Media will acquire certain of the SFX stations in large markets in exchange for
radio stations to be identified by the Company over a three-year period. See
"The Transactions -- The SFX Transactions" and "Certain Relationships and
Related Transactions -- Chancellor Exchange Agreement."

OWNERSHIP

Upon completion of the Offering, the purchasers of the Class A Common Stock
offered hereby will hold approximately 92.0% of the outstanding Class A Common
Stock, representing approximately 4.3% of the total voting power of the
outstanding Common Stock, and the existing holders of Class A Common Stock will
own the remaining approximately 8.0% of the outstanding Class A Common Stock,
representing approximately 0.4% of the total voting power of the outstanding
Common Stock. Thomas O. Hicks, the Company's Chairman of the Board, R. Steven
Hicks, the Company's President and Chief Executive Officer, and affiliates of
Hicks Muse beneficially own all of the outstanding Class C Common Stock,
representing approximately 95.3% of the total voting power of the outstanding
Common Stock. An affiliate of Hicks Muse owns 84.2% of the Class B Common Stock.
See "Risk Factors -- Control of the Company," "Security Ownership of Certain
Beneficial Owners" and "Description of Capital Stock."

REGIONAL OPERATING GROUPS

Regional Executives

Each of the regional operating groups is operated by a regional president
who has extensive industry experience, having served as a senior executive
and/or owner of, or consultant to, one or more substantial station groups in
mid-sized to large markets.

Northeast Region. The Northeast Region is managed by its president and
chief executive officer, James T. Shea, Jr. Mr. Shea has over 24 years of
experience in the radio broadcasting industry. Mr. Shea's operating knowledge
and strong advertising relationships helped Commodore become a leading radio
group in each of its markets prior to its acquisition by the Company in 1996.

Southeast Region. The Southeast Region is managed by its president and
chief executive officer, Rick Peters. Mr. Peters brings more than 25 years of
broadcasting experience to the Company, including, most recently, serving as the
President of Peters Communications, Inc., a programming consulting firm
affiliated with radio stations in various mid-sized and large markets.

Southwest Region. The Southwest Region is managed by its president and
chief executive officer, John D. Cullen who is also serving on an interim basis
as the Company's Chief Operating Officer. Mr. Cullen has served as president and
chief operating officer of GulfStar since 1996 and brings more than 16 years of
radio experience to the Company. Prior to joining GulfStar, Mr. Cullen served as
a regional manager for SFX.

Midwest Region. The Midwest Region is managed by its president and chief
executive officer, Mary K. Quass. Ms. Quass has more than 20 years experience in
the radio broadcasting industry in numerous roles, including, most recently,
serving as the president and chief executive officer of Quass Broadcasting
Company until its acquisition by the Company in January 1998.

63
<PAGE> 64

West Region. The West Region will be managed by James P. Donahoe who will
become its president and chief executive officer upon the consummation of the
SFX Acquisition. Mr. Donahoe has over 15 years of experience in the radio
broadcasting industry, including, most recently, serving as a regional vice
president of SFX.

In addition to a regional president, management for each region includes a
human resources director, a controller, a director of programming, an engineer
and one or more advertising sales personnel.

Regional Station Portfolios

The following tables set forth certain information regarding to the
Company's station portfolio in each of its five regions, assuming consummation
of the SFX Transactions. Stations are grouped on a regional basis according to
geographic location and are not necessarily owned by a subsidiary of the
regional operating subsidiary.

NORTHEAST REGION (ATLANTIC STAR)

<TABLE>
<CAPTION>
COMPANY COMPANY
TARGET REVENUE AUDIENCE
MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT
----------------------- ------- ------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
PROVIDENCE, RI 31 2 2
WHJJ-AM.................................. SFX 25-54 News/Talk
WHJY-FM.................................. SFX 18-34 Album Oriented Rock
WSNE-FM.................................. SFX 25-54 Adult Contemporary
HARTFORD, CT 42 2 2
WHCN-FM.................................. SFX 18-34 Album Oriented Rock
WKSS-FM.................................. SFX 18-34 Top 40
WMRQ-FM.................................. SFX 25-54 Modern Rock
WWYZ-FM.................................. SFX 25-54 Country
WPOP-AM.................................. SFX M18-49 Sports
RICHMOND, VA 56 2 2
WMXB-FM.................................. SFX 18-34 Hot Adult Contemporary
WBZU-FM.................................. SFX 18-34 Alternative
WKHK-FM.................................. SFX 25-54 Country
WKLR-FM.................................. SFX 35-64 Classic Rock
ALBANY-SCHENECTADY-TROY, NY 57 1 1
WGNA-AM.................................. SFX 25-54 Country
WGNA-FM.................................. SFX 25-54 Country
WPYX-FM.................................. SFX 18-34 Album Oriented Rock
WTRY-AM.................................. SFX 25-54 Country
WTRY-FM.................................. SFX 18-34 70's Oldies
ALLENTOWN-BETHLEHEM, PA 66 1 1
WAEB-AM.................................. Commodore 35+ News/Talk/Sports
WAEB-FM.................................. Commodore F18-49 Hot Adult Contemporary
WZZO-FM.................................. Commodore M18-49 Album Rock
WKAP-AM.................................. Commodore 35+ Nostalgia
HARRISBURG-LEBANON-CARLISLE, PA 73 2 2
WTCY-AM.................................. Patterson 35-54 Urban Adult Contemporary
WNNK-FM.................................. Patterson F25-44 Contemporary Hits
WILMINGTON, DE 74 3 2
WJBR-AM.................................. Commodore F25-54 Nostalgia
WDSD-FM.................................. Benchmark 25-54 Country
WRDX-FM.................................. Benchmark 25-54 Album Rock
WDOV-AM.................................. Benchmark 25-54 News/Talk
SPRINGFIELD, MA 77 1 3
WHMP-AM.................................. SFX 25-54 Talk
WHMP-FM.................................. SFX 18-34 Alternative
WPKX-FM.................................. SFX 25-54 Country
NEW HAVEN, CT 95 1 1
WPLR-FM.................................. SFX 18-34 Album Oriented Rock
WYBC-FM(6)............................... SFX 18-34 Urban Adult Contemporary
</TABLE>

64
<PAGE> 65

<TABLE>
<CAPTION>
COMPANY COMPANY
TARGET REVENUE AUDIENCE
MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT
----------------------- ------- ------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ROANOKE, VA(4) 102 2 1
WROV-AM.................................. Benchmark 25-54 Album Rock
WROV-FM.................................. Benchmark 18-49 Album Rock
WRDJ-FM.................................. Cavalier 35-64 Oldies
WJJS-FM.................................. Cavalier 18-34 Contemporary Hits
WJLM-FM.................................. WRIS 25-54 Country
WORCESTER, MA 107 1 1
WTAG-AM.................................. Knight Quality 35-64 News/Talk/Sports
WSRS-FM.................................. Knight Quality F25-44 Lite Rock
FAIRFIELD COUNTY, CT(4) 112 2 4
WNLK-AM.................................. Commodore 35+ News/Talk
WEFX-FM.................................. Commodore F18-49 Classic Hits
WSTC-AM.................................. Commodore 25-54 News/Talk
WKHL-FM.................................. Commodore 25-54 Oldies
PORTSMOUTH-DOVER-ROCHESTER, NH 117 2 1
WHEB-FM.................................. Knight Quality M25-44 Album Rock
WXHT-FM.................................. Knight Quality F25-44 Adult Contemporary
WTMN-AM.................................. Knight Quality M18-50 Sports/Talk
HUNTINGTON, WV-ASHLAND, KY 140 1 1
WTCR-AM.................................. Commodore 25-54 Classic Country
WTCR-FM.................................. Commodore 25-54 Country
WIRO-AM.................................. Commodore M25-54 Sports
WHRD-AM(5)............................... Commodore M25-54 Sports
WZZW-AM.................................. Commodore M25-54 Sports
WKEE-AM.................................. Commodore 35+ Big Band
WKEE-FM.................................. Commodore 25-54 Adult Contemporary
WAMX-FM.................................. Commodore M25-54 Rock
WFXN-FM.................................. Commodore M25-54 Classic Rock
WBVB-FM.................................. Commodore M18-49 Oldies
MANCHESTER, NH 194 2 2
WGIR-AM.................................. Knight Quality 35+ News/Talk/Sports
WGIR-FM.................................. Knight Quality M25-49 Album Rock
WHEELING, WV 218 1 1
WWVA-AM.................................. Osborn 25-54 Talk/Country
WOVK-FM.................................. Osborn 25-54 Country
WKWK-FM.................................. Osborn 25-54 Lite Rock
WBBD-AM.................................. Osborn 25-54 Nostalgia
WZNW-FM.................................. Osborn 25-54 Hot Adult Contemporary
WEGW-FM.................................. Osborn 25-54 Rock
WEEL-FM(5)............................... Osborn 25-54 Oldies
WINCHESTER, VA 219 1 1
WUSQ-FM.................................. Benchmark 25-54 Country
WFQX-FM.................................. Benchmark 18-49 Modern Rock
WNTW-AM.................................. Benchmark 25-54 News/Sports/Talk
BURLINGTON, VT 222 2 4t
WEZF-FM.................................. Knight Quality F25-54 Adult Contemporary
LYNCHBURG, VA(4) NA 1 1
WLDJ-FM.................................. Cavalier 35-64 Oldies
WJJX-FM.................................. Cavalier 18-34 Contemporary Hits
WJJS-AM.................................. Cavalier 25-54 Urban/Solid Gold
WYYD-FM.................................. Benchmark 25-54 Country
</TABLE>

- ---------------
F Female
M Male
NA Information not available.
t Tied with another radio company.

(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules. The table does not include SFX station WTAE-AM, which the
Company will sell to comply with the requirements of the SFX Consent Decree.
See "-- Federal Regulation of Radio Broadcasting -- Federal Antitrust Laws."

65
<PAGE> 66

(2) MSA rank and Company revenue share rank obtained from BIA Research-Master
Access Version 2.0 Radio Analysis Database (current as of February 27,
1998). Revenue figures based upon 1997 gross revenue for the indicated
markets.

(3) Company audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the last available reporting
period ending Fall 1997, for the demographic of persons ages 25-54,
listening Monday through Sunday, 6 a.m. to midnight. To account for
listeners lost to other nearby markets, a radio station's "local" audience
share is derived by comparing the radio station's average quarter hour share
to the total average quarter hour share for all stations whose signals are
heard within the MSA, excluding audience share for listeners who listen to
stations whose signal originate outside the MSA.

(4) Fairfield County is a CSA as defined by Arbitron. The CSA includes the
Arbitron markets of Bridgeport, Stamford-Norwalk, and Danbury, Connecticut
with market rankings of 112, 134, and 191, respectively. MSA Rank is listed
for the Bridgeport market only. The combined rank for the CSA has not been
estimated. Fairfield County, Connecticut audience share and revenues
obtained from Arbitron's Custom Survey Area Report for the Fall 1997 period.
Rankings for Roanoke, Virginia, and Lynchburg, Virginia markets were
determined separately, using the City of License to determine the split of
the market.

(5) The Company provides certain sales and marketing services to station WEEL-FM
in Wheeling, West Virginia pursuant to a JSA. The Company provides certain
sales, programming and marketing services to station WHRD-AM in Huntington,
West Virginia pursuant to an LMA.

(6) Station to be programmed pursuant to a JSA upon consummation of the SFX
Transaction.

SOUTHEAST REGION (SOUTHERN STAR)

66
<PAGE> 67

<TABLE>
<CAPTION>
COMPANY COMPANY
TARGET REVENUE AUDIENCE
MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT
--------------- ------- ------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
COLUMBIA, SC 90 1 1
WCOS-FM................................ Benchmark 25-54 Country
WHKZ-FM................................ Benchmark 25-54 Country
WVOC-AM................................ Benchmark 35-64 News/Talk
WSCQ-FM................................ Benchmark 25-54 Adult Standards
WCOS-AM................................ Benchmark 25-54 Country
WNOK-FM................................ Emerald City 25-54 Contemporary Hits
MELBOURNE-TITUSVILLE-COCOA, FL 96 1 1
WMMB-AM................................ City 50+ Nostalgia
WBVD-FM................................ City 35-64 Classic Rock
WMMV-AM................................ EZY 35-64 Nostalgia
WLRQ-FM................................ EZY 25-54 Adult Contemporary
WHKR-FM................................ Roper 25-54 Country
HUNTSVILLE, AL 113 1 1
WDRM-FM................................ Dixie 25-54 Country
WHOS-AM................................ Dixie 25-54 News
WBHP-AM................................ Dixie 25-54 CNN News
WTAK-FM................................ Griffith M25-54 Classic Rock
WXQW-FM................................ Griffith 25-54 Oldies
WWXQ-FM................................ Griffith 25-54 Oldies
FT. PIERCE-STUART-VERO BEACH, FL 119 1 1
WZZR-FM................................ Commodore M18-49 Classic Rock
WQOL-FM................................ Commodore 25-54 Oldies
WPAW-FM(4)............................. Commodore 25-54 Country
WBBE-FM................................ Commodore 25-54 Adult Contemporary
WAVW-FM................................ Commodore 25-54 Country
WAXE-AM................................ Commodore 35+ News/Talk/Financial
MONTGOMERY, AL 143 2 1
WZHT-FM................................ Benchmark 25-54 Urban
WMCZ-FM................................ Benchmark 25-54 Urban/Adult Contemporary
WQLD-FM................................ Benchmark 35+ Oldies
SAVANNAH, GA 154 1 1
WCHY-AM................................ Patterson 35-54 Country
WCHY-FM................................ Patterson 25-54 Country
WYKZ-FM................................ Patterson 25-54 Soft Adult Contemporary
WAEV-FM................................ Patterson 18-49 Adult Contemporary
WSOK-AM................................ Patterson 25-54 Gospel
WLVH-FM................................ Patterson 25-54 Urban Adult Contemporary
ASHEVILLE, NC 176 1 1
WWNC-AM................................ Osborn 25-54 Country
WKSF-FM................................ Osborn 25-54 Country
TUSCALOOSA, AL 215 1 1
WACT-AM................................ Osborn 25-54 Gospel
WRTR-FM................................ Osborn 25-54 Classic Rock
WTXT-FM................................ Osborn 25-54 Country
WZBQ-FM................................ Grant 18-34 Contemporary Hits
JACKSON, TN 260 1 1
WTJS-AM................................ Osborn 25-54 News/Talk
WTNV-FM................................ Osborn 25-54 Country
WYNU-FM................................ Osborn 25-54 Classic Rock
STATESVILLE, NC NA NA NA
WFMX-FM................................ Benchmark 25-54 Country
WSIC-AM................................ Benchmark 25-54 News/Talk
GADSDEN, AL NA NA NA
WAAX-AM................................ Osborn 25-54 News/Talk
WQEN-FM................................ Osborn 25-54 Adult Contemporary
</TABLE>

- ---------------

F Female
M Male
NA Information not available.

67
<PAGE> 68

(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules. The table does not include SFX station WJDX-FM, which the
Company will sell to comply with the requirements of the SFX Consent Decree.
See " -- Federal Regulation of Radio Broadcasting -- Federal Antitrust
Laws."

(2) MSA rank and Company revenue share rank obtained from BIA Research-Master
Access, Version 2.0 Radio Analysis Database (current as of February 27,
1998). Revenue figures based upon 1997 gross revenue for the indicated
markets.

(4) The Company provides certain sales and marketing services to station WPAW-FM
in Ft. Pierce-Stuart-Vero Beach, Florida, pursuant to a JSA.

SOUTHWEST REGION (GULFSTAR)

<TABLE>
<CAPTION>
COMPANY COMPANY
TARGET REVENUE AUDIENCE
MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT
----------------------- ------- ------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
AUSTIN, TX 50 1 1
KASE-FM................................ Butler/SFX 25-54 Country
KVET-FM................................ Butler/SFX 25-54 Country
KVET-AM................................ Butler/SFX 25-54 News/Talk/Sports
BATON ROUGE, LA 81 1 1
WYNK-FM................................ GulfStar 25-54 Country
WYNK-AM................................ GulfStar 12+ Disney
WJBO-AM................................ GulfStar M35-64 News/Talk/Sports
WLSS-FM................................ GulfStar F18-35 Contemporary Hits
KRVE-FM................................ McForhun F25-54 Adult Contemporary
WSKR-AM................................ Livingston M25-54 Sports
WICHITA, KS 89 3 2
KKRD-FM................................ SFX 18-34 Contemporary Hits Radio
KRZZ-FM................................ SFX 18-34 Classic Rock
KNSS-AM................................ SFX M35-64 News/Talk/Sports
JACKSON, MS 118 1 2
WMSI-FM................................ SFX 25-54 Country
WKTF-FM................................ SFX 18-49 Country
WSTZ-FM................................ SFX 25-54 Album Rock
WJDS-AM................................ SFX M18+ Sports
PENSACOLA, FL 123 1 1
WMEZ-FM................................ Patterson F25-54 Soft Adult Contemporary
WXBM-FM................................ Patterson 25-54 Country
WWSF-FM................................ Patterson 35-54 Oldies
CORPUS CHRISTI, TX 127 1 1
KRYS-FM................................ GulfStar 25-54 Country
KRYS-AM................................ GulfStar 12+ Disney
KMXR-FM................................ GulfStar F20-45 Hot Adult Contemporary
KNCN-FM................................ GulfStar M18-44 Active Rock
KUNO-AM................................ KDOS 25-54 Spanish
KSAB-FM................................ KDOS 25-54 Tejano
BEAUMONT, TX 128 1 1
KLVI-AM................................ GulfStar 30+ News/Talk
KYKR-FM................................ GulfStar 25-54 Country
KKMY-FM................................ GulfStar 30-54 Adult Contemporary
KIOC-FM................................ GulfStar 18-34 Contemporary Hits
SHREVEPORT, LA 129 2 3
KRMD-FM................................ Benchmark 25-54 Country
KRMD-AM................................ Benchmark 25-54 Sports
BILOXI-GULFPORT-PASCAGOULA, MS 137 1 1
WKNN-FM................................ SFX 25-54 Country
WMJY-FM................................ SFX 25-54 Adult Contemporary
</TABLE>

68
<PAGE> 69

<TABLE>
<CAPTION>
COMPANY COMPANY
TARGET REVENUE AUDIENCE
MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT
----------------------- ------- ------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
TYLER-LONGVIEW, TX 141 1 1
KNUE-FM................................ GulfStar 25-54 Country
KISX-FM................................ GulfStar 18-34 Adult Contemporary
KTYL-FM................................ GulfStar F30-54 Adult Contemporary
KKTX-AM(4)............................. Noalmark M30-49 Classic Rock
KKTX-FM(4)............................. Noalmark M30-49 Classic Rock
KILLEEN, TX 151 1 1
KIIZ-FM................................ GulfStar 25-54 Urban
KLFX-FM(5)............................. GulfStar 18-34 Active Rock
FAYETTEVILLE, AR 156 1 1
KEZA-FM................................ GulfStar 25-54 Soft Adult Contemporary
KKIX-FM................................ GulfStar 25-54 Country
KMXF-FM................................ GulfStar 25-54 Hot Adult Contemporary
KJEM-FM................................ KJEM 35-64 Classic Rock
FT. SMITH, AR 169 1 1
KWHN-AM................................ GulfStar 35-64 News/Talk
KMAG-FM................................ GulfStar 25-59 Country
KZBB-FM................................ Booneville 25-54 Contemporary Hits
LUBBOCK, TX............................. 173 1 1
KFMX-FM................................ GulfStar M18-34 Active Rock
KKAM-AM................................ GulfStar 18+ Talk
KZII-FM................................ GulfStar 12-34 Contemporary Hits
KFYO-AM................................ GulfStar 35+ News/Talk/Sports
KCRM-FM................................ GulfStar F18-49 Classic Rock
KKCL-FM................................ American General 35-64 Oldies
MIDLAND, TX 174 2 2
KCDQ-FM(4)............................. Champion 18-34 Classic Rock
KCHX-FM(4)............................. Champion 18-34 Contemporary Hits Radio
KMRK-FM(4)............................. Champion 25-54 Tejano
AMARILLO, TX 188 2 2
KMML-FM(4)............................. Champion 25-54 Country
KBUY-FM(4)............................. Champion 25-54 Country
KNSY-FM(4)............................. Champion 18-34 Hot Adult Contemporary
KIXZ-AM(4)............................. Champion 35-64 Nostalgia
WACO, TX 192 1 1
KBRQ-FM................................ GulfStar M25-54 Classic Rock
KKTK-AM................................ GulfStar M18-49 Sports
WACO-FM................................ GulfStar 25-54 Country
KCKR-FM................................ GulfStar 18-49 New Country
KWTX-FM................................ GulfStar F25-54 Contemporary Hits
KWTX-AM................................ GulfStar 25-54 News/Talk
ALEXANDRIA, LA 200 1 1
KRRV-FM(4)............................. Champion 25-54 Country
KKST-FM(4)............................. Champion 18-34 Adult Contemporary
KZMZ-FM(4)............................. Champion 18-34 Classic Rock
KDBS-AM(4)............................. Champion 25-54 News/Talk
TEXARKANA, TX 241 1 1
KKYR-AM................................ GulfStar 25-54 Country
KKYR-FM................................ GulfStar 25-54 Country
KTHN-FM................................ GulfStar 18-49 Contemporary Hits
KYGL-FM................................ GulfStar 35-49 Classic Rock
KTFS-AM(4)............................. KATQ 25-54 Talk
KTWN-FM(4)............................. KATQ 18-34 Hot Adult Contemporary
LAWTON, OK 249 1 1
KLAW-FM................................ KLAW 25-54 Country
KZCD-FM................................ KLAW M25-54 Rock
</TABLE>

69
<PAGE> 70

- ---------------

F Female
M Male
NA Information not available.

(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank and Company revenue share rank obtained from BIA Research-Master
Access, Version 2.0 Radio Analysis Database (current as of February 27,
1998). Revenue figures based upon 1997 gross revenue for the indicated
markets.

(3) Company audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the last available reporting
period ending Fall 1997, except for Lufkin, Texas, and Victoria, Texas,
which are reported as of Spring 1997 because the markets were not rated for
the Fall 1997 period, for the demographic of persons ages 25-54, listening
Monday through Sunday, 6 a.m. to midnight. To account for listeners lost to
other nearby markets, a radio station's "local" audience share is derived by
comparing the radio station's average quarter hour share to the total
average quarter hour share for all stations whose signals are heard within
the MSA, excluding audience share for listeners who listen to stations whose
signal originate outside the MSA.

(4) The Company provides certain sales, programming and marketing services to
stations KTFS-AM and KTWN-FM in Texarkana, Texas and pending the
consummation of the respective Pending Acquisitions, the Company provides
certain sales, programming and marketing services pursuant to LMAs to
stations KKTX-FM and KKTX-AM in Tyler-Longview, Texas; KCDQ-FM, KCHX-FM and
KMRK-FM in Midland, Texas; KMML-FM, KBUY-FM, KNSY-FM and KIXZ-AM in
Amarillo, Texas; KRRV-FM, KKST-FM, KZMZ-FM and KDBS-AM in Alexandria,
Louisiana; and KTBQ-FM and KSFA-AM in Lufkin, Texas.

(5) The Company provides certain sales and marketing services to station KLFX-FM
in Killeen, Texas, pursuant to a JSA.

MIDWEST REGION (CENTRAL STAR)

70
<PAGE> 71

- ---------------

F Female
M Male
NA Information not available.

(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.

WEST REGION (PACIFIC STAR)

<TABLE>
<CAPTION>
COMPANY COMPANY
TARGET REVENUE AUDIENCE
MARKET AND SOURCE MSA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) COMPANY RANK(2) GROUP RANK(2) RANK(3) FORMAT
----------------------- ------- ------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
HONOLULU, HI 59 1 1
KSSK-AM.............................. Patterson 25-54 Hot Adult Contemporary
KSSK-FM.............................. Patterson 25-54 Hot Adult Contemporary
KUCD-FM.............................. Patterson 35-54 Modern Adult Contemporary
KHVH-AM.............................. Patterson 35-64 News/Talk
KKLV-FM.............................. Patterson M35-54 Classic Rock
KIKI-AM.............................. Patterson 18-34 Country
KIKI-FM.............................. Patterson 18-34 Urban
TUCSON, AZ 61 1 2
KCEE-AM.............................. SFX 35-64 Nostalgia
KNST-AM.............................. SFX 25-54 News/Talk/Sports
KRQQ-FM.............................. SFX 18-34 Contemporary Hits Radio
KWFM-FM.............................. SFX 35-64 Oldies
FRESNO, CA 64 2 2
KBOS-FM.............................. Patterson 18-34 Contemporary Hits
KCBL-AM.............................. Patterson M18-49 Sports/Talk
KRZR-FM.............................. Patterson M18-49 Album Rock
KRDU-AM.............................. Patterson 35-64 Religion
KSOF-FM.............................. Patterson 25-54 Soft Rock
KEZL-FM.............................. Americom 35-54 Smooth Jazz
KFSO-FM.............................. Americom 25-54 Oldies
KALZ-FM.............................. Americom 25-54 Adult Contemporary
KFSO-AM.............................. Americom NA Oldies
MODESTO-STOCKTON, CA(4) 121 2 2
KFRY-FM.............................. Community Pacific 18-49 Country
KJAX-AM.............................. Community Pacific 35-64 News/Talk
KJSN-FM.............................. Community Pacific 25-54 Adult Contemporary
KFIV-AM.............................. Community Pacific 35-64 News/Talk
KOSO-FM.............................. KOSO 25-54 Adult Contemporary
ANCHORAGE, AK 170 2 1
KBFX-FM.............................. Community Pacific 18-49 Classic Rock
KASH-FM.............................. Community Pacific 25-54 Country
KENI-AM.............................. Community Pacific 25-54 News/Talk
KTZN-AM.............................. COMCO 25-54 Sports/Talk
KGOT-FM.............................. COMCO 25-54 Contemporary Hits
KYMG-FM.............................. COMCO 25-54 Adult Contemporary
FAIRBANKS, AK(4) NA NA 1
KIAK-FM.............................. COMCO 25-54 Country
KIAK-AM.............................. COMCO 25-54 News/Talk
KAKQ-FM.............................. COMCO 25-54 Adult Contemporary
</TABLE>

71
<PAGE> 72

- ---------------

F Female
M Male
NA Information not available.

(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.

(2) MSA rank and Company revenue share obtained from BIA Research-Master Access,
Version 2.0 Radio Analysis Database (current as of February 27, 1998).
Revenue figures based upon 1997 gross revenue for the indicated markets.

(3) Company audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the last available reporting
period ending Fall 1997, for the demographic of persons ages 25-54,
listening Monday through Sunday, 6 a.m. to midnight, except for the Yuma,
Arizona market which was obtained from AccuRatings, Spring 1997. To account
for listeners lost to other nearby markets, a radio station's "local"
audience share is derived by comparing the radio station's average quarter
hour share to the total average quarter hour share for all stations whose
signals are heard within the MSA, excluding audience share for listeners who
listen to stations whose signal originate outside the MSA.

(4) Modesto-Stockton, CA is a CSA as defined by Arbitron and includes the
Arbitron markets of Modesto, CA and Stockton, CA with market rankings of 121
and 83, respectively. Fairbanks, Alaska is also a CSA as defined by
Arbitron; audience share and audience share rank were obtained from
Arbitron's Fall 1997 CSA Market Report.

COMPETITION; CHANGES IN BROADCASTING INDUSTRY

The radio broadcasting industry is highly competitive. The success of each
of the Company's stations depends largely upon its audience ratings and its
share of the overall advertising revenue within its market. The Company's
stations compete for listeners and advertising revenue directly with other radio
stations as well as with advertising and other media within their respective
markets. Radio stations compete for listeners primarily on the basis of program
content that appeals to a particular demographic group. By building a strong
listener base consisting of a specific demographic group in each of its markets,
the Company is able to attract advertisers seeking to reach those listeners. In
addition to competition for market share, the Company competes for acquisition
opportunities with other radio broadcasting companies, including Jacor
Broadcasting Corp., Clear Channel Communications, Inc. and CBS Inc.

Factors that are material to a radio station's competitive position include
management experience, the station's local audience rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other radio stations and other
advertising media in the market area. The Company attempts to improve its
competitive position with promotional campaigns aimed at the demographic groups
targeted by its stations and by sales efforts designed to attract advertisers.
Recent changes in the FCC's policies and rules permit increased ownership and
operation of multiple local radio stations. Management believes that radio
stations that elect to take advantage of joint arrangements such as LMAs or JSAs
may in certain circumstances have lower operating costs and may be able to offer
advertisers more attractive rates and services. Although the Company currently
operates several multiple station groups and intends to pursue the creation of
additional multiple station groups, the Company's competitors in certain markets
include operators of multiple stations or operators who already have entered
into LMAs or JSAs.

The radio broadcasting industry is highly competitive, although some
barriers to entry exist. The operation of a radio broadcast station requires a
license from the FCC and the number of radio stations that can operate in a
given market is limited by the availability of FM and AM radio frequencies
allotted by the FCC to communities in that market, as well as by the FCC's
multiple ownership rules that regulate the number of stations that may be owned
and controlled by a single entity. See "-- Federal Regulation of Radio
Broadcasting."

72
<PAGE> 73

The Company's stations also compete for audiences and advertising revenues
within their respective markets directly with other radio stations, as well as
with other media such as newspapers, magazines, cable television, outdoor
advertising and direct mail. In addition, the radio broadcasting industry is
subject to competition from new media technologies that are being developed or
introduced, such as the delivery of audio programming by cable television
systems, by satellite and by DAB. DAB may deliver by satellite to nationwide and
regional audiences, multi-channel, multi-format, digital radio services with
sound quality equivalent to compact discs. The delivery of information through
the presently unregulated Internet also could create a new form of competition.
The radio broadcasting industry historically has grown despite the introduction
of new technologies for the delivery of entertainment and information, such as
television broadcasting, cable television, audio tapes and compact discs. A
growing population and greater availability of radios, particularly car and
portable radios, have contributed to this growth. There can be no assurance,
however, that the development or introduction in the future of any new media
technology will not have an adverse effect on the radio broadcasting industry.

The FCC has allocated spectrum for a new technology, digital audio radio
services ("DARS"), to deliver audio programming. The FCC has adopted licensing
and operating rules for DARS and in April 1997 awarded two licenses for this
service. DARS may provide a medium for the delivery by satellite or terrestrial
means of multiple new audio programming formats to local and/or national
audiences. Digital technology also may be used in the future by terrestrial
radio broadcast stations either on existing or alternate broadcasting
frequencies, and the FCC has stated that it will consider making changes to its
rules to permit AM and FM radio stations to offer digital sound following
industry analysis of technical standards. In addition, the FCC has authorized an
additional 100 kHz of bandwidth for the AM band and has allotted frequencies in
this new band to certain existing AM station licensees that applied for
migration to the expanded AM band prior to the FCC's cut-off date, subject to
the requirement that such licensees apply to the FCC to implement operations on
their expanded band frequencies. At the end of a transition period, those
licensees will be required to return to the FCC either the license for their
existing AM band station or the license for the expanded AM band station.

The Company cannot predict what other matters might be considered in the
future by the FCC, nor can it assess in advance what impact, if any, the
implementation of any of these proposals or changes might have on its business.

The Company employs a number of on-air personalities and generally enters
into employment agreements with certain of these personalities to protect its
interests in those relationships that it believes to be valuable. The loss of
certain of these personalities could result in a short-term loss of audience
share, but the Company does not believe that any such loss would have a material
adverse effect on the Company.

FEDERAL REGULATION OF RADIO BROADCASTING

The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
determines whether to approve changes in ownership or control of station
licenses; regulates equipment used by stations; and adopts and implements
regulations and policies

73
<PAGE> 74

that directly affect the ownership, operation and employment practices of
stations. The FCC has the power to impose penalties for violation of its rules
or the Communications Act.

The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Reference
should be made to the Communications Act, FCC rules and the public notices and
rulings of the FCC for further information concerning the nature and extent of
federal regulation of radio stations.

FCC Licenses. Radio stations operate pursuant to broadcasting licenses that
are ordinarily granted by the FCC for maximum terms of eight years and are
subject to renewal upon application to the FCC. The FCC licenses for the
Company's stations are held by certain of the Company's subsidiaries. During
certain periods when renewal applications are pending, petitions to deny license
renewals can be filed by interested parties, including members of the public.
Historically, the Company's management has not experienced any material
difficulty in renewing any licenses for stations under its control. The FCC is
required to hold hearings on a station's renewal application if a substantial or
material question of fact exists as to whether (i) the station has served the
public interest, convenience and necessity, (ii) there have been serious
violations by the licensee of the Communications Act or the FCC rules thereunder
or (iii) there have been other violations by the licensee of the Communications
Act or the FCC rules thereunder that, taken together, constitute a pattern of
abuse. Historically, FCC licenses have generally been renewed. The Company has
no reason to believe that its licenses will not be renewed in the ordinary
course, although there can be no assurance to that effect. The non-renewal of
one or more of the Company's licenses could have a material adverse effect on
the Company.

The FCC classifies each AM and FM station. An AM station operates on either
a clear channel, regional channel or local channel. A clear channel is one on
which AM stations are assigned to serve wide areas. Clear channel AM stations
are classified as either: Class A stations, which operate on an unlimited time
basis and are designated to render primary and secondary service over an
extended area; Class B stations, which operate on an unlimited time basis and
are designed to render service only over a primary service area; and Class D
stations, which operate either during daytime hours only, during limited times
only or on an unlimited time basis with low nighttime power. A regional channel
is one on which Class B and Class D AM stations may operate and serve primarily
a principal center of population and the rural areas contiguous to it. A local
channel is one on which AM stations operate on an unlimited time basis and serve
primarily a community and the suburban and rural areas immediately contiguous
thereto. Class C AM stations operate on a local channel and are designed to
render service only over a primary service area that may be reduced as a
consequence of interference.

The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial FM
stations are classified as follows, in order of increasing power and antenna
height: Class A, B1, C3, B, C2, C1 and C.

Ownership Matters. The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a broadcast licensee without the
prior approval of the FCC. In determining whether to grant such approval, the
FCC considers a number of factors pertaining to the licensee, including
compliance with the various rules limiting common ownership of media properties,
the "character" of the licensee and those persons holding "attributable"
interests therein, and compliance with the Communications Act's limitations on
alien ownership as well as compliance with other FCC policies, including FCC
equal employment opportunity requirements.

A transfer of control of a corporation controlling a broadcast license may
occur in various ways. For example, a transfer of control occurs if an
individual stockholder gains or loses "affirmative" or "negative" control of
such corporation through issuance, redemption or conversion of stock.
"Affirmative" control would consist of control of more than 50% of such
corporation's outstanding voting power and "negative" control would consist of
control of exactly 50% of such voting power. To obtain the FCC's prior consent
to assign or transfer control of a broadcast license, appropriate applications
must be filed with the FCC. If the application involves a "substantial change"
in ownership or control, the application must be placed on public notice for a
period of approximately 30 days during which petitions to deny the application
may be filed by interested
74
<PAGE> 75

parties, including members of the public. If the application does not involve a
"substantial change" in ownership or control, it is a "pro forma" application.
The "pro forma" application is nevertheless subject to having informal
objections filed against it. If the FCC grants an assignment or transfer
application, interested parties have approximately 30 days from public notice of
the grant to seek reconsideration of that grant. Generally, parties that do not
file initial petitions to deny or informal objections against the application
face a high hurdle in seeking reconsideration of the grant. The FCC normally has
approximately an additional ten days to set aside such grant on its own motion.
When passing on an assignment or transfer application, the FCC is prohibited
from considering whether the public interest might be served by an assignment or
transfer of the broadcast license to any party other than the assignee or
transferee specified in the application.

In response to the Telecom Act, the FCC amended its multiple ownership
rules to eliminate the national limits on ownership of AM and FM stations.
Additionally, it established new local ownership rules that use a sliding scale
of permissible ownership, depending on market size. In radio markets with 45 or
more commercial radio stations, a licensee may own up to eight stations, no more
than five of which can be in a single radio service (i.e., no more than five AM
or five FM). In radio markets with 30 to 44 commercial radio stations, a
licensee may own up to seven stations, no more than four of which can be in a
single radio service. In radio markets having 15 to 29 commercial radio
stations, a licensee may own up to six radio stations, no more than four of
which can be in a single radio service. Finally, in radio markets having 14 or
fewer commercial radio stations, a licensee may own up to five radio stations,
no more than three of which can be in the same service; provided that the
licensee may not own more than one half of the radio stations in the market. FCC
ownership rules continue to permit an entity to own one FM and one AM station in
a local market regardless of market size.

The Communications Act and FCC rules also prohibit the common ownership,
operation or control of a radio broadcast station and a television broadcast
station serving the same geographic market (subject to a waiver of such
prohibition if certain conditions are satisfied) and of a radio broadcast
station and a daily newspaper serving the same geographic market. Under these
rules, absent waivers, the Company would not be permitted to acquire any daily
newspaper or television broadcast station (other than low-power television) in
any geographic market in which it now owns radio broadcast properties. On
October 1, 1996, the FCC commenced a proceeding to explore possible revisions of
its policies concerning waiver of the newspaper/radio cross-ownership
restrictions. The FCC generally applies its ownership limits to "attributable"
interests held by an individual, corporation, partnership or other association.
In the case of corporations holding, or through subsidiaries controlling,
broadcast licenses, the interests of officers, directors and those who, directly
or indirectly, have the right to vote 5% or more of the corporation's voting
stock (or 10% or more of such stock in the case of insurance companies,
investment companies and bank trust departments that are passive investors) are
generally attributable.

Thomas O. Hicks, the Company's Chairman of the Board, is the President, the
sole director and the sole shareholder of HM2/Chancellor Holdings, Inc., which
through its subsidiaries, including Chancellor Media (for which Thomas O. Hicks
serves on an interim basis as the Chief Executive Officer until June 1, 1998),
holds attributable interests in radio stations in various markets in the States
of Arizona, California, Colorado, Florida, Georgia, Illinois, Massachusetts,
Michigan, Minnesota, New Jersey, New York, Ohio, Pennsylvania, and Texas, as
well as in Washington, D.C. Thomas O. Hicks is also the President, the sole
director and the sole shareholder of HM3/Sunrise, Inc., which through its
subsidiaries owns television stations in California, Michigan, New York and Ohio
and is seeking to acquire an attributable interest in television stations in
Rhode Island, Texas and Vermont. In addition, Thomas O. Hicks is the sole member
and director of TOH/Ranger, LLC, which controls LIN Holdings Corporation
("LHC"), the parent corporation of LIN, and is a director and Chairman of LHC
and LIN. LIN and its subsidiaries own television stations in Connecticut, New
York, Virginia, Indiana, Illinois, and Texas, and have agreements to acquire
interests in television stations in Alabama, California and Michigan. Lawrence
D. Stuart, Jr. and Eric C. Neuman, directors of the Company, also serve as
directors of Chancellor Media, LHC and LIN.

In determining whether the Company is in compliance with the local
ownership limits on AM and FM stations, the FCC will consider the Company's AM
and FM holdings as well as the attributable broadcast interests of the Company's
officers, directors and attributable stockholders. Accordingly, the attributable
75
<PAGE> 76

broadcast interests of the Company's officers and directors described in the
preceding paragraph will limit the number of radio stations the Company may
acquire or own in any market in which such officers or directors hold or acquire
attributable broadcast interests. In addition, the Company's officers and
directors may from time to time hold various nonattributable interests in media
properties.

The FCC "one-to-a-market" rule generally prohibits an entity from holding
an attributable interest in both a television station and radio stations in the
same market. The FCC has granted waivers of this rule in certain circumstances.
Some such waivers (including one recently granted for the Company's stations in
the New Haven, Connecticut market) have been conditioned on the outcome of a
pending rulemaking proceeding in which the FCC is considering whether to modify
the rule and/or the current waiver policy. Requests for similar
"one-to-a-market" waivers in other markets are pending before the FCC in the
application for approval of the SFX Acquisition and the Austin Acquisition.
There can be no assurance that these waiver requests will be granted. Likewise,
depending on the outcome of the pending FCC rulemaking, the Company may in the
future have to divest stations for which "one-to-a-market" waivers were
previously granted.

Under its "cross-interest" policy, the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
ownership rules do not specifically prohibit the relationship. Under the
cross-interest policy, the FCC in certain instances may prohibit one party from
acquiring an attributable interest in one media outlet and a substantial
non-attributable economic interest in another media outlet in the same market.
Under this policy, the FCC may consider significant equity interests combined
with an attributable interest in a media outlet in the same market, joint
ventures, and common key employees among competitors. The cross-interest policy
does not necessarily prohibit all of these interests, but requires that the FCC
consider whether, in a particular market, the "meaningful" relationships between
competitors could have a significant adverse effect upon economic competition
and program diversity. Heretofore, the FCC has not applied its cross-interest
policy to LMAs and JSAs between broadcast stations. In its ongoing rulemaking
proceeding concerning the attribution rules described below, the FCC has sought
comment on, among other things, (i) whether the cross-interest policy should be
applied only in smaller markets and (ii) whether non-equity financial
relationships such as debt, when combined with multiple business
interrelationships such as LMAs and JSAs, raise concerns under the
cross-interest policy.

The Communications Act prohibits the issuance of broadcast licenses to, or
the holding of broadcast licenses by, any corporation of which more than 20% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
"Aliens"). The Communications Act also authorizes the FCC, if the FCC determines
that it would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of the
capital stock is owned of record or voted by Aliens. The FCC has issued
interpretations of existing law (i) under which these restrictions in modified
form apply to other forms of business organizations, including partnerships and
(ii) indicating how alien interests in a company that are held directly through
intermediate entities should be considered in determining whether that company
is in compliance with these alien ownership restrictions. As a result of these
provisions, the licenses granted to the radio station subsidiaries of the
Company by the FCC could be revoked if, among other restrictions imposed by the
FCC, more than 25% of the Company's stock were directly or indirectly owned or
voted by Aliens. The Company's Certificate of Incorporation restricts the
ownership, voting and transfer of the Company's capital stock in accordance with
the Communications Act and the rules of the FCC, and prohibits ownership of more
than 25% of the Company's outstanding capital stock (or more than 25% of the
voting rights it represents) by or for the account of Aliens or corporations
otherwise subject to domination or control by Aliens. The Certificate of
Incorporation authorizes the Company's Board of Directors to adopt such
provisions as it deems necessary to enforce these prohibitions. In addition, the
Certificate of Incorporation provides that shares of capital stock of the
Company determined by the Company's Board of Directors to be owned beneficially
by an Alien or an entity directly or indirectly owned by Aliens in whole or in
part shall always be subject to redemption by the Company by action of the Board
of Directors to the extent necessary, in the judgment of the Board of Directors,
to comply with these alien ownership restrictions. See "Description of Capital
Stock."

76
<PAGE> 77

Local Marketing Agreements. Over the past few years, a number of radio
stations have entered into what have commonly been referred to as local
marketing agreements or LMAs. While these agreements may take varying forms,
under a typical LMA, separately owned and licensed radio stations agree to enter
into cooperative arrangements of varying sorts, subject to compliance with the
requirements of antitrust laws and with the FCC's rules and policies. Under
these arrangements, separately-owned stations could agree to function
cooperatively in programming, advertising sales and similar matters, subject to
the requirement that the licensee of each station maintain independent control
over the programming and operations of its own station. One typical type of LMA
is a programming agreement between two separately-owned radio stations serving a
common service area, whereby the licensee of one station programs substantial
portions of the broadcast day on the other licensee's station, subject to
ultimate editorial and other controls being exercised by the latter licensee,
and sells advertising time during those program segments. Such arrangements are
an extension of the concept of "time brokerage" agreements, under which a
licensee of a station sells blocks of time on its station to an entity or
entities that program the blocks of time and sell commercial advertising
announcements during the time periods in question.

The FCC's "cross-interest" policy is currently inapplicable to time
brokerage arrangements. Furthermore, the staff of the FCC's Mass Media Bureau
has held that LMAs are not contrary to the Communications Act provided that the
licensee of the station that is being substantially programmed by another entity
maintains complete responsibility for, and control over, programming and
operations of its broadcast station and assures compliance with applicable FCC
rules and policies.

The FCC's multiple ownership rules specifically permit radio station LMAs
to continue to be entered into and implemented, but provide that a licensee or a
radio station that brokers more than 15% of the weekly broadcast time on another
station serving the same market will be considered to have an attributable
ownership interest in the brokered station for purposes of the FCC's multiple
ownership rules. As a result, in a market where it owns a radio station, the
Company would not be permitted to enter into an LMA with another local radio
station in the same market that it could not own under the revised local
ownership rules, unless the Company's programming constituted 15% or less of the
other local station's programming time on a weekly basis. The FCC rules also
prohibit a broadcast licensee from simulcasting more than 25% of its programming
on another station in the same broadcast service (i.e., AM-AM or FM-FM) through
a time brokerage or LMA arrangement where the brokered and brokering stations
which it owns or programs serve substantially the same area. Such 25%
simulcasting limitation also applies to commonly owned stations in the same
broadcast service that serve substantially the same area.

Joint Sales Agreements. Over the past few years, a number of radio stations
have entered into cooperative arrangements commonly known as joint sales
agreements or JSAs. While these agreements may take varying forms, under the
typical JSA, a station licensee obtains, for a fee, the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical JSA also customarily involves
the provision by the selling licensee of certain sales, accounting and "back
office" services to the station whose advertising is being sold. The typical JSA
is distinct from an LMA in that a JSA normally does not involve programming.

The FCC has determined that issues of joint advertising sales should be
left to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which a
licensee sells time under a JSA are not deemed by the FCC to be attributable
interests of that licensee. However, in connection with its ongoing rulemaking
proceeding concerning the attribution rules, the FCC is considering whether JSAs
should be considered attributable interests or within the scope of the FCC's
cross-interest policy, particularly when JSAs contain provisions for the supply
of programming services and/or other elements typically associated with LMAs. If
JSAs become attributable interests as a result of changes in the FCC rules, the
Company may be required to terminate any JSA it might have with a radio station
which the Company could not own under the FCC's multiple ownership rules.

Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." The FCC gradually has relaxed or eliminated many of
the more formalized procedures it had developed in the past to promote the
broadcast of certain types of programming responsive to the needs of a

77
<PAGE> 78

station's community of license. A licensee continues to be required, however, to
present programming that is responsive to issues of the station's community and
to maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming often will be considered by the FCC
when it evaluates renewal applications of a licensee, although listener
complaints may be filed at any time and generally may be considered by the FCC
at any time. Stations also must pay regulatory and application fees and follow
various rules promulgated under the Communications Act that regulate, among
other things, political advertising, sponsorship identifications, the
advertisement of contests and lotteries, obscene and indecent broadcasts, and
technical operations, including limits on human exposure to radio frequency
radiation. In addition, licensees must develop and implement affirmative action
programs designed to promote equal employment opportunities and must submit
reports to the FCC with respect to these matters on an annual basis and in
connection with a renewal application.

Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short term" (less than the full term) license renewal or, for particularly
egregious violations, the denial of a license renewal application or the
revocation of a license.

Proposed and Recent Changes. The FCC has pending a rulemaking proceeding
that seeks, among other things, comment on whether the FCC should modify its
radio and television broadcast ownership "attribution" rules by (i) raising the
basic benchmark for attributing ownership in a corporate licensee from 5% to 10%
of the licensee's outstanding voting power, (ii) increasing from 10% to 20% of
the licensee's outstanding voting power the attribution benchmark for "passive
investors" in corporate licensees, (iii) attributing certain minority
stockholdings in corporations with a single majority shareholder and (iv)
attributing certain LMA, JSA, debt or non-voting stock interests that have
heretofore been non-attributable.

Moreover, Congress and the FCC have under consideration, and in the future
may consider and adopt, new laws, regulations and policies regarding a wide
variety of matters that could affect, directly or indirectly, the operation,
ownership and profitability of the Company's radio stations, result in the loss
of audience share and advertising revenues for the Company's radio stations, and
affect the ability of the Company to acquire additional radio stations or to
finance those acquisitions. Such matters may include spectrum use or other fees
on FCC licenses; foreign ownership of broadcast licenses; revisions to the FCC's
equal employment opportunity rules and rules relating to political broadcasting;
technical and frequency allocation matters; proposals to restrict or prohibit
the advertising of beer, wine and other alcoholic beverages on radio; changes in
the FCC's cross-interest, multiple ownership and attribution policies; new
technologies such as DAB; and proposals to auction the right to use the radio
broadcast spectrum to the highest bidder.

The Company cannot predict what other matters might be considered in the
future by the FCC or Congress, nor can it judge in advance what impact, if any,
the implementation of any of these proposals or changes might have on its
business.

Federal Antitrust Laws. In addition to the risks associated with the
acquisition of radio stations, the Company is also aware of the possibility that
certain acquisitions it proposes to make may be investigated by the FTC or the
DOJ, which are the agencies responsible for enforcing the federal antitrust
laws. The agencies have recently investigated several radio station acquisitions
where an operator proposed to acquire new stations in its existing markets,
including the Patterson Acquisition. The DOJ's investigation with respect to the
Patterson Acquisition was closed, however, when the DOJ granted early
termination of the applicable waiting period under the HSR Act in January 1998.
The Company cannot predict the outcome of any specific DOJ or FTC investigation,
which are necessarily fact specific. Any decision by the FTC or the DOJ to
challenge a proposed acquisition could affect the ability of the Company to
consummate the acquisition or to consummate it on the proposed terms.

For an acquisition meeting certain size thresholds, the HSR Act and the
rules promulgated thereunder require the parties to file Notification and Report
Forms with the FTC and the DOJ and to observe specified waiting period
requirements before consummating the acquisition. During the initial 30-day
period after the filing, the agencies decide which of them will investigate the
transaction. If the investigating agency determines that the transaction does
not raise significant antitrust issues, then it will either terminate the
waiting period or allow it to expire after the initial 30 days. On the other
hand, if the agency determines that
78
<PAGE> 79

the transaction requires a more detailed investigation, then at the conclusion
of the initial 30-day period, it will issue a formal request for additional
information ("Second Request"). The issuance of a Second Request extends the
waiting period until the twentieth calendar day after the date of substantial
compliance by all parties to the acquisition. Thereafter, such waiting period
may only be extended by court order or with the consent of the parties. In
practice, complying with a Second Request can take a significant amount of time.
In addition, if the investigating agency raises substantive issues in connection
with a proposed transaction, then the parties frequently engage in lengthy
discussions or negotiations with the investigating agency concerning possible
means of addressing those issues, including but not limited to persuading the
agency that the proposed acquisition would not violate the antitrust laws,
restructuring the proposed acquisition, divestiture of other assets of one or
more parties, or abandonment of the transaction. Such discussions and
negotiations can be time-consuming, and the parties may agree to delay
consummation of the acquisition during their pendency.

At any time before or after the consummation of a proposed acquisition, the
FTC or the DOJ could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
acquisition or seeking divestiture of the business acquired or other assets of
the Company. Acquisitions that are not required to be reported under the HSR Act
may still be investigated by the FTC or the DOJ under the antitrust laws before
or after consummation. In addition, private parties and states may under certain
circumstances bring legal action to challenge an acquisition under the antitrust
laws.

Except as described hereinafter, the Company does not believe that any
Pending Acquisition will be adversely affected in any material respect by review
under the HSR Act. Although no filing under the HSR Act is required for each of
the Big Chief, KATQ and Gibbons Acquisitions, the DOJ is investigating the
competitive effects of combining the stations with the Company's currently owned
stations in each of the Fort Smith, Arkansas; Baton Rouge, Louisiana; Texarkana,
Texas; and Roanoke, Virginia areas. See "The Transactions."

The Company is currently subject to two consent decrees and a letter
agreement with the DOJ with respect to certain markets. As a result of the
GulfStar Acquisition, the Company is subject to a letter agreement in the
northwest Arkansas area which requires the Company to notify the DOJ at least 30
days prior to the consummation of an acquisition in such area for a ten-year
period beginning on March 4, 1997. SFX has entered into a consent decree (the
"Long Island Consent Decree") with the DOJ and Chancellor Media with respect to
the Long Island, New York market under which SFX agreed not to acquire WALK-FM.
As a result of the SFX Acquisition, the Company will become subject to the Long
Island Consent Decree. The Company and SFX executed a consent decree (the "SFX
Consent Decree") with the DOJ to permit the SFX Acquisition. The SFX Consent
Decree required the Company to agree to divest itself of station WTAE-AM serving
the Pittsburgh, Pennsylvania market, station WJDX-FM serving the Jackson,
Mississippi market and the stations that are the subject of the Long Island,
Houston-KKPN, and Greenville Dispositions before the DOJ would permit the
consummation of the SFX Acquisition. The SFX Consent Decree also requires the
Company to give the DOJ notice of any acquisition in the Long Island, New York;
Houston, Texas; Pittsburgh, Pennsylvania; Greenville, South Carolina; and
Jackson, Mississippi areas at least 30 days prior to the consummation thereof
for a period of up to ten years unless the Company and Chancellor Media do not
own stations in these areas at the time of the proposed acquisitions.

As part of its increased scrutiny of radio station acquisitions, the DOJ
has stated publicly that it believes that LMAs, JSAs and other similar
agreements customarily entered into in connection with radio station transfers
if such agreements take effect prior to the expiration of the waiting period
under the HSR Act could violate the HSR Act. Furthermore, the DOJ has noted that
JSAs may raise antitrust concerns under Section 1 of the Sherman Act and has
challenged JSAs in certain locations. To date, none of the Company's JSAs have
been challenged.

EMPLOYEES

At March 31, 1998, the Company had a staff of approximately 2,700 full-time
employees and approximately 800 part-time employees. If the Completed
Transactions that were completed after March 31, 1998, and the SFX Transactions
had been consummated as of March 31, 1998, the Company would have had a staff of
approximately 4,000 full-time employees and approximately 1,300 part-time
employees as of such date. There are no collective bargaining agreements between
the Company and its employees. The Company
79
<PAGE> 80

does have, however, one union member employed in connection with its Muzak
franchise in Atlanta, Georgia. The Company believes that its relations with its
employees are good.

SEASONALITY

Seasonal revenue fluctuations are common in the radio broadcasting industry
and are due primarily to fluctuations in advertising expenditures by retailers.
The Company's revenues and broadcast cash flows are typically lowest in the
first quarter and highest in the second and fourth quarters.

PROPERTIES AND FACILITIES

The types of properties required to support each of the Company's radio
stations include offices, studios and transmitter/antenna sites. No one property
is material to the overall operations of the Company. The Company typically
leases its studio and office space with lease terms that expire in five to ten
years, although the Company does own certain of its facilities. A station's
studios are generally housed with its offices in downtown or business districts.
The Company generally considers its facilities to be suitable and of adequate
size for its current and intended purposes. The Company typically owns its
transmitter and antenna sites, although the Company does lease certain of its
transmitter/antenna sites with lease terms that expire in three to 20 years. The
transmitter/antenna site for each station is generally located so as to provide
maximum market coverage, consistent with the station's FCC license. The Company
does not anticipate any difficulties in renewing any facility or
transmitter/antenna site leases or in leasing additional space or sites if
required.

The Company owns substantially all of its other equipment, consisting
principally of transmitting antennae, transmitters, studio equipment and general
office equipment. The towers, antennae and other transmission equipment used by
the Company's stations are generally in good condition, although opportunities
to upgrade facilities are continuously reviewed. All of the property owned by
the Company will secure the Company's borrowings under the Capstar Credit
Facility, except for certain real estate and leasehold interests, including
radio tower sites, and FCC licenses. See "Description of Indebtedness."

The principal executive offices of the Company are located at 600 Congress
Avenue, Suite 1400, Austin, Texas 78701. The telephone number of the Company is
(512) 340-7800.

LITIGATION

The Company is involved in litigation from time to time in the ordinary
course of its business. In management's opinion, the litigation in which the
Company is currently involved, individually and in the aggregate, is not
material to the Company's financial condition or results of operations.

On August 29, 1997, two lawsuits were commenced against SFX and its
directors in the Court of Chancery of the State of Delaware (New Castle County).
The plaintiffs in the lawsuits are Harbor Finance Partners (C.A. No. 15891) and
Steven Lieberman (C.A. No. 15901). The complaints are identical and allege that
the consideration to be paid as a result of the SFX Acquisition to the holders
of SFX's Class A common stock is unfair and that the individual defendants have
breached their fiduciary duties. Both complaints seek to have the actions
certified as class actions and seek to enjoin the SFX Acquisition or, in the
alternative, monetary damages. The defendants have filed answers denying the
allegations, and discovery has commenced. The parties have agreed that the
lawsuits may be consolidated in one action entitled In Re SFX Broadcasting, Inc.
Shareholders Litigation (C.A. No. 15891).

On March 17, 1998, the parties entered into a Memorandum of Understanding,
pursuant to which the parties have reached an agreement providing for a
settlement of the action (the "Settlement"). Pursuant to the Settlement, SFX has
agreed not to seek an amendment to the Merger Agreement to reduce the
consideration to be received by the stockholders of SFX in the SFX Acquisition
in order to offset SFX Entertainment's indemnity obligations. The Settlement
also provides for SFX to pay plaintiffs' counsel an aggregate of $950,000,
including all fees and expenses as approved by the court. The Settlement is
conditioned on the (a) consummation of the SFX Acquisition, (b) completion of
the confirmatory discovery and (c) approval of the court. Pursuant to the
Settlement, the defendants have denied, and continued to deny, that they have
acted in bad faith or breached any fiduciary duty. There can be no assurance
that the court will approve the Settlement on the terms and conditions provided
for therein, or at all.

80
<PAGE> 81

THE TRANSACTIONS

COMPLETED TRANSACTIONS

Since its formation in 1996, the Company has acquired 239 stations in 31
separate transactions with purchase prices ranging from $200,000 to $225.0
million, and for strategic or regulatory reasons has sold or shortly after the
consummation of the SFX Acquisition will have sold 22 stations in ten separate
transactions with sale prices ranging from $100,000 to $40.0 million. The
following table summarizes the Completed Transactions that have been (or with
respect to the Salisbury-Ocean City Disposition will have been) consummated by
the Company, other than the acquisition of Prophet Systems, Inc. described
below.

<TABLE>
<CAPTION>
STATIONS
ACQUIRED/
DISPOSITION
OF
DATE -----------
TRANSACTION(1) CLOSED FM AM REGION
-------------- ------ ---- ---- ------
<S> <C> <C> <C> <C>
Acquisitions
Commodore................................................... October 1996 18 12 NE/SE
Osborn...................................................... February 1997 12 6 NE/SE
Space Coast................................................. April 1997 3 2 Southeast
Osborn Tuscaloosa........................................... April 1997 1 1 Southeast
Osborn Huntsville........................................... May 1997 1 2 Southeast
Cavalier.................................................... July 1997 4 1 Northeast
Community Pacific........................................... July 1997 6 5 MW/W
GulfStar.................................................... July 1997 34 12 SW/W
Benchmark................................................... August 1997 20 10 NE/SE/SW
Emerald City................................................ August 1997 1 -- Southeast
Livingston.................................................. August 1997 -- 1 Southwest
Madison..................................................... August 1997 4 2 Midwest
McForhun.................................................... August 1997 1 -- Southwest
Booneville.................................................. September 1997 1 -- Southwest
WRIS........................................................ September 1997 1 -- Northeast
American General............................................ October 1997 1 -- Southwest
Ameron...................................................... October 1997 2 1 Southeast
Griffith.................................................... October 1997 3 -- Southeast
KJEM........................................................ October 1997 1 -- Southwest
KLAW........................................................ October 1997 2 -- Southwest
COMCO....................................................... November 1997 4 2 West
East Penn................................................... January 1998 -- 1 Northeast
Knight...................................................... January 1998 5 3 Northeast
Patterson................................................... January 1998 25 14 NE/SE/SW/MW/W
Quass....................................................... January 1998 2 -- Midwest
Commonwealth................................................ February 1998 2 1 West
Reynolds.................................................... February 1998 1 -- Southeast
Americom(2)................................................. April 1998 3 1 West
KDOS........................................................ April 1998 1 1 Southwest
KOSO........................................................ April 1998 1 -- West
Grant....................................................... May 1998 1 -- Southeast
--- --
Total............................................... 161 78
=== ==
Dispositions
Osborn Ft. Myers............................................ April 1997 2 1 Southeast
Wilmington.................................................. September 1997 1 -- Northeast
KASH........................................................ November 1997 -- 1 West
Bryan....................................................... September 1997 1 1 Southwest
Allentown................................................... January 1998 1 1 Northeast
Jackson..................................................... February 1998 2 2 Southwest
Dayton...................................................... February 1998 1 -- Northeast
Americom(2)................................................. April 1998 2 1 West
Westchester................................................. April 1998 2 1 Northeast
Salisbury-Ocean City(3)..................................... May 1998 2 -- Northeast
--- --
Total............................................... 14 8
=== ==
</TABLE>

- ---------------

(1) As defined in "Glossary of Certain Terms." Does not include (i) 21 stations
for which the Company currently provides services pursuant to LMAs and JSAs
and (ii) one station for which a third party provides services pursuant to
an LMA. See "Business -- Station Portfolio."

(2) The Company purchased three radio stations (two FM and one AM) from Americom
for cash and, concurrently therewith, exchanged three of the Company's radio
stations (two FM and one AM) for another FM radio station of Americom.

(3) The Salisbury-Ocean City Disposition will actually occur after the
consummation of the SFX Acquisition.

81
<PAGE> 82

In April 1998, the Company acquired substantially all of the assets of
Prophet Systems, Inc. (the "Prophet Systems Acquisition") for a purchase price
of $15.0 million in cash and 285,714 shares of Class A Common Stock with a
deemed value of $10.0 million, or $35.00 per share. The Class A Common Stock
will be issued by the Company after the Offering upon satisfaction of certain
conditions contained in the asset purchase agreement. The acquired assets permit
a radio station operator to broadcast programming from a centralized location to
selected stations by digitally transferring programming to such stations. Such
technology is an integral part of StarSystem(TM), the Company's programming
distribution network.

THE SFX TRANSACTIONS

SFX Acquisition

Pursuant to the Merger Agreement, a subsidiary of SBI Holding Corporation
("SBI"), an indirect subsidiary of the Company, will be merged, subject to
certain conditions, with and into SFX, and SFX will become an indirect
wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, SFX
has contributed all of the capital stock of SFX Concerts, Inc. (formerly known
as Delsener/Slater Enterprises, Inc.) to SFX Entertainment, a wholly-owned
subsidiary of SFX which holds all of SFX's live entertainment business. Pursuant
to the Merger Agreement, SFX distributed in April 1998 all of the capital stock
owned by SFX in SFX Entertainment to certain of the stockholders and other
security holders of SFX (the "Spin-Off"). The total cash cost to the Company of
the SFX Acquisition and related repayment of existing indebtedness under the SFX
Credit Facility is expected to be approximately $1.5 billion if completed by
June 1, 1998. R. Steven Hicks co-founded SFX and served as its chief executive
officer for three years before resigning in 1996 to form the Company with Hicks
Muse.

Merger Consideration. Pursuant to the Merger Agreement, the issued and
outstanding shares (other than shares held by persons who exercise statutory
dissenters' appraisal rights) of SFX's Class A common stock, Class B common
stock, Series C preferred stock, and Series D preferred stock will be converted
into the right to receive cash in an amount equal to approximately $1.2 billion
in the aggregate at the Effective Time, subject to adjustment as described
hereinafter. Each issued and outstanding share of 12 5/8% SFX Preferred Stock,
will remain outstanding after the Effective Time. After the consummation of the
Offering, the Company intends to redeem $119.6 million aggregate liquidation
preference of the 12 5/8% SFX Preferred Stock for an aggregate purchase price of
$141.6 million, including a $15.1 million redemption premium and $6.9 million of
accrued dividends. See "Use of Proceeds" and "Description of Capital Stock."
Each option or warrant to purchase shares of SFX capital stock will, at the
Effective Time, represent only the right to receive cash from SFX (net of any
applicable exercise price).

The "Termination Date" of the Merger Agreement is June 1, 1998, subject to
extension by SBI for up to three months, in one-calendar-month intervals;
however, if SBI extends the closing date beyond June 1, 1998, subject to certain
exceptions, the merger consideration payable to holders of SFX's Class A common
stock ("Class A Merger Consideration") and holders of Class B common stock
("Class B Merger Consideration") will increase by $1.00 per share for each
calendar month of extension. Under certain circumstances, if any judicial order
delaying the merger is lifted, and if SBI fails to consummate the merger within
10 days thereafter, then the Class A Merger Consideration and Class B Merger
Consideration will be increased by $2.00 per share for each calendar month (or
partial calendar month) between the Termination Date and the Effective Time.

Sillerman Consulting and Non-Competition Agreement and Stockholder
Agreement. Concurrently with the execution of the Merger Agreement, Robert F.X.
Sillerman, SFX's Executive Chairman and a director, entered into a Consulting,
Non-Compete and Termination Agreement with SBI and SFX, effective as of the
Effective Time, pursuant to which Mr. Sillerman (i) tendered his resignation as
an officer and director of SFX, (ii) agreed to release SFX from all claims he
may then have against SFX, with certain specified exceptions, (iii) agreed to
serve as an adviser and consultant for a period of two years, and (iv) agreed
that, subject to certain exceptions and for a period of five years commencing at
the Effective Time, he would not engage in, manage or operate any entity (or be
connected as a stockholder, director, officer, employee or agent of any entity)
that engages in the business of owning, operating or providing services to radio
stations in certain

82
<PAGE> 83

markets. SFX agreed to pay Mr. Sillerman, at the Effective Time, $2.0 million
for his agreement to provide consulting services to SFX and $23.0 million for
his agreement not to compete with SFX.

Directors' and Officers' Indemnification and Release. In the Merger
Agreement, SBI and SFX have agreed to indemnify and hold harmless the present
and former directors, officers and employees of SFX and its subsidiaries against
all amounts paid in connection with any actual or threatened legal suit based in
whole or part on the fact that such person was a director, officer or employee
of SFX or any of its subsidiaries and pertaining to any matter existing, or
arising out of acts or omissions occurring, at or prior to the Effective Time.
The Merger Agreement also obligates SBI to maintain SFX's directors' and
officers' liability insurance covering the directors and officers of SFX on the
date of the Merger Agreement for at least 6 years after the Effective Time, but
SBI is not required to pay annual premiums more than twice SFX's last annual
premium. In addition, at the Effective Time, SFX and its subsidiaries (other
than SFX Entertainment and its subsidiaries) will release the executive officers
and directors of SFX from all claims by SFX or its subsidiaries (other than SFX
Entertainment and its subsidiaries), except for claims arising from or
attributable to the transactions contemplated by the Merger Agreement or any
related document, or otherwise asserted prior to the Effective Time.
Concurrently with the execution of the Merger Agreement, Mr. Sillerman waived
his right to receive indemnification after the Effective Time with respect to
claims or damages relating to the Merger Agreement and the transactions
contemplated thereby from SFX, its subsidiaries and SBI and its subsidiary,
except to the extent that SFX can be reimbursed under the terms of its
directors' and officers' liability insurance for any such indemnification
amounts.

Provisions Regarding the Spin-Off. As a part of the Spin-Off, SFX and SFX
Entertainment entered into a Distribution Agreement (the "Distribution
Agreement"), a Tax Sharing Agreement (the "Tax Sharing Agreement"), and an
Employee Benefits Agreement (the "Employee Benefits Agreement"). The
Distribution Agreement contains the terms and conditions pursuant to which SFX
and SFX Entertainment propose to separate their businesses. The terms and
conditions of the Distribution Agreement include the following: the manner of
effecting the Spin-Off, the transfer of certain assets to and the assumption of
liabilities by SFX Entertainment, the obligation of SFX's senior management and
certain other SFX employees to continue to devote time to the operations of SFX
if the Spin-Off occurs prior to the Effective Time, the manner of allocating
working capital (in general, current assets minus current liabilities of SFX,
subject to certain agreed on adjustments) between SFX and SFX Entertainment, and
the assignment of the use of the name "SFX" and other specific intellectual
property of SFX to SFX Entertainment no later than six months from the date of
the consummation of the merger. The Merger Agreement requires that a working
capital adjustment be calculated prior to the consummation of the SFX
Acquisition.

Under the Tax Sharing Agreement, SFX Entertainment agreed to pay to SFX its
allocable share of the amount of the tax liability of SFX and SFX Entertainment
combined, and each of SFX and SFX Entertainment will indemnify the other for any
tax adjustment made in subsequent years that relates to taxes properly
attributable to SFX Entertainment during the period prior to and including the
Spin-Off. SFX Entertainment also is obligated to indemnify SFX for any taxes of
SFX resulting from the Spin-Off, including any income taxes that result from
gain on the distribution that exceeds the net operating losses of SFX and SFX
Entertainment available to offset gain resulting from the Spin-Off and any taxes
resulting from the indemnification payment made by SFX Entertainment. The actual
amount of the gain will be based on the excess of the value of the SFX
Entertainment common stock distributed over the tax basis of such stock. The
Company believes that the value of the SFX Entertainment common stock for tax
purposes will be determined based upon the first trading day following the date
on which the common stock was distributed in the Spin-Off. Increases or
decreases in the value of the SFX Entertainment common stock subsequent to such
date will not affect the amount of the tax liability. The SFX Entertainment
common stock had a value of approximately $30.50 per share at the time of the
Spin-Off. Therefore, the Company believes that the indemnification payments that
it will be entitled to receive from SFX Entertainment will be approximately
$120.0 million. The Company expects that any such indemnity payments will be due
beginning on or about July 1, 1998.

83
<PAGE> 84

The Employee Benefits Agreement will provide that each party agrees to take
all actions necessary or appropriate so that, as of the Spin-Off, SFX
Entertainment and its subsidiaries will no longer be participating employers and
sponsors of the SFX's employee benefit plans.

SFX Related Transactions

Concurrently with or shortly after the SFX Acquisition, the Company intends
to acquire eight radio stations for $178.3 million and, due to multiple station
ownership rules and regulations, the Company and SFX intend to dispose of 15
radio stations for $306.7 million. In addition, under the Chancellor Exchange
Agreement, the Company has agreed to sell ten SFX stations in the Dallas,
Houston, San Diego and Pittsburgh markets to Chancellor Media during the
three-year period ending February 20, 2001, in exchange for stations to be
identified by the Company. Chancellor will provide services to these SFX
stations under separate LMAs after the consummation of the SFX Acquisition. See
"Certain Relationships and Related Transactions -- Chancellor Exchange
Agreement." The following table summarizes the SFX Related Transactions that are
expected to be consummated concurrently with or shortly after the SFX
Acquisition (other than the programming of the ten SFX stations by, and the
eventual sale of such stations to, Chancellor Media and the sale of SFX stations
WTAE-AM in Pittsburgh, Pennsylvania and WJDX-FM in Jackson, Mississippi after
the consummation of the SFX Acquisition to comply with the SFX Consent Decree).
See "Business -- Federal Regulation of Radio Broadcasting -- Federal Antitrust
Laws." Upon completion of the SFX Transactions, the Company will own and operate
or program 299 radio stations (22 stations of which will be programmed by the
Company) in 75 mid-sized markets located throughout the United States.

<TABLE>
<CAPTION>
STATIONS TO BE
ACQUIRED/
DISPOSED OF
-------------- PURCHASE/SALE
TRANSACTION(1) FM AM REGION PRICE
-------------- ---- ---- --------- -------------
<S> <C> <C> <C> <C>
Acquisitions
Austin...................................................... 2 1 Southwest $ 90.3
Jacksonville................................................ 2 -- Southeast 53.0
Nashville(2)................................................ 2 1 Southeast 35.0
-- -- ------
Total............................................... 6 2 $178.3
== == ======
Dispositions
Greenville(3)............................................... 3 1 Southeast $ 35.0
Upper Fairfield(3)(4)....................................... 2 2 Northeast 14.9
Daytona Beach-WGNE(3)....................................... 1 -- Southeast 11.5
Houston-KODA................................................ 1 -- Southwest 143.3
Long Island................................................. 3 1 Northeast 48.0
Houston-KKPN(3)............................................. 1 -- Southwest 54.0(5)
-- -- ------
Total............................................... 11 4 $306.7
== == ======
</TABLE>

- ---------------

(1) As defined in "Glossary of Certain Terms."

(3) The sale of such stations on or before the consummation of the SFX
Acquisition is required to avoid violation of the multiple station ownership
limitations under the Communications Act. If such dispositions cannot be
consummated on or before the consummation of the SFX Acquisition, then the
Company intends to place the assets of such stations (including FCC
licenses) in trust pending the disposition thereof by the trustee. The
Company has received FCC approval to place the assets of such stations in
trust. Upon the consummation of the sale of any assets that may be placed in
trust, the trustee will distribute the net proceeds therefrom to the
Company. The Company cannot predict whether or when such assets, if placed
in trust, will be sold, or if sold, whether they will be sold at a profit to
the Company. The Company will not receive FCC approval for the Upper
Fairfield Disposition prior to the consummation of the SFX Acquisition;
accordingly, the stations to be sold in connection therewith will be placed
in trust pending the disposition thereof by the trustee.

(4) The Company will retain a minority interest in these stations. See "Glossary
of Certain Terms."

(5) 50% of the sale proceeds in excess of $50.0 million, or $2.0 million, will
be paid to Chancellor Media under the terms of the Chancellor Exchange
Agreement. See "Certain Relationships and Related Transactions -- Chancellor
Exchange Agreement."

84
<PAGE> 85

PENDING ACQUISITIONS

In addition to the SFX Transactions, the Company has entered into eight
agreements to acquire 25 additional stations (18 FM and seven AM) in ten
mid-sized markets (including 15 stations in five markets for which the Company
currently provides services pursuant to an LMA) for $36.5 million. The Company
must obtain additional financing to consummate the Pending Acquisitions and
there can be no assurance that such financing will be available to the Company
on terms acceptable to its management. Consummation of each of the Pending
Acquisitions is subject to numerous conditions, including governmental
approvals. Accordingly, the actual date of consummation of each of the Pending
Acquisitions may vary from the anticipated closing dates. No assurances can be
given that any or all of the Pending Acquisitions will be consummated or that,
if completed, they will be successful. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

The following table summarizes the Pending Acquisitions that the Company
expects to consummate after the consummation of the SFX Transactions.

<TABLE>
<CAPTION>
STATIONS TO BE
ACQUIRED ESTIMATED
-------------- EXPECTED PURCHASE
TRANSACTION(1) FM AM REGION CLOSING DATE PRICE
-------------- ---- ---- ------ ------------ ---------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Class Act...................................... 1 1 Southwest May 1998 $ 0.9
KRNA........................................... 1 -- Midwest June 1998 6.0
Shreveport-KMJJ................................ 1 -- Southwest June 1998 5.5
Fairbanks...................................... 1 -- West July 1998 0.2
Portsmouth..................................... 2 2 Northeast July 1998 6.0
Burlington..................................... 2 1 Northeast August 1998 5.2
Champion....................................... 9 2 Southwest January 1999 11.3
Noalmark(2).................................... 1 1 Southwest March 2000 1.4
-- -- -----
Total.................................. 18 7 $36.5
== == =====
</TABLE>

- ---------------

(1) As defined in "Glossary of Certain Terms." The table also does not include
(i) the Big Chief Acquisition or the KATQ Acquisition, each of which the
Company does not anticipate will close due to regulatory reasons, (ii) the
SFX Jackson-Biloxi Acquisition which the Company and SFX will terminate upon
the consummation of the SFX Acquisition or (iii) the Gibbons Acquisition,
the consummation of which, for regulatory reasons, would require the sale of
one or more stations owned by the Company in the Roanoke, Virginia market;
the Company has not yet determined whether or which stations, if any, to
sell to permit the consummation of the Gibbons Acquisition. See
"Business -- Federal Regulation of Radio Broadcasting."

(2) The Company has an option to acquire two stations in the Longview, Texas
market from Noalmark Broadcasting Corp. on or before March 6, 2000. The
Company currently provides services for such stations pursuant to an LMA and
expects to exercise the option on or before March 6, 2000.

OTHER TRANSACTIONS

As part of the Company's ongoing acquisition strategy, the Company is
continually evaluating certain other potential acquisition opportunities. The
Company has entered into five separate nonbinding letters of intent to acquire
and/or exchange substantially all of the assets of the respective potential
sellers used or useful in the operations of each seller's radio stations, each
of which is subject to various conditions, including the ability of the Company
to enter into a definitive agreement to acquire such assets. No assurances can
be given that definitive agreements will be entered into to acquire such assets
or that such transactions will be consummated. See "Risk Factors -- Risks of
Acquisition Strategy."

The Company intends to dispose of SFX stations WJDX-FM and WTAE-AM serving
the Jackson, Mississippi and Pittsburgh, Pennsylvania markets, respectively, in
order to comply with the SFX Consent Decree. See "Business -- Federal Regulation
of Radio Broadcasting -- Federal Antitrust Laws." No agreements have been
entered into to dispose of such stations.

85
<PAGE> 86

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table provides information concerning the directors and
executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
R. Steven Hicks............ 48 Chief Executive Officer, President and Director
William S. Banowsky, Jr.... 36 Executive Vice President and General Counsel
Paul D. Stone.............. 37 Executive Vice President and Chief Financial Officer
James T. Shea, Jr. ........ 44 President and Chief Executive Officer of Atlantic Star
(Northeast Region)
John D. Cullen............. 44 Interim Chief Operating Officer, President and Chief
Executive Officer of GulfStar (Southwest Region)
James P. Donahoe(1)........ 46 President and Chief Executive Officer of Pacific Star
(West Region)
Mary K. Quass.............. 48 President and Chief Executive Officer of Central Star
(Midwest Region)
Rick Peters................ 45 President and Chief Executive Officer of Southern Star
(Southeast Region)
Thomas O. Hicks............ 52 Chairman of the Board
Michael J. Levitt.......... 39 Director
Eric C. Neuman............. 53 Director
Lawrence D. Stuart, Jr. ... 53 Director
R. Gerald Turner........... 52 Director
</TABLE>

- ---------------

(1) Mr. Donahoe will become the President and Chief Executive Officer of Pacific
Star upon the consummation of the SFX Acquisition.

Executive officers of the Company are appointed by the Board of Directors
and serve at the Board's discretion. A brief biography of each director and
executive officer follows:

R. Steven Hicks has served as President, Chief Executive Officer and a
director since June 1997. Mr. Hicks has also served as Chairman of the Board
from June to September 1997. Mr. Hicks joined the Company in October 1996. Prior
to joining the Company, Mr. Hicks acted as Chairman of the Board and Chief
Executive Officer of GulfStar from January 1987 to July 1997 and as President
and Chief Executive Officer of SFX from November 1993 to May 1996. Mr. Hicks is
a 31-year veteran of the radio broadcasting industry, including 18 years as a
station owner. Mr. Hicks is the brother of Thomas O. Hicks.

William S. Banowsky, Jr. has served as Executive Vice President, General
Counsel and Secretary since June 1997. Mr. Banowsky joined the Company in
January 1997. Mr. Banowsky was an attorney with Snell, Banowsky & Trent, P.C.,
Dallas, Texas, for six years before joining the Company. Prior to that time, he
was an attorney for Johnson & Gibbs, P.C., Dallas, Texas, for four years.

Paul D. Stone has served as Chief Financial Officer, Executive Vice
President and Assistant Secretary since June 1997. Mr. Stone joined the Company
in January 1997. Prior to joining the Company, he was an Executive Vice
President and the Chief Financial Officer of GulfStar from April 1996 until
January 1997. Prior to January 1997, Mr. Stone was Vice President and Controller
of Hicks Muse for six years. He is a Certified Public Accountant.

James T. Shea, Jr. has been employed by the Company since October 1996 and
was named President and Chief Executive Officer of Atlantic Star in June 1997.
Prior to joining the Company, Mr. Shea served as Chief Operating Officer of
Commodore from January 1995 to October 1996. Mr. Shea joined Commodore as

86
<PAGE> 87

the President of its MidAtlantic Region in March 1992. He joined Wilks-Schwartz
in 1980 and served in various positions, including Executive Vice President,
General Manager and Partner, until 1992.

John D. Cullen has served as the interim Chief Operating Officer since
March 1998 and has served as the President and Chief Operating Officer of
GulfStar since March 1996. From 1992 to February 1996, Mr. Cullen served as a
regional manager of SFX's radio stations in the Greenville-Spartanburg, Raleigh-
Durham, Charlotte and Greensboro-Winston-Salem markets. Mr. Cullen is a 17-year
veteran of the radio broadcasting industry.

James P. Donahoe will join the Company as the President and Chief Executive
Officer of Pacific Star upon the consummation of the SFX Acquisition. Since
December 1996, Mr. Donahoe has served as a regional vice president of SFX. In
addition to his duties as regional vice president, Mr. Donahoe has served as
vice president and general manager of several SFX stations in San Diego,
California since October 1995. Prior to joining SFX, Mr. Donahoe served as
general manager for Commonwealth Broadcasting in Las Vegas, Nevada.

Mary K. Quass has served as the President and Chief Executive Officer of
Central Star since January 1998. She previously served as the President and
Chief Executive Officer of Quass Broadcasting Company from 1988 to January 1998.
From 1982 to 1988, Ms. Quass served as Vice President/General Manager of
stations KHAK-AM and KHAK-FM in Cedar Rapids, Iowa. Ms. Quass is a 20-year
veteran of the radio broadcasting industry, including nine years as a station
owner.

Rick Peters has served as President and Chief Executive Officer of Southern
Star since November 1997. From February 1986 to November 1997, Mr. Peters served
as president of Peters Communications, Inc., a programming consultancy
affiliated with radio stations in various mid-sized and large markets. Prior to
February 1986, Mr. Peters was Vice President-Programming for TK Communications
and Sconnix Broadcasting. Mr. Peters has over 25 years of experience in the
radio industry.

Thomas O. Hicks has been a director since June 1997 and has served as
Chairman of the Board since September 1997. Mr. Hicks has been Chairman and
Chief Executive Officer of Hicks Muse since co-founding the firm in 1989. Prior
to forming Hicks Muse, Mr. Hicks co-founded Hicks & Haas Incorporated in 1983
and served as its Co-Chairman and Co-Chief Executive Officer through 1989. Mr.
Hicks also serves as a director of Berg Electronics Corp., Chancellor Media,
Cooperative Computing, Inc., CorpGroup Limited, Group MVS. S.A. de C.V.,
International Home Foods, Inc., LIN Television Corp., Sybron International
Corporation and Viasystems Group, Inc.

Michael J. Levitt has been a director of the Company since March 1998. Mr.
Levitt is a Managing Director and Principal of Hicks Muse. Before joining Hicks
Muse, Mr. Levitt was a Managing Director and Deputy Head of Investment Banking
with Smith Barney Inc. from 1993 through 1995. From 1986 through 1993, Mr.
Levitt was with Morgan Stanley & Co. Incorporated, most recently as a Managing
Director responsible for the New York based Financial Entrepreneurs Group. Mr.
Levitt also serves as a director of Atrium Companies, Inc., Group MVS. S.A. de
C.V., International Home Foods, Inc., LIN Television Corp. and Sunrise
Television Corp.

Eric C. Neuman has served as a director since June 1997. Mr. Neuman has
been employed as an officer of Hicks Muse since 1993 and was named Senior Vice
President in 1996. Before joining Hicks Muse, Mr. Neuman served for eight years
as Managing General Partner of Communications Partners, Ltd., a Dallas-based
private investment firm. Mr. Neuman also serves as a director of Chancellor
Media.

Lawrence D. Stuart, Jr. became a director in June 1997. Mr. Stuart has been
a Managing Director and Principal of Hicks Muse since 1995. Prior to joining
Hicks Muse, Mr. Stuart served for over 20 years as the principal outside legal
counsel for the investment firms and portfolio companies led by Thomas O. Hicks.
From 1989 to 1995, Mr. Stuart was the Managing Partner of the Dallas office of
Weil, Gotshal & Manges LLP. Mr. Stuart also serves as a director of Chancellor
Media.

R. Gerald Turner has served as a director since July 1997. Mr. Turner has
been President of Southern Methodist University in Dallas, Texas since June
1995. Prior to joining Southern Methodist University,

87
<PAGE> 88

Mr. Turner served as the Chancellor of The University of Mississippi from April
1984 to June 1995. Mr. Turner has also served in various positions at the
University of Oklahoma and Pepperdine University. Mr. Turner also acts as a
director of Chem First Corporation, Mobil Telecommunications Technologies, Inc.
and J.C. Penney Company, Inc.

The Company is currently negotiating with D. Geoffrey Armstrong to become
the Chief Operating Officer of the Company on September 1, 1998 and director of
the Company as soon as practicable after the Offering. Mr. Armstrong has served
as the Chief Operating Officer and an Executive Vice President of SFX since
November 1996 and has served as a director of SFX since 1993. Mr. Armstrong
became the Chief Operating Officer of SFX in June 1996 and the Chief Financial
Officer, Executive Vice President and Treasurer of SFX in April 1995. Mr.
Armstrong was Vice President, Chief Financial Officer and Treasurer of SFX from
1992 until March 1995. He served as Executive Vice President and Chief Financial
Officer of Capstar, a predecessor of SFX and unrelated to the Company, since
1989. From 1988 to 1989, Mr. Armstrong was the Chief Executive Officer of
Sterling Communications Corporation.

ELECTION OF BOARD OF DIRECTORS

The Certificate of Incorporation of the Company provides that the Board of
Directors shall consist of no less than one and no more than twenty-one
directors (plus such number of directors as may be elected from time to time by
the holders, if any, of any class or series of preferred stock), two of whom
shall be elected by the holders of the Class A Common Stock voting as a class
(the "Class A Directors"), and the remainder of whom (the "Classified
Directors") shall be elected by the holders of the Class A Common Stock and the
Class C Common Stock, voting together as a single class. It is expected that the
Board of Directors will designate R. Gerald Turner as a Class A Director and
such designee will then be nominated for election as the Class A Directors at
the next annual meeting of stockholders. It is expected that the other Class A
directorship will be vacant immediately after the completion of the Offering and
will be filled as soon as practicable after the Offering by the Board of
Directors. The Class A Directors will be elected for one-year terms by the
holders of the Class A Common Stock at each annual meeting of the stockholders
of the Company commencing after the Offering. Notwithstanding the previous
sentence, upon the earlier to occur of (i) the date on which Hicks Muse and its
affiliates ceases to own beneficially more than 50% of the number of shares of
Class C Common Stock owned by them upon completion of the Offering subject to
certain adjustments and (ii) the third anniversary date of the completion of the
Offering, the holders of the Class A Common Stock and the holders of the Class C
Common Stock will vote together as a single class on the election of all
directors. See "Description of Capital Stock." The Classified Directors are
elected for three-year terms, with the terms of the three classes staggered so
that directors from a single class are elected at each annual meeting of the
stockholders. See "Description of Capital Stock -- The Company." Mr. Neuman is a
Class I director whose term of office will expire at the annual meeting of
stockholders in 1999; Mr. Stuart and Mr. Levitt are Class II directors whose
terms of office will expire at the annual meeting of stockholders in 2000; and
Mr. Thomas O. Hicks and Mr. R. Steven Hicks are Class III directors whose terms
of office will expire at the annual meeting of stockholders in 2001. If Mr.
Armstrong is elected to the Board of Directors, it is anticipated that he will
be classified as a Class I director, whose term of office will expire at the
annual meeting of stockholders in 1999. Each of the current members of the Board
of Directors of the Company was designated as a director by Hicks Muse pursuant
to the terms of the Affiliate Stockholders Agreement, the Management
Stockholders Agreement and the GulfStar Stockholders Agreement. See "Certain
Relationships and Related Transactions -- Stockholders Agreements."

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has two committees: an Audit Committee and a
Compensation Committee. The Audit Committee's functions include recommending to
the Board of Directors the engagement of the Company's independent public
accountants and reviewing with such accountants the plans for, and the result
and scope of, their auditing engagement. The Compensation Committee determines
the compensation of executive officers, including bonuses, and administers the
Capstar Broadcasting Corporation Amended and Restated 1998 Stock Option Plan
(the "Stock Option Plan"). See "-- Stock Option Plan." The Audit

88
<PAGE> 89

Committee will consist of Mr. Turner and another independent director who will
be appointed after the Offering. The Compensation Committee will consist of
Messrs. Thomas O. Hicks, Stuart, Turner and an independent director who will be
appointed after the Offering.

EXECUTIVE COMPENSATION

The following table sets forth for 1997 certain information concerning
compensation paid to or earned by the Chief Executive Officer of the Company and
the Company's other most highly compensated executive officers for services
rendered during the year ended December 31, 1997 (the "Named Executive
Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING PAYOUTS
NAME AND -------------------- OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#) PAYOUTS($) COMPENSATION($)
------------------ ---- --------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks......................... 1997 500,000 750,000 748,436(1) -- --
President and Chief Executive Officer
of 1996 191,667 -- 930,000(2) -- --
the Company 1995 -- -- -- -- --
William S. Banowsky, Jr................. 1997 200,000 300,000 169,998 -- --
Executive Vice President and General 1996 -- -- -- -- --
Counsel of the Company 1995 -- -- -- -- --
Paul D. Stone........................... 1997 200,000 300,000 169,998 -- --
Executive Vice President and Chief 1996 -- -- -- -- --
Financial Officer of the 1995 -- -- -- -- --
Company
James T. Shea, Jr....................... 1997 282,692 150,000 -- -- --
President of Atlantic Star 1996 262,500 -- 72,088 170,000 3,412,495
1995 242,361 144,500 -- 183,000 --
John D. Cullen.......................... 1997 204,575 70,000 50,000 -- --
Interim Chief Operating Officer of the 1996 112,500 35,000 -- -- --
Company and President of GulfStar 1995 -- -- -- -- --
Frank D. Osborn......................... 1997 375,000 250,000 150,000 -- 3,511,327(3)
Former President of Southern Star(4) 1996 387,000 300,000 -- -- 1,778,375
1995 378,490 300,000 35,000(5) -- 16,000
</TABLE>

- ---------------

(1) Represents stock options to purchase up to 169,998 shares of Class A Common
Stock and Warrants to purchase up to 578,438 shares of Class C Common Stock
granted to R. Steven Hicks in 1997. See "-- Warrants."

(2) Represents Warrants to purchase up to 930,000 shares of Class C Common Stock
granted to R. Steven Hicks in 1996. See "-- Warrants."

(3) Represents (i) $3,220,000 received by Mr. Osborn pursuant to his employment
agreement with Osborn Communications Corporation prior to the Osborn
Acquisition under which Mr. Osborn was entitled upon the occurrence of a
change of control, (ii) $276,375 received by Mr. Osborn in connection with
the Osborn Acquisition in settlement of his outstanding options to purchase
shares of common stock of Osborn and (iii) $14,952 for tax preparation
expenses paid on behalf of Mr. Osborn pursuant to the terms of his previous
employment agreement with Osborn.

(4) Mr. Osborn served as President of Southern Star from February 1997 to
November 1997.

(5) Represents options granted to Mr. Osborn by Osborn Communications
Corporation to buy shares of common stock of Osborn Communication
Corporation.

89
<PAGE> 90

The following table sets forth certain information concerning stock option
grants to purchase shares of Class A Common Stock during the year ended December
31, 1997, to the Named Executive Officers pursuant to the Stock Option Plan.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED(#) IN 1997 PER SHARE DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks..................... 84,499 6.04% 11.00 2-20-03 317,989 721,410
84,499 6.04% 13.30 9-10-03 384,478 872,250
William S. Banowsky, Jr............. 84,499 6.04% 11.00 2-20-03 317,989 721,410
84,499 6.04% 13.30 9-10-03 384,478 872,250
Paul D. Stone....................... 84,499 6.04% 11.00 2-20-03 317,989 721,410
84,499 6.04% 13.30 9-10-03 384,478 872,250
James T. Shea, Jr................... -- -- -- -- -- --
John D. Cullen...................... 50,000 3.55% 13.30 9-10-03 226,164 513,088
Frank D. Osborn..................... 150,000 10.66% 11.00 2-20-03 561,158 1,273,076
</TABLE>

- ---------------

(1) The potential realizable value of the options has been calculated based on
the Board of Director's determination that the fair market of the Class A
Common Stock underlying the options at the date of grant was equal to the
exercise price per share on the date of grant. These gains are based on
assumed rates of stock price appreciation of 5% and 10% compounded annually
from the date the option was granted through the expiration date of such
option.

The following table provides information about the number of shares
underlying unexercised options under the Stock Option Plan to purchase shares of
Class A Common Stock by the Named Executive Officers at December 31, 1997, and
the value of unexercised in-the-money options of the Named Executive Officers at
December 31, 1997.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
AT DECEMBER 31, 1997 DECEMBER 31, 1997($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
R. Steven Hicks......................... -- 169,998 $ -- $1,164,484
William S. Banowsky, Jr................. -- 169,998 -- 1,164,484
Paul D. Stone........................... -- 169,998 -- 1,164,484
James T. Shea, Jr....................... 24,029 48,058 216,261 432,522
John D. Cullen.......................... -- 50,000 -- 285,000
Frank D. Osborn......................... -- 150,000 -- 1,200,000
</TABLE>

- ---------------

(1) Assuming a fair market price of $19.00, which is the initial public offering
price per share of the Class A Common Stock in the Offering.

DIRECTORS COMPENSATION

Directors who are officers, employees or otherwise affiliates of the
Company do not receive compensation for their services as directors.
Non-employee directors receive an annual retainer of $25,000, plus $1,000 for
attending each meeting of the Board of Directors and $1,000 for attending each
committee meeting. Directors of the Company are entitled to reimbursement of
their reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the Board of Directors or committees thereof. The
Company expects to implement an equity program pursuant to which each director
who is not an officer, employee or otherwise an affiliate of the Company will be
granted stock options and may be given an opportunity to acquire

90
<PAGE> 91

shares of Class A Common Stock. In connection with his appointment as a
director, R. Gerald Turner purchased 7,518 shares of Class A Common Stock in
exchange for a non-recourse promissory note payable to the Company in the amount
of $75,000 and a recourse note payable to the Company in the amount of $25,000
and was granted stock options under the Stock Option Plan to purchase 7,518
shares of Class A Common Stock for $13.30 per share. In addition, Mr. Turner
received directors fees in the amount of $28,000 during 1997, which were applied
against Mr. Turner's notes payable to the Company. See "Certain Relationships
and Related Transactions -- Indebtedness of Management."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1997, Messrs. Thomas O. Hicks, R. Steven Hicks, Stuart and Turner
served as members of the Compensation Committee of the Company's Board of
Directors. In 1998 the Board of Directors has appointed Messrs. Thomas O. Hicks,
Stuart and Turner to the Compensation Committee, of which Mr. Stuart acts as
chairman. During 1997, Thomas O. Hicks served as the Company's Chairman of the
Board, and R. Steven Hicks served as the Company's President and Chief Executive
Officer.

Thomas O. Hicks and Mr. Stuart are executive officers and principals of
Hicks Muse, which through its affiliates will own approximately 66.7% of the
outstanding Common Stock upon the consummation of the Offering. Hicks Muse or an
affiliate thereof is a party to the Capstar Broadcasting Monitoring and
Oversight Agreement, the Capstar Partners Monitoring and Oversight Agreement,
the Capstar Broadcasting Financial Advisory Agreement, the Capstar Partners
Financial Advisory Agreement, the Affiliate Stockholders Agreement, the
Management Stockholders Agreement and the GulfStar Agreement (each as defined).
Messrs. Thomas O. Hicks, R. Steven Hicks and Stuart were stockholders of
GulfStar prior to its acquisition by the Company. Thomas O. Hicks serves as the
interim Chief Executive Officer and as a director of Chancellor Media, and Mr.
Stuart also serves as a director of Chancellor Media. Chancellor Media is a
party to the Chancellor Exchange Agreement and owns and operates The AMFM Radio
Network of which the Company is a participant. In addition, the Company has
retained Katz Media Group, Inc., a subsidiary of Chancellor Media, as its media
representative to sell national spot advertising air time. Mr. Turner is
indebted to the Company under the terms of a non-recourse note and a recourse
note, each made payable to the Company. See "Certain Relationships and Related
Transactions."

EMPLOYMENT AGREEMENTS

R. Steven Hicks Employment Agreement. The Company has entered into an
employment agreement with R. Steven Hicks pursuant to which Mr. Hicks serves as
President and Chief Executive Officer. Mr. Hicks' employment agreement
terminates on December 31, 2001, and will be automatically renewed for
successive one-year terms unless Mr. Hicks or the Company gives the other party
written notice of his or its intention not to renew the employment agreement at
least six months prior to the date the employment agreement would otherwise
expire (but no more than 12 months prior to such expiration date). Mr. Hicks'
annual base salary for 1998 is $550,000 and is subject to annual increases at
least equal to five percent of the then current base salary. He is also entitled
to receive such annual performance bonuses as the Board of Directors may
determine. Further, Mr. Hicks is eligible to receive stock options to purchase
shares of Class A Common Stock. If the Company terminates Mr. Hicks' employment
for cause or Mr. Hicks terminates his employment for other than good reason, the
Company must pay Mr. Hicks all accrued obligations and other benefits earned
prior to the date of termination. If the Company terminates Mr. Hicks'
employment agreement other than for cause or Mr. Hicks terminates his employment
agreement for good reason, Mr. Hicks' employment agreement provides for (A) a
lump sum payment of (x) two times Mr. Hicks' then current annual salary and (y)
any accrued obligations and other benefits earned prior to the date of
termination and (B) unless the Board of Directors determines that Mr. Hicks has
not satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between the Company and Mr. Hicks and the
right to exercise those options until the earlier of (x) the expiration date of
those options or (y) the 90th day after Mr. Hicks' termination.

William S. Banowsky, Jr. Employment Agreement. The Company has entered into
an employment agreement with William S. Banowsky, Jr. pursuant to which Mr.
Banowsky serves as Executive Vice President

91
<PAGE> 92

and General Counsel. Mr. Banowsky's employment agreement terminates on December
31, 2001, and will be renewed automatically for successive one-year terms unless
Mr. Banowsky or the Company gives the other party written notice of his or its
intention not to renew the employment agreement at least six months prior to the
date the employment agreement would otherwise expire (but not more than 12
months prior to such expiration date). Mr. Banowsky's annual base salary for
1998 is $275,000, subject to annual increases at least equal to five percent of
the then current base salary. Mr. Banowsky is also entitled to receive such
annual bonuses as the Board of Directors may determine. Further, Mr. Banowsky is
eligible to receive stock options to purchase shares of Class A Common Stock. If
the Company terminates Mr. Banowsky's employment for cause or Mr. Banowsky
terminates his employment for other than good reason, the Company must pay Mr.
Banowsky all accrued obligations and other benefits earned prior to the date of
termination. If the Company terminates Mr. Banowsky's employment agreement other
than for cause or Mr. Banowsky terminates his employment agreement for good
reason, Mr. Banowsky's employment agreement provides for (A) a lump sum payment
of (x) two times Mr. Banowsky's then current annual salary and (y) any accrued
obligations and other benefits earned prior to the date of termination and (B)
unless the Board of Directors determines that Mr. Banowsky has not
satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between the Company and Mr. Banowsky and
the right to exercise those options until the earlier of (x) the expiration date
of those options or (y) the 90th day after Mr. Banowsky's termination.

Paul D. Stone Employment Agreement. The Company has entered into an
employment agreement with Paul D. Stone pursuant to which Mr. Stone serves as
Executive Vice President and Chief Financial Officer. Mr. Stone's employment
agreement terminates on December 31, 2001, and will be renewed automatically for
successive one-year terms unless Mr. Stone or the Company gives the other party
written notice of his or its intention not to renew the employment agreement at
least six months prior to the date the employment agreement would otherwise
expire (but no more than 12 months prior to such expiration date). Mr. Stone's
annual base salary for 1998 is $275,000, subject to annual increases at least
equal to five percent of the then current base salary. Mr. Stone is also
entitled to receive such annual bonuses as the Board of Directors may determine.
Further, Mr. Stone is eligible to receive stock options to purchase shares of
Class A Common Stock. If the Company terminates Mr. Stone's employment for cause
or Mr. Stone terminates his employment for other than good reason, the Company
must pay Mr. Stone all accrued obligations and other benefits earned prior to
the date of termination. If the Company terminates Mr. Stone's employment
agreement other than for cause or Mr. Stone terminates his employment agreement
for good reason, Mr. Stone's employment agreement provides for (A) a lump sum
payment of (x) two times Mr. Stone's then current annual salary and (y) any
accrued obligations and other benefits earned prior to the date of termination
and (B) unless the Board of Directors determines that Mr. Stone has not
satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between the Company and Mr. Stone and the
right to exercise those options until the earlier of (x) the expiration date of
those options or (y) the 90th day after Mr. Stone's termination.

James T. Shea, Jr. Employment Agreement. The Company has entered into an
employment agreement with James T. Shea, Jr. pursuant to which Mr. Shea serves
as the President and Chief Executive Officer of Atlantic Star. Mr. Shea's
employment agreement terminates on April 30, 1999. Mr. Shea's annual base salary
for 1998 is $288,750, which increases at the beginning of each calendar year by
an amount not less than five percent of his then current base salary. Mr. Shea
is also entitled to receive annual bonuses as the Board of Directors of the
Company may determine, provided that the bonus shall not be less than $150,000.
In addition, the employment agreement provides for an automobile allowance,
participation in the retirement, savings, and welfare benefit plans of the
Company and a life insurance policy with a death benefit of $650,000. If the
Company terminates Mr. Shea's employment for cause, the Company is obligated to
pay Mr. Shea's then accrued base salary, reimbursable expenses, and any other
compensation then due and owing. In addition, the Company must continue to fund
Mr. Shea's life insurance policy. If the employment agreement is terminated due
to death or disability, without cause or by Mr. Shea for good reason, Mr. Shea
will be entitled to (i) the continuation of his annual base salary, as then in
effect, for a 12-month period commencing on the termination date, (ii) a pro
rata amount of his annual bonus, (iii) any annual base salary and annual bonus
then accrued but not yet paid, (iv) the continuation of his welfare benefits for
a 12-month period commencing on the

92
<PAGE> 93

termination date, (v) the continuation of his life insurance policy, (vi) any
other compensation and benefits as may be provided in accordance with the terms
and provisions of any applicable plans and programs, (vii) reimbursement for
certain expenses incurred as of the termination date but not yet paid as of the
date of termination and (viii) any other rights afforded to him under other
written agreements between Mr. Shea and the Company.

John D. Cullen Employment Agreement. The Company has entered into an
employment agreement with John D. Cullen pursuant to which Mr. Cullen serves as
the President and Chief Executive Officer of GulfStar. Mr. Cullen's employment
agreement terminates on March 31, 2001 unless sooner terminated in accordance
with the terms of the employment agreement. Mr. Cullen's annual base salary for
1998 is $275,000 subject to annual increases as determined by the Board of
Directors of the Company. Mr. Cullen is also entitled to receive annual bonuses
of at least $35,000 if GulfStar achieves certain annual broadcast cash flow
projections established by the Board of Directors of the Company. If the Company
terminates Mr. Cullen's employment for cause or Mr. Cullen resigns (and the
Company has not breached the employment agreement), the Company must pay Mr.
Cullen all accrued obligations and other benefits earned prior to the date of
termination. If the Company terminates Mr. Cullen's employment without cause or
Mr. Cullen terminates his employment due to a material breach of the employment
agreement by the Company (which breach is not cured within 30 days after receipt
of notice of breach), then the Company must pay Mr. Cullen his current salary
(in equal monthly installments) for a one year period, plus a pro rata portion
of any bonuses that would otherwise have been payable to Mr. Cullen.

Frank D. Osborn Consulting Agreement. Southern Star has entered into a
consulting, non-compete and separation agreement with Frank D. Osborn pursuant
to which Mr. Osborn resigned as an officer and employee of Southern Star.
Pursuant to such agreement, Mr. Osborn will serve as a consultant to Southern
Star until February 28, 2001, and Mr. Osborn has agreed not to compete with
Southern Star and its subsidiaries until after February 28, 2002. Mr. Osborn
receives $100,000 per year for his consulting services and $375,000 per year for
his agreement not to compete with Southern Star. Upon execution of the agreement
in consideration of the termination of his employment agreement with Southern
Star, Mr. Osborn also received a lump sum payment of $730,000. Upon execution of
the agreement, Mr. Osborn's options to purchase 150,000 shares of Class A Common
Stock under the Stock Option Plan immediately became vested. The stock options
may be exercised until the earlier to occur of (i) February 28, 2001 or (ii) the
90th day after the termination of the agreement.

STOCK OPTION PLAN

The Stock Option Plan gives certain individuals and key employees of the
Company who are responsible for the continued growth of the Company an
opportunity to acquire a proprietary interest in the Company, and thus to create
in such persons an increased interest in and a greater concern for the welfare
of the Company. The Stock Option Plan provides for grant of options to acquire
up to 4,700,000 shares of Class A Common Stock. Grants of stock options with
respect to 2,182,600 shares of Class A Common Stock have been made under the
Stock Option Plan.

The Stock Option Plan is administered by the Compensation Committee of the
Company's Board of Directors; provided, that for purposes of determining the
performance goals applicable to employees who constitute "covered employees"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code") and granting stock options, "Compensation Committee" as
used in this summary description of the Stock Option Plan shall mean a
sub-committee of the Compensation Committee members who qualify as both a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, and as an "outside director" within
the meaning of Section 162(m) of the Code, and such performance goals and stock
option grants shall be subject to ratification by the unanimous approval of all
members of the Compensation Committee and further ratification by the Company's
Board of Directors. The Compensation Committee has authority, subject to the
terms of the Stock Option Plan (including the formula grant provisions and the
provisions relating to incentive stock options contained therein), to determine
when and to whom to make grants or awards under the Stock Option Plan, the
number of shares to be covered by the grants or awards, the types and terms of
the grants and

93
<PAGE> 94

awards, and the exercise price of stock options. Moreover, the Compensation
Committee has the authority, subject to the provisions of the Stock Option Plan,
to establish such rules and regulations as it deems necessary for the proper
administration of the Stock Option Plan and to make such determinations and
interpretations and to take such action in connection with the Stock Option Plan
and any grants and awards thereunder as it deems necessary or advisable. The
Compensation Committee's determinations and interpretations under the Stock
Option Plan are final, binding and conclusive on all participants and need not
be uniform and may be made by the Compensation Committee selectively among
persons who receive, or are eligible to receive, grants and awards under the
Stock Option Plan.

Grants of "incentive stock options" within the meaning of section 422 of
the Code and non-qualified stock options (options which do not qualify under
section 422 of the Code) may be made under the Stock Option Plan to key
employees. Grants of non-qualified stock options may be made to eligible
non-employees.

The exercise price per share of Class A Common Stock under each option is
fixed by the Compensation Committee on the date of grant; provided, however,
that the exercise price of an incentive stock option granted to a person who, at
the time of grant, owns shares of the Company possessing more than 10% of the
total combined voting power of all classes of stock of the Company may not be
less than 110% of the fair market value of a share of Class A Common Stock on
the date of grant. No option is exercisable after the expiration of ten years
from the date of grant, unless, as to any non-qualified stock option, otherwise
expressly provided in the option agreement; provided, however, that no incentive
stock option granted to a person who, at the time of grant, owns stock of the
Company possessing more than 10% of the total combined voting power of all
classes of stock of the Company is exercisable after the expiration of five
years from the date of grant.

In the event of a change of control or sale of the Company, all outstanding
stock options may, subject to the sole discretion of the Compensation Committee,
become exercisable in full at such time or times as the Compensation Committee
may determine. Each stock option accelerated by the Compensation Committee shall
terminate on such date (not later than the stated exercise date) as the
Compensation Committee determines.

Unless an option or other agreement provides otherwise, upon the date of
death of an optionee (or upon the termination of an optionee because of such
optionee's disability), the person who acquires the right to exercise the option
of such optionee (or the optionee in the case of disability) must exercise such
option within 180 days after the date of death (or termination in the case of
disability), unless a longer period is expressly provided in such incentive
stock option or a shorter period is established by the Compensation Committee,
but in no event after the expiration date of such option. Following an
optionee's termination of employment for cause, all stock options held by such
optionee will immediately be canceled as of the date of termination of
employment. Following an optionee's termination of employment for other than
cause, such optionee must exercise his stock option within 30 days after the
date of such termination, unless a longer period is expressly provided in such
stock option or a shorter period is established by the Compensation Committee,
provided that no incentive stock option shall be exercisable more than three
months after such termination.

The option exercise price may be paid in cash, or, in the discretion of the
compensation committee, by the delivery of shares of Class A Common Stock then
owned by the participant, or by a combination of these methods. Also, in the
discretion of the Compensation Committee, payment may be made by delivering a
properly executed exercise notice to the Company together with a copy of
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds to pay the exercise price.

WARRANTS

Under the terms of the Affiliate Stockholders Agreement, the Company has
granted five warrants to R. Steven Hicks. In 1996 and 1997, the Company granted
three warrants to R. Steven Hicks pursuant to which Mr. Hicks or the holder of
such warrants became entitled to purchase up to 744,000 shares, 204,254 shares
and 98,797 shares, respectively, of Class C Common Stock at any time or from
time to time prior to the termination date of such warrants (the "Original
Regular Warrants"), and, upon the fulfillment of certain triggering events
(which are based on the achievement of a 30% internal rate of return on the
respective investments in the Company by Hicks Muse and its affiliates), Mr.
Hicks or the holder thereof

94
<PAGE> 95

would become entitled to purchase up to an additional 186,000 shares, 51,063
shares, and 224,323 shares, respectively, of Class C Common Stock (the "Original
Incentive Warrants" and, together with the Original Regular Warrants, the
"Original Warrants"). The per share exercise price of each of the Original
Warrants was $10.00, $11.00 and $13.30, respectively, subject in each case to
increase by an annual rate of interest equal to 8% per year commencing on the
date of grant of each warrant. Effective April 1, 1998, the Original Warrants
were amended and restated, such that (i) the per share exercise price for each
of the Original Warrants is $14.40, $15.40 and $18.10, respectively, and (ii)
the Original Incentive Warrants are exercisable on the earlier to occur of June
30, 2001 or immediately preceding a Sale of the Company (as defined) if Mr.
Hicks is then employed in any capacity with the Company. The Original Incentive
Warrants terminate upon either a Sale of the Company or a capital reorganization
(a "Capital Reorganization") in which (i) the stockholders of the Company
receive only cash consideration for each share of Common Stock held by such
stockholder that is less than the Qualifying Cash Consideration (as defined
below), (ii) a majority of directors of the purchaser or surviving entity in
such capital reorganization consists of persons who are not either members of
the Board of Directors of the Company immediately prior to the capital
reorganization or designees of Hicks Muse and its affiliates ("Continuing
Directors"), and (iii) such purchaser or surviving entity is not an affiliate of
Hicks Muse. A "Sale of the Company" means a capital reorganization in which (i)
the stockholders of the Company receive cash consideration for each share of
common stock of the Company held by such stockholder that (when added to any
cash consideration attributable to any prior capital reorganization) equals or
exceeds the Qualifying Cash Consideration, (ii) a majority of directors of the
purchaser or surviving entity in such capital reorganization consists of persons
who are not Continuing Directors, and (iii) such purchaser or surviving entity
is not an affiliate of Hicks Muse. "Qualifying Cash Consideration" means cash
consideration for each share of Common Stock received pursuant to a capital
reorganization that equals or exceeds the lesser of (i) $60.00 per share or (ii)
the greater of (A) a per share amount equal to $14.00 compounded at an annual
rate of 30% for the period from April 3, 1998 to the end of the calendar month
immediately preceding the consummation of such capital reorganization or (B) a
per share amount equal to the initial public offering price of the shares of
Class A Common Stock offered hereby compounded at an annual rate of 20% for the
period from the date on which the Offering is consummated to the end of the
calendar month immediately preceding the consummation of such capital
reorganization.

The fourth warrant (the "Fourth Warrant") was granted to Mr. Hicks in April
1998 and provides that, subject to certain exceptions, on the earlier to occur
of June 30, 2001 or immediately preceding a Sale of the Company, if Mr. Hicks is
then employed in any capacity with the Company, Mr. Hicks or the holder thereof
may purchase up to 187,969 shares of Class C Common Stock at an exercise price
equal to $17.10 per share. The Fourth Warrant terminates upon either a Sale of
the Company or a Capital Reorganization.

The fifth warrant was also granted to Mr. Hicks in April 1998 and provides
that Mr. Hicks or the holder thereof may purchase up to 500,000 shares of Class
C Common Stock at an exercise price equal to $14.00 per share if the fair market
value of the Class A Common Stock, calculated on a daily basis, equals or
exceeds $60.00 per share for a period of 180 consecutive days during the period
from the date of grant of the warrant through May 31, 2003. Subject to certain
exceptions, after the warrant becomes exercisable, the warrant may be exercised
from time to time until (and including) the later to occur of May 31, 2003 and
the 90th day after the warrant becomes exercisable. Twenty percent of the shares
of Class C Common Stock issuable pursuant to the warrant vest on the first
anniversary date of the warrant, and 1/60th of such shares of Class C Common
Stock vest on the last day of each calendar month thereafter. If a Sale of the
Company is completed, then the shares of Class C Common Stock issuable pursuant
to the warrant fully vest and become exercisable immediately prior to the
consummation of the Sale of the Company. The fifth warrant terminates upon
either a Sale of the Company or a Capital Reorganization.

William S. Banowsky, Jr. and Paul D. Stone were also granted warrants
(together with the warrants granted to R. Steven Hicks (including the Original
Warrants), the "Warrants") in April 1998 to purchase up to 150,000 shares and
150,000 shares, respectively, of Class A Common Stock at an exercise price of
$14.00 per share. It is expected that if Mr. Armstrong joins the Company as its
Chief Operating Officer, the Company will grant Mr. Armstrong a warrant to
purchase up to 200,000 shares of Class A Common Stock at

95
<PAGE> 96

an exercise price of $14.00 per share. The terms of these warrants are the same
as the terms of the fifth warrant granted to Mr. Hicks.

In addition, each Warrant contains provisions addressing the vesting and
exercisability of such Warrant under various events of termination of employment
of the grantee.

LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of his fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or purchases or (iv) for
any transaction from which the director derived an improper personal benefit.
The effect of these provisions is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from grossly negligent behavior), except
in the situations described above.

The Company has entered into indemnification agreements with each of its
directors and executive officers under which the Company will indemnify the
director or officer to the fullest extent permitted by law, and to advance
expenses, if the director or officer becomes a party to or witness or other
participant in any threatened, pending or completed action, suit or proceeding
(a "Claim") by reason of any occurrence related to the fact that the person is
or was a director, officer, employee, agent or fiduciary of the Company or
another entity at the Company's request (an "Indemnifiable Event"), unless a
reviewing party (either outside counsel or a committee appointed by the Board of
Directors) determines that the person would not be entitled to indemnification
under applicable law. In addition, if a change in control or a potential change
in control of the Company occurs and if the person indemnified so requests, the
Company will establish a trust for the benefit of the indemnitee and fund the
trust in an amount sufficient to satisfy all expenses reasonably anticipated at
the time of the request to be incurred in connection with any Claim relating to
an Indemnifiable Event. The reviewing party will determine the amount deposited
in the trust. An indemnitee's rights under his indemnification agreement will
not be exclusive of any other rights under the Company's Certificate of
Incorporation or Bylaws or applicable law.

The Company believes that these provisions and agreements will assist the
Company in attracting and retaining qualified individuals to serve as directors
and officers.

96
<PAGE> 97

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth certain information regarding (i) the
beneficial ownership of each class of the Common Stock as of the date hereof,
after giving effect to the Offering, by (a) each person or group beneficially
owning five percent or more of any class of the Common Stock of the Company, (b)
each director of the Company, (c) each Named Executive Officer, and (d) all
directors and executive officers of the Company as a group and (ii) the combined
percentage of all classes of the Common Stock of the Company that is
beneficially owned by each of such person or group of persons. Except as noted
below and pursuant to applicable community property laws, the Company believes
that each individual or entity named below has sole investment and voting power
with respect to the shares of Common Stock set forth opposite such stockholder's
name.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK(1) COMMON STOCK(2) COMMON STOCK(3)
------------------- -------------------- --------------------- PERCENT OF PERCENTAGE
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT TOTAL OF TOTAL
OF OF OF OF OF OF ECONOMIC VOTING
NAME OF BENEFICIAL OWNER SHARES(4) CLASS SHARES(4) CLASS SHARES(4) CLASS INTEREST POWER
------------------------ --------- ------- ---------- ------- ----------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hicks Muse Parties(5).......... 272,727 * 5,119,724 84.2% 61,674,542 91.0% 62.4% 86.7%
200 Crescent Court, Suite
1600
Dallas, Texas 75201
Thomas O. Hicks(5)(6).......... 295,894 * 5,119,724 84.2% 68,855,954 100.0% 4.3% 95.4%
200 Crescent Court, Suite
1600
Dallas, Texas 75201
BT Capital Partners, Inc....... -- -- 961,999 15.8% -- -- * --
130 Liberty Street, 25th
Floor
New York, New York 10006
R. Steven Hicks(7)............. 23,167 * -- -- 2,544,499 3.7% 2.4% 3.5%
John D. Cullen................. 329,298 * -- -- -- -- * *
D. Geoffrey Armstrong(8)....... 296,986 * -- -- -- -- * *
Frank D. Osborn(9)............. 313,632 * -- -- -- -- * *
William S. Banowsky, Jr.(10)... 72,667 * -- -- -- -- * *
Eric C. Neuman................. -- -- -- -- -- -- * *
Paul D. Stone(11).............. 249,802 * -- -- -- -- * *
Lawrence D. Stuart, Jr......... 63,792 * -- -- -- -- * *
Michael J. Levitt.............. -- -- -- -- -- -- * *
James T. Shea, Jr.(12)......... 59,029 * -- -- -- -- * *
R. Gerald Turner............... 7,518 * -- -- -- -- * *
All directors and executive
officers as a group (14
persons)..................... 1,465,895 4.3% 5,119,724 84.2% 68,855,954 100.0% 7.7% 95.5%
</TABLE>

- ---------------

* Less than one percent.

(1) The number of shares of Class A Common Stock does not include the shares of
Class A Common Stock issuable upon conversion of the outstanding shares of
Class B Common Stock and Class C Common Stock.

(2) The holders of shares of Class B Common Stock are not entitled to vote,
except as required by law. The shares of Class B Common Stock are
convertible in whole or in part, at the option of the holder or holders
thereof, into the same number of shares of Class A Common Stock, subject to
certain conditions. See "Description of Capital Stock."

(3) The holders of the Class C Common Stock are entitled to vote with the
holders of the Class A Common Stock on all matters submitted to a vote of
stockholders of the Company, except with respect to the election of Class A
Directors and as otherwise required by law. Each share of Class C Common
Stock is entitled to ten votes per share on all matters submitted to a vote
of stockholders, except certain "going private" transactions. The shares of
Class C Common Stock are convertible in whole or in part, at the option of
the holder or holders thereof, subject to certain conditions, into the same
number of shares of Class A Common Stock. See "Description of Capital
Stock."

(4) Shares beneficially owned and percentage ownership are based on 33,698,675
shares of Class A Common Stock, 6,081,723 shares of Class B Common Stock,
and 67,808,902 shares of Class C Common Stock outstanding after the
Offering.

(5) Includes (i) 272,727 shares of Class A Common Stock owned of record by
Capstar Boston Partners, L.L.C., a limited liability company of which the
manager is a limited partnership whose ultimate general partner is Hicks,
Muse Fund III Incorporated ("Fund III Inc."), (ii) 5,119,724 shares of
Class B Common Stock owned of record by Capstar BT Partners, L.P., a
limited partnership of which the ultimate general partner is Fund III Inc.,
and (iii) 61,674,542 shares of Class C Common Stock owned of record by
Capstar Broadcasting Partners, L.P. ("Capstar L.P."), a limited partnership
of which the ultimate general partner is HM3/Capstar, Inc. ("HM3/Capstar")
(Capstar Boston Partners, L.L.C., Capstar BT Partners, L.P. and Capstar
L.P. collectively, the "Hicks Muse Parties"). Thomas O. Hicks is a
controlling stockholder and serves as Chief Executive Officer and Chairman
of

97
<PAGE> 98

the Boards of Directors of Fund III Inc. and HM3/Capstar. Accordingly, Thomas O.
Hicks may be deemed to be the beneficial owner of the Common Stock held by the
Hicks Muse Parties. Mr. Thomas O. Hicks disclaims beneficial ownership of the
shares of Common Stock not owned of record by him.

(6) In addition to the shares of Class A Common Stock of the Hicks Muse
Parties, the number of shares of Class A Common Stock includes 22,667
shares beneficially owned by R. Steven Hicks and 500 shares owned by Dean
McClure Taylor that are subject to a voting agreement in the Affiliate
Stockholders Agreement. The shares of Class B Common Stock includes the
shares of the Hicks Muse Parties. In addition to the shares of Class C
Common Stock of the Hicks Muse Parties, the number of shares of Class C
Common Stock includes (i) 4,636,913 shares owned of record by Thomas O.
Hicks, (ii) 10,000 shares owned of record by R. Steven Hicks' children,
(iii) 1,487,447 shares owned of record by R. Steven Hicks, and (iv)
1,047,052 shares purchasable pursuant to the terms of Steve Hicks'
Warrants, which are beneficially owned by R. Steven Hicks. The shares of
Class C Common Stock beneficially owned by R. Steven Hicks are subject to a
voting agreement in the Affiliate Stockholders Agreement. Hicks Muse is a
party to the Affiliate Stockholders Agreement, which agreement requires,
among other things, the parties to the Affiliate Stockholders Agreement to
vote their shares in favor of the election to the Company's Board of
Directors of such individuals as may be designated by Hicks Muse and its
affiliates. Accordingly, Thomas O. Hicks may be deemed to be the beneficial
owner of all of the Common Stock subject to the Affiliate Stockholders
Agreement. Thomas O. Hicks disclaims beneficial ownership of the shares of
Common Stock not owned by him of record.

(7) The number of shares of Class A Common Stock includes (i) 19,834 shares
issuable upon the exercise of stock options that are currently vested, (ii)
2,833 shares subject to stock options that are exercisable within 60 days
and (iii) 500 shares owned by Dean McClure Taylor for which R. Steven Hicks
serves as custodian under the Texas Uniform Gifts to Minors Act. The number
of shares of Class C Common Stock includes (i) 1,487,447 shares owned of
record by R. Steven Hicks, (ii) 10,000 shares owned of record by R. Steven
Hicks' children and (iii) 1,047,052 shares purchasable by R. Steven Hicks
pursuant to the terms of certain of Steve Hicks' Warrants. See
"-- Warrants." R. Steven Hicks has voting rights to the shares owned by his
children under the terms of the Affiliate Stockholders Agreement. R. Steven
Hicks disclaims beneficial ownership of the shares of Common Stock not
owned by him of record. The shares owned of record by R. Steven Hicks and
his children are subject to a voting agreement in the Affiliate
Stockholders Agreement. See "Certain Relationships and Related
Transactions -- Stockholders Agreements -- Affiliate Stockholders
Agreement."

(8) Although Mr. Armstrong is not currently an officer, the Company and Mr.
Armstrong are currently negotiating an agreement whereby Mr. Armstrong
would become the Company's Chief Operating Officer on September 1, 1998 and
a director of the Company as soon as practicable after the Offering. See
"Management."

(9) Includes (i) 156,117 shares owned of record by Mr. Osborn, (ii) 150,000
shares issuable upon the exercise of stock options that are currently
vested, and (iii) 7,515 shares owned of record by Mr. Osborn's children.

(10) Includes (i) 50,000 shares owned of record by Mr. Banowsky, (ii) 19,834
shares issuable upon the exercise of stock options that are currently
vested, and (iii) 2,834 shares subject to stock options that are
exercisable within 60 days.

(11) Includes (i) 227,135 shares owned of record by Mr. Stone, (ii) 19,834
shares issuable upon the exercise of stock options that are currently
vested and (iii) 2,834 shares subject to stock options that are exercisable
within 60 days.

(12) Includes (i) 35,000 shares owned of record by Mr. Shea and (ii) 24,029
shares issuable upon the exercise of stock options that are currently
vested.

98
<PAGE> 99

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CHANCELLOR EXCHANGE AGREEMENT

On February 20, 1998, the Company and Chancellor Media entered into the
Chancellor Exchange Agreement pursuant to which the Company will exchange 11 SFX
stations in the Dallas, Houston, San Diego and Pittsburgh markets ("Chancellor
Exchange Stations") having an aggregate deemed market value of $637.5 million to
Chancellor Media during the three-year period ending February 20, 2001 (the
"Exchange Period"). The Chancellor Exchange Stations will be exchanged (i) in
the case of SFX station KODA-FM, for certain radio stations in the Austin, Texas
and the Jacksonville, Florida markets concurrently with the consummation of the
SFX Acquisition and (ii) in the case of the remaining Chancellor Exchange
Stations, for mid-sized market radio stations to be identified by the Company
and paid for by Chancellor Media ("Capstar Exchange Stations"). The Company and
Chancellor Media intend for the exchange transactions to qualify as like-kind
exchanges under the Code. The Company, however, bears all risks related to the
tax treatment of the exchanges. The Company has agreed not to solicit, initiate
or encourage the submission of proposals for the acquisition of the Chancellor
Exchange Stations or to participate in any discussions for such purpose during
the Exchange Period, other than as contemplated under the Chancellor Exchange
Agreement. Upon the consummation of the SFX Transactions and pending the
consummation of such exchanges, Chancellor Media will provide services to the
Chancellor Exchange Stations (other than KODA-FM, which will be owned by
Chancellor Media) pursuant to separate LMAs until such stations are exchanged.
Chancellor Media will retain the advertising revenues it generates while it
provides services to the Chancellor Exchange Stations under such LMAs. The
Company will receive initially LMA fees of approximately $49.4 million per year,
with corresponding decreases in the amount of the LMA fees received by the
Company as Chancellor Exchange Stations are exchanged.

The Company and Chancellor Media have agreed that, concurrently with the
consummation of the SFX Acquisition, (i) the Company will exchange SFX station
KODA-FM for Chancellor stations WAPE-FM and WFYV-FM in Jacksonville, Florida and
stations KASE-FM, KVET-AM and KVET-FM in Austin, Texas (which the Company
currently has under agreement to acquire in the Austin Acquisition) and (ii)
Chancellor Media will terminate its LMA to provide services to SFX stations
WBLI-FM, WBAB-FM, WGBB-AM and WHFM-FM in the Long Island, New York market (which
are under agreement to be sold by the Company concurrently with the consummation
of the SFX Acquisition).

The Company and Chancellor Media have agreed also that SFX station KKPN-FM
in Houston, Texas will be sold to comply with regulatory requirements and,
accordingly, the Company has entered into an agreement to sell KKPN-FM
concurrently with the consummation of the SFX Acquisition for $54.0 million. The
Company and Chancellor Media have further agreed that 50% of the sale proceeds
in excess of $50.0 million shall be paid to Chancellor Media.

If, 180 days prior to the expiration of the Exchange Period, any Chancellor
Exchange Station has not been exchanged or sold to Chancellor Media or has not
become the subject of an asset purchase agreement or asset exchange agreement
between the Company and Chancellor Media, the Chancellor Exchange Agreement
gives Chancellor Media the right to acquire the remaining Chancellor Exchange
Station(s) for cash in the amount of the station valuation for such station(s).
In addition, upon 120 days notice to Chancellor Media, the Company has the
right, at any time during the Exchange Period, to designate any Chancellor
Exchange Station for sale to Chancellor Media in cash at a price equal to its
station valuation.

Chancellor Media has committed to make the Chancellor Loan to the Company
immediately prior to the SFX Acquisition to partially finance the SFX
Transactions. The Company expects to borrow $150.0 million from Chancellor
Media. The Chancellor Note will bear interest at a rate of 12% per annum
(subject to increase in certain circumstances), payable quarterly, of which 5/6
shall be payable in cash and 1/6 shall, at the Company's option, either be
payable in cash or added to the principal amount of the Chancellor Note. In
addition, the Company may elect to defer the 5/6 portion payable in cash, in
which case the Chancellor Note would bear interest at a rate of 14% per annum.
The Chancellor Note will mature on the twentieth anniversary of the date of
issuance, provided that the Company may prepay all or part of the outstanding
principal balance. Chancellor Media will have the right to require the Company
to prepay all or part, depending upon the circumstance under which such
prepayment event occurs, of the Chancellor Note upon the consummation of
99
<PAGE> 100

the purchase of a Chancellor Exchange Station under a purchase agreement as
contemplated under the Chancellor Exchange Agreement, upon the closing of the
transfer of the final Chancellor Exchange Station, upon Chancellor's purchase of
all remaining Chancellor Exchange Stations for cash in accordance with the terms
of the Chancellor Exchange Agreement, upon the Company acquiring stations (other
than those specifically identified in the Chancellor Exchange Agreement) during
the Exchange Period that are not acquired in compliance with the procedures set
forth in the Chancellor Exchange Agreement, and upon the Company's termination
of the Chancellor Exchange Agreement. The amount of the Chancellor Loan may not
exceed $250.0 million; provided that if (i) the initial public offering price
per share of the Class A Common Stock offered hereby is $18.00 or more and (ii)
the Houston-KKPN Disposition and the Long Island Disposition are consummated
(with any contribution of such stations to a back-up trust not being deemed to
be a disposition) at or prior to the consummation of the SFX Acquisition
(together, the "Loan Decrease Conditions"), then the amount of the Chancellor
Loan may not exceed $200.0 million. If the Loan Decrease Conditions are
satisfied and the U.S. Underwriters' and Managers' over-allotment option is
exercised, the Company will be required to use the net proceeds received by the
Company from the exercise of the over-allotment option to prepay the amount of
the then outstanding principal balance of the Chancellor Note that exceeds
$150.0 million. If the Loan Decrease Conditions are not satisfied, then the
Company will not be permitted to close any acquisitions for cash, other than (i)
any acquisitions of the Company that were under binding agreement on or before
May 4, 1998 or (ii) as contemplated by the Chancellor Exchange Agreement, in
each case until such time as the outstanding principal balance of the Chancellor
Note equals $150.0 million or less. See "Description of
Indebtedness -- Chancellor Note."

MONITORING AND OVERSIGHT AGREEMENTS

Capstar Broadcasting Monitoring and Oversight Agreement. The Company has
entered into a monitoring and oversight agreement (the "Capstar Broadcasting
Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P.
("Hicks Muse Partners"). Pursuant thereto, the Company has agreed to pay to
Hicks Muse Partners an annual fee for ongoing financial oversight and monitoring
services. The annual fee is adjustable upward or downward at the end of each
fiscal year to an amount equal to 0.2% of the budgeted consolidated annual net
sales of the Company for the then-current fiscal year; provided, that such fee
shall at no time be less than $100,000 per year. Notwithstanding the calculation
of the annual fee in the immediately preceding sentence, the annual fee will be
reduced by the amount previously paid for such period by Capstar Partners under
the Capstar Partners Monitoring and Oversight Agreement (as defined). All past
due payments under the Capstar Broadcasting Monitoring and Oversight Agreement
bear interest at the lesser of the highest rate of interest which may be charged
under applicable law or the prime rate plus five percent, from the due date of
such payment to the date on which the payment is made. Hicks Muse Partners is
also entitled to reimbursement for any out-of-pocket expenses incurred by it in
connection with rendering services under the Capstar Broadcasting Monitoring and
Oversight Agreement. In addition, the Company has agreed to indemnify Hicks Muse
Partners, its affiliates and shareholders, and their respective directors,
officers, agents, employees and affiliates from and against all claims, actions,
proceedings, demands, liabilities, damages, judgments, assessments, losses and
costs, including fees and expenses, arising out of or in connection with the
services rendered by Hicks Muse Partners in connection with the Capstar
Broadcasting Monitoring and Oversight Agreement. Hicks Muse Partners has
reserved the right to seek an increase in the amount of its annual fee based on
the increased scope of the Company's operations. Any such increase will be
subject to the approval of the Board of Directors of the Company, including a
majority of the disinterested directors, based on the exercise of their
independent judgment. To date, the Company has not paid Hicks Muse Partners
monitoring and oversight fees. As of March 31, 1998, the Company has no
outstanding obligation to Hicks Muse under the Capstar Broadcasting Monitoring
and Oversight Agreement.

The Capstar Broadcasting Monitoring and Oversight Agreement makes available
on an ongoing basis the resources of Hicks Muse Partners concerning a variety of
financial matters. The services that have been and will continue to be provided
by Hicks Muse Partners could not otherwise be obtained by the Company without
the addition of personnel or the engagement of outside professional advisors.
The Capstar Broadcasting Monitoring and Oversight Agreement expires on the
earlier to occur of (i) July 1, 2007 or (ii) the date on which Hicks, Muse, Tate
& Furst Equity Fund III, L.P. ("HM Fund III") and its affiliates cease to own
beneficially, directly or indirectly, any securities of the Company or its
successors.
100
<PAGE> 101

Capstar Partners Monitoring and Oversight Agreement. Capstar Partners has
entered into a monitoring and oversight agreement (the "Capstar Partners
Monitoring and Oversight Agreement") with Hicks Muse Partners. Pursuant thereto,
Capstar Partners has agreed to pay to Hicks Muse Partners an annual fee for
ongoing financial oversight and monitoring services. The annual fee is
adjustable upward or downward at the end of each fiscal year to an amount equal
to 0.2% of the budgeted consolidated annual net sales of Capstar Partners for
the then-current fiscal year; provided, that such fee shall at no time be less
than $100,000 per year. Capstar Partners has paid Hicks Muse Partners
approximately $399,000 of monitoring and oversight fees since inception in
October 1996. As of March 31, 1998, Capstar Partners has no outstanding
obligation to Hicks Muse under the Capstar Partners Monitoring and Oversight
Agreement. The Capstar Partners Monitoring and Oversight Agreement expires on
the earlier to occur of (i) October 16, 2006 or (ii) the date on which HM Fund
III and its affiliates cease to own beneficially, directly or indirectly, any
securities of Capstar Partners or its successors. The remainder of the terms of
the Capstar Partners Monitoring and Oversight Agreement are substantially
similar to the terms of the Capstar Broadcasting Monitoring and Oversight
Agreement.

FINANCIAL ADVISORY AGREEMENTS

Capstar Broadcasting Financial Advisory Agreement. The Company is a party
to a financial advisory agreement (the "Capstar Broadcasting Financial Advisory
Agreement") with Hicks Muse Partners. Pursuant to the Capstar Broadcasting
Financial Advisory Agreement, Hicks Muse Partners is entitled to receive a fee
equal to 1.5% of the transaction value (as defined) for each add-on transaction
(as defined) in which the Company or any of its subsidiaries is involved. Hicks
Muse Partners is also entitled to reimbursement for any out-of-pocket expenses
incurred by it in connection with rendering services under the Capstar
Broadcasting Financial Advisory Agreement. The term "transaction value" means
the total value of any add-on transaction, including, without limitation, the
aggregate amount of the funds required to complete the add-on transaction
(excluding any fees payable pursuant to the Capstar Broadcasting Financial
Advisory Agreement, but including the amount of any indebtedness, preferred
stock or similar items assumed or remaining outstanding). The term "add-on
transaction" means any future proposal for a tender offer, acquisition, sale,
merger, exchange offer, recapitalization, restructuring, or other similar
transaction directly or indirectly involving the Company or any of its
subsidiaries, excluding Capstar Partners and its direct or indirect
subsidiaries, and any other person or entity. In addition, the Company has
agreed to indemnify Hicks Muse Partners, its affiliates and partners, and their
respective directors, officers, agents, employees and affiliates from and
against all claims, actions, proceedings, demands, liabilities, damages,
judgments, assessments, losses and costs, including fees and expenses, arising
out of or in connection with the services rendered by Hicks Muse Partners in
connection with the Capstar Broadcasting Financial Advisory Agreement.

Pursuant to the Capstar Broadcasting Financial Advisory Agreement, Hicks
Muse Partners provides investment banking, financial advisory and other similar
services with respect to the add-on transactions in which the Company is
involved. Such transactions require additional attention beyond that required to
monitor and advise the Company on an ongoing basis and accordingly the Company
pays separate advisory fees with respect to such matters in addition to those
paid in connection with the Capstar Broadcasting Monitoring and Oversight
Agreement. The services that have been and will continue to be provided by Hicks
Muse Partners could not otherwise be obtained by the Company without the
addition of personnel or the engagement of outside professional advisors. The
Capstar Broadcasting Financial Advisory Agreement will terminate concurrently
with the termination of the Capstar Broadcasting Monitoring and Oversight
Agreement.

Capstar Partners Financial Advisory Agreement. Capstar Partners is a party
to a financial advisory agreement (the "Capstar Partners Financial Advisory
Agreement") with Hicks Muse Partners. The terms of the Capstar Partners
Financial Advisory Agreement are substantially similar to the terms of the
Capstar Broadcasting Financial Advisory Agreement.

The Company has paid, or will pay, Hicks Muse Partners financial advisory
fees of approximately $51.1 million since inception in October 1996, including
$32.2 million in connection with the SFX Transactions and $10.4 million in
connection with the Houston-KKPN Disposition and the sale of the 11 SFX stations
to Chancellor Media under the Chancellor Exchange Agreement.

101
<PAGE> 102

STOCKHOLDERS AGREEMENTS

Affiliate Stockholders Agreement. R. Steven Hicks, five of his children,
Capstar BT Partners, L.P. and Capstar Boston Partners, L.L.C. and Capstar L.P.
(the "Affiliate Stockholders") have entered into the Affiliate Stockholders
Agreement with the Company and Hicks Muse which provides, among other things,
that the Affiliate Stockholders may require the Company, subject to certain
registration volume limitations, to effect up to three demand registrations of
their Common Stock under the Securities Act. The Affiliate Stockholders
Agreement also provides that in the event the Company proposes to register any
shares of its Common Stock under the Securities Act, whether or not for its own
account, the Affiliate Stockholders will be entitled, with certain exceptions,
to include their shares of Common Stock in such registration.

The Affiliate Stockholders Agreement also requires the Affiliate
Stockholders, subject to certain conditions, to vote their shares (i) in favor
of the election to the Board of Directors of such individuals as may be
designated by Hicks Muse and its affiliates and (ii) on other matters so as to
give effect to the agreements contained in the Affiliate Stockholders Agreement.
If certain conditions are met, including R. Steven Hicks serving as the
Company's President and Chief Executive Officer or beneficially holding not less
than 3% of the fully-diluted Common Stock of the Company, the Affiliate
Stockholders Agreement provides that R. Steven Hicks shall be one of such
designees to serve on the Board of Directors.

Management Stockholders Agreement. Certain stockholders of the Company have
entered into the Management Stockholders Agreement with the Company and Hicks
Muse that provides, among other things, that in the event the Company proposes
to register any shares of its Common Stock under the Securities Act, whether or
not for its own account, the stockholders that are parties to the Management
Stockholders Agreement will be entitled, with certain exceptions, to include
their shares of Common Stock in such registration.

GulfStar Stockholders Agreement. Certain stockholders of the Company have
entered into the GulfStar Stockholders Agreement with the Company and Hicks Muse
that provides, among other things, that such persons may require the Company,
subject to certain registration volume limitations, to effect up to three demand
registrations of their Common Stock under the Securities Act. The GulfStar
Stockholders Agreement also provides that in the event the Company proposes to
register any shares of its Common Stock under the Securities Act, whether or not
for its own account, the parties will be entitled, with certain exceptions, to
include their shares of Common Stock in such registration.

MANAGEMENT AND AFFILIATE EQUITY INVESTMENTS

Hicks Muse and its affiliates (excluding Capstar BT Partners, L.P. and
Capstar Boston Partners, L.L.C.) have invested $799.8 million in Common Stock,
including $90.0 million for 9,000,000 shares of Class C Common Stock in
connection with the Commodore Acquisition, $34.8 million for 3,163,452 shares of
Class C Common Stock in connection with the Osborn Acquisition, $75.0 million
for 5,639,097 shares of Class C Common Stock in connection with the GulfStar
Acquisition, and $600.0 million for 43,796,992 shares of Class C Common Stock
which was used to consummate station acquisitions, the repayment of indebtedness
under the Company's existing credit agreement and the purchase of all of the
outstanding 13 1/4% Capstar Notes and will be used to consummate in part the SFX
Transactions. Capstar BT Partners, L.P., an entity controlled by Hicks Muse, has
invested $20.0 million for 1,818,181 shares of Class B Common Stock in
connection with the Osborn Acquisition, $11.1 million for 837,746 shares of
Class B Common Stock in connection with the GulfStar Acquisition, and $34.1
million for 2,463,797 shares of Class B Common Stock which was used to
consummate station acquisitions, the repayment of indebtedness under the
Company's existing credit agreement and the purchase of all of the outstanding
13 1/4% Capstar Notes and will be used to consummate in part the SFX
Transactions. Capstar Boston Partners, L.L.C., an entity controlled by Hicks
Muse, has invested $3.0 million for 272,727 shares of Class A Common Stock.

In October 1996, R. Steven Hicks purchased 300,000 shares of Class A Common
Stock for $3.0 million. In January 1997, William S. Banowsky, Jr. purchased
50,000 shares of Class A Common Stock for $500,000 and R. Steven Hicks purchased
10,000 shares of Class A Common Stock for $100,000. In June 1997, Mary K. Quass,
president of Central Star, purchased 90,909 shares of Class A Common Stock for
$1.0 million. In July 1997, R. Gerald Turner, a director of the Company,
purchased 7,518 shares of Class A Common Stock

102
<PAGE> 103

for $100,000. In May 1998, Thomas O. Hicks exchanged 1,200,064 shares of Class B
Common Stock for an equal number of shares of Class C Common Stock.

INDEBTEDNESS OF MANAGEMENT

Mary K. Quass, the president and chief executive officer of Central Star,
purchased 90,909 shares of Class A Common Stock, in exchange for cash in the
amount of $9,091 and a promissory note payable to the Company in the principal
amount of $990,909 and bearing interest at an annual rate of 9%. Ms. Quass
repaid the promissory note in January 1998.

R. Gerald Turner, a director of the Company, purchased 7,518 shares of
Class A Common Stock in exchange for a non-recourse promissory note payable to
the Company in the principal amount of $75,000 and a recourse note payable to
the Company in the principal amount of $25,000. As of March 31, 1998, principal
balances of $75,000 and $1,125, respectively, were outstanding on the
non-recourse note and the recourse note. The notes, which mature on the fifth
anniversary thereof, are secured by the shares of Class A Common Stock purchased
by Mr. Turner and bear interest at a rate of 8.25% per annum with quarterly
interest payments and principal payable at maturity.

Each of the Eric C. Neuman Special Trust, Paul D. Stone, John D. Cullen and
D. Geoffrey Armstrong acquired shares of common stock of GulfStar in exchange
for non-recourse promissory notes payable and recourse promissory notes payable
to GulfStar in aggregate principal amounts of approximately $147,000, $512,000,
$951,000 and $174,000, respectively, as of March 31, 1998. Before the GulfStar
Acquisition, the notes were secured by the common stock of GulfStar. In
connection with the GulfStar Acquisition, the common stock of GulfStar was
exchanged for Common Stock. The Common Stock held of record by each of the Eric
C. Neuman Special Trust, Paul D. Stone and John D. Cullen now secures such
person's obligation under the notes. Two notes of Paul D. Stone (with an
aggregate principal balance of approximately $37,000 as of March 31, 1998), the
note of the Eric C. Neuman Special Trust and D. Geoffrey Armstrong's notes bear
interest at a rate of 9% per annum, and Paul D. Stone's other notes and John D.
Cullen's note bear interest at 7.6% per annum, each with principal and interest
payments payable annually in arrears or, at the option of the holder, such
interest payments may be deferred and added to the outstanding principal balance
of the note. Each of the notes matures 10 years after the date thereof.

Dex Allen, the former president and chief executive officer of Pacific Star
until May 15, 1998, purchased 36,363 shares of Class A Common Stock in exchange
for $200,000 in cash and a promissory note payable to the Company in the
principal amount of $200,000 and bearing interest at an annual rate of 9%. Mr.
Allen repaid the promissory note in February 1998.

David J. Benjamin, III, a former managing director of Capstar Radio,
purchased 36,363 shares of Class A Common Stock in exchange for $3,636 in cash
and a promissory note payable to the Company in the principal amount of $400,000
and bearing interest at an annual rate of 9%. Mr. Allen repaid the promissory
note in July 1997.

GULFSTAR TRANSACTIONS

In September 1997, William R. Hicks, the brother of Thomas O. Hicks, sold
105,965 shares of Class A Common Stock to the Company for $682,380. In
connection with the sale and pursuant to the GulfStar Stockholders Agreement,
Hicks Muse waived its right of first refusal to purchase William R. Hicks' Class
A Common Stock. Concurrently with the sale of William R. Hicks' Class A Common
Stock, GulfStar Communications Holdings, Inc., an indirect subsidiary of the
Company, sold all of the outstanding stock of Bryan Broadcasting Operating
Company, Inc. ("BBOC") to Mr. Hicks and another purchaser for a purchase price
of $580,000. In connection with the sale, the Company entered into an agreement
with William R. Hicks that provides the Company with the right of first refusal,
subject to certain permitted transfers, to repurchase the stock of BBOC if
William R. Hicks attempts to sell the radio stations operated by BBOC.

In April 1996, GulfStar acquired all of the outstanding capital stock of
Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of GulfStar
Class C common stock, 1,626 shares of GulfStar Class A common stock and
approximately $619,000. Total consideration for the acquisition, including
acquisition costs, was approximately $8,692,000, including assumed liabilities
of $7,627,000. Sonance's controlling stockholder is William R. Hicks, brother of
Thomas O. Hicks and R. Steven Hicks.

103
<PAGE> 104

In 1996, GulfStar recorded a charge of approximately $771,000 in connection
with the write-off of a receivable from Sonance Midland, Inc. ("Sonance
Midland"). Before its sale to an unrelated third party, Sonance Midland was
owned by Thomas O. Hicks and William R. Hicks. Sonance Midland owed GulfStar
$771,000 in connection with advances for working capital. During 1996, Sonance
Midland was sold by William R. Hicks to an unrelated third party. Concurrently
with the sale, GulfStar wrote-off the receivable from Sonance Midland.

GULFSTAR ACQUISITION

On July 8, 1997, GulfStar Communications, Inc. merged with and into a
wholly-owned subsidiary of the Company (the "GulfStar Acquisition"). In the
merger, all of the outstanding common stock of GulfStar was exchanged for Common
Stock having a deemed value of approximately $113.0 million. Concurrently with
the merger, the Company redeemed all outstanding preferred stock of GulfStar for
approximately $29.4 million and repaid in full the outstanding indebtedness of
GulfStar of approximately $90.7 million. The conversion ratio used to determine
the amount of Common Stock received by the stockholders of GulfStar was
calculated by the parties based on the relative value of the Company and
GulfStar principally determined by utilizing projected broadcast cash flows for
the year ending December 31, 1998.

Thomas O. Hicks beneficially owned 87.3% of the voting power of GulfStar
before the GulfStar Acquisition. In addition, Thomas O. Hicks and R. Steven
Hicks served as two of the four directors of GulfStar, and R. Steven Hicks was
the Chief Executive Officer of GulfStar. Pursuant to the GulfStar Acquisition,
R. Steven Hicks received 1,187,947 shares of Class C Common Stock; Thomas O.
Hicks received 1,200,064 shares and 3,436,849 shares, respectively, of Class B
Common Stock and Class C Common Stock, and the Eric C. Neuman Special Trust (of
which Eric C. Neuman is the beneficiary), Paul D. Stone, Lawrence D. Stuart,
Jr., John D. Cullen and D. Geoffrey Armstrong received 250,062 shares, 227,135
shares, 63,792 shares, 329,298 shares and 296,986 shares, respectively, of Class
A Common Stock. In May 1998, Thomas O. Hicks exchanged his shares of Class B
Common Stock for a like number of shares of Class C Common Stock.

CHANCELLOR MEDIA TRANSACTIONS

The Company has retained Katz Media Group, Inc. ("Katz") as its media
representative to sell national spot advertising air time. Katz is a
wholly-owned subsidiary of Chancellor Media, and Thomas O. Hicks serves as
Chairman of the Board of Chancellor Media (and as its interim Chief Executive
Officer until June 1, 1998). In addition, Eric C. Neuman and Lawrence D. Stuart,
Jr. serve on the board of directors of Chancellor Media. In 1997 and for the
three months ended March 31, 1998, the Company has paid Katz $1,403,000 and
$600,000, respectively, for media representation services.

The Company broadcasts advertising over the Company's portfolio of stations
from The AMFM Radio Network. The AMFM Radio Network is owned and operated by
Chancellor Media. For the three months ended March 31, 1998, the Company has
paid Chancellor Media $70,000 for the use of the AMFM Radio Network.

ROUND ROCK, TEXAS CONSTRUCTION PERMIT

R. Steven Hicks and the Company anticipate entering into a Letter Agreement
to effect the transfer from R. Steven Hicks to the Company of a construction
permit (the "Construction Permit") issued by the FCC to construct a new FM
broadcast station on Channel 290C2 located in Round Rock, Texas, for an
effective purchase price of $8.5 million, subject only to FCC approval of such
transfer. R. Steven Hicks is currently indebted to the Company in the aggregate
principal amount of $8.5 million in connection with the letter of credit that R.
Steven Hicks used to acquire the Construction Permit. Bankers Trust Company
issued a letter of credit on February 10, 1998, for the account of R. Steven
Hicks that was ultimately used to satisfy R. Steven Hicks' obligations pursuant
to a Settlement Agreement dated as of January 30, 1998, by and among R. Steven
Hicks, Elinor Lewis Stephens, Grass Roots Radio, Inc., and August Communications
Group, Inc. with respect to multiple applications on file with the FCC for the
Construction Permit and to obtain the

104
<PAGE> 105

Construction Permit in R. Steven Hicks' name. Elinor Lewis Stephens, Grass Roots
Radio, Inc., and August Communications Group, Inc. are independent third parties
and the $8.5 million settlement payment by R. Steven Hicks to these persons was
determined on an arms-length basis. Subsequent to the issuance of the
Construction Permit to R. Steven Hicks, the Company purchased the $8.5 million
letter of credit reimbursement obligations owing from R. Steven Hicks to Bankers
Trust Company, in its capacity as the issuer of such letter of credit, pursuant
to the terms of a Guaranty and Purchase Agreement dated as of February 10, 1998,
between Capstar Radio and Bankers Trust Company, which agreement has been
assigned by Capstar Radio to the Company. The $8.5 million indebtedness of R.
Stevens Hicks currently owing to the Company as a result of the above described
transactions will be satisfied upon the transfer of the Construction Permit to
the Company.

105
<PAGE> 106

DESCRIPTION OF CAPITAL STOCK

THE COMPANY

The following description of the capital stock of the Company gives effect
to the proposed sale of 31,000,000 shares of Class A Common Stock in the
Offering. The Company's authorized capital stock consists of (i) 750,000,000
shares of Class A Common Stock, of which 33,698,675 shares are issued and
outstanding, (ii) 150,000,000 shares of Class B Common Stock, of which 6,081,723
shares are issued and outstanding, (iii) 150,000,000 shares of Class C Common
Stock, of which 67,808,902 shares are issued and outstanding, and (iv)
100,000,000 shares of Preferred Stock, $.01 par value per share ("Preferred
Stock"), none of which are issued and outstanding. In addition, the Company has
reserved for issuance (i) 300,000 shares of Class A Common Stock and 2,196,408
shares of Class C Common Stock upon the exercise of the Warrants, (ii) 4,700,000
shares of Class A Common Stock under the Stock Option Plan, and (iii)
300,000,000 shares of Class A Common Stock upon the conversion of the Class B
Common Stock and the Class C Common Stock. See "Management -- Benefit Plans."

Common Stock

The rights of holders of the Common Stock are identical in all respects,
except as discussed below. All the outstanding shares of Class A Common Stock,
Class B Common Stock and Class C Common Stock are validly issued, fully paid and
nonassessable.

Dividends. Subject to the right of the holders of any class of Preferred
Stock, holders of shares of Common Stock are entitled to receive such dividends
as may be declared by the Board of Directors out of funds legally available for
such purpose. No dividend may be declared or paid in cash or property on any
share of any class of Common Stock unless simultaneously the same dividend is
declared or paid on each share of the other class of Common Stock; provided
that, in the event of stock dividends, holders of a specific class of Common
Stock shall be entitled to receive only additional shares of such class.

Voting Rights. The Class A Common Stock and the Class C Common Stock vote
together as a single class on all matters submitted to a vote of stockholders,
with each share of Class A Common Stock entitled to one vote and each share of
Class C Common Stock entitled to ten votes, except (i) the holders of Class A
Common Stock, voting as a separate class, will be entitled to elect two Class A
Directors, (ii) with respect to any proposed "going private" transaction (as
defined in Rule 13e-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), with Hicks Muse or any of its affiliates (a "Rule 13e-3
Transaction"), each share of Class A Common Stock and Class C Common Stock shall
be entitled to one vote, but the holders of Class A Common Stock and Class C
Common Stock shall vote together as a single class in Rule 13e-3 Transactions,
and (iii) as otherwise required by law. The Class B Common Stock has no voting
rights except as otherwise required by law. Except as otherwise required by law
and except in connection with the election of the directors of the Company, the
vote of the holders of at least a majority in voting power of the outstanding
shares then entitled to vote shall decide any question brought before a meeting
of the stockholders of the Company. The directors of the Company shall be
elected at a meeting of the stockholders at which a quorum is present by a
plurality of the votes of the shares entitled to vote on the election of
directors or a class of directors.

R. Gerald Turner has been appointed by the Company's Board of Directors as
a Class A Director. As soon as practicable after the consummation of the
Offering, the Board of Directors will appoint an additional Class A Director. R.
Gerald Turner and the additional Class A Director will serve until the next
annual meeting of stockholders at which time the holders of the Class A Common
Stock, voting as a separate class, will be entitled to elect two Class A
Directors, each of whom must be an "independent director." For this purpose, an
"independent director" means a person who is not an officer or employee of the
Company or its subsidiaries, and who does not have a relationship which, in the
opinion of the Board of Directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director. In
addition, the holders of Class A Common Stock and Class C Common Stock, voting
as a single class, are entitled to elect the Classified Directors, which will be
divided into three classes of directors with staggered

106
<PAGE> 107

three-year terms. Notwithstanding the foregoing, upon the earlier to occur of
(i) the date on which Hicks Muse and its affiliates ceases to own beneficially
more than 50% of the number of shares of Class C Common Stock owned by them upon
completion of the Offering subject to certain adjustments and (ii) the third
anniversary date of the completion of the Offering, the holders of Class A
Common Stock and Class C Common Stock shall vote together as a single class upon
the election of all directors (with the Class C Common Stock continuing to vote
on a ten-to-one basis) and the Board of Directors will appoint the Class A
Directors to the three classes of directors in its discretion and in accordance
with applicable law. Holders of Common Stock are not entitled to cumulate votes
in the election of directors.

Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of Common Stock is required to approve any
amendment to the Company's Certificate of Incorporation that would increase or
decrease the aggregate number of authorized shares of such class, increase or
decrease the par value of the shares of such class, or modify or change the
powers, preferences or special rights of the shares of any class so as to affect
such class adversely.

Liquidation Rights. Upon liquidation, dissolution or winding-up of the
Company, the holders of the capital stock of the Company are entitled to ratably
share in all assets available for distribution after payment in full of
creditors.

Conversion of Class B Common Stock and Class C Common Stock. The shares of
Class B Common Stock and Class C Common Stock are convertible, in whole or in
part, at the option of the holder or holders thereof at any time into a like
number of shares of Class A Common Stock, subject to certain conditions. Upon
the sale or other transfer of any share or shares of Class B Common Stock or
Class C Common Stock to any person other than Hicks Muse and its affiliates or
with respect to Class B Common Stock, to certain banking entities, each share so
sold or transferred shall automatically be converted into one share of Class A
Common Stock, subject to certain conditions.

Preemptive Rights. The holders of Common Stock are not entitled to
preemptive or similar rights.

Transfer Agent. Harris Trust & Savings Bank is the Transfer Agent and
Registrar for the Class A Common Stock.

Preferred Stock

The Company is authorized to issue 100,000,000 shares of Preferred Stock.
The Board of Directors, in its sole discretion, may designate and issue one or
more series of Preferred Stock from the authorized and unissued shares of
Preferred Stock. Subject to limitations imposed by law or the Certificate of
Incorporation, the Board of Directors is empowered to determine the designation
of and the number of shares constituting a series of Preferred Stock, the
dividend rate for the series, the terms and conditions of any voting and
conversion rights for the series, the amounts payable on the series upon
redemption or upon the liquidation, dissolution or winding-up of the Company,
the provisions of any sinking fund for the redemption or purchase of shares of
any series, and the preferences and relative rights among the series of
Preferred Stock. Such rights, preferences, privileges and limitations could
adversely effect the rights of holders of Common Stock.

CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS OF THE COMPANY

Classified Board of Directors. In addition to the Class A Directors, the
Certificate of Incorporation provides for three additional classes of directors,
which serve staggered three-year terms and which shall be elected by the holders
of the Class A Common Stock and Class C Common Stock, voting as a single class.

Special Meetings; Action by Written Consent. The Bylaws provide that
special meetings of holders of Common Stock may be called only by the Board of
Directors and that only business proposed by the Board of Directors may be
considered at special meetings of the holders of Common Stock. Holders of Common
Stock may act at annual or special meetings of holders of Common Stock and by
written consent.

Removal of Directors. A Class A Director may be removed before the
expiration of such director's term of office with or without cause by the vote
of at least a majority of the voting power of the shares of Class A

107
<PAGE> 108

Common Stock entitled to vote thereon. A Classified Director may be removed
before the expiration of such director's term of office for cause only by the
vote of holders of at least a majority of the voting power of the shares of
Common Stock entitled to vote thereon.

Foreign Ownership. The Certificate of Incorporation restricts the
ownership, voting and transfer of the Company's capital stock in accordance with
the Communications Act and the rules of the FCC, which prohibit ownership of
more than 25% of the Company's outstanding capital stock (or more than 25% of
the voting rights it represents) by or for the account of Aliens or corporations
otherwise subject to domination or control by Aliens. The Certificate of
Incorporation authorizes the Board of Directors to adopt such provisions as it
deems necessary to enforce these prohibitions, including the inclusion of a
legend regarding restrictions on foreign ownership of such stock on the
certificates representing the Common Stock. In addition, the Certificate of
Incorporation provides that shares of capital stock determined by the Board of
Directors to be owned beneficially by an Alien or an entity directly or
indirectly owned by Aliens in whole or in part shall always be subject to
redemption by action of the Board of Directors to the extent necessary, in the
judgment of the Board of Directors, to comply with the Alien ownership
restrictions of the Communications Act and the FCC rules and regulations.

Exculpation. The Certificate of Incorporation provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for a breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derives
an improper personal benefit. See "Management -- Limitations of Liability and
Indemnification Matters."

Indemnification. The Certificate of Incorporation provides that the Company
shall indemnify its officers and directors to the maximum extent allowed by the
General Corporation Law of the State of Delaware. Pursuant to Section 145 of the
General Corporation Law of the State of Delaware, the Company generally has the
right to indemnify its current and former directors against expenses and
liabilities incurred by them in connection with any suit to which they are, or
are threatened to be made, a party by reason of their serving in those positions
so long as they acted in good faith and in a manner they reasonably believed to
be in, or not opposed to the best interests of the Company, and with respect to
any criminal action, so long as they had no reasonable cause to believe their
conduct was unlawful.

DELAWARE LAW PROVISIONS

Generally, Section 203 of the General Corporation Law of the State of
Delaware prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless one of the following events occurs: (i) prior to the date of
the business combination, the transaction is approved by the board of directors
of the corporation; (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owns at least 85% of the outstanding voting stock; or (iii) on or after such
date the business combination is approved by the board and by the affirmative
vote of at least two-thirds of the outstanding voting stock which is not owned
by the interested stockholder. A "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. Pursuant to Section 203 of the General
Corporation Law of the State of Delaware, Hicks Muse and its affiliates will not
be "interested stockholders" after completion of the Offering.

CAPSTAR PARTNERS

12% Capstar Partners Preferred Stock

Capstar Partners has authorized 10,000,000 shares of preferred stock, par
value $.01 per share, of which 2,500,000 shares are designated as 12% Senior
Exchangeable Preferred Stock (the "12% Capstar Partners Preferred Stock"). As of
the date of this Prospectus, 1,064,667 shares of 12% Capstar Partners Preferred

108
<PAGE> 109

Stock are issued and outstanding. The following description of the 12% Capstar
Partners Preferred Stock does not purport to be complete and is qualified in its
entirety by the terms of the Capstar Partners Certificate of Designation
therefor.

Ranking. The 12% Capstar Partners Preferred Stock, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, ranks (a) senior
to all classes of common stock of Capstar Partners and to each other series of
preferred stock established after June 17, 1997 (the "Preferred Stock Issuance
Date") by the Board of Directors of Capstar Partners the terms of which
expressly provide that such class or series will rank junior to the 12% Capstar
Partners Preferred Stock (the "Junior Stock"), subject to certain conditions,
(b) on a parity with each other class of preferred stock established after the
Preferred Stock Issuance Date by the Board of Directors of Capstar Partners the
terms of which expressly provide that such class or series will rank on a parity
with the 12% Capstar Partners Preferred Stock (the "Parity Stock") and (c)
subject to certain conditions, junior to each class of Preferred Stock
established after the Preferred Stock Issuance Date by the Board of Directors of
Capstar Partners the terms of which expressly provide that such class will rank
senior to the 12% Capstar Partners Preferred Stock ("Senior Stock").

Dividends. Holders of the 12% Capstar Partners Preferred Stock are entitled
to receive, when, as and if declared by the Board of Directors of Capstar
Partners, out of funds legally available therefor, cash dividends on each share
of 12% Capstar Partners Preferred Stock at a rate per annum equal to 12% of the
then effective liquidation preference per share of the 12% Capstar Partners
Preferred Stock, payable semi-annually. Capstar Partners, at its option, may pay
dividends on any dividend payment date occurring on or before July 1, 2002
either in cash or in additional shares of the 12% Capstar Partners Preferred
Stock. If any dividend payable on any dividend payment date on or before July 1,
2002 is not declared or paid in full in cash on such dividend payment date, the
amount payable as dividends on such dividend payment date that is not paid in
cash on such dividend payment date shall be paid in additional shares of the 12%
Capstar Partners Preferred Stock on such dividend payment date and will be
deemed paid in full and will not accumulate. After July 1, 2002, dividends may
be paid only in cash out of funds legally available therefor. No full dividends
may be declared or paid or funds set apart for the payment of dividends on any
Parity Stock for any period unless full cumulative dividends shall have been or
contemporaneously are declared and paid (or are deemed declared and paid) in
full or declared and, if payable in cash, a sum in cash sufficient for such
payment is set apart for such payment on the 12% Capstar Partners Preferred
Stock. If full dividends are not so paid, the 12% Capstar Partners Preferred
Stock will share dividends pro rata with the Parity Stock. No dividends may be
paid or set apart for such payment on Junior Stock (except dividends on Junior
Stock payable in additional shares of Junior Stock) and no Junior Stock or
Parity Stock may be repurchased, redeemed or otherwise retired nor may funds be
set apart for payment with respect thereto, if full cumulative dividends have
not been paid in full (or deemed paid) on the 12% Capstar Partners Preferred
Stock. So long as any shares of the 12% Capstar Partners Preferred Stock are
outstanding, Capstar Partners may not make any payment on account of, or set
apart for payment money for a sinking or other similar fund for, the purchase,
redemption or other retirement of, any of the Parity Stock or Junior Stock or
any warrants, rights, calls or options exercisable or convertible into any of
the Parity Stock or Junior Stock, and may not permit any corporation or other
entity directly or indirectly controlled by Capstar Partners to purchase or
redeem any of the Parity Stock or Junior Stock or any such warrants, rights,
calls or options unless full cumulative dividends determined in accordance with
the foregoing on the 12% Capstar Partners Preferred Stock have been paid (or are
deemed paid) in full.

Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of Capstar Partners, holders of 12% Capstar Partners
Preferred Stock are entitled to be paid, out of the assets of Capstar Partners
available for distribution to stockholders, the liquidation preference per share
of 12% Capstar Partners Preferred Stock, which will initially be $100.00 per
share, plus, without duplication, an amount in cash equal to all accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding-up (including an amount equal to a prorated dividend for the period from
the last dividend payment date to the date fixed for liquidation, dissolution or
winding-up), before any distribution is made on any Junior Stock, including,
without limitation, common stock of Capstar Partners. If, upon any voluntary or
involuntary liquidation, dissolution or winding-up of Capstar Partners, the
amounts payable with respect to the 12% Capstar Partners Preferred Stock and all
other Parity Stock are not paid in full, the holders of the

109
<PAGE> 110

12% Capstar Partners Preferred Stock and the Parity Stock will share equally and
ratably in any distribution of assets of Capstar Partners in proportion to the
full liquidation preference to which each is entitled until such preferences are
paid in full, and then in proportion to their respective amounts of accumulated
but unpaid dividends. After payment of the full amount of the liquidation
preference and accumulated and unpaid dividends to which they are entitled, the
holders of shares of 12% Capstar Partners Preferred Stock are not entitled to
any further participation in any distribution of assets of Capstar Partners. The
Capstar Partners Certificate of Designation for the 12% Capstar Partners
Preferred Stock does not contain any provision requiring funds to be set aside
to protect the liquidation preference of the 12% Capstar Partners Preferred
Stock, although such liquidation preference will be substantially in excess of
the par value of such shares of 12% Capstar Partners Preferred Stock.

Optional Redemption. The 12% Capstar Partners Preferred Stock may be
redeemed (subject to contractual and other restrictions with respect thereto and
to the legal availability of funds therefor) at any time on or after July 1,
2002, in whole or in part, at the option of Capstar Partners, at the redemption
prices (expressed in percentages of the liquidation preference thereof) set
forth below, plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends to the redemption date (including an amount in
cash equal to a prorated dividend for the period from the dividend payment date
immediately prior to the redemption date to the redemption date), if redeemed
during the 12-month period beginning July 1 of each of the years set forth
below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................................. 106.000%
2003.............................................. 104.800%
2004.............................................. 103.600%
2005.............................................. 102.400%
2006.............................................. 101.200%
2007 and thereafter............................... 100.000%
</TABLE>

In addition, prior to July 1, 2001, Capstar Partners may, at its option,
use the net cash proceeds of one or more public equity offerings or major asset
sales (each as defined below) to redeem the 12% Capstar Preferred Stock, in
part, at a redemption price of 112.00% of the liquidation preference thereof;
provided, however, that after any such redemption, there is outstanding at least
$75.0 million in aggregate liquidation preference of 12% Capstar Partners
Preferred Stock. Any such redemption is required to occur on or prior to one
year after the receipt by Capstar Partners of the proceeds of each public equity
offering or major asset sale. A "public equity offering" means an underwritten
public offering of capital stock of Capstar Partners or the Company, pursuant to
an effective registration statement filed with the Securities and Exchange
Commission, provided that, in the case of a public equity offering of the
Company, net proceeds in an amount sufficient to redeem the 12% Capstar Partners
Preferred Stock called for redemption are contributed to Capstar Partners. A
"major asset sale" means any asset sale or series of related asset sales
involving assets with a fair market value in excess of $25.0 million.

Mandatory Redemption. The 12% Capstar Partners Preferred Stock is subject
to mandatory redemption (subject to the legal availability of funds therefor) in
whole on July 1, 2009 at a price equal to 100% of the liquidation preference
thereof, plus, without duplication, all accrued and unpaid dividends to the date
of redemption.

Exchange. Capstar Partners may, at its option, subject to certain
conditions, on any scheduled dividend payment date occurring on or after the
Preferred Stock Issuance Date, exchange the 12% Capstar Partners Preferred
Stock, in whole but not in part, for the 12% Capstar Partners Exchange
Debentures. Holders of the 12% Capstar Partners Preferred Stock will be entitled
to receive $1.00 principal amount of 12% Capstar Partners Exchange Debentures
for each $1.00 in liquidation preference of 12% Capstar Partners Preferred
Stock. See "Description of Indebtedness -- 12% Capstar Partners Exchange
Debentures."

110
<PAGE> 111

Voting Rights. Holders of 12% Capstar Partners Preferred Stock, except as
otherwise required under Delaware law or as set forth below, are not entitled or
permitted to vote on any matter required or permitted to be voted upon by the
sole stockholder of Capstar Partners.

The Capstar Partners Certificate of Designation provides that if (i) after
July 1, 2002, cash dividends on the 12% Capstar Partners Preferred Stock are in
arrears and unpaid for three or more semi-annual dividend periods (whether or
not consecutive); (ii) Capstar Partners fails to redeem the 12% Capstar Partners
Preferred Stock on July 1, 2009 or fails to otherwise discharge any redemption
obligation with respect to the 12% Capstar Partners Preferred Stock; (iii)
Capstar Partners fails to make a change of control offer (as described below) if
such offer is required by the provisions of the Capstar Partners Certificate of
Designation or fails to purchase shares of 12% Capstar Partners Preferred Stock
from holders who elect to have such shares purchased pursuant to the change of
control offer (unless, in either case, Capstar Partners has decided to effect a
change of control redemption (as described below) in lieu of such change of
control offer as set forth in the Capstar Partners Certificate of Designation);
(iv) Capstar Partners fails to make an offer to purchase when it is obligated to
do so; (v) a breach or violation of any of the provisions described under the
caption "-- Certain Covenants" occurs and the breach or violation continues for
a period of 30 days or more after Capstar Partners receives notice thereof
specifying the default from the holders of at least 25% of the shares of 12%
Capstar Partners Preferred Stock then outstanding; or (vi) Capstar Partners
fails to pay at the final stated maturity (giving effect to any extensions
thereof) the principal amount of any indebtedness of Capstar Partners or any
subsidiary of Capstar Partners, or the final stated maturity of any such
indebtedness is accelerated, if the aggregate principal amount of such
indebtedness, together with the aggregate principal amount of any other such
indebtedness in default for failure to pay principal at the final stated
maturity (giving effect to any extensions thereof) or which has been
accelerated, aggregates $10,000,000 or more at any time, in each case, after a
10-day period during which such default shall not have been cured or such
acceleration rescinded, then the number of directors constituting the board of
directors will be adjusted to permit the holders of a majority of the then
outstanding shares of 12% Capstar Partners Preferred Stock, voting separately
and as a class (together with the holders of any Parity Stock having similar
voting rights), to elect the lesser of two directors and that number of
directors constituting at least 25% of the members of the board of directors of
Capstar Partners. Such voting rights will continue until such time as, in the
case of a dividend default, all dividends in arrears on the 12% Capstar Partners
Preferred Stock are paid in full in cash and, in all other cases, any failure,
breach or default giving rise to such voting rights is remedied or waived by the
holders of at least a majority of the shares of 12% Capstar Partners Preferred
Stock then outstanding, at which time the term of any directors elected pursuant
to the provisions of this paragraph shall terminate. Such voting rights shall be
the holders' exclusive remedy at law or in equity.

Change of Control. The Capstar Partners Certificate of Designation provides
that, upon the occurrence of a change of control (as defined below), Capstar
Partners will be obligated to make an offer (a "change of control offer") to the
holders of the 12% Capstar Partners Preferred Stock pursuant to which each
holder will have the right to require that Capstar Partners repurchase all or a
portion of such holder's 12% Capstar Partners Preferred Stock in cash at a
purchase price equal to 101% of the liquidation preference thereof, plus,
without duplication, all accumulated and unpaid dividends per share to the date
of repurchase. A "change of control" means the occurrence of one or more of the
following events: (i) any sale or other transfer of all or substantially all of
the assets of Capstar Partners, other than to Hicks Muse, any of its affiliates,
officers and directors or R. Steven Hicks; (ii) a majority of the Board of
Directors of Capstar Partners shall consist of persons who are not continuing
directors (generally, persons who were members of the Board of Directors of
Capstar Partners on the date of original issuance of the 12% Capstar Partners
Preferred Stock or were nominated for election or elected to the Board of
Directors of Capstar Partners by continuing directors or are representatives of
Hicks Muse and its affiliates); or (iii) the acquisition by any person or group
of persons of the direct or indirect power to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the election of
directors of Capstar Partners.

In addition, the Capstar Partners Certificate of Designation provides that,
prior to July 1, 2002, upon the occurrence of a change of control, Capstar
Partners has the option to redeem the 12% Capstar Partners Preferred Stock in
whole but not in part (a "Change of Control Redemption") at a redemption price
equal to

111
<PAGE> 112

100% of the liquidation preference thereof, plus the applicable premium.
"Applicable premium" means, with respect to a share of the 12% Capstar Partners
Preferred Stock at any change of control redemption date, the greater of (i)
1.0% of the liquidation preference of such share and (ii) the excess of (A) the
present value at such time of (1) the redemption price of such share at July 1,
2002 plus (2) all required dividend payments due on such share through July 1,
2002 over (B) the liquidation preference of such share.

Certain Covenants. The Capstar Partners Certificate of Designation contains
restrictive provisions that, among other things, limit the ability of Capstar
Partners and its subsidiaries to incur additional indebtedness, pay dividends or
make certain other restricted payments, or merge or consolidate with or sell all
or substantially all of their assets to any other person.

SFX

12 5/8% SFX Preferred Stock

SFX has authorized 10,012,000 shares of preferred stock, par value $.01 per
share, of which 2,250,000 shares are designated as Series E Cumulative Preferred
Stock (the "12 5/8% SFX Preferred Stock"). As of the date of this Prospectus,
2,446,640 shares of 12 5/8% SFX Preferred Stock are issued and outstanding. The
following summary of certain terms of the 12 5/8% SFX Preferred Stock does not
purport to be complete and is qualified in its entirety by the terms of the SFX
Certificate of Designation.

Ranking. The 12 5/8% SFX Preferred Stock ranks senior in right of payment
to all classes or series of capital stock of SFX as to dividends and upon
liquidation, dissolution or winding up of SFX. The SFX Certificate of
Designation provides that SFX may not, without the consent of the holders of at
least two-thirds of the then outstanding 12 5/8% SFX Preferred Stock, authorize,
create (by way of reclassification or otherwise) or issue any class or series of
capital stock of SFX ranking senior to the 12 5/8% SFX Preferred Stock ("Senior
Securities") or any obligation or security convertible or exchangeable into or
evidencing a right to purchase, shares of any class or series of Senior
Securities.

Dividends. The holders of the 12 5/8% SFX Preferred Stock are entitled to
receive, when, as and if dividends are declared by the Board of Directors of SFX
out of funds of SFX legally available therefor, cumulative preferential
dividends from the issue date of the 12 5/8% SFX Preferred Stock accruing at the
rate per share of $12.625 per annum, payable semi-annually in arrears on January
15 and July 15 in each year or, if any such date is not a business day, on the
next succeeding business day (each, a "Dividend Payment Date"), to the Holders
of record as of the next preceding January 1 and July 1 (each, a "Record Date").
Dividends are payable in cash, except that on each Dividend Payment Date
occurring on or prior to January 15, 2002, dividends may be paid, at SFX's
option, by the issuance of additional shares of 12 5/8% SFX Preferred Stock
(including fractional shares) having an aggregate liquidation preference (as
defined in the SFX Certificate of Designation) equal to the amount of such
dividends. Dividends payable on the 12 5/8% SFX Preferred Stock are computed on
the basis of a 360-day year of twelve 30-day months and are deemed to accrue on
a daily basis.

Dividends on the 12 5/8% SFX Preferred Stock accrue whether or not SFX has
earnings or profits, whether or not there are funds legally available for the
payment of such dividends and whether or not dividends are declared. Dividends
accumulate to the extent they are not paid on the Dividend Payment Date for the
period to which they relate. Accumulated unpaid dividends bear interest at the
rate of 12.625% per annum. The SFX Certificate of Designation provides that SFX
will take all actions required or permitted under Delaware law to permit the
payment of dividends on the 12 5/8% SFX Preferred Stock.

No dividend whatsoever may be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding 12 5/8% SFX Preferred Stock
with respect to any dividend period unless all dividends for all preceding
dividing periods have been declared and paid upon, or declared and a sufficient
sum set apart for the payment of such dividend upon, all outstanding shares of
12 5/8% SFX Preferred Stock. Unless full cumulative dividends on all outstanding
shares of SFX Series Preferred Stock due for all past dividend periods shall
have been declared and paid, or declared and a sufficient sum for the payment
thereof set apart, then (i) no dividend (other than a dividend payable solely in
shares of any class of stock ranking junior to the

112
<PAGE> 113

12 5/8% SFX Preferred Stock as to the payment of dividends and as to rights in
liquidation, dissolution or winding up of the affairs of SFX ("Junior
Securities")) may be declared or paid upon, or any sum set apart for the payment
of dividends upon, any shares of Junior Securities; (ii) no other distribution
may be declared or made upon, or any sum set apart for the payment of any
distribution upon, any shares of Junior Securities; (iii) no shares of Junior
Securities may be purchased, redeemed or otherwise acquired or retired for value
(excluding an exchange for series of other Junior Securities) by SFX or any of
its subsidiaries; and (iv) no monies may be paid into or set apart or made
available for a sinking or other like fund for the purchase, redemption or other
acquisition or retirement for value of any shares of Junior Securities by SFX or
any of its subsidiaries. Holders of the 12 5/8% SFX Preferred Stock are not
entitled to any dividends, whether payable in cash, property or stock, in excess
of the full cumulative dividends as herein described.

Voting Rights. Holders of record of the 12 5/8% SFX Preferred Stock have no
voting rights, except as required by law and as provided in the SFX Certificate
of Designation. The SFX Certificate of Designation provides that upon (a) the
accumulation of accrued and unpaid dividends on the outstanding 12 5/8% SFX
Preferred Stock in an amount equal to six full quarterly dividends (whether or
not consecutive); (b) the failure of SFX to satisfy any mandatory redemption or
repurchase obligation (including, without limitation, pursuant to any required
change of control offer (as described below)) with respect to the 12 5/8% SFX
Preferred Stock; (c) the failure to SFX to make a change of control offer; (d)
the failure of the SFX to comply with any of the other covenants or agreements
set forth in the SFX Certificate of Designation and the continuance of such
failure for 60 consecutive days or more; or (e) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness (as defined in the SFX Certificate of
Designation) for money borrowed by SFX or any of its subsidiaries (or the
payment of which is guaranteed by SFX or any of its subsidiaries), which default
(i) is caused by a failure to pay principal of or premium, if any, or interest
on such indebtedness prior to the expiration of the grace period provided in
such indebtedness on the date of such default (a "Payment Default") or (ii)
results in the acceleration of such indebtedness prior to its express maturity
and, in each case, the principal amount of any such indebtedness, together with
the principal amount of any other such indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$25.0 million or more (each of the events described in clauses (a), (b), (c),
(d) and (e) being referred to herein as a "Voting Rights Triggering Event"),
then the number of members of SFX's Board of Directors will be immediately and
automatically increased by two, and the holders of a majority of the outstanding
shares of 12 5/8% SFX Preferred Stock, voting as a separate class, will be
entitled to elect two members to the Board of Directors of SFX. Voting rights
arising as a result of a Voting Rights Triggering Event will continue until such
time as all dividends in arrears on the 12 5/8% SFX Preferred Stock are paid in
full and all other Voting Rights Triggering Events have been cured or waived.

In addition, SFX may not authorize, create (by way of reclassification or
otherwise) or issue any Senior Securities, or any obligation or security
convertible into or evidencing the right to purchase Senior Securities, without
the affirmative vote or consent of the holders of two-thirds of the then
outstanding shares of 12 5/8% SFX Preferred Stock, in each case, voting as a
separate class.

Exchange. SFX may, at its option, on any Dividend Payment Date and subject
to certain conditions, exchange, in whole or in part, on a pro rata basis, the
then outstanding shares of 12 5/8% SFX Preferred Stock for 12 5/8% SFX Exchange
Debentures; provided that immediately after giving effect to any partial
exchange, there shall be outstanding 12 5/8% SFX Preferred Stock with an
aggregate liquidation preference of not less than $50.0 million and not less
than $50.0 million in aggregate principal amount of 12 5/8% SFX Exchange
Debentures.

Mandatory Redemption. On October 31, 2006 (the "Mandatory Redemption
Date"), SFX is required to redeem (subject to the legal availability of funds
therefor) all outstanding shares of 12 5/8% SFX Preferred Stock at a price in
cash equal to the liquidation preference thereof, plus accrued and unpaid
dividends, if any, to the date of redemption.

113
<PAGE> 114

Optional Redemption. The 12 5/8% SFX Preferred Stock may be redeemed, in
whole or in part, at the option of SFX on or after January 15, 2002, at the
redemption prices specified below (expressed as percentages of the liquidation
preference thereof), in each case, together with accrued and unpaid dividends,
if any, to the date of redemption, upon not less than 30 nor more the 60 days'
prior written notice, if redeemed during the 12-month period commencing on
January 15 of each of the years set forth below:

<TABLE>
<CAPTION>
REDEMPTION
YEAR RATE
---- ----------
<S> <C>
2002....................................................... 106.313%
2003....................................................... 104.734%
2004....................................................... 103.156%
2005....................................................... 101.578%
2006 and thereafter........................................ 100.000%
</TABLE>

In addition, prior to January 15, 2000, SFX may, at its option, redeem up
to 50% of the aggregate of (i) the liquidation preference of the 12 5/8% SFX
Preferred Stock issued (whether issued or issued in lieu of cash dividends) less
the liquidation preference of 12 5/8% SFX Preferred Stock exchanged for 12 5/8%
SFX Exchange Debentures and (ii) the principal amount of 12 5/8% SFX Exchange
Debentures issued (whether issued in exchange for 12 5/8% SFX Preferred Stock or
in lieu of cash interest), with the net proceeds of one or more common equity
offerings received on or after the date of original issuance of the 12 5/8% SFX
Preferred Stock at a redemption price of 112.625% of the liquidation preference
or principal amount, as the case may be, plus accumulated and unpaid dividends
in the case of 12 5/8% SFX Preferred Stock and accrued and unpaid interest in
the case of 12 5/8% SFX Exchange Debentures; provided, that after any such
redemption, if any 12 5/8% SFX Preferred Stock or 12 5/8% SFX Exchange
Debentures remain outstanding, at least $50 million in liquidation preference or
principle amount, as applicable, of 12 5/8% SFX Preferred Stock or 12 5/8% SFX
Exchange Debentures, as the case may be, remain outstanding; and provided
further, that any such redemption shall occur within 75 days of the date of
closing of such offering of common equity of SFX. See "Description of
Indebtedness --12 5/8% SFX Exchange Debentures."

Liquidation Rights. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of SFX or reduction or decrease in is
capital stock resulting in a distribution of assets to the holders of any class
or series of SFX's capital stock (a "reduction or decrease in capital stock"),
each holder of the 12 5/8% SFX Preferred Stock will be entitled to payment out
of the assets of SFX available for distribution of an amount equal to the
liquidation preference per share of 12 5/8% SFX Preferred Stock held by such
holder, plus accrued and unpaid dividends, if any, to the date fixed for
liquidation, dissolution, winding up or reduction or decrease in capital stock,
before any distribution is made on any Junior Securities, including, without
limitation, common stock of SFX. After payment in full of the liquidation
preference and all accrued dividends, if any, to which holders of 12 5/8% SFX
Preferred Stock are entitled, such holders will not be entitled to any further
participation in any distribution of assets of SFX. However, neither the
voluntary sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of SFX nor the consolidation or merger of SFX with or into one or more
corporations will be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of SFX or reduction or decrease in capital stock,
unless such sale, conveyance, exchange or transfer shall be in connection with a
liquidation, dissolution or winding up of the business of SFX or reduction or
decrease in capital stock.

The SFX Certificate of Designation does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the 12 5/8% SFX
Preferred Stock, although such liquidation preference will be substantially in
excess of the par value of the 12 5/8% SFX Preferred Stock.

Change of Control. Upon the occurrence of a change of control (as defined
below), SFX will be obligated to make a change of control offer to the holders
of the 12 5/8% SFX Preferred Stock pursuant to which each holder will have the
right to require that SFX repurchase all or any part of such holder's shares of
12 5/8% SFX Preferred Stock in cash at a purchase price equal to 101% of the
aggregate liquidation preference thereof plus, without duplication, all accrued
and unpaid dividends, if any, thereon to the date of repurchase. A

114
<PAGE> 115

"change of control" means the occurrence of one or more of the following events:
(i) any sale or other transfer of all or substantially all of the assets of SFX
and its subsidiaries; (ii) the adoption of a plan of liquidation or dissolution
of SFX; (iii) a majority of the Board of Directors of SFX shall consist of
persons who are not continuing directors (generally, person who were members of
the Board of Directors of SFX on the original date of issuance of the 12 5/8%
SFX Preferred Stock or were nominated for election or elected to SFX's Board of
Directors by continuing directors); or (iv) the consummation of any transaction,
the result of which is that any person becomes the beneficial owner of voting
stock of SFX having more than 35% of the combined voting power of all classes of
voting stock of SFX then outstanding.

Certain Covenants. The SFX Certificate of Designation contains restrictive
provisions that, among other things, limit the ability of SFX and its
subsidiaries to incur additional indebtedness, issue certain stock, merge,
consolidate with or sell all or substantially all of their assets to any other
person.

115
<PAGE> 116

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Class A
Common Stock of the Company. The sale, or availability for sale, of substantial
amounts of Class A Common Stock in the public market subsequent to the Offering,
could adversely affect the prevailing market price of the shares of Class A
Common Stock and could impair the Company's ability to raise additional capital
through the sale of equity securities.

Upon completion of the Offering, the Company will have outstanding a total
of 33,698,675 shares of Class A Common Stock, 6,081,723 shares of Class B Common
Stock and 67,808,902 shares of Class C Common Stock. Of these outstanding
shares, the 31,000,000 shares of Class A Common Stock sold in the Offering
(35,650,000 shares if the U.S. Underwriters' and Managers' over-allotment option
is exercised in full) will be freely transferable without restriction under the
Securities Act, except for any such shares purchased by an "affiliate" (as
defined in Rule 144 under the Securities Act) of the Company, which shares may
generally only be sold in compliance with the limitations and Rule 144 described
below. The remaining 2,698,675 shares of Class A Common Stock, all 6,081,723
shares of Class B Common Stock and all 67,808,902 shares of Class C Common stock
will be "restricted securities" for purposes of Rule 144 and may not be resold
unless registered under the Securities Act or sold pursuant to an applicable
exemption thereunder, including the exemption contained in Rule 144.

The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act and lock-up
agreements under which all of the holders of such shares have agreed not to sell
or otherwise dispose of their shares for a period of 180 days after the
effective date of this Offering (the "Lock-Up Period") without the prior written
consent of Credit Suisse First Boston Corporation, except for certain limited
exceptions. Because of these restrictions, on the date of this Prospectus, no
shares other than those offered hereby will be eligible for sale. Upon
expiration of the Lock-Up Period, all of the restricted securities will be
eligible for sale in the public market, subject to Rule 144 and Rule 701 of the
Securities Act (other than 120,000 shares of Class A Common Stock which will
become eligible for sale in May 1999, 558,496 shares and 1,905,301 shares of
Class B Common Stock which will become eligible for sale in January and April
1999, respectively, and 7,518,797 shares, 11,278,195 shares, 21,428,571 shares
and 3,571,428 shares of Class C Common Stock which will become eligible for sale
in January, February, March and April 1999, respectively).

In general, under Rule 144, as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned restricted
securities for at least one year (including persons who may be deemed
"affiliates" of the Company under Rule 144) is entitled to sell a number of
shares within any three-month period that does not exceed the greater of 1% of
the then outstanding shares of the class of Common Stock or the average weekly
trading volume of such stock during the four calendar weeks preceding such sale,
subject to certain manner of sale limitations. A stockholder who is deemed not
to have been an affiliate of the Company for at least three months prior to the
date of sale and who has beneficially owned restricted securities for at least
two years would be entitled to sell such shares under Rule 144 without regard to
the volume or manner of sale limitations described above.

Rule 701 under the Securities Act provides that shares of Class A Common
Stock acquired on the exercise of outstanding options may be resold by persons
other than affiliates beginning 90 days after the date of this Prospectus,
subject only to the manner of sale provisions of Rule 144, and by affiliates,
beginning 90 days after the date of this Prospectus, subject to all provisions
of Rule 144 except its minimum holding period. The Company intends to register
on a registration statement on Form S-8, shortly after the date of this
Prospectus, 7,196,406 shares of Class A Common Stock reserved for issuance under
the Stock Option Plan and the Warrants and 2,196,406 shares of Class C Common
Stock reserved for issuance under the Warrants.

Notwithstanding the foregoing, the Company is a party to the Affiliate
Stockholders Agreement with certain of its stockholders, including R. Steven
Hicks and certain affiliates of Hicks Muse, and also to the GulfStar
Stockholders Agreement with certain of its other stockholders, including Thomas
O. Hicks, each of which grants those stockholders, who will hold an aggregate of
273,227 shares, 5,119,724 shares and 63,171,989 shares of Class A Common Stock,
Class B Common Stock and Class C Common Stock,
116
<PAGE> 117

respectively, in the case of the Affiliate Stockholders Agreement, and 1,616,662
shares, 961,999 shares and 4,636,913 shares of Class A Common Stock, Class B
Common Stock and Class C Common Stock, respectively, in the case of the GulfStar
Stockholders Agreement, the right to require the Company, subject to certain
limitations, to effect up to three "demand" registrations under the Securities
Act for the sale of such stockholders' shares of Common Stock. The Company is
also a party to the Management Stockholders Agreement with its other
stockholders pursuant to which 688,787 shares of Class A Common Stock are
subject. The Stockholders Agreements provide that in the event that the Company
proposes to register any shares of its Common Stock under the Securities Act,
whether or not for its own account, at any time or times, the stockholders that
are parties to the Stockholders Agreements will be entitled, with certain
exceptions, to include their shares of Common Stock in such registration unless
the managing underwriters of such offering exclude some or all of such shares
from such registration under the circumstances specified in the Stockholders
Agreements. The parties to the Stockholders Agreements have waived their rights
to participate as selling stockholders in the Offering and, to the extent that
such parties possess "demand" registration rights, they have waived such rights
for a period of 180 days after the date of this Prospectus.

DESCRIPTION OF INDEBTEDNESS

CAPSTAR CREDIT FACILITY

Capstar Radio, as the borrower, will enter into a new Credit Agreement (the
"Capstar Credit Facility") with the Company and Capstar Partners as guarantors
under the same agreement, together with Salomon Brothers Holding Company Inc and
Goldman Sachs Credit Partners L.P., as documentation agents, NationsBank, N.A.,
as syndication agent, and Bankers Trust Company, as administrative agent (the
"Agent"), and the other financial institutions party thereto (the "Lenders") in
connection with the SFX Acquisition. The Capstar Credit Facility will consist of
a $550.0 million Revolving Loan, a $600.0 million A Term Loan and a $250.0
million B Term Loan. The Capstar Credit Facility will also contain provisions
providing mechanisms for additional term loans and revolving loans in an
aggregate amount up to $500.0 million subject, in all instances, to future
commitment availability from the Lenders at their discretion. Such additional
loans are not available to Capstar Radio as of the Closing Date and will not be
available until requested by Capstar Radio and approved by the Lenders choosing
to participate therein. The following description of certain provisions of the
Capstar Credit Facility does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the full text of the Capstar Credit
Facility.

Revolving Loans. The Capstar Credit Facility will provide for revolving
credit loans (the "Revolving Loans") of up to $550.0 million (as reduced from
time to time, the "Revolving Loan Commitment"). The Capstar Credit Facility will
mature six and a half years from the initial borrowing date with the Revolving
Loans then outstanding to be repaid in full on such date. $150.0 million of the
Revolving Loan Commitment will be available to Capstar Radio for the issuance of
letters of credit. The proceeds of the Revolving Loans will be available to
Capstar Radio for (i) working capital and general corporate purposes of Capstar
Radio and its subsidiaries, including, without limitation, acquisitions
permitted under the Capstar Credit Facility ,and (ii) the funding of any
payments to the holders of the 10 3/4% SFX Notes, the 11 3/8% SFX Notes and the
12 5/8% SFX Preferred Stock that exercise their option to put such obligations
to SFX in connection with a change of control of SFX. A principal amount equal
to $25.0 million of the Revolving Loans may be used by Capstar Radio to finance
a portion of the SFX Acquisition and fees and expenses related thereto.

A Term Loans. Up to $600.0 million in A Term Loans may be incurred by
Capstar Radio on only two dates; the first date is the initial closing date (the
"Closing Date") of the Capstar Credit Facility and the second date is the date
that is 120 days after the Closing Date. The first borrowing of A Term Loans
will be used as necessary to finance a portion of the SFX Acquisition and fees
and expenses related thereto. The second borrowing of the remaining A Term Loans
will be used to provide funds in connection with the redemption of $154.0
million aggregate principal amount of the 10 3/4% SFX Notes and $119.6 million
aggregate liquidation preference of the 12 5/8% SFX Preferred Stock, plus
applicable premiums with respect

117
<PAGE> 118

thereto. The A Term Loans are subject to scheduled annual principal repayments,
payable in equal quarterly installments, set forth in the table below:

<TABLE>
<CAPTION>
A TERM LOAN SCHEDULED REPAYMENT DATE AMOUNT
- ------------------------------------ -----------
<S> <C>
August 31, 1999....................................... $15,000,000
November 30, 1999..................................... $15,000,000
February 28, 2000..................................... $15,000,000
May 31, 2000.......................................... $15,000,000
August 31, 2000....................................... $22,500,000
November 30, 2000..................................... $22,500,000
February 28, 2001..................................... $22,500,000
May 31, 2001.......................................... $22,500,000
August 31, 2001....................................... $22,500,000
November 30, 2001..................................... $22,500,000
February 28, 2002..................................... $22,500,000
May 31, 2002.......................................... $22,500,000
August 31, 2002....................................... $30,000,000
November 30, 2002..................................... $30,000,000
February 28, 2003..................................... $30,000,000
May 31, 2003.......................................... $30,000,000
August 31, 2003....................................... $30,000,000
November 30, 2003..................................... $30,000,000
February 28, 2004..................................... $30,000,000
May 31, 2004.......................................... $30,000,000
August 31, 2004....................................... $60,000,000
A Term Loan Maturity Date (November 30, 2004)......... $60,000,000
</TABLE>

The A Term Loans will mature on the six and a half year anniversary of the
Closing Date of the Capstar Credit Facility. A Term Loans may not be reborrowed
after payment.

B Term Loans. On the Closing Date, Capstar Radio may incur B Term Loans
in an aggregate principal amount of $250.0 million. The proceeds of the B Term
Loans will be used solely to finance the SFX Acquisition and the payment of fees
and expenses related thereto. The B Term Loans are subject to scheduled annual
principal repayments, payable in equal quarterly installments, set forth in the
table below:

<TABLE>
<CAPTION>
B TERM LOAN SCHEDULED REPAYMENT DATE AMOUNT
------------------------------------ -----------
<S> <C>
August 31, 1998....................................... $ 625,000
November 30, 1998..................................... $ 625,000
February 28, 1999..................................... $ 625,000
May 31, 1999.......................................... $ 625,000
August 31, 1999....................................... $ 625,000
November 30, 1999..................................... $ 625,000
February 28, 2000..................................... $ 625,000
May 31, 2000.......................................... $ 625,000
August 31, 2000....................................... $ 625,000
November 30, 2000..................................... $ 625,000
February 28, 2001..................................... $ 625,000
May 31, 2001.......................................... $ 625,000
August 31, 2001....................................... $ 625,000
November 30, 2001..................................... $ 625,000
February 28, 2002..................................... $ 625,000
May 31, 2002.......................................... $ 625,000
August 31, 2002....................................... $ 625,000
November 30, 2002..................................... $ 625,000
</TABLE>

118
<PAGE> 119

<TABLE>
<CAPTION>
B TERM LOAN SCHEDULED REPAYMENT DATE AMOUNT
------------------------------------ -----------
<S> <C>
February 28, 2003..................................... $ 625,000
May 31, 2003.......................................... $ 625,000
August 31, 2003....................................... $28,125,000
November 30, 2003..................................... $28,125,000
February 28, 2004..................................... $28,125,000
May 31, 2004.......................................... $28,125,000
August 31, 2004....................................... $34,375,000
November 30, 2004..................................... $34,375,000
February 28, 2005..................................... $34,375,000
B Term Loan Maturity Date (May 31, 2005).............. $34,375,000
</TABLE>

The B Term Loans will mature on the seventh anniversary of the Closing Date
of the Capstar Credit Facility. B Term Loans may not be reborrowed after
payment.

Additional Term Loans. At any time on or after the Closing Date and prior
to May 31, 2001, with the prior written consent of the Agent, Capstar Radio may
request one or more of the Lenders to assume an Additional Term Loan Commitment
and to make Additional Term Loans under the Capstar Credit Facility, up to an
aggregate amount, together with any Additional Revolving Loans, equal to $500.0
million. The Additional Term Loans may be accessed in multiple advances with a
minimum amount for each such advance (the "Additional Term Loans"). The
Additional Term Loans would be subject to scheduled annual principal repayments,
payable in equal quarterly installments, as agreed to by the Lenders making such
Additional Term Loans and Capstar Radio at the time the Additional Term Loans
are made.

The Additional Term Loans will mature on the six and a half year
anniversary of the Closing Date of the Capstar Credit Facility. Additional Term
Loans may not be reborrowed after payment.

Additional Revolving Loans. At any time on or after the Closing Date and
prior to November 30, 2004 with the prior written consent of the Agent, Capstar
Radio may request one or more of the Lenders to assume an Additional Revolving
Loan Commitment and to make Additional Revolving Loans under the Capstar Credit
Facility, up to an aggregate amount equal to $200.0 million, less any Additional
Term Loans made in excess of $300.0 million. Additional Revolving Loans once
made would be subject to the same provisions governing the payment of, repayment
(mandatory and voluntary) of and calculation of interest on the Revolving Loans
under the Capstar Credit Facility.

Letters of Credit. Letters of Credit may be provided under the Capstar
Credit Facility as a portion of the Revolving Loan Commitment, subject to a
limit on availability equal to an aggregate amount of $150,000,000. The Letters
of Credit will be available for general corporate purposes, including, without
limitation, to provide letter of credit support in connection with the
requirements of the purchase contracts relating to acquisitions permitted by the
terms of the Capstar Credit Facility.

Interest Rate. The Revolving Loans, the A Term Loans, the B Term Loans and
the Additional Term Loans (the "Loans") will bear interest at a rate equal to,
at Capstar Radio's option, (i) the Base Rate (as defined below) in effect from
time to time plus the Applicable Margin (as defined below) (the "Base Rate
Loans") or (ii) the Eurodollar Rate (as defined below) (adjusted for maximum
reserves) as determined by the Agent for the respective interest period plus the
Applicable Margin (the "Eurodollar Loans"). The

119
<PAGE> 120

Applicable Margin for the Loans will be equal to a percentage per annum,
adjusted based upon Capstar Radio's leverage ratio as set forth below:

<TABLE>
<CAPTION>
A TERM LOANS, A TERM LOANS,
ADDITIONAL TERM LOANS ADDITIONAL TERM LOANS
AND REVOLVING LOANS AND REVOLVING LOANS B TERM LOANS B TERM LOANS
MAINTAINED AS MAINTAINED AS MAINTAINED AS MAINTAINED AS
LEVERAGE RATIO BASE RATE LOANS EURODOLLAR LOANS BASE RATE LOANS EURODOLLAR LOANS
-------------- --------------------- --------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Greater than 6.75:1....... 1.125% 2.125% 1.50% 2.50%
Greater than 6.5:1 but
less than or equal to
6.75:1.................. 1.00% 2.00% 1.375% 2.375%
Greater than 6.0:1 but
less than or equal to
6.5:1................... 0.875% 1.875% 1.25% 2.25%
Greater than 5.5:1 but
less than or equal to
6.0:1................... 0.625% 1.625% 1.00% 2.00%
Greater than 5.0:1 but
less than or equal to
5.5:1................... 0.375% 1.375% 0.75% 1.75%
Greater than 4.5:1 but
less than or equal to
5.0:1................... 0.125% 1.125% 0.75% 1.75%
Less than or equal to
4.5:1................... 0% 0.875% 0.75% 1.75%
</TABLE>

; provided that at any time after the date occurring six months after the
Closing Date, the Applicable Margin set forth in the grid above with respect to
the Term Loans shall be reduced (i) in the case of the A Term Loans, the
Additional Term Loans and the Revolving Loans, by 0.125% for a margin
corresponding to a Leverage Ratio of greater than 6.5:1 or less than or equal to
4.5:1 and by 0.25% for a margin corresponding to a Leverage Ratio of greater
than 4.5:1 but less than or equal to 6.5:1 and (ii) in the case of B Term Loans,
by 0.25%, in each case so long as SFX has repaid in full or has transferred or
assigned to the Company, Capstar Partners or Capstar Radio all of its
obligations under each of the 10 3/4% SFX Notes and the 12 5/8% SFX Preferred
Stock (it being agreed and understood, however, that notwithstanding anything to
the contrary contained in this proviso under no circumstances shall the
Applicable Margin (x) for B Term Loans maintained as Eurodollar Loans be reduced
to less than 1.50% and for B Term Loans maintained as Base Rate Loans be reduced
to less than 0.50% and (y) be less than 0.0%).

"Base Rate" shall mean the higher of (i) 1/2 of 1% in excess of the Federal
Reserve reported certificate of deposit rate, adjusted for reserves, and (ii)
the rate that the Agent announces from time to time as its prime lending rate,
as in effect from time to time. Interest on Base Rate Loans will be payable
quarterly in arrears. Interest on Eurodollar Loans will be payable on the last
day of the applicable interest period and, in the case of interest periods in
excess of three months, on the applicable three-month anniversary of the related
borrowing. Interest periods of one, two, three, six, and if available to all
Lenders, nine and twelve months will be available for Eurodollar Loans.
"Eurodollar Rate" shall mean the offered quotation to first-class banks in the
New York interbank Eurodollar market by Bankers Trust Company for dollar
deposits of amounts in immediately available funds comparable to the outstanding
principal amount of the eurodollar loan of Bankers Trust Company with maturities
comparable to the interest period applicable to such eurodollar loan commencing
two business days thereafter as of 10:00 A.M. (New York time) on the date which
is two business days prior to the commencement of such interest period, divided
(and rounded upward to the nearest 1/16 of 1%) by a percentage equal to 100%
minus the then stated maximum rate of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves required by applicable law) applicable to any member bank of the
Federal Reserve System in respect of Eurocurrency funding or liabilities.

Fees. Capstar Radio will be required to pay commitment fees on the combined
unutilized total Revolving Loan Commitment and total Additional Term Loan
Commitment, as in effect from time to time, to the Agent for the account of the
Lenders for the period commencing on the Closing Date of the Capstar Credit
Facility to (and including) the date of termination of the Revolving Loan
Commitment and the Additional Term Loan

120
<PAGE> 121

Availability Termination Date, as applicable, payable quarterly in arrears and
upon the termination of the Capstar Credit Facility. The Applicable Commitment
Commission Percentage is a percentage per annum, adjusted based upon Capstar
Radio's Leverage Ratio as follows: (i) for the period from the Closing Date
until the first day of the first Margin Reduction Period (the date that is six
months after the Closing Date) at 0.50%, (ii), thereafter, if the Leverage Ratio
shall be greater than 6.0:1 on each applicable last day of the most recent
fiscal quarter at 0.50%, (iii) if the Leverage Ratio shall be greater than 5.0:1
but less than or equal to 6.0:1 on each applicable Test Date at 0.375%, and (iv)
if the Leverage Ratio shall be equal to or less than 5.0:1 on each applicable
Test Date at 0.25%. In addition Capstar Radio will be required to pay letter of
credit fees equal to the remainder of the Applicable Margin from time to time
for Revolving Loans maintained as Eurodollar Loans less 1/4% per annum on the
outstanding stated amounts of Letters of Credit. In addition Capstar Radio will
pay a facing fee for the account of the issuer of the Letter of Credit equal to
1/4% on such outstanding stated amounts.

Security and Guarantees. Capstar Radio will secure the Capstar Credit
Facility by granting a first priority perfected pledge of Capstar Radio's
assets, including, without limitation, the capital stock of its subsidiaries,
except for the direct and indirect subsidiaries of SFX. The Company, Capstar
Partners and all of the direct and indirect subsidiaries of the Company (other
than Capstar Radio and SFX and its direct and indirect subsidiaries) will
guarantee the Capstar Credit Facility and will secure their guarantees by
granting a first priority perfected pledge of substantially all of their assets,
including Capstar Partners' pledge of the capital stock of Capstar Radio.
Capstar Radio will fund an intercompany loan to SFX with proceeds from the
Capstar Credit Facility, which intercompany loan will be secured by SFX and its
direct and indirect subsidiaries through a pledge of substantially all of their
assets. Capstar Radio will pledge the note evidencing such intercompany loan to
SFX to the Agent for the ratable benefit of the Lenders and collaterally assign
any security pledged or granted to Capstar Radio in connection with such
intercompany loan to the Agent for the ratable benefit of the Lenders. The
common stock of Capstar Partners will be pledged by the Company on a first
priority basis to Chancellor Media as security for the Chancellor Note. The
Company will also grant a second priority security interest in Capstar Partners'
common stock to the Agent for the ratable benefit of the Lenders as additional
security for its guaranty of the Capstar Credit Facility. While, as of the
Closing Date, SFX and its direct and indirect subsidiaries will not directly
guarantee the obligations of Capstar Radio under the Capstar Credit Facility,
the Company, Capstar Partners and Capstar Radio have agreed that, in the event
that SFX is permitted under its indentures to guarantee such obligations without
such guarantee being deemed a restricted payment thereunder, they will cause SFX
and its direct and indirect subsidiaries to so guarantee the obligations of
Capstar Radio under the Capstar Credit Facility at such time.

Covenants. The Capstar Credit Facility will contain customary restrictive
covenants, which, among other things and with certain exceptions, limit the
ability of the Company, Capstar Partners and Capstar Radio to incur additional
indebtedness and liens in connection therewith, enter into certain transactions
with affiliates, pay dividends, consolidate, merge or effect certain asset
sales, issue additional stock, make capital expenditures and enter new lines of
business. The Capstar Credit Facility limits Capstar Radio's ability to make
additional acquisitions in excess of $200.0 million on an individual basis
without the prior consent of a majority of the Lenders. Under the Capstar Credit
Facility, Capstar Radio will also be required to satisfy certain financial
covenants, which will require Capstar Radio to maintain specified financial
ratios and to comply with certain financial tests, such as maximum leverage
ratio, minimum consolidated EBITDA and minimum consolidated EBITDA to
consolidated net cash interest expense. Under the Capstar Credit Facility,
Capstar will also be required to make mandatory prepayments on the A Term Loans,
the B Term Loans and the Revolving Loans upon the occurrence of certain events,
including, the generation of excess cash flow of the Company on a consolidated
basis, the issuance of indebtedness by the Company and any of its subsidiaries,
the sale of assets of the Company and any of its subsidiaries, casualty events,
the issuance of equity by the Company and any of its subsidiaries, subject to
certain permitted exceptions. Such mandatory prepayments will be applied first
to the A Term Loans and the B Term Loans on a pro rata basis against remaining
scheduled principal payments for such loans. After the A Term Loans and the B
Term Loans have been repaid, any mandatory prepayments required under the
Capstar Credit Facility will be applied against any outstanding principal
balances under the Revolving Loans, and if there are no outstanding Revolving
Loans,

121
<PAGE> 122

then the commitments for Revolving Loans will be permanently terminated by an
amount equal to the mandatory prepayments that would otherwise be required.

Events of Default. The Capstar Credit Facility will contain customary
events of defaults, including, but not limited to: (i) (x) the default in the
payment when due of any principal of any Loan or note thereunder or (y) the
default, and such default shall continue unremedied for three or more business
days in the payment when due of any payment or disbursement under a letter of
credit or interest on any A Term Loan, B Term Loan or Revolving Loan or note or
fees (as defined in the Capstar Credit Facility) thereunder; (ii) default in the
performance or observance of certain covenants and agreements contained in the
Capstar Credit Facility; (iii) certain defaults, including payment defaults, by
the Company or its subsidiaries under other agreements relating to indebtedness;
(iv) the acceleration of certain indebtedness of the Company or its subsidiaries
prior to its stated maturity; (v) the voluntary commencement by the Company or
one of its subsidiaries of bankruptcy proceedings under Title 11 of the United
States Code or an involuntary commencement of such a proceeding not contested
within 10 days or dismissed in 60 days; or the commencement of a proceeding
under similar laws not dismissed for 60 days or the appointment of a custodian
for the Company under certain circumstances or the adjudication of the Company
or any of its subsidiaries as insolvent or bankrupt or any order of relief for
the foregoing is entered; (vi) the failure to satisfy certain minimum employee
benefit funding standards; (vii) the failure of certain security documents or
guarantees under the Capstar Credit Facility to be in effect; (viii) a Change of
Ownership (as defined below); and (ix) the entry of unvacated judgments against
the Company or its subsidiaries that in the aggregate are in excess of $10.0
million. Upon consummation of the Offering and the SFX Acquisition, the Company
will not be in default of its obligations under the Capstar Credit Facility.

"Change of Ownership" means (i) the Company shall cease to own beneficially
100% of the capital stock (other than the 12% Capstar Partners Preferred Stock)
of Capstar Partners; (ii) Capstar Partners shall cease to own beneficially 100%
of the capital stock of Capstar Radio; (iii) if the HM Group (as defined below)
shall cease to have the power, directly or indirectly, to vote or direct the
voting of securities having a majority of the ordinary voting power for the
election of directors of the Company, provided, that the occurrence of the
foregoing event shall not be deemed a "Change of Ownership" if (1) no "person"
or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), excluding the HM Group, shall become the "beneficial owner" (as defined in
Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of
more than the greater of (x) 15% of the then outstanding voting stock of the
Company and (y) the percentage of the outstanding voting stock of the Company
owned by the HM Group as of the Closing Date and (2) the board of directors of
the Company shall consist of a majority of Continuing Directors (as defined
below); (iii) the HM Group (excluding R. Steven Hicks) shall own beneficially
fewer shares of outstanding common stock of the Company than R. Steven Hicks; or
(iv) a "Change of Control" under and as defined in the Indentures shall have
occurred.

"HM Group" means, collectively, (i) Hicks Muse, its affiliates and R.
Steven Hicks taken as a whole, (ii) so long as Hicks Muse, its affiliates and R.
Steven Hicks taken as a whole possess sole voting right with respect to the
voting stock of the Company held by each such person, such persons who are or
were employees, officers, directors or partners of Hicks Muse or such affiliate
and the family members of such persons or trusts created for the sole benefit of
such family members and (iii) so long as Hicks Muse, its affiliates and R.
Steven Hicks taken as a whole possess sole voting right with respect to the
voting stock of the Company held by such person, any person not otherwise
described by clause (i) or (ii) above, provided that the aggregate number of
shares held by all such persons in accordance with this clause (iii) at any time
shall not exceed 3% of the aggregate number of shares held by the persons
described in clause (i) and (ii) above at such time.

"Continuing Directors" means the directors of the Company on the date which
occurs six months prior to the consummation of the Offering and each other
director, if such director's nomination for election to the board of directors
of the Company is recommended by a majority of the then Continuing Directors or
any other nominee of the HM Group.

122
<PAGE> 123

12 3/4% CAPSTAR NOTES

On February 20, 1997, Capstar Partners issued $277.0 million in aggregate
principal amount at maturity of its 12 3/4% Senior Discount Notes due 2009 (the
"12 3/4% Capstar Notes"). The 12 3/4% Capstar Notes were issued at a substantial
discount from their aggregate principal amount at maturity under an Indenture
dated as of February 20, 1997, (the "12 3/4% Capstar Notes Indenture"), between
Capstar Partners and U.S. Trust Company of Texas, N.A. ("U.S. Trust"), as a
trustee, generating gross proceeds to Capstar Partners of approximately $150.3
million. The 12 3/4% Capstar Notes Indenture is subject to and governed by the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of certain provisions of the 12 3/4% Capstar Notes and the
12 3/4% Capstar Notes Indenture does not purport to be complete and is subject
to, and qualified in its entirety by reference to, the provisions of the 12 3/4%
Capstar Notes Indenture and the 12 3/4% Capstar Notes.

The 12 3/4% Capstar Notes are unsecured, senior obligations of Capstar
Partners and are limited to $277.0 million aggregate principal amount at
maturity and will mature on February 1, 2009. No interest will accrue on the
12 3/4% Capstar Notes prior to February 1, 2002. Thereafter, interest on the
12 3/4% Capstar Notes will accrue at the rate of 12 3/4% and will be payable in
cash semiannually on February 1 and August 1 commencing on August 1, 2002 to
holders of record on the immediately preceding January 15 and July 15. Interest
on the 12 3/4% Capstar Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from February 1, 2002.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. The yield to maturity of the 12 3/4% Capstar Notes is 12 3/4%
(computed on a semi-annual bond equivalent basis), calculated from February 20,
1997.

The 12 3/4% Capstar Notes may be redeemed (subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after February 1, 2002, in whole or in part, at the
option of Capstar Partners, at the redemption prices (expressed as a percentage
of the accreted value thereof on the applicable redemption date) set forth
below, plus accrued and unpaid interest, if any, to the redemption date, if
redeemed during the 12-month period beginning February 1 of each of the years
set forth below:

<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
2002..................................... 106.375%
2003..................................... 105.313%
2004..................................... 104.250%
2005..................................... 103.188%
2006..................................... 102.125%
2007 and thereafter...................... 100.000%
</TABLE>

In addition, prior to February 1, 2001, Capstar Partners may, at its
option, use the net cash proceeds of one or more public equity offerings or
major asset sales (each as defined below) to redeem up to 25% of the principal
amount at maturity of the 12 3/4% Capstar Notes at a redemption price of 112.75%
of the accreted value thereof at the redemption date of the 12 3/4% Capstar
Notes so redeemed; provided, however, that after any such redemption, at least
75% in aggregate principal amount at maturity of the 12 3/4% Capstar Notes would
remain outstanding immediately after giving effect to such redemption. Any such
redemption will be required to occur on or prior to the date that is one year
after the receipt by Capstar Partners of the proceeds of a public equity
offering or major asset sale. Capstar Partners shall effect such redemption on a
pro rata basis. A "public equity offering" means an underwritten public offering
of capital stock of Capstar Partners, pursuant to an effective registration
statement filed with the Securities and Exchange Commission. A "major asset
sale" means any asset sale or series of related asset sales involving assets
with a fair market value in excess of $25.0 million.

Change of Control. The 12 3/4% Capstar Notes Indenture provides that, upon
the occurrence of a change of control (as defined below), Capstar Partners will
be obligated to make a change of control offer to the holders of the 12 3/4%
Capstar Notes pursuant to which each holder will have the right to require that
Capstar Partners purchase all or a portion of such holder's Notes in cash
pursuant to the offer to purchase the

123
<PAGE> 124

12 3/4% Capstar Notes at a purchase price equal to (i) 101% of the accreted
value on the change of control payment date if the change of control payment
date is on or before February 1, 2002 and (ii) 101% of the principal amount at
maturity thereof, plus, without duplication, all accrued and unpaid interest, if
any, to the change of control payment date if such change of control payment
date is after February 1, 2002. In addition, prior to February 1, 2002, upon the
occurrence of a change of control, Capstar Partners has the option to redeem the
12 3/4% Capstar Notes in whole, but not in part, at a redemption price equal to
100% of the accreted value thereof, together with accrued and unpaid interest to
the date of redemption, plus the applicable premium. "Applicable premium" means
the greater of (i) 1.0% of the accreted value of the 12 3/4% Capstar Notes and
(ii) the excess of (A) the present value at such time of the redemption price of
the 12 3/4% Capstar Notes over (B) the principal amount at maturity of the
12 3/4% Capstar Notes. A "change in control" means the occurrence of one or more
of the following events: (i) any sale or other transfer of all or substantially
all of the assets of Capstar Partners, other than to Hicks Muse, any of its
affiliates, officers and directors or R. Steven Hicks; (ii) a majority of the
Board of Directors of Capstar Partners shall consist of persons who are not
continuing directors (generally, persons who were members of the Board of
Directors of Capstar Partners on the date of original issuance of the 12 3/4%
Capstar Notes or were nominated for election or elected to the Board of
Directors of Capstar Partners by continuing directors or are representatives of
Hicks Muse and its affiliates); or (iii) the acquisition by any person or group
of persons of the direct or indirect power to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the election of
directors of Capstar Partners.

Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. Under the 12 3/4% Capstar Notes Indenture,
Capstar Partners may not, and may not permit any of its subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any indebtedness, other than permitted indebtedness, and
Capstar Partners' subsidiaries may not issue any preferred stock; provided,
however, that Capstar Partners and its subsidiaries may incur indebtedness and
Capstar Partners' subsidiaries may issue shares of preferred stock if, in either
case, the Company's leverage ratio at the time of incurrence of such
indebtedness or the issuance of such preferred stock, as the case may be, after
giving pro forma effect to such incurrence or issuance as of such date and to
the use of proceeds therefrom is less than 7.0 to 1.

Limitation on Restricted Payments. The 12 3/4% Capstar Notes Indenture
provides that neither Capstar Partners nor any of its subsidiaries will,
directly or indirectly, make any restricted payment (as defined below) if at the
time of such restricted payment and immediately after giving effect thereto:

(i) a default or event of default shall have occurred and be
continuing at the time of or after giving effect to such restricted
payment; or

(ii) Capstar Partners is not able to incur $1.00 of additional
indebtedness (other than permitted indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries" covenant; or

(iii) the aggregate amount of restricted payments made subsequent to
the issue date of the 12 3/4% Capstar Notes exceeds the sum of (a) (x) 100%
of the aggregate consolidated EBITDA of Capstar Partners (or, in the event
such consolidated EBITDA shall be a deficit, minus 100% of such deficit)
accrued subsequent to the issue date to the most recent date for which
financial information is available to Capstar Partners, taken as one
accounting period, less (y) 1.4 times consolidated interest expense for the
same period, plus (b) 100% of the aggregate net proceeds, received by
Capstar Partners from any person (other than a subsidiary of Capstar
Partners) from the issuance and sale on or subsequent to the issue date of
Capital Stock that by its terms, or upon the happening of any event, does
not mature, is not mandatorily redeemable and is not redeemable in whole or
in part on or prior to the maturity date of the 12 3/4% Capstar Notes
("qualified capital stock") plus (c) without duplication of any amount
included in clause (iii)(b) above, 100% of the aggregate net proceeds,
received by Capstar Partners as a capital contribution on or after the
issue date, plus (d) the amount equal to the net reduction in investments,
other than permitted investments, made by Capstar Partners or any of its
subsidiaries in any person resulting from (i) repurchases or redemptions of
such investments by such

124
<PAGE> 125

"Restricted payment" means (i) the declaration or payment of any dividend
or the making of any other distribution, (ii) the purchase, redemption,
retirement or other acquisition for the value of any capital stock or other
securities of Capstar Partners, (iii) the making of any principal payment on, or
the purchase, defeasance, redemption, prepayment, decrease or other acquisition
or retirement for value, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, of, any indebtedness of Capstar
Partners or its subsidiaries that is subordinated or junior in right of payment
to the 12 3/4% Capstar Notes, or (iv) the making of any investment other than
investments permitted under the 12 3/4% Capstar Notes Indenture.

Other Restrictive Covenants. The 12 3/4% Capstar Notes Indenture contains
certain other restrictive covenants that, among other things, impose limitations
(subject to certain exceptions) on Capstar Partners with respect to (i) sales of
assets by Capstar Partners and its subsidiaries, (ii) asset swaps and (iii) the
merger or sale of all or substantially all the assets of Capstar Partners.

Events of Default. The following events are defined in the 12 3/4% Capstar
Notes Indenture as "Events of Default": (i) the failure to pay interest on the
12 3/4% Capstar Notes when the same becomes due and payable and the default
continues for a period of 30 days; (ii) the failure to pay the accreted value of
or premium, if any, on any 12 3/4% Capstar Notes when such accreted value or
premium, if any, becomes due and payable, at maturity, upon redemption or
otherwise; (iii) a default in the observance or performance of any other
covenant or agreement contained in the 12 3/4% Capstar Notes or the 12 3/4%
Capstar Notes Indenture, which default continues for a period of 30 days after
Capstar Partners receives written notice thereof specifying the default from the
Trustee or holders of at least 25% in aggregate principal amount at maturity of
outstanding 12 3/4% Capstar Notes; (iv) the failure to pay at the final stated
maturity (giving effect to any extensions thereof) the principal amount of any
indebtedness of Capstar Partners or any subsidiary of Capstar Partners, or the
acceleration of the final stated maturity of any such indebtedness, if the
aggregate principal amount of such indebtedness, together with the aggregate
principal amount of any other such indebtedness in default for failure to pay
principal at the final stated maturity (giving effect to any extensions thereof)
or which has been accelerated, aggregates $5.0 million or more at any time in
each case after a 10-day period during which such default shall not have been
cured or such acceleration rescinded; (v) one or more judgments in an aggregate
amount in excess of $5.0 million (which are not covered by insurance as to which
the insurer has not disclaimed coverage) being rendered against Capstar Partners
or any of its significant subsidiaries (a subsidiary that accounted for more
than 5% of the consolidated net income of a person in the most recent fiscal
year or was the owner of more than 5% of the consolidated assets of such person)
and such judgment or judgments remain undischarged or unstayed for a period of
60 days after such judgment or judgments become final and nonappealable; and
(vi) certain events of bankruptcy, insolvency or reorganization affecting
Capstar Partners or any of its significant subsidiaries.

Upon the happening of any Event of Default specified in the 12 3/4% Capstar
Notes Indenture, the Trustee may, and the Trustee upon the request of holders of
25% in principal amount at maturity of the outstanding 12 3/4% Capstar Notes
shall, or the holders of at least 25% in principal amount at maturity of
outstanding 12 3/4% Capstar Notes may, declare the accreted value of all the
12 3/4% Capstar Notes, together with all accrued and unpaid interest and
premium, if any, to be due and payable by notice in writing to Capstar Partners
and the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the credit facility (as defined below), will become due and payable upon
the first to occur of an acceleration under the credit facility or five business
days after receipt by the Company and the agent under the credit facility of
such Acceleration Notice (unless all Events of Default specified in such
125
<PAGE> 126

Acceleration Notice have been cured or waived). For purposes of the immediately
preceding sentence, "credit facility" includes the Company's existing credit
agreement, as it may be amended, supplemented or otherwise modified from time to
time and any renewal, extension, refunding, restructuring, replacement or
refinancing thereof (whether with the original agent and lenders or another
agent or agents or other lenders and whether provided under the credit facility
or any other credit agreement). If an Event of Default with respect to
bankruptcy proceedings relating to Capstar Partners occurs and is continuing,
then such amount will ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any holder of
the 12 3/4% Capstar Notes. Capstar Partners is not in default of its obligations
under the 12 3/4% Capstar Partners Notes.

9 1/4% CAPSTAR NOTES

On June 17, 1997, Capstar Radio issued $200.0 million in aggregate
principal amount of its 9 1/4% Senior Subordinated Notes due 2007 (the "9 1/4%
Capstar Notes") under an indenture (the "9 1/4% Capstar Notes Indenture")
between Capstar Radio and U.S. Trust as Trustee. The 9 1/4% Capstar Notes
Indenture is subject to and governed by the Trust Indenture Act. The following
summary of certain provisions of the 9 1/4% Capstar Notes Indenture and the
9 1/4% Capstar Notes does not purport to be complete, is subject to, and is
qualified in its entirety by reference to, the provisions of the 9 1/4% Capstar
Notes Indenture and the 9 1/4% Capstar Notes.

The 9 1/4% Capstar Notes are general unsecured obligations of the Company
subordinated in right of payment to all senior indebtedness and senior in right
of payment to any current or future indebtedness of Capstar Radio that, by its
terms, is subordinated to the 9 1/4% Capstar Notes. The 9 1/4% Capstar Notes are
limited to $200 million aggregate principal amount and will mature on July 1,
2007. Interest will accrue on the 9 1/4% Capstar Notes from the date of
issuance.

The 9 1/4% Capstar Notes may be redeemed (subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after July 1, 2002, in whole or in part, at the
option of Capstar Radio, at the redemption prices (expressed as a percentage of
the principal amount thereof) set forth below, plus accrued and unpaid interest,
if any, to the redemption date, if redeemed during the 12-month period beginning
July 1 of each of the years set forth below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002...................................... 104.625%
2003...................................... 103.083%
2004...................................... 101.542%
2005 and thereafter....................... 100.000%
</TABLE>

In addition, prior to July 1, 2001, Capstar Radio may, at its option, use
the net cash proceeds of one or more public equity offerings or major asset
sales (each as defined below) to redeem 9 1/4% Capstar Notes originally issued
at a redemption price equal to 109.25% of the aggregate principal amount of the
9 1/4% Capstar Notes to be redeemed, plus accrued and unpaid interest, if any,
thereon to the date of redemption; provided, however, that after any such
redemption, at least 75% of the aggregate principal amount of the 9 1/4% Capstar
Notes originally issued remains outstanding immediately after giving effect to
any such redemption. Any such redemption is required to occur on or prior to the
date that is one year after the receipt by the Company of the proceeds of a
public equity offering or major asset sale. Capstar Radio is required to effect
such redemption on a pro rata basis. A "public equity offering" means an
underwritten public offering of capital stock of Capstar Radio, Capstar Partners
or the Company, pursuant to an effective registration statement filed with the
Securities and Exchange Commission, provided that in the case of a public equity
offering of Capstar Partners or the Company, net proceeds in an amount
sufficient to redeem the 9 1/4% Capstar Notes called for redemption are
contributed to Capstar Radio. A "major asset sale" means any asset sale or
series of related assets sales involving assets with a fair market value in
excess of $25,000,000.

Change of Control. The 9 1/4% Capstar Notes Indenture provides that, upon
the occurrence of a change of control, each holder has the right to require that
Capstar Radio purchase all or a portion of such holder's 9 1/4% Capstar Notes at
a purchase price equal to 101% of the principal amount thereof, plus, without
duplication, all

126
<PAGE> 127

accrued and unpaid interest, if any, to the purchase date. In addition, prior to
July 1, 2002, upon the occurrence of a change of control, Capstar Radio has the
option to redeem the 9 1/4% Capstar Notes in whole, but not in part, at a
redemption price equal to 100% of the principal amount thereof, together with
accrued and unpaid interest to the date of redemption, plus the applicable
premium (as defined below). "Applicable premium" means, with respect to the
9 1/4% Capstar Notes, the greater of (i) 1.0% of the principal amount of such
note and (ii) the excess of (A) the present value at such time of (1) the
redemption price of such note at July 1, 2002 plus (2) all required interest
payments due on such note through July 1, 2002 over (B) the principal amount of
such note.

Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. Under the 9 1/4% Capstar Notes Indenture,
Capstar Radio will not, and may not permit any of its subsidiaries to, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any indebtedness, other than permitted indebtedness, and
Capstar Radio's subsidiaries may not issue any preferred stock, except preferred
stock issued to Capstar Radio or a wholly-owned subsidiary of Capstar Radio;
provided, however, that Capstar Radio and its subsidiaries may incur
indebtedness and Capstar Radio's subsidiaries may issue shares of preferred
stock if, in either case, Capstar Radio's leverage ratio at the time of
incurrence of such indebtedness or the issuance of such preferred stock, as the
case may be, after giving pro forma effect to such incurrence or issuance as of
such date and to the use of proceeds therefrom is less than 7.0 to 1.

Limitation on Restricted Payments. The 9 1/4% Capstar Notes Indenture
provides that neither Capstar Radio nor any of its subsidiaries may, directly or
indirectly, make any restricted payment (as defined below) if at the time of
such restricted payment and immediately after giving effect thereto:

(i) a default or event of default shall have occurred and be
continuing at the time of or after giving effect to such restricted
payment; or

(ii) Capstar Radio is not able to incur $1.00 of additional
indebtedness (other than permitted indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries" covenant; or

(iii) the aggregate amount of restricted payments made subsequent to
the issue date (the amount expended for such purposes, if other than in
cash, being the fair market value of such property as determined by the
board of directors of Capstar Radio in good faith) exceeds the sum of (a)
(x) 100% of the aggregate consolidated EBITDA of Capstar Radio (or, in the
event such consolidated EBITDA shall be a deficit, minus 100% of such
deficit) accrued subsequent to the issue date to the most recent date for
which financial information is available to Capstar Radio, taken as one
accounting period, less (y) 1.4 times consolidated interest expense for the
same period plus (b) 100% of the aggregate net proceeds, including the fair
market value of property other than cash as determined by the board of
directors of Capstar Radio in good faith, received by Capstar Radio from
any person (other than a subsidiary of Capstar Radio) from the issuance and
sale on or subsequent to the issue date of qualified capital stock of
Capstar Radio (excluding (i) any net proceeds from issuances and sales
financed directly or indirectly using funds borrowed from Capstar Radio or
any subsidiary of Capstar Radio, until and to the extent such borrowing is
repaid, but including the proceeds from the issuance and sale of any
securities convertible into or exchangeable for qualified capital stock to
the extent such securities are so converted or exchanged and including any
additional proceeds received by Capstar Radio upon such conversion or
exchange and (ii) any net proceeds received from issuances and sales that
are used to consummate certain transactions including certain purchase,
redemption or other acquisition or retirement of any capital stock of
Capstar Radio and certain acquisition of indebtedness of Capstar Radio that
is subordinate or junior in right of payment to the 9 1/4% Capstar Notes),
plus (c) without duplication of any amount included in clause (iii)(b)
above, 100% of the aggregate net proceeds, including the fair market value
of property other than cash (valued as provided in clause (iii)(b) above),
received by Capstar Radio as a capital contribution on or after the issue
date, plus (d) the amount equal to the net reduction in investments (other
than permitted investments) made by Capstar Radio or any of its
subsidiaries in any person resulting from (i) repurchases or redemptions of
such investments by such

127
<PAGE> 128

person, proceeds realized upon the sale of such investment to an
unaffiliated purchaser and repayments of loans or advances or other
transfers of assets by such person to Capstar Radio or any subsidiary of
Capstar Radio or (ii) the redesignation of unrestricted subsidiaries as
subsidiaries (valued in each case as provided in the definition of
"investment") not to exceed, in the case of any subsidiary, the amount of
investments previously made by Capstar Radio or any subsidiary in such
unrestricted subsidiary, which amount was included in the calculation of
restricted payments; provided, however, than no amount shall be included
under this clause (d) to the extent it is already included in consolidated
EBITDA, plus (e) the aggregate net cash proceeds received by a person in
consideration for the issuance of such person's capital stock (other than
disqualified capital stock) that are held by such person at the time such
person is merged with Capstar Radio in accordance with the "Merger,
Consolidation and Sale of Assets" covenant subsequent to the issue date;
provided, however, that concurrently with or immediately following such
merger Capstar Radio uses an amount equal to such net cash proceeds to
redeem or repurchase Capstar Radio's capital stock, plus (f) $5,000,000.

"Restricted payment" means (i) the declaration or payment of any dividend
or the making of any other distribution, (ii) the purchase, redemption,
retirement or other acquisition for value of any capital stock or other
securities of Capstar Radio, (iii) the making of any principal payment on, or
the purchase, defeasance, redemption, prepayment, decrease or other acquisitions
or retirement for value, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, of, any indebtedness of Capstar
Radio or its subsidiaries that is subordinated or junior in right of payment to
the 9 1/4% Capstar Notes, or (iv) the making of any investment other than
investments permitted under the 9 1/4% Capstar Notes Indenture.

Other Restrictive Covenants. The 9 1/4% Capstar Notes Indenture contains
certain other restrictive covenants that, among other things, impose limitations
(subject to certain exceptions) on Capstar Radio with respect to (i) sales of
assets by Capstar Radio and its subsidiaries, (ii) assets swap and (iii) the
merger or sale of all or substantially all of the assets of Capstar Radio.

Events of Default. The following events are defined in the 9 1/4% Capstar
Notes Indenture as "Events of Default": (i) the failure to pay interest on the
9 1/4% Capstar Notes when the same becomes due and payable and the default
continues for a period of 30 days; (ii) the failure to pay the principal amount
on any 9 1/4% Capstar Notes when such principal amount becomes due and payable,
at maturity, upon redemption or otherwise; (iii) a default in the observance or
performance of any other covenant or agreement contained in the 9 1/4% Capstar
Notes or the 9 1/4% Capstar Notes Indenture, which default continues for a
period of 30 days after Capstar Radio receives written notice thereof specifying
the default from U.S. Trust or holders of at least 25% in aggregate principal
amount at maturity of outstanding 9 1/4% Capstar Notes; (iv) the failure to pay
at the final stated maturity (giving effect to any extensions thereof) the
principal amount of any indebtedness of Capstar Radio or any subsidiary of
Capstar Radio, or the acceleration of the final stated maturity of any such
indebtedness, if the aggregate principal amount of such indebtedness, together
with the aggregate principal amount of any other such indebtedness in default
for failure to pay principal at the final stated maturity (giving effect to any
extensions thereof) or which has been accelerated, aggregates $10,000,000 or
more at any time in each case after a 10-day period during which such default
shall not have been cured or such acceleration rescinded; (v) one or more
judgements in an aggregate amount in excess of $10,000,000 (which are not
covered by insurance as to which the insurer has not disclaimed coverage) being
rendered against Capstar Radio or any of its significant subsidiaries (as
defined in the 9 1/4% Capstar Notes Indenture) and such judgment or judgments
remain undischarged or unstayed for a period of 60 days after such judgments
become final and nonappealable; and (vi) certain events of bankruptcy,
insolvency or reorganization affecting Capstar Radio or any of its significant
subsidiaries.

Upon the happening of any Event of Default specified in the 9 1/4% Capstar
Notes Indenture, U.S. Trust may, and U.S. Trust upon the request of holders of
25% in principal amount of the outstanding 9 1/4% Capstar Notes shall, or the
holders of at least 25% in principal amount of outstanding 9 1/4% Capstar Notes
may, declare the principal amount of all the 9 1/4% Capstar Notes, together with
all accrued and unpaid interest and premium, if any, to be due and payable by
notice in writing to Capstar Radio and U.S. Trust specifying the respective
Event of Default and that it is a "notice of acceleration" (the "Acceleration
Notice"), and the

128
<PAGE> 129

same (i) shall become immediately due and payable or (ii) if there are any
amounts outstanding under the credit facility, will become due and payable upon
the first to occur of an acceleration under the credit facility (as defined
below) or five business days after receipt by Capstar Radio and the agent under
the credit facility of such Acceleration Notice (unless all Events of Default
specified in such Acceleration Notice have been cured or waived). For purposes
of the immediately preceding sentence, "credit facility" includes the Company's
existing credit agreement, as it may be amended, supplemented or otherwise
modified from time to time and any renewal, extension, refunding, restructuring,
replacement or refinancing thereof (whether with the original agent and lenders
or another agent or agents or other lenders and whether provided under the
original Capstar Credit Facility or any other credit agreement). If an Event of
Default with respect to bankruptcy proceedings relating to Capstar Radio occurs
and is continuing, then such amount will ipso facto become and be immediately
due and payable without any declaration or other act on the part of the U.S.
Trust or any holder of the 9 1/4% Capstar Notes. Capstar Radio is not in default
of its obligations under the 9 1/4% Capstar Notes.

10 3/4% SFX NOTES

On May 31, 1996, SFX issued $450.0 million in aggregate principal amount at
maturity of its 10 3/4% Senior Subordinated Notes due 2006 (the "10 3/4% SFX
Notes") under an indenture (the "10 3/4% SFX Notes Indenture") between SFX and
Chemical Bank, a New York corporation, as Trustee. The 10 3/4% SFX Notes
Indenture is subject to and governed by the Trust Indenture Act. The following
summary of certain provisions of the 10 3/4% SFX Notes Indenture and the 10 3/4%
SFX Notes does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the 10 3/4% SFX Notes Indenture
and the 10 3/4% SFX Notes.

The 10 3/4% SFX Notes are general unsecured obligations of SFX subordinated
in right of payment to all senior debt and senior in right of payment to any
current or future indebtedness of SFX that, by its terms, is subordinated to the
10 3/4% SFX Notes. The 10 3/4% SFX Notes are limited to $450.0 million aggregate
principal amount and will mature on May 15, 2006. The 10 3/4% SFX Notes accrue
dividends from May 31, 1996.

The 10 3/4% SFX Notes may be redeemed (subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after May 15, 2001, in whole or in part, at the
option of SFX, at the redemption prices (expressed as a percentage of principal
amount) set forth below, plus accrued and unpaid interest and liquidated
damages, if any, thereon to the redemption date, if redeemed during the 12-month
period beginning May 15 of each of the years set forth below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001...................................... 105.375%
2002...................................... 103.583%
2003...................................... 101.792%
2004 and thereafter....................... 100.000%
</TABLE>

Notwithstanding the foregoing, until May 31, 1999, SFX may, on any one or
more occasions, redeem up to $154.0 million in aggregate principal amount of
10 3/4% SFX Notes at a redemption price of 110.750% of the principal amount
thereof plus accrued and unpaid interest and liquidated damages, if any, thereon
to the redemption date, with the net proceeds of an offering of common equity;
provided, that at least $286.0 million in aggregate principal amount of 10 3/4%
SFX Notes must remain outstanding immediately after the occurrence of each such
redemption and certain other conditions are met.

Change of Control. The 10 3/4% SFX Notes Indenture provides that, upon the
occurrence of a change of control, SFX will be obligated to make a change of
control offer to the holders of the 10 3/4% SFX Notes pursuant to which each
holder will have the right to require that SFX purchase all or a portion of such
holder's 10 3/4% SFX Notes in cash at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of purchase. A "change of
control" means the occurrence of one or more of the following events: (i) the
sale or other transfer of all or

129
<PAGE> 130

substantially all of the assets of SFX and its subsidiaries other than to R.X.
Sillerman, (ii) the adoption of a plan relating to the liquidation or
dissolution of SFX, (iii) the consummation of any transaction the result of
which is that any person, other than R.X. Sillerman, becomes the beneficial
owner, directly or indirectly, of voting stock of SFX having more than 35% of
the combined voting power of all classes of voting stock of SFX then
outstanding, or (iv) the first day on which a majority of the members of the
board of directors of SFX are not continuing directors (generally, persons who
were members of the Board of Directors of SFX on the date of original issuance
of the 10 3/4% SFX Notes or were nominated for election or elected to the Board
of Directors of SFX by a majority of the continuing directors).

Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. The 10 3/4% SFX Notes Indenture provides that
SFX will not, and will not permit any of its subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to any
indebtedness (including acquired debt) or issue shares of disqualified stock,
and SFX's guarantor subsidiaries will not issue any preferred stock (other than
as set forth therein); provided, however, that SFX and its subsidiaries may
incur indebtedness and SFX' subsidiaries may issue shares of preferred stock if,
in either case, the SFX's leverage ratio at the time of incurrence of such
indebtedness or the issuance of such disqualified stock or preferred stock, as
the case may be, after giving pro forma effect to such incurrence or issuance
and to the use of proceeds therefrom as if the same had occurred at the
beginning of the most recently ended four full fiscal period of SFX for which
internal financial statements are available, would have been no greater than 7.0
to 1.

Limitation on Restricted Payments. The 10 3/4% SFX Notes Indenture provides
that neither SFX nor any of its subsidiaries may, directly or indirectly, make
any restricted payment (as defined below) if at the time of such restricted
payment and immediately after giving effect thereto:

(i) a default or event of default shall have occurred and be
continuing at the time of or after giving effect to such restricted
payment; or

(ii) SFX would not, at the time of such restricted payment and after
giving pro forma effect thereto as if such restricted payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur $1.00 of additional indebtedness (other than permitted debt) in
compliance with the "Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant; or

(iii) such restricted payment, together with the aggregate amount of
all other restricted payments declared or made after the date of the
10 3/4% SFX Notes Indenture (other than certain restricted payments
permitted under the 10 3/4% SFX Notes Indenture) shall not exceed, at the
date of determination, the sum of (a) an amount equal to SFX's consolidated
cash flow from the date of the 10 3/4% SFX Notes Indenture to the end of
SFX's most recently ended full fiscal quarter for which internal financial
statements are available, taken as a single accounting period, less the
product of 1.4 times SFX's consolidated interest expense from the date of
the 10 3/4% SFX Notes Indenture to the end of SFX's most recently ended
full fiscal quarter, for which internal financial statements are available,
taken as a single accounting period, plus (b) an amount equal to the net
cash proceeds received by SFX from the issue or sale after the date of the
10 3/4% SFX Notes Indenture of equity interests, with certain exceptions,
or of debt securities or disqualified stock of SFX that have been converted
into such equity interests plus (c) to the extent that any restricted
investment that was made after the date of the 10 3/4% SFX Notes Indenture
is sold for cash or otherwise liquidated or repaid for cash, the lesser of
(x) the cash return of capital with respect to such restricted investment
(less the cost of disposition, if any) and (y) the initial amount of such
restricted investment.

"Restricted payment" means (i) the declaration or payment of any dividend
or other distribution to SFX's equity stockholders, (ii) the purchase,
redemption, acquisition, retirement for value of any equity interests of SFX,
(iii) the making of any principal payment on, or the purchase, redemption,
defeasance or other acquisition or retirement for value of any indebtedness that
is subordinated to the 10 3/4% SFX Notes, except at final maturity or (iv) the
making of any investment that is restricted under the 10 3/4% SFX Notes
Indenture.

130
<PAGE> 131

Other Restrictive Covenants. The 10 3/4% SFX Notes Indenture contains
certain other restrictive covenants that, among other things, impose limitations
(subject to certain exceptions) on SFX with respect to (i) sales of assets by
SFX and its subsidiaries, (ii) the merger or sale of all or substantially all
the assets of SFX, (iii) enter into certain transactions with affiliates and
(iv) enter into certain sale and leaseback transactions.

Events of Default. The following events, among others, are defined in the
10 3/4% SFX Notes Indenture as "Events of Default": (i) default for 30 days in
the payment when due of interest on, or liquidated damages, if any, with respect
to, the 10 3/4% SFX Notes (whether or not prohibited by the subordination
provisions of the 10 3/4% SFX Notes Indenture); (ii) default in payment when due
of the principal of or premium, if any, on the 10 3/4% SFX Notes (whether or not
prohibited by the subordination provisions of the 10 3/4% SFX Notes Indenture);
(iii) failure by SFX to comply with the certain covenants; (iv) failure by SFX
for 60 days after notice to comply with any of its other agreements in the
10 3/4% SFX Notes Indenture or the 10 3/4% SFX Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed by SFX or
any of its subsidiaries (or the payment of which is guaranteed by SFX or any of
its subsidiaries) whether such indebtedness or guarantee now exists, or is
created after the date of the 10 3/4% SFX Notes Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on such
indebtedness prior to the expiration of the grace period provided in such
indebtedness on the date of such default (a "Payment Default") or (b) results in
the acceleration of such indebtedness prior to its express maturity and, in each
case, the principal amount of any such indebtedness, together with the principal
amount of any other such indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $10.0
million or more; (vi) failure by SFX or any of its subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) any subsidiary guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any subsidiary guarantor,
or any person acting on behalf of any subsidiary guarantor, shall deny or
disaffirm its obligations under its subsidiary guarantee; and (viii) certain
events of bankruptcy or insolvency with respect to SFX, any of its significant
subsidiaries or any group of subsidiaries that, taken together, would constitute
a significant subsidiary.

If any Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding 10 3/4% SFX
Notes may declare all the 10 3/4% SFX Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to SFX, any significant
subsidiary or any group of subsidiaries that, taken together, would constitute a
significant subsidiary, all outstanding 10 3/4% SFX Notes will become due and
payable without further action or notice. Holders of the 10 3/4% SFX Notes may
not enforce the 10 3/4% SFX Notes Indenture or the 10 3/4% SFX Notes except as
provided in the 10 3/4% SFX Notes Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding 10 3/4% SFX
Notes may direct the trustee in its exercise of any trust or power. The trustee
may withhold from holders of the 10 3/4% SFX Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest. SFX is not in default of its obligations under the 10 3/4%
SFX Notes.

11 3/8% SFX NOTES

On October 7,1993, SFX issued its 11 3/8% Senior Subordinated Notes due
2000 (the "11 3/8% SFX Notes"). The 11 3/8% SFX Notes were issued under an
indenture dated October 7, 1993 (the "11 3/8% SFX Notes Indenture"), between SFX
and Chemical Bank, a New York corporation, as trustee. On May 23, 1996, SFX
purchased approximately $79.4 million aggregate principal amount of the
originally issued and outstanding $80.0 million aggregate principal amount of
the 11 3/8% SFX Notes. Concurrently with the purchase, SFX entered into a
supplement to the 11 3/8% SFX Notes Indenture. The remaining covenants in the
11 3/8% SFX Notes Indenture (i) restrict certain payments by SFX, (ii) limit the
amount of dividends payable by SFX, (iii) limit the incurrence of additional
indebtedness of SFX, (iv) limit SFX's ability to consummate

131
<PAGE> 132

transactions with related parties, and (v) limit SFX's ability to dispose of
certain assets. SFX is not in default of its obligations under the 11 3/8% SFX
Notes.

12% CAPSTAR PARTNERS EXCHANGE DEBENTURES

The 12% Capstar Partners Preferred Stock is exchangeable, at the option of
Capstar Partners, for Capstar Partners' 12% Subordinated Exchange Debentures due
2009 (the "12% Capstar Partners Exchange Debentures"). The 12% Capstar Partners
Exchange Debentures, if issued, will be issued under the 12% Capstar Partners
Exchange Indenture, entered into between Capstar Partners and U.S. Trust as
Trustee. The following summary of certain provisions of the 12% Capstar Partners
Exchange Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to the provisions of the 12% Capstar
Partners Exchange Indenture.

The 12% Capstar Partners Exchange Debentures will be general unsecured
obligations of Capstar Partners and will be limited in aggregate principal
amount to the liquidation preference of the 12% Capstar Partners Preferred
Stock, plus, without duplication, accrued and unpaid dividends, on the exchange
date of the 12% Capstar Partners Preferred Stock into 12% Capstar Partners
Exchange Debentures (plus any additional 12% Capstar Partners Exchange
Debentures issued in lieu of cash interest). The 12% Capstar Partners Exchange
Debentures will be subordinated to all existing and future senior debt of
Capstar Partners.

The 12% Capstar Partners Exchange Debentures will mature on July 1, 2009.
Each Capstar Partners Exchange Debenture will bear interest at the rate of 12%
per annum from the exchange date or from the most recent interest payment date
to which interest has been paid or provided for or, if no interest has been paid
or provided for, from the exchange date. Interest will be payable semi-annually
in cash (or, on or prior to July 1, 2002, in additional 12% Capstar Partners
Exchange Debentures, at the option of Capstar Partners) in arrears on each
January 1 and July 1 commencing with the first such date after the exchange
date.

The 12% Capstar Partners Exchange Debentures will be redeemable, at Capstar
Partners' option, in whole at any time or in part from time to time, on and
after July 1, 2002, at the redemption prices (expressed as percentages of the
principal amount thereof) set forth below if redeemed during the 12-month period
beginning on July 1 of each of the years set forth below, plus, without
duplication, in each case, accrued and unpaid interest thereon to the date of
redemption.

<TABLE>
<CAPTION>
REDEMPTION
YEAR RATE
---- ----------
<S> <C>
2002...................................... 106.000%
2003...................................... 104.800%
2004...................................... 103.600%
2005...................................... 102.400%
2006...................................... 101.200%
2007 and thereafter....................... 100.000%
</TABLE>

In addition, prior to July 1, 2001, Capstar Partners may, at its option,
use the net cash proceeds of one or more public equity offerings or major asset
sales (both as defined below) to redeem the 12% Capstar Partners Exchange
Debentures, in whole or in part, at a redemption price of 112% of the principal
amount thereof plus accrued and unpaid interest thereon; provided, however, that
after any such redemption, the aggregate principal amount of the 12% Capstar
Partners Exchange Debentures outstanding must equal at least $75.0 million. Any
such redemption will be required to occur on or prior to one year after the
receipt by Capstar Partners of the proceeds of each public equity offering or
major asset sale. A "public equity offering" means an underwritten public
offering of capital stock of Capstar Partners or the Company, pursuant to an
effective registration statement filed with the Securities and Exchange
Commission, provided that in the case of a public equity offering of the
Company, net proceeds in an amount sufficient to redeem the 12% Capstar Partners
Exchange Debenture called for redemption are contributed to Capstar Partners. A
"major asset sale" means any asset sale or series of related assets sales
involving assets with a fair market value in excess of $25,000,000.

132
<PAGE> 133

Change of Control. The 12% Capstar Partners Exchange Indenture provides
that upon the occurrence of a Change of Control, Capstar Partners will be
obligated to make a change of control offer to the holders of the 12% Capstar
Partners Exchange Debentures pursuant to which each holder will have the right
to require that Capstar Partners repurchase all or a portion of such holder's
12% Capstar Partners Exchange Debentures in cash at a purchase price equal to
101% of the principal amount thereof, plus, without duplication, accrued and
unpaid interest, if any, to the date of repurchase. In addition, prior to July
1, 2002, upon the occurrence of a change of control, Capstar Partners will have
the option to redeem the 12% Capstar Partners Exchange Debentures at a
redemption price equal to 100% of the principal amount thereof, together with
accrued and unpaid interest to the date of redemption, plus the applicable
premium. "Applicable premium" means, with respect to the 12% Capstar Partners
Exchange Debenture, the greater of (i) 1.0% of the principal amount of such
debenture and (ii) the excess of (A) the present value at such time of (1) the
redemption price of such debenture at July 1, 2002 plus (2) all required
interest payments due on such debenture through July 1, 2002 over (B) the
principal amount of such debenture.

Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. The 12% Capstar Partners Exchange Indenture
provides that Capstar Partners will not, and will not permit any of its
subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise.
with respect to (collectively, "incur") any indebtedness (other than permitted
indebtedness), and that Capstar Partners' subsidiaries will not issue any shares
of Preferred Stock (except Preferred Stock issued to Capstar Partners or a
wholly-owned subsidiary of Capstar Partners); provided, however, that Capstar
Partners and its subsidiaries may incur indebtedness and Capstar Partners'
subsidiaries may issue shares of preferred stock if, in either case, Capstar
Partners' leverage ratio at the time of incurrence of such indebtedness or the
issuance of such preferred stock, as the case may be, after giving pro forma
effect to such incurrence or issuance as of such date and to the use of proceeds
therefrom is less than 7.0 to 1.

Limitation on Restricted Payments. (a) The 12% Capstar Partners Exchange
Indenture provides that neither Capstar Partners nor any of its subsidiaries
will, directly or indirectly, make any restricted payment (as defined) if, at
the time of such restricted payment and immediately after giving effect thereto:

(i) any default or event of default shall have occurred and be
continuing at the time of or after giving effect to such restricted
payment; or

(iii) the aggregate amount of restricted payments made subsequent to
the issue date (the amount expended for such purposes, if other than in
cash, being the fair market value of such property as determined by the
board of directors of Capstar Partners in good faith) exceeds the sum of
(a) (x) 100% of the aggregate consolidated EBITDA of Capstar Partners (or,
in the event such consolidated EBITDA shall be a deficit, minus 100% of
such deficit) accrued subsequent to the issue date to the most recent date
for which financial information is available to Capstar Partners, taken as
one accounting period, less (y) 1.4 times consolidated interest expense for
the same period, plus (b) 100% of the aggregate net proceeds, including the
fair market value of property other than cash as determined by the board of
directors of Capstar Partners in good faith, received by Capstar Partners
from any person (other than a subsidiary of Capstar Partners) from the
issuance and sale on or subsequent to the issue date of qualified capital
stock of Capstar Partners (excluding (i) any net proceeds from issuances
and sales financed directly or indirectly using funds borrowed from Capstar
Partners or any subsidiary of Capstar Partners, until and to the extent
such borrowing is repaid, but including the proceeds from the issuance and
sale of any securities convertible into or exchangeable for qualified
capital stock to the extent such securities are so converted or exchanged
and including any additional proceeds received by Capstar Partners upon
such conversion or exchange and (ii) any net proceeds received from
issuances and sales that are used to consummate certain transactions
including certain purchase, redemption or other acquisition or retirement
of any capital stock of Capstar Partners and certain acquisition of
indebtedness of Capstar Partners

133
<PAGE> 134

that is subordinate or junior in right of payment to the 12% Capstar
Partners Exchange Debentures), plus (c) without duplication of any amount
included in clause (iii)(b) above), 100% of the aggregate net proceeds,
including the fair market value of property other than cash (valued as
provided in clause (iii)(b) above, received as a capital contribution on or
subsequent to the issue date, plus (d) the amount equal to the net
reduction in investments (other than permitted investments) made by Capstar
Partners or any of its subsidiaries in any person resulting from (i)
repurchases or redemptions of such investments by such person, proceeds
realized upon the sale of such investment to an unaffiliated purchaser, and
repayments of loans or advances or other transfers of assets by such person
to Capstar Partners or any subsidiary of Capstar Partners or (ii) the
redesignation of unrestricted subsidiaries as subsidiaries (valued in each
case as provided in the definition of "Investment") not to exceed, in the
case of any subsidiary, the amount of Investments previously made by
Capstar Partners or any subsidiary in such unrestricted subsidiary, which
amount was included in the calculation of restricted payments; provided,
however, that no amount shall be included under this clause (d) to the
extent it is already included in consolidated EBITDA, plus (e) the
aggregate net cash proceeds received by a person in consideration for the
issuance of such person's capital stock (other than disqualified capital
stock) that are held by such person at the time such person is merged with
and into Capstar Partners in accordance with the "Merger, Consolidation and
Sale of Assets" covenant subsequent to the issue date; provided, however,
that concurrently with or immediately following such merger Capstar
Partners uses an amount equal to such net cash proceeds to redeem or
repurchase Capstar Partners' capital stock, plus (f) $5,000,000.

"Restricted payment" means (i) the declaration or payment of any dividend
or the making of any other distribution, (ii) the purchase, redemption,
retirement or other acquisition for value of any capital stock or other
securities of Capstar Partners, (iii) the making of any principal payment on, or
the purchase, defeasance, redemption, prepayment, decrease or other acquisitions
or retirement for value, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, of, any indebtedness of Capstar
Partners or its subsidiaries that is subordinated or junior in right of payment
to the 12% Capstar Partners Exchange Debentures, or (iv) the making of any
investment other than investments permitted under the 12% Capstar Partners
Exchange Indenture.

Other Restrictive Covenants. The 12% Capstar Partners Exchange Indenture
contains certain other restrictive covenants that, among other things, impose
limitations (subject to certain exceptions) on Capstar Partners with respect to
(i) sales of assets by Capstar Partners and its subsidiaries, (ii) asset swaps
and (iii) the merger sale or sale of all or substantially all the assets of
Capstar Partners.

Events of Default. The definition of "Events of Default," and the
consequences thereof, in the 12% Capstar Exchange Indenture are substantially
similar to the definition and consequences described in "-- 9 1/4% Capstar
Notes -- Events of Default."

12 5/8% SFX EXCHANGE DEBENTURES

The 12 5/8% SFX Preferred Stock is exchangeable, at the option of SFX, for
SFX's 12 5/8% Subordinated Exchange Debentures due 2009 (the "12 5/8% SFX
Exchange Debentures"). The 12 5/8% SFX Exchange Debentures, if issued, will be
issued under an indenture (the "12 5/8% SFX Exchange Indenture") between SFX and
the trustee thereunder. The following summary of certain provisions of the
12 5/8% SFX Exchange Indenture does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the provisions of the
12 5/8% SFX Exchange Indenture.

The 12 5/8% SFX Exchange Debentures will be limited in aggregate principal
amount to $415.0 million and will mature on October 31, 2006. The 12 5/8% SFX
Exchange Debentures will bear interest at the rate of 12.625% per annum and will
be payable semi-annually in arrears on each January 15 and July 15. Interest
will be payable in cash, except on each interest payment date occurring prior to
January 15, 2002, interest may be paid, at SFX's option, by the issuance of
additional 12 5/8% SFX Exchange Debentures. The 12 5/8% SFX Exchange Debentures
will be subordinated to all existing and future senior debt of SFX.

134
<PAGE> 135

The 12 5/8% SFX Exchange Debentures will be redeemable, at SFX's option, in
whole at any time or in part from time to time, on and after January 15, 2002,
at the redemption prices (expressed as percentages of the principal amount
thereof) set forth below if redeemed during the 12-month period beginning on
July 1 of each of the years set forth below, plus, without duplication, in each
case, accrued and unpaid interest thereon.

<TABLE>
<CAPTION>
REDEMPTION
YEAR RATE
---- ----------
<S> <C>
2002...................................... 106.313%
2003...................................... 104.734%
2004...................................... 103.156%
2005...................................... 101.578%
2006 and thereafter....................... 100.000%
</TABLE>

In addition, prior to January 15, 2000, SFX may, at its option, use the net
cash proceeds of one or more public equity offerings to redeem the 12 5/8% SFX
Exchange Debentures, in whole or in part, at a redemption price of 112.625% of
the principal amount thereof plus accrued and unpaid interest; provided,
however, that if after any such redemption, the aggregate principal amount of
the 12 5/8% SFX Exchange Debentures outstanding must equal at least $50.0
million. Any such redemption will be required to occur within 75 days after the
receipt by SFX of the proceeds of each common equity offering.

Change of Control. The 12 5/8% SFX Exchange Indenture will provide that
upon the occurrence of a change of control, SFX will be obligated to make a
change of control offer to the holders of the 12 5/8% SFX Exchange Debentures
pursuant to which each holder will have the right to require that SFX repurchase
all or a portion of such holder's 12 5/8% SFX Exchange Debentures in cash at a
purchase price equal to 101% of the principal amount thereof, plus, without
duplication, accrued and unpaid interest, if any, to the date of repurchase. The
definition of change of control is substantially similar to the definition
described in "Description of Capital Stock -- SFX -- 12 5/8% SFX Preferred
Stock."

Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock. The 12 5/8% SFX Exchange Indenture will provide that SFX will not, and
will not permit any of its subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to any indebtedness, and that
SFX will not issue any disqualified stock and will not permit its subsidiaries
to issue any shares of Preferred Stock; provided, however, that (a) SFX may
incur indebtedness, and (b)(1) SFX may issue disqualified stock and (2) SFX's
subsidiaries may issue shares of preferred stock if, in either case, SFX's
leverage ratio at the time of incurrence of such indebtedness or the issuance of
such disqualified or preferred stock, as the case may be, after giving pro forma
effect to such incurrence or issuance as of such date and to the use of proceeds
therefrom is less than 7.0 to 1.

Limitation on Restricted Payments. (a) The 12 5/8% SFX Exchange Indenture
will provide that neither SFX nor any of its subsidiaries will, directly or
indirectly, make any restricted payment if, at the time of such restricted
payment and immediately after giving effect thereto:

(i) any default or event of default shall have occurred and be
continuing or would occur as a consequence thereof; and

(ii) SFX would, at the time of such restricted payment and after
giving pro forma effect thereto as if such restricted payment had been made
at the beginning of the applicable four-quarter period, have been able to
incur $1.00 of additional indebtedness (other than permitted debt) pursuant
to the debt to cash flow ratio test set forth in the "Limitation on
Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; or

(iii) such payment, together with the aggregate amount of all other
restricted payments declared or made after the closing date (other than
certain restricted payments) shall not exceed, at the date of
determination, the sum of (a) and amount equal to SFX's consolidated cash
flow from the closing date to the end of SFX's most recently ended full
fiscal quarter for which internal financial statements are available, taken
as a single accounting period, less the product of 1.4 times SFX's
consolidated interest expense from the closing date to the end of SFX's
most recently ended full fiscal quarter, plus (b) an

135
<PAGE> 136

amount equal to the net cash proceeds received by SFX from the issue or
sale after the closing date of equity interests (other than (1) sales of
disqualified stock and (2) equity interests sold to any of SFX's
subsidiaries), plus (c) to the extent that any restricted investment that
was made after the closing date is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with respect
to such restricted investment (less the cost of disposition, if any) and
(B) the initial amount of such restricted investment.

The definition of restricted payment is substantially similar to the
definition described in "Description of Capital Stock -- SFX -- 12 5/8% SFX
Preferred Stock."

Other Restrictive Covenants. The 12 5/8% SFX Exchange Indenture will
contain certain other restrictive covenants that, among other things, impose
limitations (subject to certain exceptions) on SFX with respect to (i) the
incurrence of additional indebtedness, (ii) sales of assets by SFX and its
subsidiaries, and (iii) the merger sale or sale of all or substantially all the
assets of SFX.

Events of Default. The definition of "Events of Default," and the
consequences thereof, in the 12 5/8% SFX Exchange Indenture are substantially
similar to the definition and consequences described in "-- 10 3/4% SFX
Notes -- Events of Default."

CHANCELLOR NOTE

The Company expects to borrow approximately $150.0 million under the
Chancellor Exchange Agreement (the "Chancellor Loan"). The amount of the
Chancellor Loan may not exceed $250.0 million; provided that if (i) the initial
public offering price per share of the Class A Common Stock offered hereby is
$18.00 or more and (ii) the Houston-KKPN Disposition and the Long Island
Disposition are consummated (with any contribution of such stations to a back-up
trust not being deemed to be a disposition) at or prior to the consummation of
the SFX Acquisition (together, the "Loan Decrease Conditions"), then the amount
of the Chancellor Loan may not exceed $200.0 million. If the Loan Decrease
Conditions are satisfied and the U.S. Underwriters' and Managers' over-allotment
option is exercised, the Company will be required to use the net proceeds
received by the Company from the exercise of the over-allotment option to prepay
the amount of the then outstanding principal balance of the Chancellor Note that
exceeds $150.0 million. If the Loan Decrease Conditions are not satisfied, then
the Company will not be permitted to close any acquisitions for cash, other than
(i) any acquisitions of the Company that were under binding agreement on or
before May 4, 1998 or (ii) as contemplated by the Chancellor Exchange Agreement,
in each case until such time as the outstanding principal balance of the
Chancellor Note equals $150.0 million or less. The Chancellor Loan, which will
have a 20-year term, will be evidenced by a note (the "Chancellor Note")
executed by the Company and made payable to Chancellor Media. The following
description of certain terms of the Chancellor Note does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the provisions of the Chancellor Note.

The Company's obligations under the Chancellor Note will rank pari passu in
right of payment to the Company's guaranty of the indebtedness under the Capstar
Credit Facility. The common stock of Capstar Partners will be pledged by the
Company on a first priority basis to Chancellor Media as security for the
Chancellor Note. The Company will also grant a second priority security interest
in Capstar Partners' common stock to the Agent for the ratable benefit of the
Lenders under the Capstar Credit Facility as additional security for the
Company's guaranty of the Capstar Credit Facility.

Interest on the Chancellor Note will accrue at a rate of 12% per annum from
the date of issuance and will be payable quarterly, of which 5/6 shall be
payable in cash and 1/6 shall, at the Company's option, either be payable in
cash or added to the principal amount of the Chancellor Note. The Company may
elect to defer the payment of the cash portion of any interest due under the
Chancellor Note until the earlier to occur of the Company's election to pay the
cash portion in full, a required mandatory prepayment of the Chancellor Note or
the maturity of the Chancellor Note (a "Deferral Election"). In the event of a
Deferral Election, the interest rate shall increase, effective as of the first
day of the fiscal quarter in which such Deferral Election occurred, from 12% to
14% per annum, of which 6/7 shall be payable in cash and 1/7 shall, at the
Company's

136
<PAGE> 137

option, either be payable in cash or added to the principal amount of the
Chancellor Note. If the Company shall not have completed acquisitions during the
exchange period (excluding (i) the sale by Chancellor Media of stations WAPE-FM
and WFYV-FM in Jacksonville, Florida plus $90.25 million in cash to the Company
in exchange for station KODA-FM in Houston, Texas and (ii) the Austin
Acquisition) (x) with an aggregate purchase price of $100.0 million by the first
anniversary of the issue date of the Chancellor Note, (y) with an aggregate
purchase price of $200.0 million by the end of the second anniversary of the
issue date of the Chancellor Note, and (z) with an aggregate purchase price of
$300.0 million by the end of the third anniversary of the issue date of the
Chancellor Note, in each case, that are subject to the procedures described in
Chancellor Exchange Agreement, the interest rate applicable from time to time
during each such previous 12-month period, shall be retroactively increased by
2% per annum. If, as a result of the foregoing sentence, during any period
ending on an interest payment the Chancellor Note accrued interest at (x) a rate
per annum of 14%, the interest payment made on such interest payment date shall
be retroactively adjusted as of such interest payment date such that the portion
of such interest payment added to the principal of the Chancellor Note shall
equal 6/7 and the portion of such interest payment paid in cash shall equal
1/7, and (y) a rate per annum of 16%, the interest payment made on such interest
payment date shall be retroactively adjusted as of such interest payment date
such that the portion of such interest payment added to principal of the
Chancellor Note shall equal 7/8 and the portion of such interest payment paid in
cash shall equal 1/8, of which 7/8 shall be payable in cash and 1/8 shall, at
the Company's option, either be payable in cash or added to the principal amount
of the Chancellor Note. Any amount due and accruing which is in cash and is so
added to the principal amount of the Chancellor Note as described herein shall
bear interest at the rate otherwise applicable to the principal amount of the
Chancellor Note.

The Company may, at its option at any time, prepay the Chancellor Note in
increments of $1,000 principal amount plus accrued interest; provided, that any
optional prepayment by the Company shall not affect the rights of Chancellor
Media to require prepayment. Chancellor Media will have the right to require the
Company to prepay that portion of the Chancellor Note equal to 50% of the cash
purchase price payable for Capstar Exchange Stations, upon the consummation of
the purchase of a Chancellor Exchange Station under a purchase agreement as
contemplated under the Chancellor Exchange Agreement. Chancellor Media will also
have the option to require the Company to prepay any remaining portion of the
Chancellor Note (including accrued interest) if Chancellor Media has given
notice of prepayment on the first to occur of (i) 30 days prior to the closing
of the transfer of the final Chancellor Exchange Station and (ii) Chancellor's
election under the Chancellor Exchange Agreement to purchase all remaining
Chancellor Exchange Stations for cash, in either case, such prepayment to occur
on the closing of the acquisitions referred to in clauses (i) or (ii), as
applicable, above. If a Deferral Election occurs during the 12-month period
commencing on the date of issuance of the Chancellor Note and ending on the
anniversary thereof or during any successive 12-month period, and (x) during
such 12-month period the Company and Chancellor Media exchange a Capstar
Exchange Station for a Chancellor Exchange Station, and (y) Chancellor Media
required the Company to prepay a portion of the Chancellor Note in connection
with such exchange, the prepayment amount set forth in the third sentence of
this paragraph with respect to such Capstar Exchange Station shall be increased
to equal to (x) 50% of the purchase price therefore plus (y) the product of 50%
of the purchase price therefore multiplied by a fraction, the numerator of which
is the number of days of such Deferral Election existing during such 12-month
period and the denominator of which is 360. Any additional amounts payable as a
result of the foregoing sentence shall be paid within 30 days following the end
of the applicable 12-month period.

Subject to certain exceptions, if the Company acquires stations during the
Exchange Period that are not acquired in compliance with the procedures set
forth in the Chancellor Exchange Agreement (excluding those stations identified
in the Chancellor Note) (a "Non-Exchange Acquisition"), Chancellor Media shall
have the right to require the Company to prepay, at the closing of any such
Non-Exchange Acquisition, that portion of the Chancellor Note equal to 100% of
the amount that the Company pays in such Non-Exchange Acquisitions. If the
Company terminates the Chancellor Exchange Agreement or any definitive purchase
agreement with respect to Capstar Exchange Stations, the Company will be
required to prepay the Chancellor Note.

137
<PAGE> 138

Limitation on Incurrence of Indebtedness. The Chancellor Note will provide
that the Company will not, and will not permit any of its subsidiaries to incur,
create or assume indebtedness after the date of the Chancellor Note, if, on the
date of and after giving effect to the incurrence of any such indebtedness, the
ratio of consolidated indebtedness on a pro forma basis to consolidated EBITDA
would exceed 9.0 to 1. The aggregate liquidation preference of all preferred
stock of the Company and its subsidiaries will be indebtedness for purposes of
calculating such ratio. The ratio calculation shall be made in a manner
consistent with the leverage ratio calculation made under the Capstar Credit
Facility, provided that the Company will be entitled during 1998 to include in
EBITDA at least $10.0 million in net revenues from the AMFM Network (whether or
not such amounts are actually received). In addition, borrowings under the
Capstar Credit Facility will not count as indebtedness in the ratio calculation
except to the extent such borrowings exceed $50.0 million.

Restricted Payments. The Chancellor Note will provide that the Company
shall not (i) declare or make payments, dividends or other distributions on all
securities of the Company that are junior in right of payment of interest,
dividends, distributions or dissolution or liquidation payments or (ii)
purchase, redeem, retire or otherwise acquire any securities of the Company that
are junior in right of payment of interest, dividends, distributions or
dissolution or liquidation payments. Any payments described in the previous
sentence will be deemed a restricted payment for purposes of the Chancellor
Note. Notwithstanding the first sentence of this paragraph, the Company will be
allowed to (i) make timely payments on the Chancellor Note and (ii) make
restricted payments in an aggregate amount equal to $10.0 million.

Upon an event of default, all principal and accrued but unpaid interest on
the Chancellor Note will become immediately due and payable. Upon consummation
of the Offering and the SFX Acquisition, the Company will not be in default of
its obligations under the Chancellor Note.

LETTERS OF CREDIT

As of March 31, 1998 the Company had placed into escrow letters of credit
(the "Letters of Credit") totaling approximately $19.0 million to secure its
obligations under certain acquisition agreements for certain Pending
Acquisitions. Such Letters of Credit will be released to the Company upon the
consummation of the Pending Acquisitions. In addition to the Letters of Credit
described above, the Company has placed into escrow a $100.0 million Letter of
Credit to secure the obligation under the Merger Agreement. Upon consummation of
the SFX Acquisition such Letter of Credit will be released to the Company. If a
Pending Acquisition or the SFX Acquisition is not consummated due to a breach by
the Company, the letter of credit in connection therewith will be released to
the seller in payment of liquidated damages.

138
<PAGE> 139

CERTAIN U.S. TAX CONSIDERATIONS
APPLICABLE TO NON-U.S. HOLDERS OF THE CLASS A COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Class A Common Stock
applicable to Non-U.S. Holders of such Class A Common Stock who acquire and own
such Class A Common Stock as a capital asset within the meaning of section 1221
of the Code. A "Non-U.S. Holder" is any person other than (a) a citizen or
resident of the United States, (b) a corporation or partnership created or
organized in the United States or under the laws of the United States or of any
state, or (c) an estate whose income is includable in gross income for United
States federal income tax purposes regardless of its source, or (d) a trust if
(i) a court within the United States is able to exercise primary supervision
over the administration of the trust and (ii) one or more United States persons
have the authority to control all substantial decisions of the trust. For
purposes of the withholding tax on dividends discussed below, a non-resident
fiduciary of an estate or trust will be considered a Non-U.S. Holder. An
individual may, subject to certain exceptions, be deemed to be a resident alien
(as opposed to a non-resident alien) by virtue of being present in the United
States on at least 31 days in the calendar and for an aggregate of at least 183
days during a three-year period in the current calendar year (counting for such
purposes all of the days present in the current year, one-third of the days
present in the immediately preceding year, and one-sixth of the days present in
the second succeeding year). Resident aliens are subject to U.S. federal tax as
if they were U.S. citizens and, thus, are not Non-U.S. Holders for purposes of
this discussion.

This discussion does not consider specific facts and circumstances that may
be relevant to a particular Non-U.S. Holder's tax position (including the fact
that in the case of a Non-U.S. Holder that is a partnership, the U.S. tax
consequences of holding and disposing of shares of Class A Common Stock may be
affected by certain determinations made at the partner level) and does not
consider U.S. state and local or non-U.S. tax consequences. Further, it does not
consider Non-U.S. Holders subject to special tax treatment under the federal
income tax laws (including banks and insurance companies, dealers in securities,
and holders of securities held as part of a "straddle," "hedge" or "conversion
transaction"). In addition, persons that hold the Class A Common Stock through
"hybrid entities" may be subject to special rules and may not be entitled to the
benefits of a U.S. income tax treaty. The following discussion is based on
provisions of the Code and administrative and judicial interpretations as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis, any change could affect the continuing validity of this discussion. THE
FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION. ACCORDINGLY, EACH
PROSPECTIVE NON-U.S. HOLDER IS URGED TO CONSULT A TAX ADVISOR WITH RESPECT TO
THE UNITED STATES FEDERAL TAX CONSEQUENCES OF HOLDING AND DISPOSING OF CLASS A
COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF
ANY U.S. STATE, LOCAL OR OTHER NON-U.S. TAXING JURISDICTION.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder will be subject to
withholding of U.S. federal income tax at a 30% rate unless such rate is reduced
by an applicable income tax treaty. Dividends that are effectively connected
with such holder's conduct of a trade or business in the United States, or, if a
tax treaty applies, attributable to a permanent establishment or in the case of
an individual a "fixed base," in the United States ("U.S. trade or business
income") are generally subject to U.S. federal income tax at regular rates and
are not generally subject to withholding if the Non-U.S. Holder files the
appropriate form with payor. Any U.S. trade or business income received by a
non-U.S. corporation may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate, or such lower rate as may be
applicable under an income tax treaty.

Under current law, dividends paid to an address in a foreign country are
presumed (absent actual knowledge to the contrary) to be paid to a resident of
such country for purposes of the withholding discussed above, and under the
current interpretation of U.S. Treasury regulations, for purposes of determining
the applicability of a tax treaty rate. Under final U.S. Treasury regulations,
effective January 1, 2000; however, a Non-U.S. Holder of Class A Common Stock
who wishes to claim the benefit of an applicable treaty rate

139
<PAGE> 140

would be required to satisfy applicable certification and other requirements,
which would include the requirement that the Non-U.S. Holder file a Form W-8
which contains the holder's name and address.

A Non-U.S. Holder of Class A Common Stock that is eligible for a reduced
rate of U.S. withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts currently withheld by filing an appropriate claim
for a refund with the U.S. Internal Revenue Service.

DISPOSITION OF CLASS A COMMON STOCK

Except as described below, a Non-U.S. Holder generally will not be subject
to U.S. federal income tax in respect of gain recognized on a disposition of
Class A Common Stock provided that (i) the gain is not U.S. trade or business
income, (ii) the Non-U.S. Holder is not an individual who is present in the
United States for 183 or more days in the taxable year of the disposition and
who meets certain other requirements, (iii) the Non-U.S. Holder is not subject
to tax pursuant to the provisions of U.S. tax law applicable to certain United
States expatriates, and (iv) the Company has not been and does not become a
"United States real property holding corporation" for U.S. federal income tax
purposes. The Company believes that it has not been, is not currently, and is
not likely to become, a United States real property holding corporation.
However, no assurance can be given that the Company will not be a United States
real property corporation when a Non-U.S. Holder sells its shares of Class A
Common Stock.

FEDERAL ESTATE TAXES

In general, an individual who is a Non-U.S. Holder for U.S. estate tax
purposes will incur liability for U.S. federal estate tax if the fair market
value of property included in the individual's taxable estate for U.S. federal
estate tax purposes exceeds the statutory threshold amount. For these purposes,
Class A Common Stock owned, or treated as owned, by an individual who is a
Non-U.S. Holder at the time of death will be included in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.

U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-U.S. Holder resides. Under current regulations, the
United States backup withholding tax (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
the information reporting requirements) will generally not apply to dividends
paid on the Class A Common Stock to a Non-U.S. Holder at an address outside the
United States. Under final Treasury regulations, effective January 1, 2000, a
Non-U.S. Holder generally would not be subject to backup withholding at a 31%
rate if the beneficial owner certifies to such owner's foreign status on a valid
Form W-8.

Non-U.S. Holders will not be subject to information reporting or backup
withholding with respect to the payment of proceeds from the disposition of
Class A Common Stock effected by a foreign office of a foreign broker provided
however that if the broker is a U.S. person or a "U.S. related person,"
information reporting (but not backup holding) would apply unless the broker
receives a statement from the owner, signed under penalties of perjury,
certifying its foreign status or otherwise establishing an exemption or the
broker has documentary evidence in its files as to the Non-U.S. Holder's foreign
status and the broker has no actual knowledge to the contrary. For this purpose,
a "U.S. related person" is (i) a "controlled foreign corporation" for U.S.
federal income tax purposes, (ii) a foreign person 50% or more of whose gross
income from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a U.S. trade or business, (iii) a foreign
partnership engaged in a U.S. trade or

140
<PAGE> 141

business in which U.S. persons hold more than 50% of the income or capital
interest, or (iv) certain U.S. branches of foreign banks or insurance companies.

Non-U.S. Holders will be subject to information reporting and backup
withholding at a rate of 31% with respect to the payment of proceeds from the
disposition of Class A Common Stock effected by to or through the United States
office of a broker, U.S. or foreign, unless the Non-U.S. Holder certifies as to
its foreign status under penalties of perjury or otherwise establishes an
exemption.

Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against such Non-U.S. Holder's U.S.
federal income tax, and any amounts withheld in excess of such Non-U.S. Holder's
federal income tax liability will be refunded, provided that the required
information is furnished to the Internal Revenue Service.

141
<PAGE> 142

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated May 26, 1998 (the "U.S. Underwriting Agreement"), the
underwriters named below (the "U.S. Underwriters"), for whom Credit Suisse First
Boston Corporation, BT Alex. Brown Incorporated and Morgan Stanley & Co.
Incorporated are acting as representatives (the "Representatives"), have
severally but not jointly agreed to purchase the following number of U.S.
Shares:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER U.S. SHARES
----------- -----------
<S> <C>
Credit Suisse First Boston Corporation...................... 5,512,214
BT Alex. Brown Incorporated................................. 5,512,213
Morgan Stanley & Co. Incorporated........................... 5,512,213
Bear, Stearns & Co. Inc. ................................... 2,065,840
Goldman, Sachs & Co. ....................................... 2,065,840
NationsBanc Montgomery Securities LLC....................... 2,065,840
Smith Barney Inc. .......................................... 2,065,840
----------
Total............................................. 24,800,000
==========
</TABLE>

The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.

The Company has entered into a Subscription Agreement with the managers of
the International Offering (the "Managers") providing for the concurrent offer
and sale of the International Shares outside the United States and Canada. The
closing of the International Offering is a condition to the closing of the U.S.
Offering and vice versa.

The Company has granted to the U.S. Underwriters and the Managers an
option, exercisable by Credit Suisse First Boston Corporation, on behalf of the
U.S. Underwriters and the Managers, expiring at the close of business on the
30th day after the date of this Prospectus to purchase up to 4,650,000
additional shares at the initial public offering price, less the underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. Such option may be exercised only to cover over-allotments in the
sale of the shares of Class A Common Stock offered hereby. To the extent that
this option to purchase is exercised, each U.S. Underwriter and each Manager
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of additional shares being sold to the U.S. Underwriters and
the Managers as the number of U.S. Shares set forth next to such U.S.
Underwriter's name in the preceding table and as the number set forth next to
such Manager's name in the corresponding table in the Prospectus relating to the
International Offering bears to the sum of the total number of shares of Class A
Common Stock in such tables.

The Company has been advised by the Representatives that the U.S.
Underwriters propose to offer the U.S. Shares publicly in the United States and
on a private placement basis in Canada initially at the public offering price
set forth on the cover page of this Prospectus and, through the Representatives,
to certain dealers at such price less a concession of $0.64 per share, and the
U.S. Underwriters and such dealers may allow a discount of $0.10 per share on
sales to certain other dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
Representatives.

The Representatives have informed the Company that they do not expect
discretionary sales by the U.S. Underwriters and the Managers to exceed 5% of
the shares of Class A Common Stock being offered hereby.

The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and concurrent International Offering will be

142
<PAGE> 143

identical. Pursuant to an Agreement between the U.S. Underwriters and the
Managers (the "Intersyndicate Agreement"), changes in the public offering price,
concession and discount to dealers will be made only upon the mutual agreement
of Credit Suisse First Boston Corporation, as representative of the U.S.
Underwriters, and Credit Suisse First Boston (Europe) Limited ("CSFBL"), on
behalf of the Managers.

Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Class A Common Stock or distribute any
prospectus relating to the Class A Common Stock to any person outside the United
States or Canada or to any other dealer who does not so agree. Each of the
Managers has agreed or will agree that, as part of the distribution of the
International Shares and subject to certain exceptions, it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Class A
Common Stock or distribute any prospectus relating to the Class A Common Stock
in the United States or Canada or to any other dealer who does not so agree. The
foregoing limitations do not apply to stabilization transactions or to
transactions between the U.S. Underwriters and the Managers pursuant to the
Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction, "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) any individual resident in the United States or Canada or
(ii) any corporation, partnership, pension, profit-sharing or other trust or
entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.

Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares of Class A Common
Stock as may be mutually agreed upon. The price of any shares so sold will be
the public offering price, less such amount as may be mutually agreed upon by
Credit Suisse First Boston Corporation, as representative of the U.S.
Underwriters, and CSFBL, on behalf of the Managers, but not exceeding the
selling concession applicable to such shares. To the extent there are sales
between the U.S. Underwriters and the Managers pursuant to the Intersyndicate
Agreement, the number of shares of Class A Common Stock initially available for
sale by the U.S. Underwriters or by the Managers may be more or less than the
amount appearing on the cover page of the Prospectus. Neither the U.S.
Underwriters nor the Managers are obligated to purchase from the other any
unsold shares of Class A Common Stock.

At the request of the Company, the U.S. Underwriters have reserved for
sale, at the initial public offering price, up to 1,550,000 shares of Class A
Common Stock (5% of the shares offered in the Offering) for employees, directors
and certain other persons associated with the Company who have expressed an
interest in purchasing such shares of Class A Common Stock in the U.S. Offering.
The number of shares available for sale to the general public in the U.S.
Offering will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the U.S.
Underwriters to the general public on the same terms as the other shares offered
hereby.

The Company has agreed that it will not offer, sell, contract to sell,
announce its intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Securities and Exchange Commission (the
"Commission") a registration statement under the Securities Act relating to, any
additional shares of its Common Stock or securities convertible into or
exchangeable or exercisable for any shares of its Common Stock without the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this Prospectus (the "Lock-Up Period"), except (i)
pursuant to or in connection with employee stock option plans the Warrants or
other employee or non-employee director compensation arrangements or agreements
in each case, in effect on the date of this Prospectus, (ii) in connection with
any acquisition by the Company so long as the recipient of such securities
agrees in writing prior to such issuance to be subject to the foregoing lockup
for the remainder of the Lock-Up Period, (iii) in connection with the conversion
of shares of Class B Common Stock or Class C Common Stock and (iv) the sale and
issuance of shares of Common Stock to new directors of the Company in connection
with their election or appointment to the Board of Directors of the Company.
Each of the Company's officers, directors and stockholders has agreed not to
sell, offer, or otherwise dispose of any shares of Common Stock or securities
convertible into or exchangeable or exercisable

143
<PAGE> 144

for Common Stock without the prior written consent of Credit Suisse First Boston
Corporation during the Lock-Up Period, except for certain limited exceptions.

The Company has agreed to indemnify the U.S. Underwriters and the Managers
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments that the U.S. Underwriters and the Managers
may be required to make in respect thereof.

Affiliates of each of Credit Suisse First Boston Corporation, BT Alex.
Brown Incorporated and NationsBanc Montgomery Securities LLC are limited
partners in Hicks, Muse, Tate & Furst Equity Fund II, L.P. ("HM Fund II") and HM
Fund III. Such affiliates have no investment or dispositive power with respect
to the shares of Common Stock indirectly held by HM Fund II or HM Fund III.

Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated, will be
the administrative agent and a lender under the Capstar Credit Facility. Bankers
Trust Company has from time to time issued letters of credit for the account of
the Company or an affiliate thereof. Bankers Trust Company has issued a $100.0
million letter of credit to secure the obligations of the Company in connection
with the SFX Acquisition. Such letter of credit will be released upon
consummation of the SFX Acquisition. BT Capital Partners, Inc., an affiliate of
BT Alex. Brown Incorporated ("BT Capital"), owned all of GulfStar's outstanding
shares of preferred stock prior to the GulfStar Acquisition, which shares were
redeemed with the proceeds of a private equity investment by an affiliate of
Hicks Muse. In addition, BT Capital owns 961,999 shares of Class B Common Stock,
which shares were acquired upon consummation of the GulfStar Acquisition in
connection with the conversion of BT Capital's warrant to purchase shares of
common stock of GulfStar into the right to receive shares of Class B Common
Stock, and is a party to the GulfStar Stockholders Agreement. BT Investment
Partners, Inc., an affiliate of BT Alex. Brown Incorporated, is the limited
partner of Capstar BT Partners, L.P., which owns 2,655,927 shares of Class B
Common Stock acquired in connection with the Osborn Acquisition and the GulfStar
Acquisition for aggregate consideration of $31.1 million, and is a party to the
Affiliate Stockholders Agreement. Capstar BT Partners, L.P. also has purchased
2,463,797 additional shares of Class B Common Stock from the Company in two
private placement transactions for aggregate consideration of $34.1 million.

An affiliate of NationsBanc Montgomery Securities LLC will be the
syndication agent and a lender under the Capstar Credit Facility.

Certain of the U.S. Underwriters and Managers, or affiliates thereof, have
from time to time performed, and may from time to time perform, certain advisory
and banking services for Hicks Muse, the Company and their affiliates for which
they have, and may in the future, receive customary fees and expenses.

The Representatives, on behalf of the U.S. Underwriters and Managers, may
engage in over-allotment, stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Regulation M under the Exchange
Act. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the Class A Common Stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when the
Class A Common Stock originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Class A Common Stock to be higher than it would otherwise
be in the absence of such transactions. These transactions may be effected on
the New York Stock Exchange or otherwise and, if commenced, may be discontinued
at any time.

144
<PAGE> 145

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the shares of Class A Common Stock in Canada is being
made only on a private placement basis exempt from the requirement that the
Company prepare and file a prospectus with the securities regulatory authorities
in each province where trades of shares of Class A Common Stock are effected.
Accordingly, any resale of the shares of Class A Common Stock in Canada must be
made in accordance with applicable securities laws which will vary depending on
the relevant jurisdiction, and which may require resales to be made in
accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the shares of
Class A Common Stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of shares of Class A Common Stock in Canada who receives a
purchase confirmation will be deemed to represent to the Company and the dealer
from whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such shares of
Class A Common Stock without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of shares of Class A Common Stock to whom the Securities Act
(British Columbia) applies is advised that such purchaser is required to file
with the British Columbia Securities Commission a report within ten days of the
sale of any shares of Class A Common Stock acquired by such purchaser pursuant
to this offering. Such report must in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained
from the Company. Only one such report must be filed in respect of shares of
Class A Common Stock acquired on the same date and under the same prospectus
exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of shares of Class A Common Stock should consult their
own legal and tax advisers with respect to the tax consequences of an investment
in the shares of Class A Common Stock in their particular circumstances and with
respect to the eligibility of the shares of Class A Common Stock for investment
by the purchaser under relevant Canadian legislation.

145
<PAGE> 146

LEGAL MATTERS

The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Vinson & Elkins L.L.P., Dallas, Texas. Certain
legal matters in connection with the Offering will be passed upon for the U.S.
Underwriters and Managers by Weil, Gotshal & Manges LLP, Dallas, Texas. A
partnership (the "WGM Partnership") comprised of certain partners of Weil,
Gotshal & Manges LLP indirectly owns 26,752 shares of Class C Common Stock
through its limited partnership interests in a partnership affiliated with HM
Fund III. The WGM Partnership has no voting, dispositive or investment control
over such shares.

EXPERTS

The consolidated balance sheets of Capstar Broadcasting Corporation and
Subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997 included in this Prospectus
and Registration Statement, have been included herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.

The consolidated statements of operations and cash flows of Commodore
Media, Inc. and Subsidiaries for the period from January 1, 1996 to October 16,
1996 and for the year ended December 31, 1995; the consolidated financial
statements of Southern Star Communications, Inc., formerly known as Osborn
Communications Corporation, as of December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996; and the consolidated
financial statements of SFX Broadcasting, Inc. and Subsidiaries as of December
31, 1997 and 1996 and for each of the three years in the period ended December
31, 1997, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.

The combined balance sheets of Benchmark Communications Radio Limited
Partnership as of December 31, 1996 and 1995 and the related combined statements
of operations, changes in partners' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1996 included in this
Prospectus and Registration Statement, have been included herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.

The balance sheet of Community Pacific Broadcasting Company L.P. as of
December 31, 1996, and the related statements of operations, partners' equity
and cash flows for the year then ended included in this Prospectus and
Registration Statement, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.

The balance sheet of Midcontinent Broadcasting Co. of Wisconsin, Inc. as of
December 31, 1996, and the related statements of income and retained earnings,
and cash flows for the year then ended included in this Prospectus and
Registration Statement, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.

The balance sheet of Point Communications Limited Partnership as of
December 31, 1996, and the related statements of operations, partners' equity
and cash flows for the year then ended included in this Prospectus and
Registration Statement, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.

The financial statements of Ameron Broadcasting, Inc. as of December 31,
1996, included in this Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and is included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.

146
<PAGE> 147

The consolidated balance sheets of Patterson Broadcasting, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 1997 and 1996, and for the period from May 1, 1995
(inception) through December 31, 1995, included in this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and is included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.

AVAILABLE INFORMATION

The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act with respect to the shares of
Class A Common Stock offered hereby. As permitted by the rules and regulations
of the Commission, this Prospectus does not contain all of the information set
forth in the Registration Statement. For further information with respect to the
Company and the Class A Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits and schedules filed therewith.
Statements contained in this Prospectus concerning the provisions of any
contract, agreement or other document referred to herein or therein are not
necessarily complete, but contain a summary of the material terms of such
contracts, agreements or other documents. With respect to each contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for the complete contents of the exhibit, and
each statement concerning its provisions is qualified in its entirety by such
reference. The Registration Statement may be inspected, without charge, at the
offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and
at its regional offices at 7 World Trade Center, New York, New York, 10048 and
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2551. Copies
of such materials may also be obtained by mail at prescribed rates from the
Public Reference Section of the Commission at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 10549. Copies of such materials may also be
obtained from the web site that the Commission maintains at www.sec.gov.

Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act. Upon effectiveness of the Registration Statement, the
Company became subject to the informational and periodic reporting requirements
of the Exchange Act, and in accordance therewith, will file periodic reports,
proxy statements, and other information with the Commission. Such periodic
reports, proxy statements, and other information will be available for
inspection and copying at the public reference facilities and other regional
offices referred to above. The Company has registered the securities offered by
the Registration Statement under the Exchange Act simultaneously with the
effectiveness of the Registration Statement and intends to furnish its
stockholders with annual reports containing audited financial statements and
such other reports as may be required from time to time by law and applicable
stock exchange rules.

147
<PAGE> 148

GLOSSARY OF CERTAIN TERMS

"9 1/4% Capstar Notes" means $200.0 million in aggregate principal amount
of Capstar Radio's 9 1/4% Senior Subordinated Notes due 2007.

"9 1/4% Capstar Notes Indenture" means the indenture governing the 9 1/4%
Capstar Notes.

"10 3/4% SFX Notes" means $450.0 million in aggregate principal amount of
SFX's 10 3/4% Senior Subordinated Notes due 2006.

"10 3/4% SFX Notes Indenture" means the indenture governing the 10 3/4% SFX
Notes.

"11 3/8% SFX Notes" means $566,000 in aggregate principal amount of SFX's
11 3/8% Senior Subordinated Notes due 2000.

"11 3/8% SFX Notes Indenture" means the indenture governing the 11 3/8% SFX
Notes.

"12% Capstar Partners Exchange Debentures" means Capstar Partners' 12%
Subordinated Exchange Debentures due 2009.

"12% Capstar Partners Exchange Indenture" means the indenture governing the
12% Capstar Partners Exchange Debentures.

"12% Capstar Partners Preferred Stock" means up to 10,000,000 shares of
preferred stock, $.01 par value per share, of Capstar Partners.

"12 3/4% Capstar Notes" means $277.0 million in aggregate principal amount
at maturity of Capstar Partners' 12 3/4% Senior Discount Notes due 2009.

"12 3/4% Capstar Notes Indenture" means the indenture governing the 12 3/4%
Capstar Notes.

"12 5/8% SFX Exchange Debentures" means SFX's 12 5/8% Subordinated Exchange
Debentures due 2009.

"12 5/8% SFX Exchange Indenture" means the indenture governing the 12 5/8%
SFX Exchange Debentures.

"12 5/8% SFX Preferred Stock" means up to 2,250,000 shares of Series E
Cumulative preferred stock, $.01 par value per share, of SFX.

"Affiliate Stockholders Agreement" has the meaning set forth in "Certain
Relationships and Related Transactions -- Stockholders Agreements."

"Allentown Disposition" means the disposition of radio stations WODS-FM and
WEEX-AM serving the Easton, Pennsylvania market to Clear Channel.

"American General Acquisition" means the acquisition of radio station
KKCL-FM from American General Media of Texas, Inc. serving the Lubbock, Texas
market.

"Americom Acquisition" means the acquisition from Americom II and Americom
Las Vegas Limited Partnership of four radio stations (three FM and one AM)
serving the Fresno, California market, three of which were acquired for cash and
one of which was acquired in consideration for the disposition of three radio
stations (two FM and one AM) of the Company.

"Americom Disposition" means the disposition of three radio stations (two
FM and one AM) serving the Reno, Nevada market to Americom Las Vegas Limited
Partnership.

"Ameron Acquisition" means the acquisition of radio stations WMJJ-FM and
WERC-AM in Birmingham, Alabama and radio station WOWC-FM from Ameron
Broadcasting, Inc. serving the Jasper, Alabama market.

"Austin Acquisition" means the pending acquisition of radio stations
KVET-AM, KASE-FM and KVET-FM from Butler Broadcasting Company, Ltd. serving the
Austin, Texas market.

148
<PAGE> 149

"BCF" means broadcast cash flow. Broadcast cash flow consists of operating
income before depreciation, amortization, corporate expenses, LMA fees and
non-cash compensation expense. Although broadcast cash flow is not a measure of
performance calculated in accordance with GAAP, management believes that it is
useful to an investor in evaluating the Company because it is a measure widely
used in the broadcast industry to evaluate a radio company's operating
performance. Nevertheless, it should not be considered in isolation or as a
substitute for operating income, cash flows from operating activities or any
other measure for determining the Company's operating performance or liquidity
that is calculated in accordance with GAAP. As broadcast cash flow is not a
measure calculated in accordance with GAAP, this measure may not be comparable
to similarly titled measures employed by other companies.

"Benchmark Acquisition" means the acquisitions of, and mergers of directly
and indirectly wholly-owned subsidiaries of HM Fund III with, Benchmark
Communications Radio Limited Partnership, L.P. and certain of its subsidiary
partnerships.

"Big Chief Acquisition" means the Company's pending acquisition of radio
stations KTCS-FM/AM from Big Chief Broadcasting Co. serving the Fort Smith,
Arkansas market.

"Booneville Acquisition" means the acquisition of radio station KZBB-FM
from Booneville Broadcasting Company and Oklahoma Communications Company serving
the Ft. Smith, Arkansas market.

"Bryan Disposition" means the disposition of substantially all of its
assets used or useful in the operation of two of the Company's radio stations in
the College Station, Texas market.

"Burlington Acquisition" means the Company's pending acquisition of radio
stations WXPS-FM and WCPV-FM in Vergennes, Vermont and Essex, New York,
respectively, and the assumption of a local marketing agreement to provide
programming for radio station WEAV-AM in Plattsburgh, New York.

"Capstar" or "Company" means Capstar Broadcasting Corporation and its
subsidiaries after giving effect to the consummation of the SFX Transactions,
unless the context otherwise requires.

"Capstar Credit Facility" means that certain credit agreement to be entered
into among Capstar Radio, as the borrower, the Company and Capstar Partners, as
the guarantors, and the financial institutions party thereto, as more fully
described in "Description of Indebtedness -- Capstar Credit Facility."

"Capstar Partners" means Capstar Broadcasting Partners, Inc., a Delaware
corporation and a direct subsidiary of the Company.

"Capstar Partners Certificate of Designation" means the certificate of
designation governing the 12% Capstar Partners Preferred Stock.

"Capstar Radio" means Capstar Radio Broadcasting Partners, Inc., a Delaware
corporation and a direct subsidiary of Capstar Partners.

"Cavalier Acquisition" means the acquisition of substantially all of the
assets of Cavalier Communications, L.P.

"Champion Acquisition" means the Company's pending acquisition from
Champion Broadcasting Corporation, et al of radio stations KCDQ-FM, KCHX-FM and
KMRK-FM serving the Midland, Texas market; KMML-FM, KBUY-FM, KNSY-FM and KIXZ-AM
serving the Amarillo, Texas market; and KRRV-FM, KKST-FM, KZMZ-FM and KDBS-AM
serving the Alexandria, Louisiana market.

"Chancellor Exchange Agreement" means that certain letter agreement dated
as of February 20, 1998, as amended, between Chancellor Media Corporation of Los
Angeles and the Company.

"Chancellor Media" means Chancellor Media Corporation, a Delaware
corporation.

"Chancellor Note" has the meaning set forth in note 1 to "Use of Proceeds."

"Class Act Acquisition" means the Company's pending acquisition of KTBQ-FM
and KSFA-AM from Class Act of Texas, Inc. serving the Nacogdoches, Texas market.

149
<PAGE> 150

"COMCO Acquisition" means the acquisition of substantially all of the
assets of COMCO Broadcasting, Inc.

"Commodore Acquisition" means the acquisition of Commodore Media, Inc.

"Commonwealth Acquisition" means the acquisition of substantially all of
the assets of Commonwealth Broadcasting of Arizona, L.L.C.

"Communications Act" means the Communications Act of 1934, as amended.

"Community Pacific Acquisition" means the acquisition of substantially all
of the assets of Community Pacific Broadcasting Company L.P.

"Completed Acquisitions" means the American General Acquisition, the
Americom Acquisition, the Ameron Acquisition, the Benchmark Acquisition, the
Booneville Acquisition, the Cavalier Acquisition, the COMCO Acquisition, the
Commodore Acquisition, the Commonwealth Acquisition, the Community Pacific
Acquisition, the East Penn Acquisition, the Emerald City Acquisition, the Grant
Acquisition, the Griffith Acquisition, the GulfStar Acquisition, the KDOS
Acquisition, the KJEM Acquisition, the KLAW Acquisition, the Knight Acquisition,
the KOSO Acquisition, the Livingston Acquisition, the Madison Acquisition, the
McForhun Acquisition, the Osborn Acquisition, the Osborn Huntsville Acquisition,
the Osborn Tuscaloosa Acquisition, the Patterson Acquisition, the Quass
Acquisition, the Reynolds Acquisition, the Space Coast Acquisition, the WRIS
Acquisition and the Prophet Systems Acquisition.

"Completed Dispositions" means the Allentown Disposition, the Americom
Disposition, the Bryan Disposition, the Dayton Disposition, the Jackson
Disposition, the KASH Disposition, the Osborn Ft. Myers Disposition, the
Salisbury-Ocean City Disposition, the Westchester Disposition and the Wilmington
Disposition.

"Completed Transactions" means the Completed Acquisitions and the Completed
Dispositions.

"Dayton Disposition" means the disposition of radio station WING-FM serving
the Dayton, Ohio market.

"Daytona Beach-WGNE Disposition" means the Company's pending disposition of
radio station WGNE-FM serving the Daytona Beach, Florida market.

"DOJ" means the United States Department of Justice.

"East Penn Acquisition" means the acquisition of radio station WKAP-AM from
East Penn Broadcasting, Inc. serving the Allentown, Pennsylvania market.

"EBITDA" (before non-cash compensation expense and LMA fees) consists of
operating income before depreciation, amortization, LMA fees and non-cash
compensation expense. Although EBITDA (before non-cash compensation expense and
LMA fees) is not a measure of performance calculated in accordance with GAAP,
management believes that it is useful to an investor in evaluating the Company
because it is a measure widely used in the broadcast industry to evaluate a
radio company's operating performance. Nevertheless, it should not be considered
in isolation or as a substitute for operating income, cash flows from operating
activities or any other measure for determining the Company's operating
performance or liquidity that is calculated in accordance with GAAP. As EBITDA
(before non-cash compensation expense and LMA fees) is not a measure calculated
in accordance with GAAP, this measure may not be comparable to similarly titled
measures employed by other companies.

"Emerald City Acquisition" means the acquisition of radio station WNOK-FM
from Emerald City Radio Partners, L.P. serving the Columbia, South Carolina
market.

"Fairbanks Acquisition" means the Company's pending acquisition of radio
station KUAB-FM from the University of Alaska Fairbanks serving the Fairbanks,
Alaska market.

"FCC" means the United States Federal Communications Commission.

"Financing" has the meaning set forth in "Prospectus Summary -- The
Financing."
150
<PAGE> 151

"FTC" means the United States Federal Trade Commission.

"Fourth Warrant" has the meaning set forth in "Management -- Warrants."

"GAAP" means generally accepted accounting principles.

"Gibbons Acquisition" means the Company's pending acquisition of all of the
common stock of Jim Gibbons Radio, Inc., a Maryland corporation, and Jim Gibbons
Radio, Inc., a Virginia corporation, which own and operate four radio stations
(two FM and two AM) serving the Frederick, Maryland and Roanoke, Virginia.

"Grant Acquisition" means the acquisition of radio station WZBQ-FM from
Grant Radio Group serving the Tuscaloosa, Alabama market.

"Greenville Disposition" means the Company's pending disposition of radio
stations WESC-FM, WESC-AM, WTPT-FM and WJMZ-FM serving the Greenville, South
Carolina market.

"Griffith Acquisition" means the acquisition of radio stations WTAK-FM,
WXQW-FM and WWXQ-FM from Griffith Communications Corporation serving the
Huntsville, Alabama market.

"GulfStar Acquisition" means the merger of GulfStar with and into a
subsidiary of the Company, pursuant to which the subsidiary was the surviving
corporation and was named GulfStar Communications, Inc.

"GulfStar Stockholders Agreement" has the meaning set forth in "Risk
Factors -- Shares Eligible for Future Sale; Registration Rights."

"Houston-KKPN Disposition" means the Company's pending disposition of radio
station KKPN-FM serving the Houston, Texas market.

"Houston-KODA Disposition" means the Company's pending disposition of radio
station KODA-FM serving the Houston, Texas market.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.

"Indentures" means the 9 1/4% Capstar Notes Indenture, the 10 3/4% SFX
Notes Indenture, 11 3/8% SFX Notes Indenture, 12% Capstar Partners Exchange
Indenture, the 12 3/4% Capstar Notes Indenture and the 12 5/8% SFX Exchange
Indenture.

"Jackson Disposition" means the disposition of radio stations WJMI-FM,
WOAD-FM, WKXI-FM and WKXI-AM serving the Jackson, Mississippi market.

"Jacksonville Acquisition" means the Company's pending acquisition of radio
stations WAPE-FM and WFYV-FM serving the Jacksonville, Florida market.

"JSA" means joint sales agreement, as more fully described in
"Business -- Federal Regulation of Radio Broadcasting -- Joint Sales
Agreements."

"KASH Disposition" means the disposition of radio station KASH-AM serving
the Anchorage, Alaska market to Chinook Concert Broadcasters, Inc.

"KATQ Acquisition" means the Company's pending acquisition of KTFS-AM and
KTWN-FM from KATQ Radio, Inc. serving the Texarkana, Texas and Texarkana,
Arkansas market.

"KDOS Acquisition" means the acquisition of radio stations KSAB-FM and
KUNO-AM from KDOS, Inc. serving the Corpus Christi, Texas market.

"KJEM Acquisition" means the acquisition of KJEM-FM.

"KLAW Acquisition" means the acquisition of radio stations KLAW-FM and
KZCD-FM from KLAW Broadcasting, Inc. serving the Lawton, Oklahoma market.

151
<PAGE> 152

"Knight Acquisition" means the acquisition of substantially all of the
assets of Knight Radio, Inc., Knight Broadcasting of New Hampshire, Inc. and
Knight Communications Corp.

"KOSO Acquisition" means the acquisition of radio station KOSO-FM from
KOSO, Inc. serving the Patterson, California market.

"KRNA Acquisition" means the Company's pending acquisition of radio station
KRNA-FM from KRNA, Inc. serving the Iowa City, Iowa market.

"Livingston Acquisition" means the acquisition of radio station WBIU-AM
from Livingston Communications, Inc. serving the Denham Springs, Louisiana
market.

"LMA" means local marketing agreement, as more fully described in
"Business -- Federal Regulation of Radio Broadcasting -- Local Marketing
Agreements." LMAs are sometimes referred to as time brokerage agreements.

"Long Island Disposition" means the Company's pending disposition of radio
stations WBLI-FM, WBAB-FM, WGBB-AM and WHFM-FM serving the Long Island, New York
market.

"Madison Acquisition" means the acquisition of substantially all of the
assets of The Madison Radio Group which is comprised of the stations formerly
owned by Midcontinent Broadcasting Co. of Wisconsin, Inc. and Point
Communications Limited Partnership.

"Management Stockholders Agreement" has the meaning set forth in "Risk
Factors -- Shares Eligible for Future Sale; Registration Rights."

"McForhun Acquisition" means the acquisition of radio station KRVE-FM from
McForhun, Inc. serving the Brusly, Louisiana market.

"Nashville Acquisition" means SFX's acquisition of radio stations WJZC-FM,
WLAC-FM and WLAC-AM from Sinclair Broadcasting Group serving the Nashville,
Tennessee market.

"Noalmark Acquisition" means the Company's option to acquire radio stations
KKTX-FM and KKTX-AM from Noalmark Broadcasting Corporation serving the Longview,
Texas market.

"Notes" means the 9 1/4% Capstar Notes, the 10 3/4% SFX Notes, 11 3/8% SFX
Notes, 12% Capstar Partners Exchange Debentures, the 12 3/4% Capstar Notes and
the 12 5/8% SFX Exchange Debentures.

"Original Incentive Warrants" has the meaning set forth in
"Management -- Warrants."

"Original Regular Warrants" has the meaning set forth in
"Management -- Warrants."

"Osborn Acquisition" means the acquisition of Osborn Communications
Corporation.

"Osborn Ft. Myers Disposition" means the disposition of substantially all
of the assets used or held for use in connection with the business and
operations of Osborn's stations in the Port Charlotte and Ft. Myers, Florida
markets.

"Osborn Huntsville Acquisition" means the acquisition of Dixie
Broadcasting, Inc. and Radio WBHP, Inc.

"Osborn Tuscaloosa Acquisition" means the acquisition of Taylor
Communications Corporation.

"Other Equity Transactions" has the meaning set forth in note 1 to "Summary
Pro Forma Financial Data."

"Patterson Acquisition" means the acquisition of all of the outstanding
capital stock of Patterson Broadcasting, Inc.

"Pending Acquisitions" means the Burlington Acquisition, the Champion
Acquisition, the Class Act Acquisition, the Fairbanks Acquisition, the KRNA
Acquisition, the Noalmark Acquisition, the Portsmouth Acquisition and the
Shreveport-KMJJ Acquisition.

152
<PAGE> 153

"Portsmouth Acquisition" means the Company's pending acquisition of radio
stations WSRI-FM, WZNN-AM, WERZ-FM and WMYF-AM from American Radio Systems
serving the Portsmouth-Dover-Rochester, New York.

"Prophet Systems Acquisition" means the acquisition of substantially all of
the assets of Prophet Systems, Inc.

"Quass Acquisition" means the acquisition of all of the outstanding capital
stock of Quass Broadcasting Company.

"Reynolds Acquisition" means the acquisition of radio station WMHS-FM from
Joan K. Reynolds, d/b/a Brantley Broadcast Associates serving the Birmingham,
Alabama market.

"Sale of the Company" has the meaning set forth in
"Management -- Warrants."

"Salisbury-Ocean City Disposition" means the pending disposition of radio
stations WWFG-FM and WOSC-FM serving the Salisbury-Ocean City, Maryland market,
which will close after the SFX Acquisition.

"SFX" means SFX Broadcasting, Inc.

"SFX Acquisition" means the Company's pending acquisition of SFX
Broadcasting, Inc.

"SFX Certificate of Designation" means the certificate of designation
governing the 12 5/8% SFX Preferred Stock.

"SFX Consent Decree" has the meaning set forth in "Business -- Federal
Regulation of Radio Broadcasting -- Federal Antitrust Laws."

"SFX Credit Facility" has the meaning set forth in "Prospectus
Summary -- The Transactions -- The SFX Transactions."

"SFX Jackson/Biloxi Acquisition" means the Company's pending acquisition of
six radio stations (five FM and one AM) from SFX serving the Jackson and Biloxi,
Mississippi markets.

"SFX Related Transactions" means (i) the programming of ten SFX stations
by, and the eventual sale of such stations to, Chancellor Media pursuant to the
Chancellor Exchange Agreement; (ii) the Austin Acquisition, the Jacksonville
Acquisition, the Nashville Acquisition, the Daytona Beach-WGNE Disposition, the
Greenville Disposition, the Houston-KKPN Disposition, the Houston-KODA
Disposition, the Long Island Disposition and the Upper Fairfield Disposition;
and (iii) the sale of SFX stations WTAE-AM and WJDX-FM after the consummation of
the SFX Acquisition.

"SFX Transactions" means the SFX Acquisition and the SFX Related
Transactions.

"Shreveport-KMJJ Acquisition" means the pending acquisition of radio
station KMJJ-FM from SunGroup, Inc, et. al. serving the Shreveport, Louisiana
market.

"Space Coast Acquisition" collectively refers to the acquisitions of
substantially all of the assets of EZY Com, Inc., City Broadcasting Co., Inc.,
and Roper Broadcasting, Inc.

"Stock Option Plan" has the meaning set forth in "Management -- Committees
of the Board of Directors."

"Telecom Act" means the Telecommunications Act of 1996.

"Upper Fairfield Disposition" means the pending conveyance of radio
stations WKRI-FM, WAXB-FM, WPUT-AM and WINE-AM serving the Fairfield County,
Connecticut market to a limited liability company in exchange for a 30%
non-voting membership interest in such limited liability company. Pending FCC
approval, the stations will be placed in trust shortly before the consummation
of the SFX Acquisition. See "The Transactions -- The SFX Transactions -- SFX
Related Transactions."

"Warrants" has the meaning set forth in "Management -- Warrants."

153
<PAGE> 154

"Westchester Disposition" means the conveyance of radio stations WFAS-FM,
WFAS-AM and WZZN-FM serving the Westchester-Putnam Counties, New York market to
a limited liability company in exchange for a 30% non-voting membership interest
in such limited liability company.

"Wilmington Disposition" means the conveyance of radio station WJBR-FM
serving the Wilmington, Delaware market to a limited liability company in
exchange for a 30% non-voting membership interest in such limited liability
company.

"WRIS Acquisition" means the acquisition of WJLM-FM from WRIS, Inc. serving
the Salem, Virginia market.

154
<PAGE> 155

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
Report of Independent Accountants......................... F-3
Consolidated Balance Sheets as of December 31, 1996 and
1997 and March 31, 1998................................ F-4
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1997 and
for the three months ended March 31, 1997 and 1998..... F-5
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended December 31,
1997 and for the three months ended March 31, 1998..... F-6, F-7
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997 and
for the three months ended March 31, 1997 and 1998..... F-8
Notes to Consolidated Financial Statements................ F-9
COMMODORE MEDIA, INC. AND SUBSIDIARIES
Report of Independent Auditors............................ F-32
Consolidated Statements of Operations for the period from
January 1, 1996 to October 16, 1996 and the year ended
December 31, 1995...................................... F-33
Consolidated Statements of Cash Flows for the period from
January 1, 1996 to October 16, 1996 and the year ended
December 31, 1995...................................... F-34
Notes to Consolidated Statements of Operations and Cash
Flows.................................................. F-35
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
Report of Independent Auditors............................ F-42
Consolidated Balance Sheets as of December 31, 1996 and
1995................................................... F-43
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994....................... F-44
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994... F-45
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-46
Notes to Consolidated Financial Statements................ F-47
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
Report of Independent Accountants......................... F-58
Combined Balance Sheets as of June 30, 1997 and December
31, 1996 and 1995...................................... F-59
Combined Statements of Operations for the six months ended
June 30, 1997 and for the years ended December 31,
1996, 1995 and 1994.................................... F-60
Combined Statements of Changes in Partners' Equity
(Deficit) for the six months ended June 30, 1997 and
for the years ended December 31, 1996, 1995 and 1994... F-61
Combined Statements of Cash Flows for the six months ended
June 30, 1997 and for the years ended December 31,
1996, 1995 and 1994.................................... F-62
Notes to Combined Financial Statements.................... F-63
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
Report of Independent Accountants......................... F-74
Balance Sheets as of June 30, 1997 and December 31,
1996................................................... F-75
Statements of Operations for the six months ended June 30,
1997 and for the year ended December 31, 1996.......... F-76
Statements of Changes in Partners' Equity for the six
months ended June 30, 1997 and for the year ended
December 31, 1996...................................... F-77
Statements of Cash Flows for the six months ended June 30,
1997 and for the year ended December 31, 1996.......... F-78
Notes to Financial Statements............................. F-79
</TABLE>

F-1
<PAGE> 156
<TABLE>
<S> <C>
MADISON RADIO GROUP
Condensed Balance Sheet as of June 30, 1997............... F-84
Condensed Statement of Operations for the period from
January 2, 1997 to June 30, 1997....................... F-85
Condensed Statement of Partners' Equity for the period
from January 2, 1997 to June 30, 1997.................. F-86
Condensed Statement of Cash Flows for the period from
January 2, 1997 to June 30, 1997....................... F-87
Notes to Financial Statements............................. F-88
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
Report of Independent Accountants......................... F-92
Balance Sheet as of December 31, 1996..................... F-93
Statement of Income and Retained Earnings for the year
ended December 31, 1996................................ F-94
Statement of Cash Flows for the year ended December 31,
1996................................................... F-95
Notes to Financial Statements............................. F-96
POINT COMMUNICATIONS LIMITED PARTNERSHIP
Report of Independent Accountants......................... F-99
Balance Sheet as of December 31, 1996..................... F-100
Statement of Operations for the year ended December 31,
1996................................................... F-101
Statement of Partners' Equity for the year ended December
31, 1996............................................... F-102
Statement of Cash Flows for the year ended December 31,
1996................................................... F-103
Notes to Financial Statements............................. F-104
AMERON BROADCASTING, INC.
Report of Independent Public Accountants.................. F-108
Balance Sheets as of September 30, 1997 and December 31,
1996................................................... F-109
Statements of Operations for the nine months ended
September 30, 1997 and for the year ended December 31,
1996................................................... F-110
Statements of Stockholders' Equity for the nine months
ended September 30, 1997 and for the year ended
December 31, 1996...................................... F-111
Statements of Cash Flows for the nine months ended
September 30, 1997 and for the year ended December 31,
1996................................................... F-112
Notes to Financial Statements............................. F-113
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-118
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-119
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 and for the period from May
1, 1995 (inception) to December 31, 1995............... F-120
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997 and 1996 and for
the period from May 1, 1995 (inception) to December 31,
1995................................................... F-121
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 and for the period from May
1, 1995 (inception) to December 31, 1995............... F-122
Notes to Consolidated Financial Statements................ F-123
SFX BROADCASTING, INC. AND SUBSIDIARIES
Report of Independent Auditors............................ F-133
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 and 1996............................. F-134
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 and for the years ended
December 31, 1997, 1996 and 1995....................... F-136
Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 1998 and for the years
ended December 31, 1997, 1996 and 1995................. F-137
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 and for the years ended
December 31, 1997, 1996 and 1995....................... F-138
Notes to Consolidated Financial Statements................ F-139
</TABLE>

F-2
<PAGE> 157

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Capstar Broadcasting Corporation

We have audited the accompanying consolidated balance sheets of Capstar
Broadcasting Corporation and Subsidiaries as of December 31, 1996 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Capstar Broadcasting Corporation and Subsidiaries as of December 31, 1996 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Austin, Texas
March 26, 1998

F-3
<PAGE> 158

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 9,821 $ 70,059 $ 216,374
Accounts receivable, net of allowance for doubtful
accounts of $1,167, $2,889 and $3,688, respectively..... 17,249 40,350 53,806
Refundable income taxes................................... 1,112 -- --
Prepaid expenses and other current assets................. 600 4,285 5,797
-------- ---------- ----------
Total current assets................................ 28,782 114,694 275,977
Property and equipment, net............................... 29,326 106,717 134,622
Intangibles and other, net................................ 341,076 881,545 1,183,148
Other non-current assets.................................. 3,448 18,500 18,854
-------- ---------- ----------
Total assets........................................ $402,632 $1,121,456 $1,612,601
======== ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt......................... $ 3,936 $ 1,388 $ 82,598
Accounts payable.......................................... 5,474 13,641 5,780
Accrued liabilities....................................... 5,546 16,826 31,323
Income taxes payable...................................... -- 2,417 1,033
-------- ---------- ----------
Total current liabilities........................... 14,956 34,272 120,734
Long-term debt, net of current portion.................... 187,234 593,184 377,127
Deferred income taxes..................................... 83,608 160,422 234,413
-------- ---------- ----------
Total liabilities................................... 285,798 787,878 732,274
-------- ---------- ----------
Commitments and contingencies (Note 13)
Redeemable preferred stock of subsidiaries:
Capstar Broadcasting Partners, Inc., $.01 par value,
10,000,000 shares authorized, 1,000,000 and 1,064,667
shares issued and outstanding, respectively, aggregate
liquidation preference of $106,560 and $109,000,
respectively............................................ -- 101,493 104,545
Gulfstar Communications, Inc., $.01 par value, 507,500
shares authorized, issued and outstanding, aggregate
liquidation preference of $27,053....................... 23,098 -- --
Stockholders' equity:
CAPSTAR BROADCASTING CORPORATION:
Preferred stock, $.01 par value, 100,000,000 shares
authorized, none issued............................... -- -- --
Common stock, Class A, voting, $.01 par value,
750,000,000 shares authorized, 2,578,839 and 2,542,976
shares issued and outstanding, respectively........... -- 26 25
Common stock, Class B, nonvoting, $.01 par value,
150,000,000 shares authorized, 4,817,990 and 5,376,486
shares issued and outstanding, respectively........... -- 48 54
Common stock, Class C, voting, $.01 par value,
150,000,000 shares authorized, 22,812,347 and
63,037,411 shares issued and outstanding,
respectively.......................................... -- 228 630
Additional paid-in capital.............................. -- 291,324 862,887
Stock subscriptions receivable.......................... -- (4,374) (2,842)
CAPSTAR BROADCASTING PARTNERS, INC.:
Common stock, Class A, voting $.01 par value,
200,000,000 shares authorized; 9,415,500 shares issued
and outstanding in 1996............................... 94 -- --
Common stock, Class B, nonvoting, $.01 par value,
50,000,000 shares authorized, none issued............. -- -- --
Additional paid-in capital.............................. 94,805 -- --
GULFSTAR COMMUNICATIONS, INC.:
Common stock, voting, $.01 par value, 100,000 and
2,000,000 shares authorized, 1,098 shares issued and
outstanding in 1996................................... 1 -- --
Common stock, Class A, nonvoting, $.01 par value, 60,000
and 600,000 shares authorized, 4,903 shares issued and
outstanding in 1996................................... 1 -- --
Common stock, Class B, nonvoting, $.01 par value, 10,000
shares authorized, no shares issued and outstanding... -- -- --
Common stock, Class C, voting, $.01 par value, 100,000
shares authorized, 317 shares issued and outstanding
in 1996............................................... 1 -- --
Additional paid-in capital.............................. 11,869 -- --
Stock subscriptions receivable.......................... (2,090) -- --
Unearned compensation................................... (1,518) -- --
ACCUMULATED DEFICIT....................................... (9,427) (55,167) (84,972)
-------- ---------- ----------
Total stockholders' equity.......................... 93,736 232,085 775,782
-------- ---------- ----------
Total liabilities and stockholders' equity.......... $402,632 $1,121,456 $1,612,601
======== ========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE> 159

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
--------- --------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross broadcast revenue..................... $ 17,322 $ 47,200 $ 189,820 $ 27,180 $ 70,086
Less: agency commissions.................... (1,525) (4,334) (14,375) (2,078) (6,011)
--------- --------- ---------- ---------- ----------
Net broadcast revenue..................... 15,797 42,866 175,445 25,102 64,075
--------- --------- ---------- ---------- ----------
Operating expenses:
Programming, technical and news........... 2,874 9,313 43,073 6,357 15,780
Sales and promotion....................... 4,638 12,808 48,156 6,737 18,009
General and administrative................ 4,225 8,360 30,906 5,210 13,971
Corporate expenses.......................... 513 2,523 14,221 1,942 3,757
LMA fees paid............................... 341 834 2,519 683 1,871
Corporate expenses -- noncash
compensation.............................. -- 6,176 10,575 2,469 15,793
Depreciation and amortization............... 1,134 4,141 26,415 3,725 11,032
--------- --------- ---------- ---------- ----------
Operating income (loss)..................... 2,072 (1,289) (420) (2,021) (16,138)
Other income (expense):
Interest expense.......................... (3,737) (8,907) (47,012) (7,955) (15,897)
Interest income........................... 1,932 34 4,572 128 454
Gain (loss) on sale of broadcasting
property............................... 2,389 -- (908) -- --
Other..................................... (54) (929) (4,729) (65) (134)
--------- --------- ---------- ---------- ----------
Income (loss) before provision (benefit) for
income taxes and extraordinary item....... 2,602 (11,091) (48,497) (9,913) (31,715)
Provision (benefit) for income taxes........ 1,032 (322) (11,720) (2,308) (4,962)
Dividends and accretion on preferred stock
of subsidiary............................. -- -- (6,560) -- (3,052)
--------- --------- ---------- ---------- ----------
Income (loss) before extraordinary item..... 1,570 (10,769) (43,337) (7,605) (29,805)
Extraordinary loss on early extinguishment
of debt, net of tax benefit of $707 and
$1,473, respectively...................... -- (1,188) (2,403) (598) --
--------- --------- ---------- ---------- ----------
Net income (loss)........................... 1,570 (11,957) (45,740) (8,203) (29,805)
Dividends, accretion and redemption of
preferred stocks.......................... (8) (1,350) (7,071) (794) --
--------- --------- ---------- ---------- ----------
Net income (loss) attributable to common
stock..................................... $ 1,562 $ (13,307) $ (52,811) $ (8,997) $ (29,805)
========= ========= ========== ========== ==========
Basic and diluted income (loss) per common
share
Before extraordinary loss................. $ 0.25 $ (1.37) $ (1.98) $ (0.44) $ (0.65)
Extraordinary loss........................ -- (0.13) (0.09) (0.03) --
--------- --------- ---------- ---------- ----------
Net income (loss)................. $ 0.25 $ (1.50) $ (2.07) $ (0.47) $ (0.65)
========= ========= ========== ========== ==========
Weighted average common shares
outstanding............................... 6,286,248 8,880,488 25,455,211 19,288,014 46,130,912
========= ========= ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE> 160

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GULFSTAR COMMUNICATIONS, INC.
---------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
------------------ ------------------ ------------------ ------------------
NUMBER OF PAR NUMBER OF PAR NUMBER OF PAR NUMBER OF PAR
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1995......... 1,000 $ 1 4,000 $ 1 -- $ -- -- $ --
Shares of Class A Common stock
contributed to the company by a
stockholder.................... -- -- (250) -- -- -- -- --
Issuance of voting Common
stock.......................... 15...... -- -- -- -- -- -- --
Issuance of Class B Common
stock.......................... -- -- -- -- 608 -- -- --
Accrued interest on Stock
subscriptions receivable....... -- ..... -- -- -- -- -- -- --
Dividends on Redeemable preferred
stock.......................... -- -- -- -- -- -- -- --
Net income....................... -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------ ------- ------
Balance at December 31, 1995....... 1,015 1 3,750 1 608 -- -- --
Issuance of Common stock......... 450 -- -- -- -- -- -- --
Issuance of Class A Common
stock.......................... -- -- 162 -- -- -- -- --
Issuance of Class B Common
stock.......................... -- -- -- -- 16 -- -- --
Issuance of Class C Common
stock.......................... -- -- -- -- -- -- 317 1
Conversion of Common stock to
Class A Common stock........... (1,015) -- 1,015 -- -- -- -- --
Conversion of Class A and B
Common stock to Common stock... 648 -- (24) -- (624) -- -- --
Issuance of warrants............. -- ..... -- -- -- -- -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Dividends and accretion on
Redeemable preferred stock..... -- -- -- -- -- -- -- --
Unearned compensation-stock
issued for nonrecourse notes... -- -- -- -- -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuance of common stock......... -- -- -- -- -- -- -- --
Issuance of warrants............. -- -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------ ------- ------
Balance at December 31, 1996....... 1,098 1 4,903 1 -- -- 317 1
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock......... 36 -- -- -- -- -- -- --
Conversion of Class A Common
stock to Class C Common
stock.......................... -- -- (3,903) -- -- -- 3,903 --
Conversion of Class C Common
stock to Class A Common
stock.......................... -- -- 1,010 -- -- -- (1,010) --
Dividends and accretion on
Redeemable preferred stock..... -- -- -- -- -- -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Payments received on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Compensation expense............. -- -- -- -- -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuances of Common stock........ -- -- -- -- -- -- -- --
Repurchase of common stock....... -- -- -- -- -- -- -- --
Conversion of Class B Common
stock to Class A Common
stock.......................... -- -- -- -- -- -- -- --
Compensation expense............. -- -- -- -- -- -- -- --
Elimination of Capstar
Broadcasting Partners, Inc.
common stock................... -- -- -- -- -- -- -- --
Issuance of Common stock......... -- -- -- -- -- -- -- --
Repurchase of Common stock....... -- -- -- -- -- -- -- --
Issuance of shares in connection
with merger.................... (1,134) (1) (2,010) (1) -- -- (3,210) (1)
Redemption of Redeemable
preferred stock................ -- -- -- -- -- -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Payments received on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------ ------- ------
Balance at December 31, 1997....... -- -- -- -- -- -- -- --
Issuances of Common stock
(unaudited).................... -- -- -- -- -- -- -- --
Conversion of Class C Common
stock to Class A Common stock
(unaudited).................... -- -- -- -- -- -- -- --
Repurchase of Common stock
(unaudited).................... -- -- -- -- -- -- -- --
Compensation expense
(unaudited).................... -- -- -- -- -- -- -- --
Accrued interest on stock
subscriptions receivable
(unaudited).................... -- -- -- -- -- -- -- --
Payments received in stock
subscriptions receivable
(unaudited).................... -- -- -- -- -- -- -- --
Net loss (unaudited)............. -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------ ------- ------
Balance at March 31, 1998
(unaudited)...................... -- $ -- -- $ -- -- $ -- -- $ --
======= ====== ======= ====== ====== ====== ======= ======

<CAPTION>
GULFSTAR COMMUNICATIONS, INC.
-----------------------------------------

ADDITIONAL STOCK
PAID-IN SUBSCRIPTIONS UNEARNED
CAPITAL RECEIVABLE COMPENSATION
---------- ------------- ------------
<S> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1995......... $ -- $ -- $ --
Shares of Class A Common stock
contributed to the company by a
stockholder.................... -- -- --
Issuance of voting Common
stock.......................... 9 (4) --
Issuance of Class B Common
stock.......................... 331 (304) --
Accrued interest on Stock
subscriptions receivable....... 25 (25) --
Dividends on Redeemable preferred
stock.......................... -- -- --
Net income....................... -- -- --
-------- ------- -------
Balance at December 31, 1995....... 365 (333) --
Issuance of Common stock......... 1,378 (1,390) --
Issuance of Class A Common
stock.......................... 184 -- --
Issuance of Class B Common
stock.......................... 31 -- --
Issuance of Class C Common
stock.......................... 358 (298) --
Conversion of Common stock to
Class A Common stock........... -- -- --
Conversion of Class A and B
Common stock to Common stock... -- -- --
Issuance of warrants............. 3,884 -- --
Accrued interest on Stock
subscriptions receivable....... 69 (69) --
Dividends and accretion on
Redeemable preferred stock..... (1,350) -- --
Unearned compensation-stock
issued for nonrecourse notes... 6,950 -- (1,518)
CAPSTAR BROADCASTING CORPORATION*:
Issuance of common stock......... -- -- --
Issuance of warrants............. -- -- --
Net loss......................... -- -- --
-------- ------- -------
Balance at December 31, 1996....... 11,869 (2,090) (1,518)
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock......... 300 (300) --
Conversion of Class A Common
stock to Class C Common
stock.......................... -- -- --
Conversion of Class C Common
stock to Class A Common
stock.......................... -- -- --
Dividends and accretion on
Redeemable preferred stock..... (1,693) -- --
Accrued interest on Stock
subscriptions receivable....... 131 (131) --
Payments received on Stock
subscriptions receivable....... -- 36 --
Compensation expense............. 7,232 -- 1,518
CAPSTAR BROADCASTING CORPORATION*:
Issuances of Common stock........ -- -- --
Repurchase of common stock....... -- -- --
Conversion of Class B Common
stock to Class A Common
stock.......................... -- -- --
Compensation expense............. -- -- --
Elimination of Capstar
Broadcasting Partners, Inc.
common stock................... -- -- --
Issuance of Common stock......... -- -- --
Repurchase of Common stock....... -- -- --
Issuance of shares in connection
with merger.................... (12,461) 2,485 --
Redemption of Redeemable
preferred stock................ (5,378) -- --
Accrued interest on Stock
subscriptions receivable....... -- -- --
Payments received on Stock
subscriptions receivable....... -- -- --
Net loss......................... -- -- --
-------- ------- -------
Balance at December 31, 1997....... -- -- --
Issuances of Common stock
(unaudited).................... -- -- --
Conversion of Class C Common
stock to Class A Common stock
(unaudited).................... -- -- --
Repurchase of Common stock
(unaudited).................... -- -- --
Compensation expense
(unaudited).................... -- -- --
Accrued interest on stock
subscriptions receivable
(unaudited).................... -- -- --
Payments received in stock
subscriptions receivable
(unaudited).................... -- -- --
Net loss (unaudited)............. -- -- --
-------- ------- -------
Balance at March 31, 1998
(unaudited)...................... $ -- $ -- $ --
======== ======= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE> 161

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CAPSTAR BROADCASTING CORPORATION
*(CAPSTAR BROADCASTING PARTNERS, INC. THROUGH JUNE 20, 1997)
---------------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK
--------------------------- -------------------------
NUMBER OF PAR NUMBER OF PAR
SHARES VALUE SHARES VALUE
------------ ------- ----------- ------
<S> <C> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1995.............. -- $ -- -- $ --
Shares of Class A Common stock
contributed to the company by a
stockholder......................... -- -- -- --
Issuance of voting Common stock....... -- -- -- --
Issuance of Class B Common stock...... -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- --
Dividends on Redeemable preferred
stock............................... -- -- -- --
Net income............................ -- -- -- --
------------ ------- ----------- ------
Balance at December 31, 1995............ -- -- -- --
Issuance of Common stock.............. -- -- -- --
Issuance of Class A Common stock...... -- -- -- --
Issuance of Class B Common stock...... -- -- -- --
Issuance of Class C Common stock...... -- -- -- --
Conversion of Common stock to Class A
Common stock........................ -- -- -- --
Conversion of Class A and B Common
stock to Common stock............... -- -- -- --
Issuance of warrants.................. -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- --
Dividends and accretion on Redeemable
preferred stock..................... -- -- -- --
Unearned compensation-stock issued for
nonrecourse notes................... -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuance of common stock.............. 9,415,500 94 -- --
Issuance of warrants.................. -- -- -- --
Net loss.............................. -- -- -- --
------------ ------- ----------- ------
Balance at December 31, 1996............ 9,415,500 94 -- --
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock.............. -- -- -- --
Conversion of Class A Common stock to
Class C Common stock................ -- -- -- --
Conversion of Class C Common stock to
Class A Common stock................ -- -- -- --
Dividends and accretion on Redeemable
preferred stock..................... -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- --
Payments received on Stock
subscriptions receivable............ -- -- -- --
Compensation expense.................. -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuances of Common stock............. 3,823,450 38 1,818,181 18
Repurchase of common stock............ (17,500) -- -- --
Conversion of Class B Common stock to
Class A Common stock................ 1,818,182 18 (1,818,181) (18)
Compensation expense.................. -- -- -- --
Elimination of Capstar Broadcasting
Partners, Inc. common stock......... (15,039,632) (150) -- --
Issuance of Common stock.............. 960,148 10 2,655,926 27
Repurchase of Common stock............ (118,795) (1) -- --
Issuance of shares in connection with
merger.............................. 1,737,486 17 2,162,064 21
Redemption of Redeemable preferred
stock............................... -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- --
Payments received on Stock
subscriptions receivable............ -- -- -- --
Net loss.............................. -- -- -- --
------------ ------- ----------- ------
Balance at December 31, 1997............ 2,578,839 26 4,817,990 48
Issuances of Common stock
(unaudited)......................... -- -- 558,496 6
Conversion of Class C Common stock to
Class A Common stock (unaudited).... 500 -- -- --
Repurchase of Common stock
(unaudited)......................... (36,363) (1) -- --
Compensation expense (unaudited)...... -- -- -- --
Accrued interest on stock
subscriptions receivable
(unaudited)......................... -- -- -- --
Payments received in stock
subscriptions receivable
(unaudited)......................... -- -- -- --
Net loss (unaudited).................. -- -- -- --
------------ ------- ----------- ------
Balance at March 31, 1998 (unaudited)... 2,542,976 $ 25 5,376,486 $ 54
============ ======= =========== ======

<CAPTION>
CAPSTAR BROADCASTING CORPORATION
*(CAPSTAR BROADCASTING PARTNERS, INC. THROUGH JUNE 20, 1997)
-------------------------------------------------------------------
CLASS C
COMMON STOCK RETAINED
------------------------ ADDITIONAL STOCK EARNINGS
NUMBER OF PAR PAID-IN SUBSCRIPTIONS (ACCUMULATED
SHARES VALUE CAPITAL RECEIVABLE DEFICIT)
----------- ----- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1995.............. -- $ -- $ -- $ -- $ 968
Shares of Class A Common stock
contributed to the company by a
stockholder......................... -- -- -- -- --
Issuance of voting Common stock....... -- -- -- -- --
Issuance of Class B Common stock...... -- -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- -- --
Dividends on Redeemable preferred
stock............................... -- -- -- -- (8)
Net income............................ -- -- -- -- 1,570
----------- ----- -------- ------- --------
Balance at December 31, 1995............ -- -- -- -- 2,530
Issuance of Common stock.............. -- -- -- -- --
Issuance of Class A Common stock...... -- -- -- -- --
Issuance of Class B Common stock...... -- -- -- -- --
Issuance of Class C Common stock...... -- -- -- -- --
Conversion of Common stock to Class A
Common stock........................ -- -- -- --
Conversion of Class A and B Common
stock to Common stock............... -- -- -- -- --
Issuance of warrants.................. -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- -- --
Dividends and accretion on Redeemable
preferred stock..................... -- -- -- -- --
Unearned compensation-stock issued for
nonrecourse notes................... -- -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuance of common stock.............. -- -- 94,061 -- --
Issuance of warrants.................. -- -- 744 -- --
Net loss.............................. -- -- -- -- (11,957)
----------- ----- -------- ------- --------
Balance at December 31, 1996............ -- -- 94,805 -- (9,427)
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock.............. -- -- -- -- --
Conversion of Class A Common stock to
Class C Common stock................ -- -- -- -- --
Conversion of Class C Common stock to
Class A Common stock................ -- -- -- -- --
Dividends and accretion on Redeemable
preferred stock..................... -- -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- -- -- --
Payments received on Stock
subscriptions receivable............ -- -- -- -- --
Compensation expense.................. -- -- -- -- --
CAPSTAR BROADCASTING CORPORATION*:
Issuances of Common stock............. -- -- 61,942 (1,596) --
Repurchase of common stock............ -- -- (175) -- --
Conversion of Class B Common stock to
Class A Common stock................ -- -- --
Compensation expense.................. -- -- 1,825 -- --
Elimination of Capstar Broadcasting
Partners, Inc. common stock......... -- -- 150 -- --
Issuance of Common stock.............. 18,187,550 182 89,570 (550) --
Repurchase of Common stock............ -- -- (764) -- --
Issuance of shares in connection with
merger.............................. 4,624,797 46 43,823 (2,485) --
Redemption of Redeemable preferred
stock............................... -- -- -- -- --
Accrued interest on Stock
subscriptions receivable............ -- -- 148 (148) --
Payments received on Stock
subscriptions receivable............ -- -- -- 405 --
Net loss.............................. -- -- -- -- (45,740)
----------- ----- -------- ------- --------
Balance at December 31, 1997............ 22,812,347 228 291,324 (4,374) (55,167)
Issuances of Common stock
(unaudited)......................... 40,225,564 402 556,223 -- --
Conversion of Class C Common stock to
Class A Common stock (unaudited).... (500) -- -- -- --
Repurchase of Common stock
(unaudited)......................... -- -- (483) -- --
Compensation expense (unaudited)...... -- -- 15,793 -- --
Accrued interest on stock
subscriptions receivable
(unaudited)......................... -- -- 30 (30) --
Payments received in stock
subscriptions receivable
(unaudited)......................... -- -- -- 1,562 --
Net loss (unaudited).................. -- -- -- -- (29,805)
----------- ----- -------- ------- --------
Balance at March 31, 1998 (unaudited)... 63,037,411 $ 630 $862,887 $(2,842) $(84,972)
=========== ===== ======== ======= ========

TOTAL
STOCKHOLDER'S
EQUITY
-------------
<S> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1995.............. $ 970
Shares of Class A Common stock
contributed to the company by a
stockholder......................... --
Issuance of voting Common stock....... 5
Issuance of Class B Common stock...... 27
Accrued interest on Stock
subscriptions receivable............ --
Dividends on Redeemable preferred
stock............................... (8)
Net income............................ 1,570
--------
Balance at December 31, 1995............ 2,564
Issuance of Common stock.............. (12)
Issuance of Class A Common stock...... 184
Issuance of Class B Common stock...... 31
Issuance of Class C Common stock...... 61
Conversion of Common stock to Class A
Common stock........................ --
Conversion of Class A and B Common
stock to Common stock............... --
Issuance of warrants.................. 3,884
Accrued interest on Stock
subscriptions receivable............ --
Dividends and accretion on Redeemable
preferred stock..................... (1,350)
Unearned compensation-stock issued for
nonrecourse notes................... 5,432
CAPSTAR BROADCASTING CORPORATION*:
Issuance of common stock.............. 94,155
Issuance of warrants.................. 744
Net loss.............................. (11,957)
--------
Balance at December 31, 1996............ 93,736
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock.............. --
Conversion of Class A Common stock to
Class C Common stock................ --
Conversion of Class C Common stock to
Class A Common stock................ --
Dividends and accretion on Redeemable
preferred stock..................... (1,693)
Accrued interest on Stock
subscriptions receivable............ --
Payments received on Stock
subscriptions receivable............ 36
Compensation expense.................. 8,750
CAPSTAR BROADCASTING CORPORATION*:
Issuances of Common stock............. 60,402
Repurchase of common stock............ (175)
Conversion of Class B Common stock to
Class A Common stock................ --
Compensation expense.................. 1,825
Elimination of Capstar Broadcasting
Partners, Inc. common stock......... --
Issuance of Common stock.............. 89,239
Repurchase of Common stock............ (765)
Issuance of shares in connection with
merger.............................. 31,443
Redemption of Redeemable preferred
stock............................... (5,378)
Accrued interest on Stock
subscriptions receivable............ --
Payments received on Stock
subscriptions receivable............ 405
Net loss.............................. (45,740)
--------
Balance at December 31, 1997............ 232,085
Issuances of Common stock
(unaudited)......................... 556,631
Conversion of Class C Common stock to
Class A Common stock (unaudited).... --
Repurchase of Common stock
(unaudited)......................... (484)
Compensation expense (unaudited)...... 15,793
Accrued interest on stock
subscriptions receivable
(unaudited)......................... --
Payments received in stock
subscriptions receivable
(unaudited)......................... 1,562
Net loss (unaudited).................. (29,805)
--------
Balance at March 31, 1998 (unaudited)... $775,782
========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-7
<PAGE> 162

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ---------------------
1995 1996 1997 1997 1998
-------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 1,570 $ (11,957) $ (45,740) $ (8,203) $ (29,805)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Loss on early extinguishment of debt........... -- 1,188 2,403 598 --
Depreciation and amortization.................. 1,134 4,141 26,415 3,725 11,032
Noncash interest............................... 323 2,626 24,047 2,866 6,737
Deferred income taxes.......................... -- 547 (12,198) (2,357) (4,961)
Noncash compensation expense................... -- 6,176 10,575 2,469 15,793
Write-off of pending acquisition costs......... -- 105 -- -- --
Provision for uncollectible accounts
receivable................................... 195 661 2,044 223 632
Dividends and accretion on preferred stock of
subsidiary................................... -- -- 6,560 -- 3,052
Non cash interest income....................... -- -- (755) -- --
(Gain) loss on sale of broadcasting property... (2,389) -- 908 -- --
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable.......................... (1,690) (5,331) (12,029) 753 (892)
Prepaid expenses and other current assets.... 159 (1,002) 252 (1,007) (1,124)
Accounts payable and accrued expenses........ 2,021 507 1,800 1,440 (108)
Income taxes payable......................... (64) -- 2,417 -- (1,385)
-------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities.............................. 1,259 (2,339) 6,699 507 (1,029)
-------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of broadcasting property....... 3,650 -- 35,932 -- 52,335
Purchase of property and equipment................ (495) (2,478) (10,020) (1,679) (4,162)
Payments for acquisitions, net of cash acquired... (20,227) (149,612) (505,375) (129,644) (307,391)
Payments for pending acquisitions................. (1,968) (3,342) (6,895) (16,193) (8,138)
Other investing activities, net................... (608) (147) (644) (161) (353)
-------- --------- --------- --------- ---------
Net cash used in investing activities..... (19,648) (155,579) (487,002) (147,677) (267,709)
-------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.......... -- -- 349,496 150,284 --
Proceeds from Credit Facilities................... 36,146 64,647 207,406 22,300 105,600
Repayment of long-term debt and Credit
Facilities..................................... (17,584) (13,210) (200,249) (59,842) (248,256)
Payments of financing related costs............... (897) (2,936) (25,169) (11,022) --
Net proceeds from issuance of common stock........ 31 94,155 145,149 55,618 556,631
Net proceeds from issuance of preferred stock..... -- 20,979 95,071 -- --
Net proceeds from issuance of warrants............ -- 3,884 -- -- --
Payments on subscribed stock...................... -- -- -- -- 1,562
Redemption of preferred stock..................... -- -- (30,223) (811) --
Purchase of common stock.......................... -- -- (940) (175) (484)
-------- --------- --------- --------- ---------
Net cash provided by financing
activities.............................. 17,696 167,519 540,541 156,352 415,053
-------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... (693) 9,601 60,238 9,182 146,315
Cash and cash equivalents at beginning of period.... 913 220 9,821 9,821 70,059
-------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.......... $ 220 $ 9,821 $ 70,059 $ 19,003 $ 216,374
======== ========= ========= ========= =========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-8
<PAGE> 163

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The Company intends to make a public offering of up to 31,000,000 shares of
its Class A Common Stock. In connection with the public offering, it is
contemplated that the stockholders will authorize a one for ten reverse stock
split to be effective prior to the closing of the public offering. Also in
connection with this offering the Company intends to amend its Articles of
Incorporation to be effective prior to the closing of the offering and change
the aggregate number of shares authorized to be issued to 1,150,000,000 shares
consisting of: (i) 750,000,000 shares of Class A Common Stock; (ii) 150,000,000
shares of Class B Common Stock; (iii) 150,000,000 shares of Class C Common
Stock; and (iv) 100,000,000 shares of Preferred Stock. All share information
included in the accompanying consolidated financial statements and notes thereto
has been retroactively adjusted to reflect the reverse stock split and the
change in the number of shares authorized to be issued.

1. ORGANIZATION AND BUSINESS:

Capstar Broadcasting Corporation ("Capstar Broadcasting"), a holding
company controlled by Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("HM Fund
III"), and its direct and indirect wholly owned subsidiaries, (collectively, the
"Company") operate in a single industry segment, which segment encompasses the
ownership and management of radio broadcast stations located primarily in
mid-sized markets throughout the United States. At December 31, 1997, the
Company owned and operated, provided programming to or sold advertising on
behalf of 124 FM stations and 59 AM stations.

In June 1997, Capstar Broadcasting was formed and exchanged all of its
shares of common stock for all of the outstanding common stock of Capstar
Broadcasting Partners, Inc. ("Capstar Partners"). The transaction resulted in
the formation of a new holding company and resulted in no change in ownership
and was accounted for as a reorganization at historical cost. After this
transaction was completed Capstar Broadcasting owned 100% of Capstar Partners
and its subsidiary Capstar Radio Broadcasting Partners, Inc. ("Capstar Radio").

On October 16, 1996, Capstar Partners acquired Capstar Radio and its wholly
owned subsidiaries pursuant to a merger agreement dated June 21, 1996. The
acquisition of Capstar Radio has been accounted for under the purchase method of
accounting and has been included in the consolidated financial statements since
the date of its acquisition on October 16, 1996.

In July 1997, the Company acquired GulfStar Communications, Inc. ("Former
GulfStar"), a company controlled by the general partner of HM Fund III. Pursuant
to the Merger Agreement, each share of Former GulfStar's common stock was
converted into shares of the Company subject to a conversion ratio calculated
based upon the relative value of the Company and Former GulfStar, principally
determined by utilizing projected broadcast which flows for the year ended
December 31, 1998. As a result of the merger, GulfStar became a wholly owned
subsidiary. Due to the fact that the Company and Former GulfStar were under
common control at the time of the merger, the transfer of the assets and
liabilities of Former GulfStar has been accounted for at historical cost in a
manner similar to a pooling-of-interests except that the acquisition by the
Company of the minority interest of Former GulfStar has been accounted for by
the purchase method. For financial accounting purposes the merger with Former
GulfStar resulted in a change in reporting entity and the restatement of the
financial statements for all periods prior to July 1997, to give retroactive
effect to the merger and present the combined consolidated results of operations
of the Company and its direct and indirect wholly owned subsidiaries and Former
GulfStar for the periods the entities were under common control.

F-9
<PAGE> 164
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Separate results of operations of the combined entities to the date of the
merger are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
----------------------- ENDED JUNE 30,
1995 1996 1997
--------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Net broadcast revenue:
Capstar Broadcasting........................... $ -- $ 10,303 $ 41,862
GulfStar....................................... 15,797 32,563 23,294
------- -------- --------
$15,797 $ 42,866 $ 65,156
======= ======== ========
Extraordinary item:
Capstar Broadcasting........................... $ -- $ -- $ 851
GulfStar....................................... -- 1,188 --
------- -------- --------
$ -- $ 1,188 $ 851
======= ======== ========
Net income (loss):
Capstar Broadcasting........................... $ -- $ (3,757) $(12,503)
GulfStar....................................... 1,570 (8,200) (8,842)
------- -------- --------
$ 1,570 $(11,957) $(21,345)
======= ======== ========
</TABLE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its direct and indirect wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

The Capstar Radio Notes are guaranteed by every direct and indirect
subsidiary of Capstar Radio. There are no non-guarantor subsidiaries. The
guarantees by the guarantor subsidiaries are full, unconditional, and joint and
several. All of the guarantor subsidiaries are wholly-owned. The Company is a
holding company with no assets, liabilities or operations other than its
investment in its subsidiaries. Separate financial statements of each guarantor
have not been included as management has determined that they are not material
to investors.

Interim Financial Information

The consolidated financial statements and following notes, insofar as they
are applicable to the three-month periods ended March 31, 1998 and 1997 and
transactions subsequent to March 26, 1998, the date of the Report of Independent
Accountants, are not covered by the Report of Independent Accountants. In the
opinion of management, all adjustments necessary for a fair presentation of the
unaudited consolidated financial position as of March 31, 1998, and the results
of operations and cash flows for the three-month periods ended March 31, 1998
and 1997, have been included.

The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the entire year.

Cash Equivalents

For purposes of the accompanying consolidated statement of cash flows, the
Company considers highly liquid investments with original maturities of three
months or less to be cash equivalents.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation
and amortization. Equipment under capital lease obligations is recorded at the
lower of cost or fair market value at the inception of the lease. The costs of
assets retired or otherwise disposed of and the related accumulated depreciation
and amortization

F-10
<PAGE> 165
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

balances are removed from the accounts and any resulting gain or loss is
included in income. Leasehold improvements are amortized over the shorter of
their useful lives or the terms of the related leases. Amortization of assets
recorded under capital leases is included in depreciation expense.

Intangible Assets

FCC licenses and goodwill represent the excess of cost over the fair values
of the identifiable tangible and other intangible net assets acquired. Other
intangible assets comprise costs incurred for pending acquisitions, noncompete
agreements, organization costs incurred in the incorporation of the Company,
deferred financing costs and costs related to favorable tower and facility
leases. Pending acquisition costs are deferred and capitalized as part of
completed acquisitions or expensed in the period in which the pending
acquisition is terminated. Approximately $897, $2,936 and $25,169 of new
financing costs were incurred for the years ended December 31, 1995, 1996 and
1997, respectively. Deferred financing costs are amortized under the interest
method over the life of the related debt. Accumulated amortization related to
deferred financing costs at December 31, 1996 and 1997 was approximately $13 and
$1,209, respectively.

The Company periodically evaluates intangible and other long-lived assets
for potential impairment in accordance with the provisions of APB Opinion 17
"Intangible Assets" and SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" by analyzing the
operating results, future cash flows on an undiscounted basis, trends and
prospects of the Company's stations, as well as by comparing them to their
competitors. The Company also takes into consideration recent acquisition
patterns within the broadcast industry, the impact of recently enacted or
potential FCC rules and regulations and any other events or circumstances which
might indicate potential impact. At this time, in the opinion of management, no
impairment has occurred.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period-end based on enacted tax laws and
statutory tax rates applicable to the period in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.

Stock Subscriptions Receivable

Stock subscriptions receivable represent promissory notes issued in
connection with the purchase of capital stock. Capital stock issued in
connection with such promissory notes is reported as issued and outstanding and
included in capital stock and additional paid-in capital in the accompanying
consolidated financial statements in the amount of the related promissory note
plus accrued interest. The promissory notes and related accrued interest
receivable are classified as stock subscriptions receivable and included as a
reduction of consolidated stockholder's equity.

Revenue Recognition

Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the programs and commercial announcements are
broadcast.

F-11
<PAGE> 166
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Income (Loss) Per Share

In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share". SFAS No. 128 supersedes Accounting Principles Board ("APB") Opinion No.
15, "Earnings Per Share", and changes the computation of earnings per share
("EPS") by replacing the "primary" EPS requirements of APB No. 15 with a "basic"
EPS computation based upon weighted average shares outstanding. It also requires
dual representation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997. The
Company has adopted SFAS No. 128 for the year ended December 31, 1997 and is
computing EPS under the provisions of SFAS No. 128 for all periods presented.

Advertising Costs

The Company incurs various marketing and promotional costs to add and
maintain listenership. These are expensed as incurred and totaled approximately
$575, $2,668 and $5,731 for the years ended December 31, 1995, 1996 and 1997,
respectively.

Local Marketing Agreements ("LMA")/Joint Sales Agreements ("JSA")

From time to time, the Company enters into LMAs and JSAs, with respect to
radio stations owned by third parties including radio stations that it intends
to acquire. Terms of the agreements generally require the Company to pay a
monthly fee in exchange for the right to provide station programming and sell
related advertising time in the case of an LMA or sell advertising in the case
of a JSA. The agreements terminate upon the acquisition of the property. It is
the Company's policy to expense the fees as incurred as a component of operating
income (loss). The Company accounts for payments received pursuant to LMAs of
owned stations as net revenue to the extent that the payment received represents
a reimbursement of the Company's ownership costs.

Barter Transactions

The Company barters unsold advertising time for products and services. Such
transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast and
related expenses are recorded when the bartered product or service is used.

Concentration of Credit Risk

It is the Company's policy to place its cash with high credit quality
financial institutions, which, at times, may exceed federally insured limits.
Management believes that credit risk in these deposits is minimal and has not
experienced any losses in such accounts.

The Company's revenue and accounts receivable primarily relates to
advertising of products and services within the radio stations' broadcast areas.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. Credit
losses have been within management's expectations and adequate allowances for
any uncollectible accounts receivables are maintained.

Uncertainties and Use of Estimates and Assumptions

The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission. These governmental regulations and policies
could change over time and there can be no assurance that such changes would not
have a material impact upon the Company.
F-12
<PAGE> 167
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The Company's pending acquisition, exchange and merger agreements are
subject to various governmental approvals, including the Department of Justice
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the Federal Communications Commission under the Communications Act of 1934, as
amended.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

New Accounting Pronouncements

In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which significantly changes
current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 132 does
not change the existing measurement or recognition provision of SFAS Nos. 87, 88
or 106.

These pronouncements are effective for financial statements issued for
periods beginning after December 15, 1997. Management does not believe the
implementation of these accounting pronouncements will have a material effect on
its consolidated financial statements.

Reclassifications

Certain amounts in 1995 and 1996 have been reclassified to conform to the
1997 presentation.

3. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES:

During the years ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1998, the Company acquired numerous radio stations and
related broadcasting property and equipment, all of which have been accounted
for under the purchase method of accounting. Accordingly, the purchase price has
been allocated to the assets and liabilities acquired based upon their fair
values at the date of acquisition. The excess of purchase price over the fair
value of net tangible assets acquired is allocated to intangible assets,
primarily FCC licenses. The results of operations associated with the acquired
radio stations have been included in the accompanying consolidated financial
statements from the dates of acquisition. The acquisition activity was funded
primarily through equity infusions by HM Fund III and long-term borrowings.

All consideration paid for the acquisitions scheduled below consisted
solely of cash, notes and the exchange of certain assets except where common
stock or preferred stock was issued as listed. Preferred stock

F-13
<PAGE> 168
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

and common stock were valued at the estimated liquidation value and the
estimated fair value at the date of acquisition, respectively.

<TABLE>
<CAPTION>
STATIONS
ACQUIRED AMOUNT
--------- DATE OF NUMBER OF ASSIGNED
TRANSACTION AM FM ACQUISITION PURCHASE OF COST SHARES ISSUED PER SHARE
----------- --- --- ----------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1995:
Baton Rouge Broadcasting(c)... 1 1 November Stock $ 8,025 1,500(b) $ 500
Narra-Gansett(c).............. 1 1 November Assets 11,908 -- --
Uno Broadcasting(c)........... -- 1 November Assets 1,586 -- --
--------
$ 21,519
========
1996:
Sonance Communications(c)..... 2 6 April Stock $ 1,065 217(a) $1,130
SBG Communications(c)......... 1 1 July Assets 4,038 -- --
Ranger(c)..................... 1 2 July Assets 6,305 -- --
Tshirhart(c).................. -- 1 July Assets 315 -- --
Eagle of Texas(c)............. -- 1 August Assets 728 -- --
Stansell(c)................... -- 1 August Assets 2,061 16(a) $2,000
Steller(c).................... -- 1 September Assets 1,551 -- --
Steller(c).................... -- 1 September Assets 1,812 -- --
Commodore Media............... 12 18 October Stock 122,016 -- --
Adventure Communications...... 3 4 October Assets 12,600 -- --
KWTX Broadcasting(c).......... 1 1 November Assets 4,172 -- --
Comcorp(c).................... -- 1 December Assets 6,385 -- --
--------
$163,048
========
1997:
Tippie Communications(c)...... -- 1 January Assets $ 2,490 -- --
South Plains
Broadcasting(c)............. 1 1 February Assets 3,166 -- --
J. Thomas Development(c)...... 1 3 February Assets 6,292 -- --
Osborn Communications......... 6 12 February Stock 102,923 163,636(a) $ 11
Noalmark(c)................... -- 2 March Assets 11,471 -- --
Space Coast: EZY/Roper/City... 2 3 April Assets 12,038 -- --
Taylor Communications......... 1 1 April Assets 1,308 -- --
Ft. Smith(c).................. 1 1 May Assets 3,456 -- --
Miller Broadcasting(c)........ -- 2 May Stock 4,967 -- --
Dixie Broadcasting............ 2 1 May Stock 23,442 -- --
Cavalier Communications....... 1 4 July Assets 8,267 -- --
Community Pacific............. 5 6 July Assets 35,907 -- --
Stephens Radio(c)............. -- 1 July Stock 2,647 -- --
McForhun/Livingston........... 1 1 August Assets 7,968 -- --
Benchmark Communications...... 10 20 August Assets 192,128 157,895(a) $13.30
Emerald City Radio Partners... -- 1 August Assets 10,024 -- --
Madison Radio Group........... 2 4 August Assets 41,662 -- --
Booneville Broadcasting....... -- 1 September Assets 1,648 -- --
WRIS, Inc. ................... -- 1 September Assets 3,374 -- --
American General Media........ -- 1 October Assets 3,409 -- --
Griffith Communications....... -- 3 October Assets 5,789 -- --
KLAW Broadcasting............. -- 2 October Assets 2,539 -- --
Ameron Broadcasting........... 1 2 October Assets 32,606 -- --
KJEM-FM....................... -- 1 October Assets 1,986 -- --
COMCO Broadcasting............ 2 4 November Assets 7,160 -- --
--------
528,667
</TABLE>

F-14
<PAGE> 169
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

- ---------------

(a) Common Stock

(b) Preferred Stock

The acquisitions are summarized in the aggregate by period as follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------
1995 1996 1997 1998
------- -------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Consideration:
Cash and notes....................... $19,629 $153,050 $493,353 $305,384
Common stock (233 Former GulfStar
shares and 2,704,624 shares in
1996 and 1997, respectively
respectively)..................... -- 276 35,595 --
Preferred stock (1,500 Former
GulfStar shares).................. 750 -- -- --
Acquisition costs.................... 1,140 9,251 31,414 13,522
Exchange of assets................... -- 471 -- --
------- -------- -------- --------
Total........................ $21,519 $163,048 $560,362 $318,906
======= ======== ======== ========
Assets acquired and liabilities
assumed:
Cash................................. $ -- $ 6,120 $ 12,297 $ 631
Accounts receivable.................. 29 9,020 14,657 14,079
Prepaid expenses and other........... 152 590 2,853 388
Property and equipment............... 3,353 23,471 76,050 31,082
Intangible assets.................... 21,087 290,243 578,137 354,150
Other assets......................... -- 704 1,051 --
Accounts payable..................... -- (5,811) (7,843) (117)
Accrued liabilities.................. (250) (882) (5,242) (2,355)
Long-term debt....................... -- (82,706) (20,711) --
Capital lease obligations............ (44) (127) (465) --
Deferred income taxes................ (2,808) (77,574) (90,422) (78,952)
------- -------- -------- --------
Total........................ $21,519 $163,048 $560,362 $318,906
======= ======== ======== ========
</TABLE>

F-15
<PAGE> 170
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

During the years ended December 31, 1995 and 1997 and the three months
ended March 31, 1998, the Company sold or otherwise disposed of radio stations
and related broadcasting property and equipment as follows:

<TABLE>
<CAPTION>
STATIONS DISPOSED
TRANSACTION AM FM DATE OF DISPOSITION SALE OF SALES PRICE
----------- -------- -------- ------------------- ------- -----------
<S> <C> <C> <C> <C> <C>
1995:
KLTN-FM................. -- 1 June Assets $ 3,650
1997:
Osborn Ft. Myers........ 1 2 April Assets 11,000
Bryan................... 1 1 September Stock 600
Wilmington.............. -- 1 September Assets 40,000
KASH-AM................. 1 -- November Assets 135
1998 (Unaudited):
Allentown............... 1 1 January Assets 29,000
Jackson................. 2 2 February Assets 20,000
Dayton.................. -- 1 February Assets 3,335
</TABLE>

The following unaudited pro forma summary presents the consolidated results
of operations for the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1997 and 1998 as if the acquisitions and dispositions
completed as of December 31, 1997 and March 31, 1998, respectively, had occurred
on January 1, 1996 and 1997. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisitions and dispositions been made as of that date or of
results which may occur in the future.

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31,
----------------------- -------------------
1996 1997 1997 1998
---------- ---------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net broadcast revenue....................... $210,809 $221,189 $ 58,038 $ 65,836
Loss before extraordinary loss.............. (55,837) (49,608) (9,117) (30,080)
Net loss.................................... (57,025) (52,011) (9,715) (30,080)
Net loss attributable to common stock....... (58,375) (59,082) (10,509) (30,080)
</TABLE>

Subsequent to March 31, 1998, the Company acquired 2 AM and 5 FM radio
stations and related broadcast equipment through several acquisitions for
aggregate consideration of approximately $32,390. The acquisitions were funded
primarily through equity infusions. The Company previously operated 5 of these
stations under either LMA's or JSA's. Also subsequent to March 31, 1998, the
Company acquired Prophet Systems, Inc., a manufacturer, seller and distributor
of combination hardware-software devices which permit the remote programming of
radio station broadcasts, for aggregate consideration of approximately $15.0
million in cash and 285,714 shares of Class A Common Stock with a deemed value
of $10.0 million, or $35.00 per share. The Class A Common Stock will be issued
by the Company after the Offering upon the satisfaction of certain conditions
contained in the asset purchase agreement.

In addition to the matter discussed in Note 17, the Company has entered
into numerous agreements to acquire additional radio stations (8 AM and 22 FM)
and related broadcast equipment for aggregate consideration of approximately
$136,205. The Company currently operates 19 of the stations under either LMA's
or JSA's.

F-16
<PAGE> 171
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Subsequent to March 31, 1998, the Company disposed of 2 AM and 4 FM radio
stations and related broadcast equipment through several dispositions for
aggregate consideration of approximately $39,500. The carrying value of net
assets to be sold related to these stations approximated the contract sales
price.

The Company has also entered into agreements for the disposition of 3 AM
and 7 FM stations for aggregate consideration of approximately $57,466. The
carrying value of net assets to be sold related to these stations approximated
the contract sales price.

4. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DEPRECIABLE DECEMBER 31,
DEPRECIATION LIFE ------------------ MARCH 31,
METHOD (YEARS) 1996 1997 1998
------------- ----------- ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Buildings and improvements....... Straight-line 5-20 $ 4,991 $ 17,006 $ 29,433
Broadcasting and other
equipment...................... Straight-line 3-20 23,723 85,481 101,929
Equipment under capital lease
obligations.................... Straight-line 3-5 463 1,356 1,349
------- -------- --------
29,177 103,843 132,711
Accumulated depreciation and
amortization................... (3,426) (10,336) (13,623)
------- -------- --------
25,751 93,507 119,088
Land............................. 3,575 13,210 15,534
------- -------- --------
$29,326 $106,717 $134,622
======= ======== ========
</TABLE>

Depreciation and amortization expense for the years ended December 31,
1995, 1996 and 1997 and for the three months ended March 31, 1998 was
approximately $580, $1,535, $8,137 and 3,480, respectively.

5. INTANGIBLES:

Intangibles consists of the following:

<TABLE>
<CAPTION>
AMORTIZABLE DECEMBER 31,
AMORTIZATION LIFE ------------------- MARCH 31,
METHOD (YEARS) 1996 1997 1998
--------------- ----------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FCC licenses................. Straight-line 40 $336,407 $861,502 $1,163,932
Goodwill..................... Straight-line 40 1,072 2,784 3,855
Noncompete agreements........ Straight-line 1-3 1,422 6,115 11,115
Organization costs........... Straight-line 5 361 3,040 3,040
Deferred financing costs..... Interest Method -- 2,030 21,358 19,832
Other........................ Straight-line 3-5 1,081 6,700 6,700
-------- -------- ----------
342,373 901,499 1,208,474
Less accumulated
amortization............... (3,961) (25,888) (33,464)
-------- -------- ----------
338,412 875,611 1,175,010
Pending acquisition costs.... 2,664 5,934 8,138
-------- -------- ----------
$341,076 $881,545 $1,183,148
======== ======== ==========
</TABLE>

Amortization expense of intangible assets for the years ended December 31,
1995, 1996 and 1997 and for the three months ended March 31, 1998 was
approximately $554, $2,606, $18,278 and 7,552, respectively.

F-17
<PAGE> 172
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

6. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued compensation................................. $ 642 $ 4,252 $ 2,634
Accrued acquisition costs............................ 954 5,284 9,826
Accrued interest..................................... 1,847 960 7,045
Accrued commissions.................................. 873 2,403 2,974
Other................................................ 1,230 3,927 8,844
------ ------- -------
$5,546 $16,826 $31,323
====== ======= =======
</TABLE>

7. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Credit Facility................................... $ -- $141,700 $ --
1997 Capstar Partners Notes, $277,000 principal,
including unamortized discount of $110,009, due
2009............................................ -- 166,991 172,251
1997 Capstar Radio Notes, $200,000 principal,
including unamortized discount of $762, due
2007............................................ -- 199,238 199,250
1995 Capstar Radio Notes, $76,808 principal,
including unamortized discount of $3,008 at
December 31, 1997, due 2003..................... 76,672 79,816 80,964
Former Credit Facility, bearing interest at 3.5%
over LIBOR...................................... 24,700 -- --
Reducing revolver loans, bearing variable interest
(8.7% at December 31, 1996)..................... 53,794 -- --
Former Term Loan Facility......................... 35,000 -- --
Capital lease obligations and other notes payable
at various interest rates....................... 1,004 6,827 7,260
-------- -------- --------
191,170 594,572 459,725
Less current portion.............................. (3,936) (1,388) (82,598)
-------- -------- --------
$187,234 $593,184 $377,127
======== ======== ========
</TABLE>

Credit Facility

Capstar Radio entered into an amended and restated credit agreement with
various banks in August 1997 (the "Credit Facility"). The Credit Facility
consists of a $200 million revolving loan facility (the "Revolving Loans") and
an additional $150 million of multiple advancing term loans (the "Term Loans").
The Credit Facility matures seven years from the initial borrowing date with the
Revolving Loans then outstanding to be repaid in full on such date. Up to $75
million of the Revolving Loan commitment is available to Capstar Radio for the
issuance of letters of credit. Amounts available under the Credit Facility
amounted to $26,065 at December 31, 1997 due to an outstanding balance of $141.7
million and outstanding letters of credit.

At any time on or after August 12, 1998 (the "Effective Date") and prior to
December 31, 1998, Capstar Radio may request one or more of the banks to make
Term Loans under the Credit Facility, up to an aggregate amount equal to $150
million in up to two advances with a minimum of $50 million for each such
advance. The Term Loans are subject to scheduled annual principal repayments,
payable in equal quarterly

F-18
<PAGE> 173
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

installments. The Term Loans mature on the seventh anniversary of the Effective
Date of the Credit Facility. Term loans may not be reborrowed after payment.

The Revolving Loans and the Term Loans bear interest at a rate based, at
the option of Capstar Radio, on (i) a base rate defined as the higher of 1/2 of
1% in excess of the federal reserve reported certificate of deposit rate or the
administrative agent bank's prime lending rate, plus an incremental rate or (ii)
the Eurodollar rate, plus an incremental rate. The weighted-average interest
rates on Revolving Loans outstanding at December 31, 1996 (Former Credit
Facility) and December 31, 1997 were 10.2% and 9.7%, based on prime rates,
respectively. Capstar Radio pays fees ranging from 0.375% to 0.50% per annum on
the aggregate unused portion of the loan commitment based on the leverage ratio
for the most recent quarter end. In addition, Capstar Radio is required to pay
letter of credit fees.

The Credit Facility contains customary restrictive covenants, which, among
other things and with certain exceptions, limit the ability of Capstar Radio to
incur additional indebtedness and liens in connection therewith, enter into
certain transactions with affiliates, pay dividends, consolidate, merge or
effect certain asset sales, issue additional stock, make capital expenditures
and enter new lines of business. The Credit Facility limits Capstar Radio and
its subsidiaries ability to make additional acquisitions in excess of $100
million on an individual basis without the prior consent of a majority of the
banks. Substantially all the assets of Capstar Radio and its subsidiaries are
restricted. Under the Credit Facility, Capstar Radio is also required to satisfy
certain financial covenants, which require Capstar Radio and its subsidiaries to
maintain specified financial ratios and to comply with certain financial tests,
such as maximum leverage ratio, minimum consolidated EBITDA and minimum
consolidated EBITDA to consolidated net cash interest expense.

Capstar Radio has collateralized the Credit Facility by granting a first
priority perfected pledge of Capstar Radio's assets, including, without
limitation, the capital stock of its subsidiaries. Capstar Partners, Capstar
Broadcasting and all of the direct and indirect subsidiaries of Capstar Partners
(other than the Capstar Radio) have guaranteed the Credit Facility and have
collateralized their guarantees by granting a first priority perfected pledge of
substantially all of their assets.

Through March 31, 1998, the Company's principal shareholder contributed
additional equity totaling $550,000. These funds were used, in part, to pay down
the credit facility in full. Amounts available under the credit facility
amounted to $180,955 at March 31, 1998 due to outstanding letters of credit.

Furthermore, the Company is negotiating a new credit facility which is
anticipated to consist of a $550,000 revolving loan, a $600,000 A term loan, a
$250,000 B term loan and an additional $500,000 multiple advancing term loans
subject to future commitment availability from the lenders.

1997 Capstar Partners Notes

On February 20, 1997, Capstar Partners issued $277.0 million in aggregate
principal amount at maturity of its 12 3/4% Senior Discount Notes due 2009. The
1997 Capstar Partners Notes were issued at a substantial discount from their
aggregate principal amount at maturity, generating gross proceeds to Capstar
Partners of approximately $150.3 million. On September 12, 1997, Capstar
Partners exchanged its 12 3/4% Senior Discount Notes due 2009 (the "1997 Capstar
Partners Notes"), which were registered under the Securities Act of 1933, for
all of the outstanding 12 3/4% Senior Discount Notes due 2009 previously issued
on February 20, 1997. The terms of the 1997 Capstar Partners Notes are identical
in all material respects to the discount notes issued on February 20, 1997. The
1997 Capstar Partners Notes are unsecured, senior obligations of Capstar
Partners and are limited to $277.0 million aggregate principal amount at
maturity and will mature on February 1, 2009. No interest will accrue on the
1997 Capstar Partners Notes prior to February 1, 2002. Thereafter, interest on
the 1997 Capstar Partners Notes will accrue at the rate of 12 3/4% and will be
payable in cash semiannually on February 1 and August 1 commencing on August 1,
2002. The yield to maturity of the

F-19
<PAGE> 174
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1997 Capstar Partners Notes is 12 3/4% (computed on a semi-annual bond
equivalent basis), calculated from February 20, 1997.

The 1997 Capstar Partners Notes may be redeemed at any time on or after
February 1, 2002, in whole or in part, at the option of Capstar Partners at
prices ranging from 106.375% at February 1, 2002 and declining to 100% on
February 1, 2007 (expressed as a percentage of the accreted value in the
redemption date), plus in each case accrued and unpaid interest. In addition,
prior to February 1, 2001, Capstar Partners may, at its option, redeem up to 25%
of the principal amount at maturity of the 1997 Capstar Partners Notes at a
redemption price of 112.75% of the accreted value, out of the proceeds of one or
more public equity offering or major asset sales. Upon the occurrence of a
change in control (as defined in the 1997 Capstar Partners Note Indenture), the
holders of the Capstar Partners Notes have the right to require Capstar Partners
to purchase all or a portion of the 1997 Capstar Partners Notes at a purchase
price equal to (i) 101% of the accreted value if the change in control occurs
before February 1, 2002 or (ii) 101% of the principal amount at maturity, plus
accrued and unpaid interest, if the change in control occurs after February 1,
2002. The 1997 Capstar Partners indenture contains limitations on incurrence of
additional indebtedness, issuance of preferred stock of subsidiaries and
restricted payments, as well as other restrictive covenants.

1997 Capstar Radio Notes

On June 17, 1997, Capstar Radio issued $200.0 million in aggregate
principal amount of its 9 1/4% Senior Subordinated Notes due July 1, 2007. On
September 16, 1997, Capstar Radio exchanged its 9 1/4% Senior Subordinated Notes
due 2007 (the "1997 Capstar Radio Notes"), which were registered under the
Securities Act of 1933, for all of the outstanding notes issued on June 17,
1997. The 1997 Capstar Radio Notes are general unsecured obligations of Capstar
Radio and are subordinated to all senior indebtedness of the Capstar Radio. The
1997 Capstar Radio Notes may be redeemed at anytime on or after July 1, 2002, in
whole or in part, at the option of Capstar Radio at prices ranging from 104.625%
at July 1, 2002 and declining to 100% on or after July 1, 2005, plus in each
case accrued and unpaid interest. In addition, prior to July 1, 2001, Capstar
Radio may redeem up to 25% of the original aggregate principal amount of the
1997 Capstar Radio Notes at a redemption price of 109.25% plus accrued and
unpaid interest with net proceeds of one or more public equity offerings or
major asset sales. Upon the occurrence of a change of control (as defined in the
1997 Capstar Radio Notes indenture), the holders of the 1997 Capstar Radio Notes
have the right to require Capstar Radio to purchase all or a portion of the 1997
Capstar Radio Notes at a price equal to 101% plus accrued and unpaid interest.
The 1997 Capstar Radio Notes indenture contains limitations on incurrence of
additional indebtedness, issuance of preferred stock of subsidiaries and
restricted payments, as well as other restrictive covenants.

1995 Capstar Radio Notes

The 1995 Capstar Radio Notes in the aggregate principal amount of $76,808
bear interest at a rate of 7 1/2% per annum through May 1, 1998 and 13 1/4% per
annum through maturity on May 1, 2003, resulting in an effective interest rate
of approximately 12.1% per annum. The 1995 Capstar Radio Notes are general
unsecured obligations of Capstar Radio, subordinated to all senior indebtedness
of Capstar Radio, and are guaranteed on a senior subordinated basis, jointly and
severally, by all of Capstar Radio's subsidiaries. The subsidiary guarantors are
wholly owned subsidiaries of Capstar Radio. Capstar Radio may redeem the 1995
Capstar Radio Notes, in whole or in part, at any time on or after May 1, 1999 at
prices ranging from 107.5% at May 1, 1999 and declining to 100% after May 1,
2002, plus in each case accrued and unpaid interest. In addition, prior to May
1, 1998, the Company may redeem in the aggregate up to one third of the original
principal amount of the 1995 Capstar Radio Notes at a price equal to 108% of the
accreted value, plus accrued and unpaid interest, out of the proceeds of one or
more public equity offerings. Upon the occurrence of a change in control (as
defined in the 1995 Capstar Radio Notes indenture), the Company will be required
to make an offer to purchase the outstanding 1995 Capstar Radio Notes at a price
equal to 101% of their

F-20
<PAGE> 175
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

accreted value, plus accrued and unpaid interest. The 1995 Capstar Radio Notes
indenture contains limitations of additional indebtedness and restricted
payments, as well as other restrictive covenants.

During 1996, Capstar Radio significantly modified the terms of its existing
reducing revolver loans and accelerated the maturity date from March 31, 2003 to
December 31, 1996. In connection with this modification, Capstar Radio
recognized an extraordinary charge in the accompanying consolidated statement of
operations for 1996 relating to the write off of approximately $1,895 ($1,188,
net of income tax benefit) of unamortized deferred financing costs.

On March 26, 1998, Capstar Radio announced an offer to purchase for cash
any and all of its $76,808,000 aggregate principal amount of 13 1/4% Senior
Subordinated Notes due 2003 (the "13 1/4% Notes"). On April 28, 1998, Capstar
Radio purchased all of the outstanding 13 1/4% Notes for an aggregate purchase
price of $90.2 million including a $10.7 million purchase premium and $2.7
million of accrued interest, resulting in an extraordinary loss of approximately
$4.7 million, net of tax, which will be recognized in the second quarter of
1998.

The scheduled maturities of the Company's outstanding long-term debt at
December 31, 1997 for each of the next five years and thereafter are as follows:

<TABLE>
<CAPTION>
<S> <C>
1998.............................................. $ 1,388
1999.............................................. 2,658
2000.............................................. 819
2001.............................................. 400
2002.............................................. 1,215
Thereafter........................................ 588,092
--------
$594,572
========
</TABLE>

8. CAPITAL STOCK:

The rights of holders of the Common Stock are identical in all respects,
except for voting rights. The Class A Common Stock and the Class C Common Stock
vote together as a single class on all matters submitted to a vote of
stockholders, with each share of Class A Common Stock entitled to one vote and
each share of Class C Common Stock entitled to ten votes, except (i) the holders
of Class A Common Stock, voting as a separate class, will be entitled to elect
two Class A Directors, (ii) with respect to any proposed "going private"
transaction with Hicks Muse or any of its affiliates, each share of Class A
Common Stock and Class C Common Stock shall be entitled to one vote, but the
holders of Class A Common Stock and Class C Common Stock shall vote together as
a single class in such "going private" transactions, and (iii) as otherwise
required by law. The Class B Common Stock has no voting rights except as
otherwise required by law. Except as otherwise required by law and except in
connection with the election of the directors of the Company, the vote of the
holders of at least a majority in voting power of the outstanding shares then
entitled to vote shall decide any question brought before a meeting of the
stockholders of the Company. The directors of the Company shall be elected at a
meeting of the stockholders at which a quorum is present by a plurality of the
votes of the shares entitled to vote on the election of directors or a class of
directors.

Dividends. Subject to right of the holders of any class of Preferred Stock,
holders of shares of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available for such
purpose. No dividend may be declared or paid in cash or property on any share of
any class of Common Stock unless simultaneously the same dividend is declared or
paid on each share of the other class of Common Stock; provided that, in the
event of stock dividends, holders of a specific class of Common Stock shall be
entitled to receive only additional share of such class.

F-21
<PAGE> 176
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Conversion of Class B Common Stock and Class C Common Stock. The shares of
Class B Common Stock and Class C Common Stock are convertible, in whole or in
part, at the option of the holder or holders thereof at any time into a like
number of shares of Class A Common Stock, subject to certain conditions. Upon
the sale or other transfer of any share or shares of Class B Common Stock or
Class C Common Stock to any person (subject to certain exceptions) other than
Hicks Muse and its affiliates, each share so sold or transferred shall
automatically be converted into one share of Class A Common Stock, subject to
certain conditions.

9. REDEEMABLE PREFERRED STOCK:

On June 17, 1997, Capstar Partners issued 1,000,000 shares of its
cumulative (after July 1, 2002) par value $.01 per share 12% Senior Exchangeable
Preferred Stock (the "Preferred Stock Offering"). All of the proceeds from the
Preferred Stock Offering were used to finance the GulfStar Merger. On September
12, 1997, Capstar Partners exchanged its 12% Senior Exchangeable Preferred Stock
(the "Senior Exchangeable Preferred Stock"), which was registered under the
Securities Act, for all of the outstanding 12% Senior Exchangeable Preferred
Stock previously issued on June 17, 1997. Capstar Partners has authorized
10,000,000 shares of the Senior Exchangeable Preferred Stock. Dividends on the
Senior Exchangeable Preferred Stock accumulate from the date of issuance and are
payable semi-annually, commencing January 1, 1998, at a rate per annum of 12% of
the liquidation preference per share. Dividends may be paid, at Capstar
Partners' option, on any dividend payment date occurring on or prior to July 1,
2002 either in cash or in additional shares of the Senior Exchangeable Preferred
Stock. The liquidation preference of the Senior Exchangeable Preferred Stock is
$100.00 per share. The Senior Exchangeable Preferred Stock is redeemable at
Capstar Partners' option, in whole or in part at any time on or after July 1,
2002, at prices ranging from 106% at July 1, 2002 and declining to 100% after
July 1, 2007, plus, without duplication, accumulated and unpaid dividends to the
date of redemption. In addition, subject to certain exceptions, prior to July 1,
2001, Capstar Partners may, at its option, redeem up to 25% of the Senior
Exchangeable Preferred Stock with the net cash proceeds from one or more Public
Equity or Major Asset Sales (both as defined in the Certificate of Designation
governing the Senior Exchangeable Preferred Stock), at the redemption prices set
forth in the Certificate of Designation, plus, without duplication, accumulated
and unpaid dividends to the redemption date. The Senior Exchangeable Preferred
Stock is subject to mandatory redemption in whole on July 1, 2009 at a price
equal to 100% of the liquidation preference thereof, plus all accrued and unpaid
dividends.

The Senior Exchangeable Preferred Stock was recorded at the amount of the
net proceeds of approximately $95 million. The carrying amount is being
accreted, using the interest method, to equal the mandatory redemption amount at
the mandatory redemption date. The dividend due January 1, 1998 was declared and
paid in the form of issuance of 64,667 additional shares of the Senior
Exchangeable Preferred Stock.

Capstar Partners may, at its option, subject to certain conditions, on any
scheduled dividend payment date, exchange the Senior Exchangeable Preferred
Stock, in whole but not in part, for 12% Capstar Exchange Debentures. Holders of
the Senior Exchangeable Preferred Stock will be entitled to receive $1.00
principal amount of 12% Capstar Exchange Debentures for each $1.00 in
liquidation preference of Senior Exchangeable Preferred Stock.

The Certificate of Designation provides that, upon the occurrence of a
change of control (as defined in the Capstar Certificate of Designation), each
holder has the right to require Capstar Partners to repurchase all or a portion
of such holder's Senior Exchangeable Preferred Stock in cash at a purchase price
equal to 101% of the liquidation preference thereof, plus, without duplication,
an amount in cash equal to all accumulated and unpaid dividends per share to the
date of repurchase.

F-22
<PAGE> 177
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

In addition, the Certificate of Designation provides that, prior to July 1,
2002, upon the occurrence of a change of control, Capstar Partners has the
option to redeem the Senior Exchangeable Preferred Stock in whole but not in
part (a "Change of Control Redemption") at a redemption price equal to 100% of
the liquidation preference thereof, plus the applicable premium (as defined in
the Certificate of Designation).

The Certificate of Designation contains restrictive provisions that, among
other things, limit the ability of Capstar Partners and its subsidiaries to
incur additional indebtedness, pay dividends or make certain other restricted
payments, or merge or consolidate with or sell all or substantially all of their
assets to any other person.

The Senior Exchangeable Preferred Stock, with respect to dividend rights
and rights on liquidation, winding-up and dissolution, ranks (a) senior to all
classes of common stock of Capstar Partners and to each other series of
preferred stock established after June 17, 1997 (the "Preferred Stock Issuance
Date") by the Board of Directors of Capstar Partners the terms of which
expressly provide that such class or series will rank junior to the Senior
Exchangeable Preferred Stock (the "Junior Stock"), subject to certain
conditions, (b) on a parity with each other class of preferred stock established
after the Preferred Stock Issuance Date by the Board of Directors of Capstar
Partners the terms of which expressly provide that such class or series will
rank on a parity with the Senior Exchangeable Preferred Stock and (c) subject to
certain conditions, junior to each class of Preferred Stock established after
the Preferred Stock Issuance Date by the Board of Directors of Capstar Partners
the terms of which expressly provide that such class will rank senior to the
Senior Exchangeable Preferred Stock.

GulfStar Preferred

In connection with issuance of its 12% redeemable preferred shares, Former
GulfStar granted, to the holders of the preferred shares, warrants for the
purchase of 8,098 shares of Former GulfStar's common stock at a rate of $.01 per
share.

Of the proceeds received from issuance of the preferred shares, $3,884 was
assigned to the warrants and credited to additional paid-in capital in the
accompanying consolidated financial statements. Such value is being accreted to
redeemable preferred stock using the interest method over the period from
issuance to mandatory redemption. These warrants were exercised in 1997 in
connection with the GulfStar merger.

In conjunction with the merger of GulfStar into a direct subsidiary of
Capstar Broadcasting in July 1997, Capstar Radio redeemed all of the outstanding
shares of redeemable preferred stock of GulfStar. The liquidation value as of
the date of redemption was approximately $29 million, which included $2,817 in
accumulated dividends. The redemption resulted in a charge to additional paid-in
capital of $5,378, for the amount that the liquidation value exceeded the
carrying value.

10. NONCASH COMPENSATION EXPENSE:

Warrants

During 1996 and 1997, the Company issued warrants to the Company's Chief
Executive Officer pursuant to the terms of a stockholder's agreement executed on
October 16, 1996 between the Company, the Company's Chief Executive Officer and
Capstar Broadcasting's principal stockholder. Under the terms of the agreement,
upon the sale of additional shares of Capstar Broadcasting common stock to its
principal stockholder, the Company's Chief Executive Officer is entitled to
receive, for no additional consideration, warrants entitling him to purchase
additional shares of Capstar Broadcasting common stock (Class C). The warrants
were issued at an exercise price equal to the fair market value of the
underlying stock at the date of issue, increased at an annual rate of 8% per
year. The warrants expire ten years from the date of issue. Certain of the
warrants can be exercised at any time prior to the expiration date. The
remaining warrants cannot be

F-23
<PAGE> 178
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

exercised prior to the date upon which distributions (cash or marketable
securities) have been made to the Company's principal stockholder equal to an
internal rate of return of at least 30% on each investment (the "Triggering
Event"). Following is a summary of the warrants issued in connection with this
agreement.

<TABLE>
<CAPTION>
NUMBER OF SHARES (IN 000'S)
------------------------------
EXERCISE PRICE EXERCISABLE PRINCIPAL
PER SHARE UPON TRIGGERING STOCKHOLDER
DATE ISSUED (EXCLUDING INTEREST) EXERCISABLE EVENT INVESTMENT
----------- -------------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
October 16, 1996............ $10.00 744,000 186,000 $90,000
February 20, 1997........... 11.00 204,256 51,063 34,800
July 8, 1997................ 13.30 98,797 224,323 75,000
--------- -------
1,047,051 461,386
========= =======
</TABLE>

The Company has accounted for these warrants as variable in accordance with
Accounting Principles Board ("APB") Opinion No. 25 and recognized noncash
compensation expense of approximately $744 and $1,825 in 1996 and 1997,
respectively.

In April 1998, the warrants were amended and restated, such that (i) the
exercise price of the warrants is $14.40, $15.40 and $18.10 for the warrants
issued on October 16, 1996, February 20, 1997 and July 8, 1997, respectively,
and (ii) the warrants which were exercisable upon the triggering event are
exercisable on the earlier to occur of June 30, 2001 or a sale of the Company as
defined in the Amended and Restated Warrant Agreement.

Through March 31, 1998, Capstar Broadcasting's principal stockholders
contributed additional equity totaling approximately $557,000 for which
approximately 560,000 shares of Class B Common Stock and 40.2 million shares of
Class C Common Stock were issued. At this time, Capstar Broadcasting has not
issued additional warrants for this contribution.

Subsequent to March 31, 1998, Capstar Broadcasting's principal stockholders
contributed additional equity totaling $76,702 for which approximately 1.9
million and 3.6 million shares of Class B and Class C Common Stock,
respectively, were issued. In addition, the Company issued 187,969 and 500,000
warrants to the Company's principal stockholder at a fixed exercise price of
$17.10 and $14.00, respectively. The Company also issued 300,000 warrants at
fixed exercise prices of $14.00 to other individuals. The terms of the 187,969
warrants are identical to the portion of the amended and restated warrants
discussed above which are exercisable on the earlier to occur of June 30, 2001
or a sale of the Company. The remaining warrants are only exercisable upon the
occurrence of a certain triggering event. Certain of these warrants have
variable terms and therefore the Company expects to record additional noncash
compensation expense in future periods based upon the difference between the
fair value or the Company's Common Stock and the exercise price of the Warrants.

Stock Subscriptions

Former GulfStar issued 623 and 713 shares of common stock in 1995 and 1996,
respectively, for prices ranging from approximately $280 to $3,090 per share. In
each case, Former GulfStar received recourse and non-recourse notes for 25% and
75% of the purchase price, respectively.

Former GulfStar applied APB Opinion No. 25 in accounting for the stock
issued for non-recourse notes. The compensation cost charged against income was
approximately $5,432 and $8,750 in 1996 and 1997, respectively. For certain of
the sales to employees during 1996, compensation expense is considered unearned
until Former GulfStar's rights to repurchase the shares expire in accordance
with the terms of underlying securities purchase agreement. Such rights expired
during 1997 upon the merger of Former GulfStar and the Company.
F-24
<PAGE> 179
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

In conjunction with the acquisition of Former GulfStar by the Company in
July 1997, all of Former GulfStar's then outstanding common stock and stock
subscriptions were exchanged for the Company's common stock and stock
subscriptions.

11. STOCK OPTIONS:

In June 1997, the Company adopted the 1997 Stock Option Plan (the "Plan")
providing for the granting of options to purchase shares of the Company's common
stock to the Company's key employees and eligible non-employees, as defined by
the Plan and determined by the Company's Board Directors. The Plan replaced the
prior stock option plan. The Company applies APB Opinion No. 25 and related
interpretations in accounting for the Plan. In 1995, the FASB issued SFAS No.
123 "Accounting for Stock-Based Compensation," which, if adopted by the Company,
would change the methods the Company applies in recognizing the cost of the
Plan. Adoption of the cost recognition provisions of SFAS No. 123 is optional
and the Company has decided not to elect these provisions of SFAS No. 123.
However, pro forma disclosures as if the Company adopted the cost recognition
provisions of SFAS No. 123 in 1995 are required by SFAS No. 123 and are
presented below.

As of December 31, 1997, an aggregate of 2,200,000 shares was approved for
issuance under the Plan. The Company intends to increase the number of shares
approved for issuance under the Plan to 4,700,000 in connection with the public
offering of its Class A Common Stock. The Plan provides for the issuance of both
Incentive Stock Options ("ISOs") as well as options not qualifying as ISOs
within the meaning of the Internal Revenue Code of 1986, as amended. At the time
of the grant, the Company's Board of Directors determines the exercise price and
vesting schedules. Under the terms of the Plan, the option price per share of
ISOs to a person who, at the time such ISO is granted, owns shares of the
Company or any Related Entity, which possess more than 10% of the total combined
voting power of all classes of shares of the Company or of any related entity,
the option exercise price shall not be less than 110% of the fair market value
per share of common stock at the date the option is granted. Options may not be
granted with a term beyond June 2007. Generally, 20% of each option is
exercisable one year after the grant and an additional 1/60th becomes
exercisable each month thereafter.

A summary of the status of option activity under the Plan and related
information follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1997
-------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........... -- $ -- 373,743 $10.00
Granted.................................... 373,743 10.00 1,407,384 12.40
Exercised.................................. -- -- -- --
Expired.................................... -- -- 107,225 10.30
-------- ------ ---------- ------
Outstanding at end of year................. 373,743 $10.00 1,673,902 $12.00
======== ==========
Options exercisable at end of year......... -- 92,204
======== ==========
Weighted-average grant-date fair value of
options granted.......................... $ 1.61 $ 3.37
======== ==========
</TABLE>

As required by SFAS No. 123, pro forma information regarding net loss has
been determined as if the Company had accounted for its stock options under the
fair value method. The fair value for these options was estimated as of the date
of grant using a minimum value option pricing model with the following weighted-

F-25
<PAGE> 180
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

average assumptions for 1996 and 1997, respectively; risk free interest rates of
5.84% and 6.16%; no dividend; and weighted-average expected lives of the options
of three and five years.

The minimum value option valuation model with a near zero volatility
results in an option value similar to the option value that would result from
using the Black-Scholes option valuation model with a near zero volatility. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and which are
fully transferable. In addition, option valuation models, in general, require
the input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different than those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The impact on
the pro forma results which follow may not be representative of compensation
expense in future years when the effect of the amortization of multiple awards
may be reflected in the amounts. Had the Company adopted the cost provision of
SFAS No. 123, net loss for 1996 and 1997 would approximate the pro forma amounts
below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Net loss:
As reported.................................. $ 11,957 $ 45,740
Pro forma.................................... 12,158 46,972
</TABLE>

The following table summarizes information about options outstanding at
December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS
- ----------------------------------------------------------------------------------- EXERCISABLE
WEIGHTED- NUMBER -----------
NUMBER AVERAGE WEIGHTED EXERCISABLE WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1997 LIFE PRICE 1997 PRICE
-------- -------------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 7.10-$ 7.10........... 46,567(1) 4.2 $ 7.10 -- $ --
10.00- 10.00........... 279,350 8.9 10.00 92,204 10.00
11.00- 11.00........... 443,536 5.1 11.00 -- --
13.30- 13.30........... 904,449 5.7 13.30 -- --
--------- --- ------ ------ ------
1,673,902 6.0 $12.00 92,204 $10.00
========= ======
</TABLE>

- ---------------

(1) These options were assumed by the Company as part of the merger with Former
GulfStar and were accounted for as a portion of the acquisition of minority
interest.

In April 1998, the Company granted 585,340 options at an exercise price of
$17.50. Accordingly, the Company will record compensation expense for the
difference between $17.50 and the initial public offering price.

F-26
<PAGE> 181
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

12. INCOME TAXES:

All of the Company's revenues were generated in the United States. The
components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------ ------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $ 999 $(1,112) $ 162
State............................................... 98 243 316
Deferred:
Federal............................................. (59) 503 (11,168)
State............................................... (6) 44 (1,030)
------ ------- --------
Total provision (benefit)............................. $1,032 $ (322) $(11,720)
====== ======= ========
</TABLE>

Approximately $707 and $1,473 of benefit for income taxes was allocated to
an extraordinary loss on early extinguishment of debt in the accompanying
consolidated statements of operations for the years ended December 31, 1996 and
1997, respectively. For purposes of the foregoing components of provision
(benefit) for income taxes, such intra-period allocation is treated to have
affected the deferred components.

Income tax expense (benefit) differs from the amount computed by applying
the federal statutory income tax rate of 35% to income (loss) before income
taxes and extraordinary items for the following reasons:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------ ------- --------
<S> <C> <C> <C>
U.S. federal income tax at statutory rate............. $ 911 $(3,882) $(16,965)
State income taxes, net of federal benefit............ 61 189 (1,478)
Nondeductible compensation expense.................... -- 1,847 3,325
Other items, primarily nondeductible expenses and
deferred tax adjustments............................ 60 1,524 3,398
------ ------- --------
$1,032 $ (322) $(11,720)
====== ======= ========
</TABLE>

The net deferred tax liability consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment and intangible asset basis
differences and related depreciation and
amortization........................................... $106,132 $198,025
Deferred tax assets:
Miscellaneous............................................. 1,055 4,307
Unamortized discount on long-term debt.................... 54 8,150
Net operating loss carryforwards.......................... 22,974 32,351
-------- --------
Total deferred tax assets......................... 24,083 44,808
Valuation allowance for deferred tax assets............... (1,559) (7,205)
-------- --------
Net deferred tax asset............................ 22,524 37,603
-------- --------
Net deferred tax liability........................ $ 83,608 $160,422
======== ========
</TABLE>

F-27
<PAGE> 182
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities and projected future taxable
income in making this assessment. The Company expects the majority of deferred
tax assets at December 31, 1997 to be realized as a result of the reversal
during the carryforward period of existing taxable temporary differences giving
rise to deferred tax liabilities and the generation of taxable income in the
carryforward period.

At December 31, 1997, the Company had net operating loss carryforwards of
approximately $81,500, including approximately $69,500 acquired in connection
with the acquisition of certain subsidiaries. The acquired net operating losses
are SRLY to the acquired subsidiaries that generated the losses. If not
previously utilized, net operating loss carryforwards expire at various dates
from 1999 through 2012. Management considers that it is more likely than not
that a portion of these loss carryforwards will not ultimately be realized, and
has recorded a related valuation allowance as of December 31, 1997.

13. COMMITMENTS AND CONTINGENCIES:

Guarantees of Indebtedness

As of December 31, 1997, the Company had guaranteed the indebtedness of a
limited liability company in the amount of $28,600 and, subsequent to March 31,
1998, the Company guaranteed the indebtedness of another limited liability
company in the amount of $26,000. The Company holds a 30% non voting equity
interest in each of these entities, and may in the future be required to repay
such indebtedness.

Employee Benefit Plan

During 1997, the Company established a 401(k) Plan for the benefit of all
eligible employees. Eligible participants under this plan are defined as all
full-time employees with three months of service. All eligible participants may
elect to contribute a portion of their compensation to the plan subject to
Internal Revenue Service limitations. The Company makes matching contributions
to the plan at a rate of 25%, to an annual maximum of 6% of each participant's
annual salary. Contribution expense under the plan was $300 for the year ended
December 31, 1997.

Leases

The Company leases real property, office space, broadcasting and office
equipment under various noncancelable operating leases. Certain of the Company's
operating leases contain escalation clauses, renewal options and/or purchase
options. Rent expense was approximately $290, $913 and $2,490 for the years
ended December 31, 1995, 1996 and 1997, respectively.

Future minimum payments under noncancelable operating lease are as follows:

<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1998............................................. $ 3,186
1999............................................. 2,745
2000............................................. 2,276
2001............................................. 1,819
2002............................................. 1,520
Thereafter....................................... 4,544
---------
Total minimum lease payments........... $ 16,090
=========
</TABLE>

F-28
<PAGE> 183
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Employment Agreements

The Company has employment agreements with its executive officers and
certain members of management, the terms of which expire at various times
through December 2002. Such agreements provide for minimum salary levels, which
may be adjusted from time to time, as well as for incentive bonuses which are
payable if specified management goals are attained. The aggregate commitment for
future salaries at December 31, 1997, excluding bonuses, was approximately
$11,731.

Legal

The Company is subject to various legal proceedings and claims that arise
in the ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not have a material
impact on the consolidated financial position or results of operations or cash
flows of the Company.

Impact of the Year 2000 Issue

The Year 2000 Issue is whether the Company's computer systems will properly
recognize date sensitive information when the year changes to 2000, or "00."
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail. The Company uses purchased software programs for
a variety of function, including general ledger, accounts payable and accounts
receivable accounting packages. Responsibility for Year 2000 compliance has been
analyzed and testing is currently ongoing for many of the financial
applications, individual work stations, and broadcasting systems. Preliminary
tests on applications have proven them to be compliant, but further testing is
warranted. The Company believes that the Year 2000 Issue will not pose
significant operational problems for the Company's computer systems and,
therefore, will not have a material impact on the financial position or the
operations of the Company.

Other

The Company is partially self-insured for employee medical insurance risks,
subject to specific retention levels. Self-insurance costs are accrued based
upon the aggregate of the estimated liability for reported claims and estimated
liabilities for claims incurred but not reported. The Company has recorded
approximately $183, $516 and $2,658 for self-insurance costs for the years ended
December 31, 1995, 1996 and 1997, respectively.

14. RELATED PARTY TRANSACTIONS:

Monitoring and Oversight Agreement

The Company has entered into a monitoring and oversight agreement (the
"Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P.
("Hicks Muse Partners"). Pursuant thereto, the Company has agreed to pay to
Hicks Muse Partners an annual fee for ongoing financial oversight and monitoring
services. The annual fee is adjustable upward or downward at the end of each
fiscal year to an amount equal to 0.2% of the budgeted consolidated annual net
sales of the Company for the then-current fiscal year; provided, that such fee
shall at no time be less that $100 per year.

The Monitoring and Oversight Agreement makes available on an ongoing basis
the resources of Hicks Muse Partners concerning a variety of financial matters.
The services that have been and will continue to be provided by Hicks Muse
Partners could not otherwise be obtained by the Company without the addition of
personnel or the engagement of outside professional advisors.

Financial Advisory Agreement

The Company is a party to a financial advisory agreement (the "Financial
Advisory Agreement") with Hicks Muse Partners. Pursuant to the Financial
Advisory Agreement, Hicks Muse Partners is entitled to

F-29
<PAGE> 184
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

receive a fee equal to 1.5% of the transaction value (as defined in the
Financial Advisory Agreement) for each add-on transaction (as defined) in which
the Company or any of its subsidiaries is involved.

Pursuant to the Financial Advisory Agreement, Hicks Muse Partners provides
investment banking, financial advisory and other similar services with respect
to the add-on transactions in which the Company is involved. Such transactions
require additional attention beyond that required to monitor and advise the
Company on an ongoing basis and accordingly the Company pays separate financial
advisory fees with respect to such matters in addition to those paid in
connection with the Monitoring and Oversight Agreement. The services that have
been and will continue to be provided by Hicks Muse Partners could not have
otherwise been obtained by the Company without the addition of personnel or the
engagement of outside professional advisors. The Company paid or accrued a
financial advisory fee to Hicks Muse Partners in the amount of approximately
$3,475 and $10,947 for the years ended December 31, 1996 and 1997, respectively.

Former GulfStar

On April 16, 1996, Former GulfStar acquired all of the outstanding capital
stock of Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of
Former GulfStar's Class C common stock, 1,626 shares of Former GulfStar's Class
A common stock and approximately $619 of cash. Total consideration for the
acquisition, including acquisition costs, was approximately $1,065. The primary
assets of Sonance were broadcasting properties. Liabilities of Sonance assumed
by Former GulfStar in connection with the acquisition were approximately $7,627.
The controlling stockholder of Former GulfStar is a family member of the
controlling stockholder of Sonance. The majority stockholder of Former GulfStar,
who is a family member of both the controlling stockholder of Former GulfStar
and the controlling stockholder of Sonance, was also the majority stockholder of
Sonance.

Former GulfStar recorded a charge of approximately $771 during 1996 in
connection with the write-off of a receivable from an entity owned by a family
member of the controlling stockholder of Former GulfStar. The charge is included
in other expense in the accompanying consolidated statement of operations.

15. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments for which the estimated fair value of the
instrument differs significantly from its carrying amount at December 31, 1996
and 1997. The fair value of a financial instrument is defined as the amount at
which the instrument could be exchanged in a current transaction between willing
parties.

<TABLE>
<CAPTION>
1996 1997
-------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Long-term debt -- 1997 Capstar Partners, and
1997 and 1995 Capstar Radio Notes........... $(76,672) $(76,672) $(446,044) $(494,596)
Interest rate swap............................ -- -- -- (320)
Redeemable preferred stock.................... -- -- (101,493) (116,000)
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:

Cash and short-term debt, and accounts receivable and payable: the
carrying amount approximates fair value because of the short maturity of
these instruments.

Long-term debt: The fair value of the Company's 1997 Capstar Partners
and 1997 and 1995 Capstar Radio Notes are based on quoted market prices. As
amounts outstanding under the Company's Credit Facility agreements bear
interest at current market rates, their carrying amounts approximate fair
market value.

F-30
<PAGE> 185
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Interest rate swaps: The fair value of the interest rate swap is
estimated by obtaining quotations from brokers. The fair value is an
estimate of the amounts that the Company would receive (pay) at the
reporting date if the contracts were transferred to other parties or
canceled by the broker.

Redeemable preferred stock of Former GulfStar: The fair value is
estimated based on quoted market prices.

16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Cash paid during the period for:
Interest.................................................. $1,053 $7,558 $22,869
Income taxes.............................................. 200 999 230
Noncash investing and financing activities:
Financed property and equipment purchases................. -- 89 2,537
Book value of assets exchanged in connection with
broadcast property acquisition......................... -- 471 --
Dividends and accretion on preferred stock................ 8 1,350 7,071
Notes receivable and accrued interest taken in connection
with subscribed stock.................................. 333 1,757 2,725
Financed or accrued acquisition costs..................... 542 6,569 7,095
</TABLE>

17. SUBSEQUENT EVENTS:

Pursuant to a merger agreement, dated August 24, 1997, between certain
affiliates of Hicks Muse Partners and SFX Broadcasting, Inc. ("SFX"), Hicks Muse
Partners may acquire SFX for a total cash cost of the merger, related repayment
of SFX's existing indebtedness and redemption of SFX's preferred stock of
approximately $2.1 billion, if completed by May 31, 1998. In January 1998, Hicks
Muse Partners decided that the acquisition would be made through the Company. To
collateralize the obligation under the merger agreement, the Company has placed
into escrow a $100.0 million Letter of Credit. This letter of credit, which was
not issued under the Credit Facility agreement, is in addition to those
discussed in Note 7. Upon consummation of the merger, such letter of credit will
be released to the Company. Upon consummation of the merger, SFX and its
subsidiaries will own and operate or provide services to or have the right to
acquire 85 radio stations (65 FM and 20 AM) in 28 markets. Pursuant to the
Financial Advisory Agreement, the Company will pay Hicks Muse Partners
approximately $32.2 million upon the consummation of the merger.

Concurrently with the SFX merger, the Company will exchange one radio
station in the Houston, Texas market having a deemed value of $143.2 million
with Chancellor Media for three radio stations in the Austin, Texas market and
two radio stations in the Jacksonville, Florida market. In addition, the Company
has committed to sell 10 other radio stations in the Dallas and Houston, Texas;
San Diego, California and Pittsburgh, Pennsylvania markets having an aggregate
deemed market value of $494.3 million, which will be acquired in the merger with
SFX, to Chancellor Media Corporation ("Chancellor Media") during the three-year
period ending February 20, 2001, in exchange for radio stations identified by
the Company and acquired for exchange by Chancellor Media during such period. It
is anticipated that the sales price of the stations will approximate the
carrying value of the radio stations exchanged. After consummation of the
acquisition of SFX, Chancellor Media will provide services to such 10 radio
stations under separate LMAs. Pursuant to the Financial Advisory Agreement, the
Company will pay Hicks Muse Partners approximately $10.4 million in connection
with the sale of the 11 stations to Chancellor Media and the sale of KKPN-FM.
Additionally, as part of the merger with SFX, Chancellor Media will loan up to
$250 million to the Company to be part of the financing used in the consummation
of the merger.

F-31
<PAGE> 186

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Commodore Media, Inc.

We have audited the accompanying consolidated statements of operations and
cash flows of Commodore Media, Inc. and Subsidiaries for the period from January
1, 1996 to October 16, 1996 and for the year ended December 31, 1995. These
consolidated statements of operations and cash flows are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated statements of operations and cash flows based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated statements of operations and
cash flows are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
statement of operations and cash flows. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated statement of operations and cash flows
presentation. We believe that our audits of the consolidated statements of
operations and cash flows provide a reasonable basis for our opinion.

In our opinion, the consolidated statements of operations and cash flows
referred to above present fairly, in all material respects the consolidated
statements of operations and cash flows of Commodore Media, Inc. and
Subsidiaries for the period from January 1, 1996 to October 16, 1996 and for the
year ended December 31, 1995, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

New York, New York
February 10, 1997

F-32
<PAGE> 187

COMMODORE MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1996
TO OCTOBER 16, YEAR ENDED
1996 DECEMBER 31, 1995
--------------- -----------------
<S> <C> <C>
Total revenue............................................... $ 34,826,060 $33,652,677
Less agency commissions..................................... (2,869,014) (2,857,912)
------------ -----------
Net revenue................................................. 31,957,046 30,794,765
Operating expenses:
Programming, technical and news........................... 5,906,967 5,365,686
Sales and promotion....................................... 9,303,914 8,796,481
General and administrative................................ 6,081,262 4,870,463
Corporate expenses.......................................... 1,756,797 2,051,181
Depreciation and amortization............................... 2,157,750 1,926,250
Other expense............................................... 13,833,728 2,006,550
------------ -----------
Operating (loss) income..................................... (7,083,372) 5,778,154
Interest expense............................................ 8,860,958 7,805,525
Interest income............................................. 221,806 420,659
Other expenses, net......................................... 1,980,908 48,796
------------ -----------
Loss before provision for income taxes and extraordinary
loss...................................................... (17,703,432) (1,655,508)
Provision for income taxes.................................. 133,000 140,634
------------ -----------
Loss before extraordinary loss.............................. (17,836,432) (1,796,142)
Extraordinary loss on extinguishment of debt................ -- (443,521)
------------ -----------
Net loss.................................................... $(17,836,432) $(2,239,663)
============ ===========
</TABLE>

See accompanying notes.

F-33
<PAGE> 188

COMMODORE MEDIA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
JANUARY 1, 1996 TO DECEMBER 31,
OCTOBER 16, 1996 1995
------------------ -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(17,836,432) $ (2,239,663)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Loss on extinguishment of debt............................ -- 443,521
Depreciation and amortization............................. 2,157,750 1,926,250
Noncash interest.......................................... 3,315,669 2,673,829
Long-term incentive compensation.......................... 1,066,893 79,000
Non-cash compensation..................................... 12,731,587 --
Provision for uncollectible accounts and notes
receivable.............................................. 488,320 556,137
Loss on disposition of assets............................. -- 9,819
Net barter income......................................... (222,645) (184,300)
Initial public offering and pending merger expenses....... 1,909,648 --
Changes in assets and liabilities, net of amounts
acquired:
Increase in accounts receivable......................... (2,351,753) (1,847,015)
Increase in prepaid expenses and other current assets... (208,462) (88,787)
Decrease in accounts payable and accrued expenses....... (337,896) (158,855)
Decrease in accrued compensation........................ (496,177) (230,645)
Increase in accrued interest............................ 1,752,172 582,525
Increase (decrease) in accrued income taxes............. 20,952 (277,135)
------------ ------------
Total adjustments.................................. 19,826,058 3,484,344
------------ ------------
Net cash provided by operating activities................... 1,989,626 1,244,681
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of loan by stockholder............................ 250,375 182,988
Purchase of property, plant and equipment................... (448,677) (320,980)
Payments for acquisitions................................... (31,900,000) (3,100,000)
Deferred acquisition costs incurred......................... (1,326,673) (417,020)
Deposits on pending acquisitions............................ (745,000) (525,000)
Loans to employees.......................................... -- (315,863)
Other investing activities, net............................. (187,528) 87,528
------------ ------------
Net cash used in investing activities....................... (34,357,503) (4,408,347)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Senior Notes and warrants......... -- 64,956,422
Proceeds from Existing Credit Facility...................... 18,700,000 --
Net proceeds from issuance of preferred stock............... 9,822,520 --
Proceeds from issuance of common stock...................... -- 100
Payment of initial public offering and merger expenses...... (1,007,297) --
Repayment of amounts borrowed............................... -- (39,014,833)
Payment of financing related costs.......................... (781,170) (4,226,762)
Redemption of preferred stock............................... -- (8,665,835)
Purchase of redeemable warrant.............................. -- (1,000,000)
Repurchase of common stock.................................. -- (25,000)
Principal payments on capital leases........................ (9,812) (11,186)
------------ ------------
Net cash provided by financing activities................... 26,724,241 12,012,906
------------ ------------
Net (decrease) increase in cash and short-term cash
investments............................................... (5,643,636) 8,849,240
Cash and short-term cash investments at beginning of
period.................................................... 10,891,489 2,042,249
------------ ------------
Cash and short-term cash investments at end of period....... $ 5,247,853 $ 10,891,489
============ ============
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest...................................... $ 3,793,117 $ 4,474,789
Cash paid for income taxes.................................. $ 112,049 $ 417,769
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Asset acquisitions recorded in connection with barter
transactions.............................................. $ 189,982 $ 112,636
</TABLE>

See accompanying notes.

F-34
<PAGE> 189

COMMODORE MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND MERGER AGREEMENT

Organization and Nature of Business

Commodore Media, Inc. and Subsidiaries (the "Company") is comprised of
radio stations that derive their revenue from local, regional and national
advertisers. The radio stations are located in the following markets:
Wilmington, Delaware; Hartsdale, Brewster, Patterson, Mt. Kisco, New York;
Huntington, West Virginia -- Ashland, Kentucky; Allentown -- Bethlehem,
Pennsylvania; Fort Pierce -- Stuart -- Vero Beach, Florida; and Fairfield
County, Connecticut. The Company extends credit to its customers in the normal
course of business.

MERGER AGREEMENT

On October 16, 1996, the Company was acquired pursuant to a merger
agreement dated June 21, 1996 with Capstar Broadcasting Partners, Inc.
("Capstar") (the "Merger"), which is an indirect subsidiary of Hicks, Muse, Tate
& Furst Equity Fund III, L.P. The holders of Class A Common Stock and Class B
Common Stock, the holders of employee stock options and the holders of warrants
received $140 per share as consideration for the merger less, in the case of
option and warrant holders, the exercise price per share. In addition, the
Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per
share was redeemed, including all accrued and unpaid dividends.

The Company recognized as other expense approximately $12.7 million in
stock option compensation expense, and approximately $1.4 million of merger
related fees and expenses during the period ended October 16, 1996 in connection
with the Merger.

As a result of the Merger and the change of control effected thereby, the
Company was obligated to satisfy the existing deferred compensation and
employment agreements with its then President and Chief Executive Officer and
its deferred compensation agreement with its then Chief Operating Officer
resulting in a charge to other expense of approximately $1.1 million during the
period ended October 16, 1996. Furthermore, the Company was required to make an
offer to purchase the outstanding 13 1/4% Senior Subordinated Notes due 2003 at
a purchase price equal to 101% of their accreted value, plus any accrued and
unpaid interest. No requests for repurchase were made by the note holders.

As a result of the Merger, the Company did not proceed with its previously
announced intention to undertake an initial public equity offering and has,
therefore, withdrawn its registration statement filed on Form S-1 on May 17,
1996 with the Securities and Exchange Commission. Included in other expenses
during the period ended October 16, 1996 are approximately $525,000 in various
fees and expenses incurred in connection with this filing.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and all subsidiaries, after elimination of intercompany accounts and
transactions.

Short-Term Cash Investments

The Company considers investments which have a remaining maturity of three
months or less at the time of purchase to be short-term cash investments.

Income Taxes

The Company accounts for income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes." Under this method, deferred income taxes are
provided for differences between the book and tax bases of assets and
liabilities.

F-35
<PAGE> 190
COMMODORE MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)

Risks and Uncertainties

The preparation of consolidated statements of operations and cash flows in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

The Company's revenue is principally derived from local broadcast
advertisers who are impacted by the local economy. The Company routinely
assesses the financial strength of its customers. Credit losses are provided for
in the consolidated statements of operations and cash flows in the form of an
allowance for doubtful accounts.

Accounting Periods

The Company maintains its interim consolidated statements of operations and
cash flows based upon the broadcast month end which always ends on the last
Sunday of the calendar month or quarter. The Company's fiscal year end and
fourth quarter ends on December 31.

Property, Plant and Equipment

Depreciation is provided for property, plant and equipment on the
straight-line method based on the following estimated useful lives:

<TABLE>
<CAPTION>
ESTIMATED LIFE
CLASSIFICATION (YEARS)
-------------- --------------
<S> <C>
Land improvements........................................... 20
Buildings................................................... 20
Furniture, fixtures and equipment........................... 7-10
Broadcasting and technical equipment........................ 7-10
Towers and antennas......................................... 20
Music library............................................... 7
Leasehold improvements...................................... 10-20
Vehicles.................................................... 3
</TABLE>

Expenditures for maintenance and repairs are charged to operations as
incurred. Depreciation as a charge to income amounted to approximately $730,000
for the period ended October 16, 1996, and approximately $832,000 for the year
ended December 31, 1995.

Property Held Under Capital Leases

The Company is the lessee of office equipment under capital leases expiring
in various years through 2004. The capital leases are depreciated over their
estimated productive lives of seven to ten years. Total rent expense was
approximately $383,000 for the period ended October 16, 1996 and approximately
$332,000 for the year ended December 31, 1995.

Revenue Recognition

The Company recognizes revenue upon the airing of advertisements.

F-36
<PAGE> 191
COMMODORE MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)

Intangible Assets

Intangible assets are being amortized by the straight-line method over the
following estimated useful lives:

<TABLE>
<CAPTION>
ESTIMATED LIFE
CLASSIFICATION (YEARS)
-------------- --------------
<S> <C>
FCC licenses and goodwill................................... 40
Organization expenses....................................... 5
Network affiliation agreement............................... 5
Covenant not to compete..................................... 5
Tower site lease............................................ 3
Contract rights............................................. 3
Software.................................................... 3
Pre-sold advertising contracts.............................. 1
</TABLE>

Amortization of the aforementioned intangible assets included as a charge
to income amounted to approximately $592,000 for the period ended October 16,
1996, and approximately $506,000 for the year ended December 31, 1995.
Amortization of FCC licenses and goodwill amounted to approximately $501,000 for
the period ended October 16, 1996, and approximately $588,000 for the year ended
December 31, 1995.

Deferred Charges

Legal fees, bank loan closing costs and other expenses associated with debt
financing are being amortized using the effective interest rate method.
Amortization of debt expense charged to operations and included in interest
expense amounted to approximately $450,000 for the period ended October 16, 1996
and approximately $385,000) for the year ended December 31, 1995.

Advertising Costs

The Company expenses advertising costs related to its radio station
operations as incurred. Advertising expense amounted to approximately $557,000
for the period ended October 16, 1996 and approximately $754,000 for the year
ended December 31, 1995.

Barter Transactions

The fair value of barter and trade-out transactions is included in
broadcast revenue and sales and promotion expense. Barter revenue is recorded
when advertisements are broadcast and barter expense is recorded when
merchandise or services are received. Barter transactions charged to operations
were as follows:

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Trade sales................................................. $ 3,204,468 $ 3,238,111
Trade expense............................................... (2,981,823) (3,053,811)
----------- -----------
Net barter transactions..................................... $ 222,645 $ 184,300
=========== ===========
</TABLE>

F-37
<PAGE> 192
COMMODORE MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)

2. LONG-TERM DEBT

AT&T Senior Credit Facility

On March 13, 1996, the Company entered into a Senior Credit Facility with
AT&T Commercial Finance Corporation ("AT&T") pursuant to which AT&T will make
available to the Company senior secured (i) revolving loans in an amount up to
$30.0 million and (ii) accounts receivable loans in an amount which shall be the
lesser of (a) $5.0 million or (b) 85% of the net book value of the accounts
receivable of the Company (the "AT&T Senior Credit Facility"). The indebtedness
to AT&T is collateralized by the tangible and intangible assets and the capital
stock of all the Company's subsidiaries. Interest is payable monthly at a rate
of 3.5% over LIBOR (8.94% at October 16, 1996) and principal amortization of the
revolving loans and accounts receivable loans begins June 1, 1998 and November
30, 1997, respectively. The Company pays a commitment fee of .25% every six
months on the unused commitment.

Senior Subordinated Notes

The Senior Subordinated Notes bear cash interest at a rate of 7 1/2% per
annum on the principal amount until May 1, 1998 then at a rate of 13 1/4% per
annum until maturity, with interest payment dates on May 1 and November 1.

In 1995, the Company wrote off the balance of the unamortized deferred
financing costs on its retired debt of $443,521. Inasmuch as the Company had no
current federal taxable income and had fully reserved for its net deferred tax
assets, there was no tax effect attributable to this extraordinary item.

3. PREFERRED STOCK

SENIOR EXCHANGEABLE REDEEMABLE PREFERRED STOCK

On May 1, 1996, the Company entered into a Securities Purchase Agreement
with CIBC WG Argosy Merchant Fund 2, LLC ("CIBC Merchant Fund"), pursuant to
which the CIBC Merchant Fund agreed to purchase from the Company, if and when
requested by the Company, up to an aggregate liquidation value of $12,500,000 of
Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per
share, of the Company in such amounts as the Company requested (the "Preferred
Stock Facility"). In connection with the Stamford Acquisition on May 30, 1996
and the Florida Acquisition on May 31, 1996 (see Note 4), the Company issued
5,700 shares and 4,300 shares, respectively, of Preferred Stock for an aggregate
purchase price of $10,000,000. The Preferred Stock accrued cash dividends at the
rate of 8% per annum and was redeemed, including accrued dividends, in
connection with the Merger on October 16, 1996. In connection with the Preferred
Stock Facility, the Company issued to the CIBC Merchant Fund a warrant to
purchase 7,550 shares of the Company's Class A Common Stock, at an exercise
price of $.01 per warrant, which were valued in the aggregate at the date of
issue at $981,500. This warrant was redeemed in connection with the Merger for
$140 per share less the exercise price.

4. CONSUMMATED ACQUISITIONS

On October 16, 1996, the Company purchased certain defined assets of radio
stations WKEE-FM and WKEE-AM in Huntington, West Virginia, WZZW-AM in Milton,
West Virginia, WBVB-FM in Coal Grove, Ohio and WIRO-AM in Ironton, Ohio from
Adventure Communications, Inc. for approximately $7.7 million and certain
defined assets of WFXN-FM in Milton, West Virginia and WMLV-FM in Ironton, Ohio
for approximately $4.3 million. The transactions were funded with borrowings
from the AT&T Senior Credit Facility and with funds provided from Capstar. The
Company provided programming to these stations under Local Marketing Agreement
("LMA") effective April 1996 until the purchase date. In addition, the

F-38
<PAGE> 193
COMMODORE MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)

Company has an option to purchase WHRD-AM in Huntington, West Virginia and
provides programming services to the station under an LMA arrangement.

On May 31, 1996, the Company purchased certain defined assets of radio
stations WBBE-FM (formerly WKQS-FM), WAVW-FM and WAXE-AM in the Fort
Pierce-Stuart-Vero Beach, Florida market from Media VI for $8.0 million (the
"Florida Acquisition"). The transaction was funded with borrowings from the AT&T
Senior Credit Facility and funds from the Preferred Stock Facility. The Company
sold advertising time on these stations under a Joint Service Agreement from
February 1996 until the purchase date.

On May 30, 1996, the Company purchased certain defined assets of radio
stations WKHL-FM and WSTC-AM in Stamford, Connecticut from Q Broadcasting, Inc.
for $9.5 million (the "Stamford Acquisition"). The transaction was financed with
borrowings from the AT&T Senior Credit Facility and funds from the Preferred
Stock Facility.

On March 27, 1996, the Company purchased (i) certain defined assets of
radio stations WZZN-FM in Mount Kisco, New York, WAXB-FM in Patterson, New York
and WPUT-AM in Brewster, New York from Hudson Valley Growth, L.P. for $5.0
million and (ii) all of the issued and outstanding common stock of Danbury
Broadcasting, Inc., owner of WRKI-FM, and WINE-AM in Brookfield, Connecticut,
plus certain real property for $10.0 million. The transaction was financed with
the Company's existing cash and borrowings under the AT&T Senior Credit
Facility. The Company provided programming to these stations under LMAs from
October 1995 until the purchase date.

On June 27, 1995, the Company purchased the assets (excluding cash and
accounts receivable) and broadcasting license of radio broadcast station WQOL-FM
in Vero Beach, Florida for a total purchase price of approximately $3.0 million.

Unaudited pro forma results of operations for the Company as if the
aforementioned acquisitions had been consummated on January 1, 1995 are as
follows (in thousands):

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Net revenue................................................. $ 31,505 $ 38,483
Net loss before extraordinary loss.......................... (4,037) (3,673)
Net loss.................................................... (4,037) (4,117)
</TABLE>

5. INCOME TAXES

The Company has recorded a provision for income taxes as follows:

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Current:
Federal................................................... $ -- $ --
State and local........................................... 133,000 140,634
Deferred:
Federal................................................... -- --
State and local........................................... -- --
-------- --------
Total............................................. $$133,000 $140,634
======== ========
</TABLE>

F-39
<PAGE> 194
COMMODORE MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)

The Company did not record a federal tax benefit on the taxable loss for
the period ended October 16, 1996 or for the year ended December 31, 1995 since
it was not assured that they could realize a benefit for such losses in the
future.

The Company received Internal Revenue Service approval and changed its tax
method of accounting for Federal Communications Commission ("the FCC") licenses
for the tax year ended December 31, 1995. The aggregate amount of cumulative
amortization that will be deductible ratably over six taxable years for the
Company and for tax purposes is approximately $12.1 million.

The reconciliation of income tax computed at the U.S. federal statutory
rates to effective income tax expense is as follows:

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Provision at statutory rate............................... $(1,184,000) $(734,695)
State and local taxes..................................... 133,000 140,634
Nondeductible expense..................................... 33,800 8,286
Increase in valuation allowance, net of rate changes...... 1,150,200 726,409
Alternative minimum tax................................... -- --
----------- ---------
Total..................................................... $ 133,000 $ 140,634
=========== =========
</TABLE>

6. EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with several executives
of the Company including its President and Chief Executive Officer, its
Executive Vice President and Chief Financial Officer and its Executive Vice
President and General Counsel. The agreements generally provide for terms of
employment, annual salaries, bonuses, eligibility for option awards and
severance benefits.

Effective January 1, 1994, the Company entered into an agreement with its
then President and Chief Executive Officer under which he would be employed in
that capacity through 1996 and provided for annual salary requirements and
bonuses, and a Long-Term Incentive Payment ("LTIP"). In lieu of the LTIP, the
Company paid the then President $1.5 million in cash, issued $1.3 million
principal ($1.1 million net of discount) of Senior Subordinated Notes to a trust
for his benefit and agreed to provide $1.5 million in deferred compensation
which accrues interest at a rate of 7% and is payable in 2003. The Company
recorded the deferred compensation on April 21, 1995 at its calculated net
present value of $921,000. The aggregate effect of the employment agreement
restructuring was to charge $1.8 million to long-term incentive compensation
expense during 1995. In addition, the then President's amended employment
agreement extended his date of employment through April 30, 1998, granted stock
options to him to acquire 28,313 shares of Class A Common Stock at an exercise
price of $45 per share and provided for annual bonuses based upon specific
operating results of Capstar Radio.

The Company also amended its then existing employment agreement with its
then Chief Operating Officer on April 21, 1995. The prior employment agreement
provided for a long-term incentive based upon the increase in certain station
values. The amended employment agreement provided for a cash payment of $400,000
on April 21, 1995 and deferred compensation of $346,000 which accrues interest
at a rate of 7% and is payable in 2003. The Company recorded the deferred
compensation on April 21, 1995 at its calculated net present value of $213,000.
The aggregate effect of the employment agreement restructuring was to charge
$188,800 to long-term incentive compensation expense during 1995. In addition,
the amended employment agreement extended his date of employment through April
30, 1999, granted stock options to acquire

F-40
<PAGE> 195
COMMODORE MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)

28,313 shares of Class A Common Stock at an exercise price of $45 per share and
provides for annual bonuses based upon specific operating results of the
Company.

As a result of the Merger and the change of control effected thereby, the
Company was obligated to satisfy the existing deferred compensation and
employment agreements with its then President and Chief Executive Officer and
its deferred compensation agreement with its then Chief Operating Officer,
resulting in an additional charge to operations of approximately $1.1 million
which was recorded in the period ended October 16, 1996. Furthermore, all stock
options for the aforementioned officers, as well as for all holders, were
redeemed at $140 per share, less the exercise price of $45 per share at the time
of the Merger. The Company's then President and Chief Executive Officer resigned
his position effective October 16, 1996 as required by the Merger Agreement.

7. RELATED PARTY TRANSACTIONS

During the period ended October 16, 1996 and the year ended December 31,
1995, the Company paid the majority stockholder a salary of approximately
$185,000 and $175,000, respectively.

F-41
<PAGE> 196

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Southern Star Communications, Inc.

We have audited the accompanying consolidated balance sheets of Southern
Star Communications, Inc., formerly known as Osborn Communications Corporation,
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Southern Star Communications, Inc. at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
February 3, 1997

F-42
<PAGE> 197

SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,944,205 $ 12,994,779
Accounts receivable, less allowance for doubtful accounts
of $468,597 in 1996 and $518,157 in 1995............... 5,032,903 5,759,562
Inventory................................................. 1,095,157 889,942
Prepaid expenses and other current assets................. 1,018,701 1,525,308
Assets held for sale...................................... 7,539,190 --
----------- ------------
Total current assets.............................. 17,630,156 21,169,591
Investment in affiliated companies.......................... 512,088 524,084
Property, plant and equipment, at cost, less accumulated
depreciation of $15,894,081 in 1996 and $18,624,021 in
1995...................................................... 11,676,395 15,358,070
Intangible assets, net of accumulated amortization of
$15,437,481 in 1996 and $15,238,193 in 1995............... 26,711,629 40,463,595
Other noncurrent assets..................................... 925,000 118,753
----------- ------------
Total assets...................................... $57,455,268 $ 77,634,093
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 4,809,264 $ 4,509,292
Accrued wages and sales commissions....................... 434,986 434,309
Accrued interest payable.................................. 46,173 459,114
Accrued income taxes...................................... 1,492,114 825,712
Current portion of long-term debt......................... 320,000 2,718,000
----------- ------------
Total current liabilities......................... 7,102,537 8,946,427
Long-term debt.............................................. 13,880,000 44,482,000
Deferred income taxes....................................... 3,061,298 2,275,711
Other noncurrent liabilities................................ 1,501,279 432,916
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
5,000,000 shares, none issued and outstanding.......... -- --
Common stock, par value $.01 per share; authorized
7,425,000 shares, issued and outstanding shares:
5,547,497 and 5,537,497, respectively, in 1996;
5,286,347 and 5,276,347, respectively, in 1995......... 55,376 52,764
Non-voting common stock, par value $.01 per share;
authorized 75,000 shares, none issued and
outstanding............................................ -- --
Additional paid-in capital.................................. 40,869,408 39,694,601
Accumulated deficit......................................... (9,014,630) (18,250,326)
----------- ------------
Total stockholders' equity........................ 31,910,154 21,497,039
----------- ------------
Total liabilities and stockholders' equity........ $57,455,268 $ 77,634,093
=========== ============
</TABLE>

See accompanying notes.

F-43
<PAGE> 198

SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Net revenues...................................... $37,215,048 $ 39,505,193 $ 34,982,110
Operating expenses:
Selling, technical and program.................. 9,656,347 11,785,471 9,487,815
Direct programmed music and entertainment....... 12,426,740 10,489,513 9,807,495
General and administrative...................... 6,740,352 7,526,897 6,611,035
Depreciation and amortization................... 4,756,325 5,782,404 5,285,280
Corporate expenses.............................. 1,849,820 1,705,850 2,475,675
Other........................................... 1,200,000 -- --
----------- ------------ ------------
Total operating expenses................ 36,629,584 37,290,135 33,667,300
Operating income.................................. 585,464 2,215,058 1,314,810
Other income (expense)............................ (291,163) 2,314,508 2,246,450
Interest expense.................................. 2,201,616 5,212,999 4,385,827
Equity in results of affiliated company........... -- (11,829) --
Other gains, including gains on sales of
stations........................................ 13,521,760 8,094,993 --
----------- ------------ ------------
Income (loss) before income taxes and
extraordinary item.............................. 11,614,445 7,399,731 (824,567)
Provision for income taxes........................ 2,378,749 775,982 289,220
----------- ------------ ------------
Income (loss) before extraordinary item........... 9,235,696 6,623,749 (1,113,787)
Extraordinary item:
Loss on debt extinguishment..................... -- (3,921,061) (436,329)
----------- ------------ ------------
Net income (loss)................................. $ 9,235,696 $ 2,702,688 $ (1,550,116)
=========== ============ ============
</TABLE>

See accompanying notes.

F-44
<PAGE> 199

SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
VOTING NON-VOTING ADDITIONAL
---------------------- -------------- ------------
PAR PAR PAID-IN ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL DEFICIT
----------- -------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993................... 10,752,181 $107,523 -- -- $ 38,453,555 $(19,402,898)
Exercise of stock options.................... 1,500 15 -- -- 5,984 --
Issuance of stock warrant.................... -- -- -- -- 1,774,837 --
Effect of 1-for-2 reverse stock split........ (5,376,091) (53,762) -- -- 53,762 --
Purchase and retirement of treasury stock.... (17,843) (178) -- -- (106,880) --
Net loss..................................... -- -- -- -- -- (1,550,116)
----------- -------- -- -- ------------ ------------
Balance at December 31, 1994................... 5,359,747 53,598 -- -- 40,181,258 (20,953,014)
Purchase and retirement of treasury stock.... (107,059) (1,071) -- -- (641,283) --
Exercise of stock options.................... 23,659 237 -- -- 154,626 --
Net income................................... -- -- -- -- -- 2,702,688
----------- -------- -- -- ------------ ------------
Balance at December 31, 1995................... 5,276,347 52,764 -- -- 39,694,601 (18,250,326)
Exercise of stock options.................... 173,667 1,737 -- -- 732,182 --
Issuance of common stock..................... 132,500 1,325 -- -- 1,106,175 --
Acquisition and retirement of treasury
stock...................................... (45,017) (450) -- -- (663,550) --
Net income................................... -- -- -- -- -- 9,235,696
----------- -------- -- -- ------------ ------------
Balance at December 31, 1996................. 5,537,497 $ 55,376 -- -- $ 40,869,408 $ (9,014,630)
=========== ======== == == ============ ============
</TABLE>

See accompanying notes.

F-45
<PAGE> 200

SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ 9,235,696 $ 2,702,688 $ (1,550,116)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 4,756,325 5,782,404 5,285,280
Other gains (losses), including gains on sales of
stations................................................ (13,521,760) (8,094,993) --
Other operating expenses.................................. 1,200,000 -- --
Deferred income taxes..................................... 785,587 240,664 175,000
Transaction costs for proposed merger..................... 479,754 -- --
Loss on extinguishment of debt............................ -- 3,921,061 436,329
Write-off of registration statement costs................. -- -- 397,583
Non-cash interest expense................................. 244,363 332,284 210,421
Equity in results of affiliated company................... -- 11,829 --
Distributions from affiliated companies................... (62,500) (1,942,731) --
Changes in current assets and current liabilities:
Decrease (increase) in accounts receivable.............. 254,211 (323,770) (2,165,123)
(Increase) decrease in inventory........................ (205,215) 190,705 (214,241)
Decrease (increase) in prepaid expenses and other
current assets........................................ 506,607 (742,764) (177,499)
Acquisition deposit held in escrow...................... -- 180,000 --
Increase in distribution receivable..................... -- -- (2,264,552)
Increase in accounts payable and accrued expenses....... 299,972 721,764 1,069,534
(Decrease) increase in accrued wages and sales
commissions........................................... 677 129,528 (96,287)
Increase (decrease) in accrued interest payable......... (412,941) (1,485,673) 1,632,742
Increase in accrued income taxes........................ 666,402 290,223 15,009
------------ ------------ ------------
Total adjustments................................... (5,008,518) (789,469) 4,304,196
------------ ------------ ------------
Net cash provided by operating activities........... 4,227,178 1,913,219 2,754,080
------------ ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from affiliated companies..................... 62,500 4,207,283 --
Payments for business acquisitions.......................... (13,605,591) -- (21,825,094)
Net proceeds from sale of stations.......................... 34,687,928 10,000,000 --
Accrued transaction costs................................... (479,754) (1,411,981) --
Net proceeds from sale of other assets...................... 580,653 -- --
Proceeds from note receivable............................... -- 1,620,455 329,545
Capital expenditures........................................ (1,707,351) (1,326,492) (942,771)
Acquisition deposit held in escrow.......................... (925,000) (180,000) --
Reclassification of other noncurrent assets................. 118,753 -- --
Expenditures for intangible assets.......................... -- (524,863) --
------------ ------------ ------------
Net cash provided by (used in) investing activities......... 18,732,138 12,384,402 (22,438,320)
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.................... -- 44,500,000 48,460,982
Proceeds from issuance of stock warrant..................... -- -- 1,774,837
Debt issuance costs......................................... (79,807) (1,183,824) (1,887,965)
Registration statement costs................................ -- -- (228,587)
Proceeds from exercise of stock options..................... 69,917 154,863 6,000
Purchase and retirement of treasury stock................... -- (642,354) (107,058)
Prepayment penalty on debt retirement....................... -- (500,000) --
Principal payments on long-term debt and notes payable...... (33,000,000) (50,000,000) (23,286,671)
------------ ------------ ------------
Net cash (used in) provided by financing activities......... (33,009,890) (7,671,315) 24,731,538
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents........ (10,050,574) 6,626,306 5,047,298
Cash and cash equivalents at beginning of period............ 12,994,779 6,368,473 1,321,175
------------ ------------ ------------
Cash and cash equivalents at end of period.................. $ 2,944,205 $ 12,994,779 $ 6,368,473
============ ============ ============

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest...................................... $ 2,370,194 $ 6,366,388 $ 2,542,664
============ ============ ============
Cash paid for income taxes.................................. $ 926,760 $ 245,095 $ 99,211
============ ============ ============
</TABLE>

See accompanying notes.

F-46
<PAGE> 201

SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. NATURE OF BUSINESS AND ORGANIZATION

Southern Star Communications, Inc. (the "Company" or "Southern Star"),
formerly known as Osborn Communications Corporation, is engaged in the operation
of radio stations, programmed music, cable television and other communications
properties throughout the United States.

2. MERGER

On July 23, 1996, Southern Star entered into an agreement and plan of
merger with a subsidiary of Capstar Radio Broadcasting Partners, Inc. ("Capstar
Radio") whereby Capstar Radio will acquire all of Southern Star's common stock
for $15.375 per share. A majority of the holders of the Southern Star's common
stock voted to approve the merger in December 1996 and the Federal
Communications Commission ("FCC") approved the transfer of Southern Star's
broadcast licenses to Capstar Radio in January 1997. The merger is expected to
be completed in February 1997.

Concurrently with the execution of the merger agreement and as security for
liquidated damages that may be payable by Capstar Radio to Southern Star for
Capstar Radio's failure to consummate the merger, Capstar Radio has deposited in
an escrow account an irrevocable letter of credit in favor of Southern Star for
the sum of $5.0 million. If Southern Star terminates the merger agreement by
reason of receiving an alternative proposal which is deemed more favorable to
Southern Star's stockholders, Southern Star must pay a termination fee of
$3,750,000 to Capstar Radio.

On February 20, 1997, Capstar Radio acquired all of Southern Star's common
stock and Southern Star was merged with Capstar Radio.

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements include the accounts of
Southern Star and its subsidiaries. All material intercompany items and
transactions have been eliminated. Investments in affiliated companies are
accounted for using the equity method. Certain prior years' amounts have been
reclassified to conform with the current year's presentation.

Change of Name

The Company changed its name from Osborn Communications Corporation to
Southern Star Communications, Inc. in May 1997.

Depreciation

Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the assets, as
follows:

<TABLE>
<S> <C>
Buildings................................................... 10-39 years
Furniture and fixtures...................................... 5-7 years
Broadcasting equipment...................................... 3-19 years
Transportation equipment.................................... 2-5 years
</TABLE>

Expenditures for maintenance and repairs are charged to operations as
incurred.

F-47
<PAGE> 202
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Intangible Assets

Intangible assets include $2.6 million and $2.5 million in 1996 and 1995,
respectively, for agreements not to compete relating to certain transactions
described in Note 4, and $3.4 million in 1996 and 1995 assigned to Muzak
customer contracts acquired in 1990 and 1986, which are being amortized over
their estimated useful lives. Deferred financing costs of $1.3 million and $1.2
million in 1996 and 1995, respectively, are being amortized over the term of the
related debt on a straight-line basis, which approximates the interest method.
The remainder in the amount of $34.7 million and $48.6 million in 1996 and 1995,
respectively, represents the excess of acquisition cost over the amounts
assigned to other assets acquired in Southern Star's acquisitions, and is being
amortized on a straight-line basis principally over a 40-year period.

It is Southern Star's policy to account for goodwill and all other
intangible assets at the lower of amortized cost or estimated realizable value.
As part of an ongoing review of the valuation and amortization of intangible
assets of Southern Star and its subsidiaries, management assesses the carrying
value of the intangible assets, if facts and circumstances suggest that there
may be impairment. If this review indicates that the intangibles will not be
recoverable as determined by a non-discounted cash flow analysis of the
operating assets over the remaining amortization period, the carrying value of
the intangible assets would be reduced to estimated realizable value.

During 1996, Southern Star adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which established standards for the recognition and measurement of impairment
losses on long-lived assets, certain identifiable intangible assets, and
goodwill (see Note 5).

Revenue Recognition

The Company's primary source of revenue is the sale of airtime to
advertisers. Revenue from the sale of airtime is recorded when the
advertisements are broadcast.

Barter Transactions

Revenue from barter transactions (advertising provided in exchange for
goods and services) is recognized as income when advertisements are broadcast,
and merchandise or services received are charged to expense (or capitalized as
appropriate) when received or used.

Revenue

Broadcast revenue is presented net of advertising commissions of
approximately $1.3 million, $2.1 million and $1.7 million for the years ended
December 31, 1996, 1995 and 1994, respectively.

Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments which are
readily convertible into cash and have an original maturity of three months or
less when purchased.

Inventory

Inventories, consisting of merchandise for Southern Star's entertainment
properties, sound equipment held for resale by Southern Star's Muzak franchises
and equipment held for resale by Southern Star's healthcare cable business, are
valued at the lower of cost or market using the first-in, first-out method.

F-48
<PAGE> 203
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Risks and Uncertainties

The preparation of financial statements in conformity with generally
accepted accounting principles requires Southern Star to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results may differ from those estimates.

4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS

At December 31, 1996, Southern Star owned and operated ten FM and six AM
radio stations, four programmed music and sound equipment distributorships, a
hospital cable television company and certain entertainment properties.

1996

In March 1996, Southern Star acquired substantially all the assets of radio
station WRIR-FM (formerly WHLX-FM), Wheeling, West Virginia, for $0.8 million
plus transaction costs. In June 1996, Southern Star acquired substantially all
the assets of radio stations WBBD-AM/WKWK-FM (formerly WKWK-AM/FM), Wheeling,
West Virginia, for $2.7 million plus transaction costs. Southern Star programmed
WBBD-AM/WKWK-FM pursuant to a local marketing agreement ("LMA") from March 1996
through the closing of the acquisition. In October 1996, Southern Star acquired
substantially all the assets of radio station WEGW-FM, Wheeling, West Virginia,
for $0.8 million. Southern Star already owned radio stations WWVA-AM/WOVK-FM in
Wheeling, West Virginia.

In April 1996, Southern Star acquired substantially all the assets of radio
stations WKII-AM/WFSN-FM (formerly WKII-AM/WEEJ-FM). Port Charlotte, Florida,
for $2.85 million plus transaction costs. Upon completion of the relocation of
WFSN-FM's broadcast antenna to Southern Star's Pine Island, Florida tower in
order to better serve the Port Charlotte/Ft. Myers market, additional
consideration of $750,000 will be paid. The additional consideration is included
in other noncurrent liabilities in the consolidated balance sheet at December
31, 1996. The additional consideration was paid in January 1997. Pending the
closing of the acquisition, the stations were programmed by Southern Star
pursuant to an LMA since September 1995. Southern Star already owns radio
station WOLZ-FM, Ft. Myers, and has a 50% non-voting ownership interest in radio
station WDRR-FM, San Carlos Park/Ft. Myers. Southern Star plans to dispose of
radio stations WOLZ-FM/WFSN-FM/ WKII-AM in 1997 (see Pending Transactions
below).

In May 1996, Southern Star acquired substantially all the assets of radio
stations KNAX-FM/KRBT-FM, Fresno, California. Consideration for the acquisition
consisted of $6.0 million plus 120,000 shares of Southern Star's common stock.
Pending the closing of the acquisition, the stations were programmed by Southern
Star since January 1996 pursuant to an LMA. In December 1996, Southern Star sold
substantially all the assets of radio stations KNAX-FM/ KRBT-FM for $11.0
million, resulting in a pre-tax gain of approximately $3.5 million. Pending the
closing of the transaction, the purchaser managed the stations pursuant to an
LMA since August 1, 1996.

In January 1996, Southern Star sold substantially all the assets of radio
station WWRD-FM, Jacksonville, Florida/Brunswick, Georgia, for $2.5 million,
resulting in a pre-tax gain of approximately $0.8 million. Pending the closing
of the disposition, the station was programmed by the purchaser pursuant to an
LMA.

In February 1996, Southern Star sold substantially all the assets of radio
stations WNDR-AM/WNTQ-FM, Syracuse, New York, for $12.5 million, resulting in a
pre-tax gain of approxi-

F-49
<PAGE> 204
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

mately $6.0 million. Pending the closing of the disposition, the stations were
programmed by the purchaser pursuant to an LMA.

In June 1996, Southern Star sold substantially all the assets of radio
station WFXK-FM, Raleigh/Tarboro, North Carolina, for $5.9 million, resulting in
a pre-tax gain of approximately $2.2 million. Pending the closing of the
transaction, the purchaser programmed the station pursuant to an LMA.

In June 1996, Southern Star sold substantially all the assets of radio
station WAYV-FM, Atlantic City, New Jersey, for $3.1 million, resulting in a
pre-tax gain of approximately $0.2 million. Pending the closing of the
transaction, the purchaser programmed the station pursuant to an LMA since March
1996.

In June 1996, Southern Star sold substantially all the assets of radio
station WFKS-FM, Daytona Beach/Palatka, Florida, for $4.0 million, resulting in
a pre-tax gain of approximately $0.8 million. Pending the closing of the
transaction, the purchaser programmed the station pursuant to an LMA.

The net cash proceeds from each of the dispositions were used principally
to repay long-term debt and fund transaction costs.

All of the acquisitions have been accounted for using the purchase method
of accounting. Accordingly, the purchase price of each acquisition has been
allocated to the assets based upon their fair values at the date of acquisition.
The results of operations of the properties acquired are included in Southern
Star's consolidated results of operations from the respective dates of
acquisition and until the date of disposition for properties disposed.

1995

In December 1995, Southern Star entered into an option agreement with
Allbritton Communications Company for the sale of television station WJSU-TV,
Anniston, Alabama, and an associated 10-year LMA. In consideration for the
option, Southern Star received a nonrefundable cash payment of $10.0 million.
Because the cash proceeds from the option are nonrefundable, Southern Star
accounted for the economic substance of the transaction as if a sale of
substantially all the assets of the station had occurred. Accordingly, a gain of
approximately $8.1 million was recorded. In addition, upon the exercise of the
option and the necessary FCC consent, Southern Star will receive an additional
cash payment of $2.0 million. Upon the grant of the necessary regulatory
approvals to relocate the station's broadcast transmitter to maximize broadcast
coverage of the facility, Southern Star could have received additional cash
payments of up to $7.0 million. In January 1997, the regulatory approvals were
granted for the relocation of the station's broadcast transmitter, and a cash
payment of approximately $5.3 million was paid to Southern Star. An additional
payment relating to the transmitter relocation of approximately $1.4 million
will be payable upon exercise of the option.

1994

In June 1994, Southern Star acquired substantially all the assets of three
FM radio stations and one AM radio station for $20.0 million plus transaction
costs. The acquisition included radio stations WWNC-AM/WKSF-FM, Asheville, North
Carolina; WOLZ-FM, Ft. Myers, Florida; and WFKS-FM, Daytona Beach, Florida. In
August 1994, Southern Star acquired substantially all the assets of radio
stations WAAX-AM/WQEN-FM, Gadsden, Alabama, (the "Gadsden Acquisition") for
$1.75 million plus transaction costs. Prior to the grant of the waiver of the
FCC's cross-ownership regulations, the Gadsden acquisition was accounted for
using the equity method of accounting. Accordingly, prior year financial
statements have been reclassified to reflect the consolidation of the Gadsden
radio stations.

In March 1994, Southern Star, through a wholly-owned subsidiary, acquired
radio station WAYV-FM, Atlantic City, New Jersey, for consideration of
approximately $2.5 million.
F-50
<PAGE> 205
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pending Transactions

In January 1997, Southern Star acquired substantially all the assets of
radio station WYNU-FM, Jackson/Milan, Tennessee for $3.6 million plus
transaction costs. Southern Star already owns one FM and one AM radio station in
the market.

In November 1996, Southern Star agreed to acquire substantially all the
assets of radio station WTXT-FM, Tuscaloosa/Fayette, Alabama from Tuscaloosa
Broadcasting Company, Inc. for approximately $5.8 million, subject to FCC
approval. The transaction is expected to close in February 1997. In December
1996, Southern Star agreed to acquire substantially all the assets of radio
stations WACT-AM/FM, Tuscaloosa, Alabama from Taylor Communications Corporation
for $1.0 million, subject to FCC approval. Pending the closing of the
transaction, which is expected in the first quarter of 1997, Southern Star is
managing the stations pursuant to an LMA.

In November 1996, Southern Star agreed to acquire the stock of Dixie
Broadcasting, Inc. and Radio WBHP, Inc., the owners of radio stations
WDRM-FM/WHOS-AM/WBHP-AM, Huntsville, Alabama. Consideration for the acquisition
consists of (i) $23.0 million; (ii) a three year consulting agreement valued at
$2.5 million; and (iii) a $1.5 million earn-out based on future operating
results. The transaction, which is subject to FCC approval, is expected to close
in 1997.

In December 1996, Southern Star agreed to sell substantially all the assets
of WOLZ-FM, WFSN-FM and WKII-AM, Fort Myers/Port Charlotte, Florida for
approximately $11.0 million to Clear Channel Radio, Inc., subject to FCC
approval. Pending the closing of the transaction, which is expected in 1997, the
stations are being managed by the Purchaser pursuant to a LMA starting in
January 1997.

Other Investments

In 1989, Southern Star acquired, for $620,000, a 50% non-voting ownership
interest (without control) in a corporation that owns and operates radio station
WDRR-FM, San Carlos Park, Florida. The station became operational in September
1995. Southern Star's net investment is included in investment in affiliated
companies on the consolidated balance sheet.

In 1989, Southern Star acquired a 32% ownership interest in Northstar
Television Group, Inc. ("Northstar") for $329,000. From Northstar's inception
through May 1994, Southern Star managed Northstar's four television stations for
an annual fee of up to $250,000, plus reimbursement of out-of-pocket expenses
and allocated overhead costs. In 1994, as a result of a proposed restructuring
of Northstar, Southern Star agreed, as payment for prior services rendered, to
receive an immediate payment of $250,000, another payment of $250,000 within two
years, and the retention of an economic interest. Southern Star's management
agreement terminated following the restructuring. In 1995, three of Northstar's
four television stations were sold and Southern Star received a distribution of
$1.6 million, classified as other income in the consolidated statement of
operations, plus accrued management fees of $250,000.

In 1987, Southern Star acquired 25% of the stock of Fairmont Communications
Corporation ("Fairmont") for $500,000. Fairmont owned seven radio stations in
four large and medium sized markets. In August 1992, Fairmont filed for
protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. In
September 1993, Fairmont emerged from Chapter 11 upon approval by the bankruptcy
court of a plan of reorganization (the "Plan"). The Plan provided for the sale
of Fairmont's assets, distribution of the proceeds in accordance with the Plan,
and subsequent liquidation of Fairmont. All of Fairmont's stations were sold by
the second quarter of 1994. Southern Star will continue to manage Fairmont
pursuant to a management agreement which expires upon the liquidation of
Fairmont, which is expected in 1997. For managing Fairmont, Southern Star
receives an annual fee of $125,000, plus reimbursement of out-of-pocket expenses

F-51
<PAGE> 206
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and allocated overhead costs. In 1994, Southern Star received additional
management fees of $728,000 related to the sale of Fairmont's stations. Southern
Star also earned distributions of $400,000 and $2.3 million in 1995 and 1994,
respectively, classified as other income and distribution receivable in the
consolidated financial statements, determined by the amount realized by Fairmont
from sales of its assets.

5. OSBORN HEALTHCARE

Osborn Healthcare, a division of Osborn Entertainment Enterprises
Corporation, continued to experience operating losses through the second quarter
of 1996. Consistent with Southern Star's previously stated intention to evaluate
options to increase shareholder value, management has reviewed the strategic
direction and long-term prospects of the Osborn Healthcare operations and has
restructured the operations. Southern Star plans to focus resources on only the
more profitable product lines. In conjunction with these plans, Southern Star
has combined the Osborn Healthcare operations and Southern Star's programmed
music operations, terminating certain employees of the Osborn Healthcare
operations, and consolidating certain overhead. In the second quarter of 1996,
Southern Star accrued costs of approximately $300,000, principally severance
costs, in connection with the consolidation of operations. In addition, Southern
Star has reduced goodwill by approximately $900,000 to reflect the anticipated
discounted cash flow from the remaining healthcare operations. The charges,
totaling $1.2 million, are included in other operating expenses in the
consolidated statement of operations.

6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net revenues.............................................. $36,131,000 $32,667,000
Income (loss) before extraordinary item................... 633,000 (808,000)
Net income (loss)......................................... 633,000 (4,729,000)
</TABLE>

The unaudited pro forma information for the years ended December 31, 1996
and 1995 assumes that the acquisitions and dispositions described in Note 4,
excluding pending transactions, had occurred on January 1, 1995. The gains on
sales of stations and the loss from Osborn Healthcare's restructuring in 1996
and the distributions from Northstar Television Group in 1995 are excluded from
the pro forma information because of their nonrecurring nature. The pro forma
information is not necessarily indicative either of the results of operations
that would have occurred had these transactions been made on the date indicated,
or of future results of operations.

Net assets of properties to be disposed in Ft. Myers aggregated $7.5
million at December 31, 1996, consisting of current assets of $500,000, plant
and equipment of $2.0 million, and net intangible assets of $5.0 million.

F-52
<PAGE> 207
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT

A summary of long-term debt is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Note payable to KeyBank National Association, at the prime
rate plus 0.5%; interest payable quarterly; quarterly
commitment reductions from December 31, 1996 through
December 31, 2001(A)...................................... $ 200,000 $14,500,000
Note payable to KeyBank National Association, at LIBOR plus
1.75%; principal due in quarterly installments from
December 31, 1996 through December 31, 2001(A)............ 14,000,000 30,000,000
Term loan payable to National Westminster Bank, net of
unamortized debt discount of $700,000; interest payable
quarterly at LIBOR plus 2.5%; principal due in quarterly
installments in varying amounts from June 1996 through
March 2000(B)............................................. -- 2,700,000
----------- -----------
14,200,000 47,200,000
Less current portion........................................ 320,000 2,718,000
----------- -----------
$13,880,000 $44,482,000
=========== ===========
</TABLE>

- ---------------

(A) In August 1995, Southern Star entered into a credit facility of $56.0
million with KeyBank National Association (the "Credit Facility"). The
Credit Facility consists of a $46.0 million revolving credit facility and a
$10.0 million facility which may be used for acquisitions. The initial
drawdown of $44.5 million, along with Southern Star's internally generated
funds, was used to repay existing loans totaling $50.0 million and pay
transaction costs. The Credit Facility contains covenants which require,
among other things, that Southern Star and its subsidiaries (excluding
Atlantic City Broadcasting Corp.) maintain certain financial levels,
principally with respect to EBITDA (earnings before interest, income tax,
depreciation and amortization) and leverage ratios, and limit the amount of
capital expenditures. The Credit Facility also restricts the payment of cash
dividends. The Credit Facility is collateralized by pledges of the tangible
and intangible assets of Southern Star and its subsidiaries, as well as the
stock of those subsidiaries. At December 31, 1996, Southern Star has
additional availability under the revolving credit facility of $14.1
million. Effective December 31, 1996 the outstanding balance under the
acquisition facility will convert to a term loan. Under the current terms of
the Credit Facility, no additional amounts under the acquisition facility
may be borrowed after December 31, 1996 unless the terms are modified.
Southern Star pays an annual commitment fee of 0.5% of the unused
commitment.

(B) The term loan contained covenants with respect to Southern Star's
wholly-owned subsidiary, Atlantic City Broadcasting Corp., which, among
other things, restricted cash distributions to Southern Star and limited
the amount of annual capital expenditures. The loan was collateralized by
pledges of the tangible and intangible assets and stock of Atlantic City
Broadcasting Corp. ("Atlantic City"), and were otherwise nonrecourse to
Southern Star and its other assets. In June 1996, Southern Star sold
substantially all the assets of Atlantic City. The net proceeds were used
primarily to repay long-term debt and fund transaction costs.

F-53
<PAGE> 208
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1996, the aggregate amounts of long-term debt due during
the next five years are as follows:

<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Year:
1997...................................................... $ 320,000
1998...................................................... 640,000
1999...................................................... 640,000
2000...................................................... 800,000
2001...................................................... 11,800,000
</TABLE>

The fair value of the debt approximates net book value.

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land.................................................... $ 3,095,266 $ 4,256,414
Buildings............................................... 3,967,805 4,168,839
Equipment............................................... 20,507,405 25,556,838
------------ ------------
27,570,476 33,982,091
Less accumulated depreciation........................... (15,894,081) (18,624,021)
------------ ------------
$ 11,676,395 $ 15,358,070
============ ============
</TABLE>

At December 31, 1996, all property, plant and equipment is pledged as
collateral for the debt disclosed in Note 7.

9. INCOME TAXES

At December 31, 1996, Southern Star has consolidated net operating loss
carryforwards for income tax purposes of $20.6 million that expire in years 2006
through 2010. Of the total net operating loss carryforwards, $11.0 million may
be used only to offset future income of Southern Star's subsidiary, Osborn
Entertainment Enterprises Corporation.

F-54
<PAGE> 209
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Southern Star's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 8,237,540 $13,577,873
Other................................................... 971,542 713,951
----------- -----------
9,209,082 14,291,824
Valuation allowance....................................... (5,940,696) (9,088,722)
----------- -----------
3,268,386 5,203,102
Deferred tax liabilities:
Depreciation and amortization........................... 2,865,184 4,014,313
Sale of station......................................... 3,289,500 3,289,500
Other................................................... 175,000 175,000
----------- -----------
6,329,684 7,478,813
----------- -----------
Net deferred tax liabilities.............................. $ 3,061,298 $ 2,275,711
=========== ===========
</TABLE>

The provision for income taxes for 1996 consists of federal taxes of
$269,000, state and local taxes of $1,324,000 and deferred federal, state and
local taxes of $786,000. The provision for income taxes for 1995 and 1994
consists entirely of state and local taxes, of which $535,000 and $114,000,
respectively, is current and $241,000 and $175,000, respectively, is deferred.
The valuation allowance decreased to approximately $5,941,000 from approximately
$9,089,000 during 1996.

The reconciliation of income tax computed at the U.S. federal statutory tax
rate to income tax expense is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- ---------
<S> <C> <C> <C>
Amount computed using statutory rate......... $ 4,065,056 $ 1,217,532 $(428,705)
State and local taxes, net of federal
benefit.................................... 860,748 504,388 190,885
Net operating losses (utilized) generated.... (2,673,429) (1,228,507) 234,539
Nondeductible expenses....................... 126,374 282,569 292,501
----------- ----------- ---------
$ 2,378,749 $ 775,982 $ 289,220
=========== =========== =========
</TABLE>

F-55
<PAGE> 210
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. COMMITMENTS

Southern Star leases office and broadcast tower space, vehicles and office
equipment. Rental expense amounted to $1,113,000, $994,000 and $768,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.

The minimum aggregate annual rentals under noncancellable operating leases
are payable as follows:

<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Year:
1997...................................................... $1,038,000
1998...................................................... 752,000
1999...................................................... 532,000
2000...................................................... 305,000
2001...................................................... 244,000
Thereafter................................................ 2,693,000
----------
$5,564,000
==========
</TABLE>

11. EMPLOYEE BENEFIT PLANS

Southern Star sponsors a profit sharing plan which qualifies under Section
401(k) of the Internal Revenue Code (the "IRC"). The Plan is available to all
full-time employees with at least one year of employment with Southern Star. All
eligible employees may elect to contribute a portion of their compensation to
the profit sharing plan, subject to IRC limitations. Effective January 1, 1996,
the Plan provides for employer contributions based upon an employee's salary. In
December 1994, Southern Star adopted a non-qualified deferred compensation plan
available to certain management employees.

12. STOCK OPTION PLAN

Southern Star's Incentive Stock Option Plan (the "Plan") provides for the
granting to officers and key employees of incentive and non-qualified stock
options to purchase Southern Star's voting common stock as defined under current
tax laws. Incentive stock options are exercisable at a price equal to the fair
market value, as defined, on the date of grant, for a maximum 10-year period
from the date of grant. Non-qualified stock options may be granted at an
exercise price equal to at least 85% of the fair market value on the date of
grant, for a maximum 11-year period from the date of grant. The exercise prices
of all options granted in 1994 through 1996 were at fair market value at the
date of grant.

F-56
<PAGE> 211
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the Plan's transactions for the years ended
December 31, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Outstanding options, beginning of year............ 447,341 417,000 382,750
Granted........................................... 52,000 66,500 108,250
Cancelled or expired.............................. (8,299) (12,500) (72,500)
Exercised......................................... (173,667) (23,659) (1,500)
--------- -------- --------
Outstanding options, end of year.................. 317,375 447,341 417,000
========= ======== ========
Weighted average price of options granted......... $ 10.10 $ 6.76 $ 6.26
Weighted average price of options canceled or
expired......................................... $ 6.46 $ 7.00 $ 6.61
Weighted average price of options exercised....... $ 4.23 $ 6.55 $ 4.00
Weighted average exercise price, end of year...... $ 8.55 $ 6.66 $ 6.64
Options exercisable, end of year.................. 205,125 283,921 280,083
Options available for future grant................ 35,299 79,000 133,000
</TABLE>

At December 31, 1996, the range of exercise prices for outstanding options
was $4.00 through $14.40 These outstanding options have a remaining contractual
life of five years.

13. STOCKHOLDERS' EQUITY

During 1996, approximately 174,000 shares of common stock were issued
pursuant to the exercise of stock options. Approximately 45,000 existing shares
were retired to fund the exercise of certain of these options.

In January 1995, Southern Star paid $642,000 to repurchase and subsequently
retired 107,059 unregistered shares of its common stock which were held by an
institution. In December 1994, Southern Star paid $107,000 to repurchase and
subsequently retired 17,843 shares of its common stock at $6.00 per share.

In June 1994, Southern Star entered into two credit agreements totaling
$50.0 million with Citicorp Mezzanine Investment Fund ("CMIF"). As partial
consideration for making the loans, CMIF received a warrant to purchase
1,014,193 shares (after giving effect to the reverse stock split described
below) of Southern Star's common stock at $7.00 per share. The warrant is
exercisable for a 10-year period. Under the terms of the warrant agreement, in
the event that the CMIF loans were repaid by December 31, 1995, purchase rights
with respect to 676,162 warrant shares will be canceled. The loans were repaid
in August 1995 and, accordingly, the purchase rights with respect to 676,162
warrant shares were canceled.

In July 1994, Southern Star effected a 1-for-2 reverse stock split for
shareholders of record on that date. Cash was paid in lieu of fractional shares.
All per share amounts in the consolidated statement of operations reflect the
reverse stock split.

F-57
<PAGE> 212

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
Benchmark Communications
Radio Limited Partnership:

We have audited the accompanying combined balance sheets of Benchmark
Communications Radio Limited Partnership (as identified in Note 1) (collectively
"Benchmark") as of December 31, 1996 and 1995 and the related combined
statements of operations, changes in partners' equity (deficit), and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of Benchmark's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Benchmark
as of December 31, 1996 and 1995 and the combined results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
February 8, 1997

F-58
<PAGE> 213

BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1997 1996 1995
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................................. $ 8,522,092 $11,029,177 $ 825,403
Escrow deposit................................... 1,210,351 150,000 --
Accounts receivable, net of allowance for
doubtful accounts of $406,678, $324,719 and
$280,366, respectively........................ 7,775,068 4,731,405 4,016,421
Due from related entities........................ -- 23,753 10,884
Prepaid expenses and other current assets........ 299,978 244,784 354,211
------------ ----------- -----------
Total current assets..................... 17,807,489 16,179,119 5,206,919
Property and equipment, net........................ 17,890,379 13,721,546 14,156,177
Investment in limited partnership.................. 66,331 66,331 82,721
Intangible assets, net............................. 81,801,454 43,788,173 30,204,762
Deferred acquisition costs......................... -- 375,882 --
------------ ----------- -----------
Total assets............................. $117,565,653 $74,131,051 $49,650,579
============ =========== ===========

Current liabilities:
Accounts payable and accrued expenses............ $ 4,461,217 $ 2,900,204 $ 1,645,018
Due to related entities.......................... 609,516 2,865,164 65,345
Current portion of long-term debt................ 10,484,525 14,219,155 12,846,733
Obligations under capital leases, current
portion....................................... 4,054 78,984 114,451
------------ ----------- -----------
Total current liabilities................ 15,559,312 20,063,507 14,671,547
Long-term debt..................................... 80,746,663 29,841,341 14,127,693
Obligations under capital leases, net of current
portion.......................................... 118,827 78,820 220,058
------------ ----------- -----------
Total liabilities................................ 96,424,802 49,983,668 29,019,298
------------ ----------- -----------
Commitments (Note 8)
Partners' capital.................................. 21,140,851 24,147,383 20,631,281
------------ ----------- -----------
Total liabilities and partners'
capital................................ $117,565,653 $74,131,051 $49,650,579
============ =========== ===========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-59
<PAGE> 214

BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------
1997 1996 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Gross broadcast revenue............................... $21,362,213 $29,697,028 $25,198,304 $17,621,955
Less agency commissions............................... 1,795,977 2,441,800 2,051,455 1,449,843
----------- ----------- ----------- -----------
Net revenue......................................... 19,566,236 27,255,228 23,146,849 16,172,112
----------- ----------- ----------- -----------
Operating expenses:
Programming, technical and news..................... 3,374,061 6,760,363 5,210,641 3,804,695
Sales and promotion................................. 6,043,669 9,233,843 8,245,763 5,787,235
General and administrative.......................... 3,538,482 5,257,968 4,823,394 3,383,768
Depreciation and amortization....................... 3,657,070 5,320,258 5,005,245 4,149,542
Corporate expenses.................................. 347,617 1,513,438 1,271,455 569,480
----------- ----------- ----------- -----------
16,960,899 28,085,870 24,556,498 17,694,720
----------- ----------- ----------- -----------
Income (loss) from operations............... 2,605,337 (830,642) (1,409,649) (1,522,608)
Other income (expense):
Interest expense.................................... (4,689,412) (3,384,388) (2,519,578) (1,799,169)
Gain on sale of broadcasting properties (Note 6b)... -- 9,612,496 -- 1,437,817
Other, net.......................................... 63,775 678,636 (414,561) 96,920
----------- ----------- ----------- -----------
Net income (loss)................................... $(2,020,300) $ 6,076,102 $(4,343,788) $(1,787,040)
=========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-60
<PAGE> 215

BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

COMBINED STATEMENTS OF CHANGES
IN PARTNERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1, 1994............................. $(1,879,470) $13,165,680 $11,286,210
Capital contributions from partners................ (48,191) 9,163,878 9,115,687
Capital distributions to partners.................. (255,000) -- (255,000)
Net income (loss).................................. 233,554 (2,020,594) (1,787,040)
----------- ----------- -----------
Balance, December 31, 1994........................... (1,949,107) 20,308,964 18,359,857
Capital contributions from partners................ 961,516 6,253,441 7,214,957
Capital distributions to partners.................. (599,745) -- (599,745)
Net income (loss).................................. (300,171) (4,043,617) (4,343,788)
----------- ----------- -----------
Balance, December 31, 1995........................... (1,887,507) 22,518,788 20,631,281
Capital contributions from partners................ 800,000 -- 800,000
Capital distributions to partners.................. (1,260,000) (2,100,000) (3,360,000)
Net income (loss).................................. 2,137,845 3,938,257 6,076,102
----------- ----------- -----------
Balance, December 31, 1996........................... (209,662) 24,357,045 24,147,383
Capital distributions to partners (unaudited)...... (145,073) (841,159) (986,232)
Net income (loss) (unaudited)...................... (718,588) (1,301,712) (2,020,300)
----------- ----------- -----------
Balance, June 30, 1997 (unaudited)................... $(1,073,323) $22,214,174 $21,140,851
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-61
<PAGE> 216

BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------
1997 1996 1995 1994
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (2,020,300) $ 6,076,102 $ (4,343,788) $(1,787,040)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 3,657,070 5,320,258 5,005,245 4,149,542
Provision for doubtful accounts......................... 232,481 332,487 280,760 342,038
Loss from investment in limited partnership............. -- 16,490 7,381 7,914
Gain on sale of broadcast properties and equipment...... -- (9,612,496) (4,766) (1,437,817)
Change in barter receivable/payable, net................ (121,193) (83,433) 197,335 35,795
Changes in assets and liabilities, net of the effects of
acquired broadcasting properties:
Accounts receivable................................... (3,355,960) (996,735) (1,528,818) (569,941)
Due from/due to related entities, net................. (2,230,599) 2,786,950 (332,505) 167,622
Prepaid expenses and other current assets............. 62,786 (109,427) (277,703) 42,261
Accounts payable and accrued expenses................. 2,289,892 1,375,292 635,184 (227,408)
------------ ------------ ------------ -----------
Net cash flows provided by (used in) operating
activities........................................ (1,485,823) 5,105,488 (361,675) 722,966
------------ ------------ ------------ -----------
Cash flows from investing activities:
Purchases of property and equipment....................... (266,932) (1,133,074) (1,140,417) (542,749)
Purchases of broadcasting properties...................... (46,903,864) (22,225,278) (16,535,198) (5,189,233)
Net proceeds from sales of broadcasting properties........ -- 14,123,152 -- 4,866,629
Capital contribution to limited partnerships.............. -- -- -- 3,900,000
------------ ------------ ------------ -----------
Net cash flows provided by (used in) investing
activities........................................ (47,170,796) (9,235,200) (17,675,615) 3,034,647
------------ ------------ ------------ -----------
Cash flows from financing activities:
Repayments of notes payable and capital leases............ (143,288) (6,903,389) (9,341,629) (5,363,989)
Proceeds from borrowing under notes payable and promissory
notes................................................... 47,279,054 23,846,875 15,652,627 1,755,000
Distributions to partners................................. (986,232) (3,360,000) (599,745) (255,000)
Capital contributions for acquisition of broadcasting
properties.............................................. -- 800,000 7,393,804 5,700,000
Cash paid for syndication costs........................... -- -- (178,847) (584,313)
Borrowings under line of credit........................... -- 647,075 215,535 --
Repayments under line of credit........................... -- (697,075) -- --
Proceeds from sale leaseback transaction.................. -- -- -- 141,000
Proceeds from assumption of capital lease obligation...... -- -- -- 28,000
------------ ------------ ------------ -----------
Net cash flows provided by financing activities..... 46,149,534 14,333,486 13,141,745 1,420,698
------------ ------------ ------------ -----------
Net increase (decrease) in cash............................. (2,507,085) 10,203,774 (4,895,545) 5,178,311
Cash, at beginning of period................................ 11,029,177 825,403 5,720,948 542,637
------------ ------------ ------------ -----------
Cash, at end of period...................................... $ 8,522,092 $ 11,029,177 $ 825,403 $ 5,720,948
============ ============ ============ ===========
Supplementary information:
Cash paid for interest.................................... $ 1,971,803 $ 3,459,331 $ 2,473,568 $ 1,363,052
Noncash activities:
Asset additions under capital lease obligations......... -- 15,882 16,936 211,371
Assumption of note payable in connection with fund
merger................................................ -- -- 500,000 --
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-62
<PAGE> 217

BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS
(DATA WITH REGARD TO JUNE 30, 1997 AND FOR THE SIX-MONTH PERIOD ENDED
JUNE 30, 1997 ARE UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION:

The financial statements and following notes, insofar as they are
applicable to the six-month period ended June 30, 1997, and transactions
subsequent to February 8, 1997, the date of the Report of Independent
Accountants, are not covered by the Report of Independent Accountants. In the
opinion of management, all adjustments, consisting of only normal recurring
accruals considered necessary for a fair presentation of the unaudited
consolidated results of operations for the six-month period ended June 30, 1997,
have been included.

The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the entire year.

The accompanying financial statements include the combined radio station
holdings of Benchmark Communications Radio Limited Partnership (BCRLP), and
Benchmark Radio Acquisition Fund I Limited Partnership (BRAF I), Benchmark Radio
Acquisition Fund IV Limited Partnership (BRAF IV), Benchmark Radio Acquisition
Fund VII Limited Partnership (BRAF VII), and Benchmark Radio Acquisition Fund
VIII Limited Partnership (BRAF VIII), (collectively, Benchmark). Financial
statements for the period ended June 30, 1997 include Benchmark Radio
Acquisition Fund IX Limited Partnership (BRAF IX), Benchmark Radio Acquisition
Fund X Limited Partnership (BRAF X) and Benchmark Radio Acquisition Fund XI
Limited Partnership (BRAF XI). BCRLP is a Maryland limited partnership formed on
June 1, 1991 to invest in and manage radio stations and serves as the general
partner for the four funds listed above, as well as other funds not included in
these combined financial statements. Benchmark serves certain radio markets in
Delaware, Maryland, South Carolina, Virginia, Louisiana, Mississippi and
Alabama.

All significant intercompany accounts and transactions have been
eliminated.

BENCHMARK RADIO ACQUISITION FUND I LIMITED PARTNERSHIP

BRAF I is a Maryland limited partnership formed on May 16, 1990, and
operates radio stations WDOV-AM, WDSD-FM and WSRV-FM.

BENCHMARK RADIO ACQUISITION FUND IV LIMITED PARTNERSHIP

BRAF IV is a Maryland limited partnership formed on December 10, 1992, to
operate radio stations and its 99.99999% owned subsidiary, Benchmark Radio
Acquisition Fund V Limited Partnership (BRAF V) (together, the Fund IV
Partnership). BRAF IV is the general partner in BRAF V and BCRLP is the limited
partner. The Fund IV Partnership operates radio stations WOSC-FM, WWFG-FM,
WCOS-AM/FM, WHKZ-FM, WVOC-AM, and KRMD-AM/FM.

BENCHMARK RADIO ACQUISITION FUND VII LIMITED PARTNERSHIP

BRAF VII is a Maryland limited partnership formed on June 20, 1994, and
operates WESC-AM/FM, WFNQ-FM and WJMZ-FM.

BENCHMARK RADIO ACQUISITION FUND VIII LIMITED PARTNERSHIP

BRAF VIII is a Maryland limited partnership formed on November 15, 1994,
and operates WUSQ-FM, WNTW-AM, WYYD-FM, WROV-AM/FM and WFQX-FM.

On January 1, 1995, Benchmark Radio Acquisition Fund II Limited Partnership
(BRAF II), which owned WUSQ-FM and WNTW-AM in Winchester, Virginia, and
Benchmark Radio Acquisition Fund VI Limited Partnership (BRAF VI), which owned
WFQX-FM in Front Royal, Virginia, were merged into BRAF VIII. The limited
partners of BRAF II and BRAF VI collectively received approximately 33 units, of

F-63
<PAGE> 218
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

the total of 73 units, in BRAF VIII. The merger has been accounted for in a
manner similar to a pooling of interests, whereby the net assets of the merged
partnerships are recorded at their carrying amounts at the time of the merger.

BENCHMARK RADIO ACQUISITION FUND IX LIMITED PARTNERSHIP

BRAF IX is a Maryland limited partnership formed on December 9, 1996 and
operates radio stations WFMX-FM and WSIC-AM.

BENCHMARK RADIO ACQUISITION FUND X LIMITED PARTNERSHIP

BRAF X is a Maryland limited partnership formed on December 9, 1996 and
operates radio stations WJMI-FM, WOAD-AM and WKXI-AM/FM.

BENCHMARK RADIO ACQUISITION FUND XI LIMITED PARTNERSHIP

BRAF XI is a Maryland limited partnership formed on December 9, 1996 and
operates radio stations WZHT-FM, WMCZ-FM and WMHS-FM.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

REVENUE RECOGNITION

BARTER TRANSACTIONS

Barter transactions represent advertising time exchanged for promotional
items, advertising, supplies, equipment, and services. Barter revenue is
recorded at the fair value of the goods or services received and is recognized
in income when the advertisements are broadcast. Goods or services are charged
to expense when received or used. Advertising time owed and goods or services
due Benchmark are included in accounts payable and accounts receivable,
respectively.

INVESTMENT IN LIMITED PARTNERSHIP

Investment in limited partnership (representing BRAF Fund III which is not
included in these combined financial statements) is accounted for using the
equity method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is determined using the straight-line method
based upon the estimated useful lives of the assets as follows:

<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings................................................... 39
Building improvements....................................... 13 - 39
Broadcast equipment......................................... 5 - 25
Furniture, fixtures and equipment........................... 5 - 10
</TABLE>

Leasehold improvements are amortized over the shorter of their useful lives
or the terms of the related leases. Costs of repairs and maintenance are charged
to operations as incurred.

F-64
<PAGE> 219
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

INTANGIBLE ASSETS

Intangible assets are stated at cost, less accumulated amortization.
Amortization is determined using the straight-line method based upon the
estimated useful lives of the assets as follows:

<TABLE>
<CAPTION>
YEARS
-----------------------
<S> <C>
Licenses and authorization costs....................... 25
Organization costs..................................... 5
Deferred financing costs............................... Life of respective loan
Noncompete agreements.................................. 5
Goodwill............................................... 25
Other.................................................. 1-5
</TABLE>

Benchmark evaluates intangible assets for potential impairment by analyzing
the operating results, trends and prospects of the business, as well as
comparing them to their competitors. Benchmark also takes into consideration
recent acquisition patterns within the broadcast industry as well as the impact
of recently enacted or potential Federal Communications Commission (the FCC)
rules and regulations and any other events or circumstances which might indicate
potential impairment.

ADVERTISING COSTS

Benchmark incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred and totaled
approximately $1.6 million, $1.6 million and $1.2 million for the years ended
December 31, 1996, 1995 and 1994, respectively.

CONCENTRATION OF CREDIT RISK

Benchmark's revenue and accounts receivable primarily relate to advertising
of products and services within the radio stations' broadcast areas. Benchmark's
management performs ongoing credit evaluations of the customers' financial
condition and, generally, requires no collateral from their customers. Credit
losses have been within management's expectations and adequate allowances for
any uncollectible trade receivables are maintained.

INCOME TAXES

Benchmark is comprised of limited partnerships which are exempt from
federal and state income taxes. Accordingly, no provision for income taxes has
been made in the accompanying financial statements as all items of tax
attributes pass through pro rata to each partner in accordance with the
partnership agreements.

3. UNCERTAINTIES AND USE OF ESTIMATES:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires the FCC to relax its
numerical restrictions on local ownership and affords renewal applicants
significant new protections from competing applications for their broadcast
licenses. The ultimate effect of this legislation on the competitive environment
is currently undeterminable.

F-65
<PAGE> 220
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, 1996 and 1995 consist of the
following:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land...................................................... $ 1,489,647 $ 1,532,116
Tower, building and improvements.......................... 5,588,771 5,357,989
Broadcast equipment....................................... 9,936,338 10,087,239
Office furniture and fixtures............................. 1,137,222 1,245,332
Equipment under capital leases............................ 321,638 293,174
Vehicles.................................................. 281,305 310,742
Computer equipment........................................ 603,496 516,604
----------- -----------
19,358,417 19,343,196
Less accumulated depreciation............................. (5,636,871) (5,187,019)
----------- -----------
$13,721,546 $14,156,177
=========== ===========
</TABLE>

Depreciation expense for the years ended December 31, 1996, 1995 and 1994
was $2,409,696, $2,227,478 and $1,680,039, respectively.

5. INTANGIBLE ASSETS:

Intangible assets at December 31, 1996 and 1995 consist of the following:

<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Licenses and authorization costs......................... $ 42,423,027 $28,335,031
Organization costs....................................... 2,801,440 2,339,639
Deferred financing costs................................. 688,971 460,610
Noncompete agreements.................................... 4,685,668 4,785,669
Goodwill................................................. 2,430,590 2,258,490
Other.................................................... 1,254,282 1,536,518
------------ -----------
54,283,978 39,715,957
Less accumulated amortization............................ (10,495,805) (9,511,195)
------------ -----------
$ 43,788,173 $30,204,762
============ ===========
</TABLE>

Amortization expense for the years ended December 31, 1996, 1995 and 1994
was $2,910,562, $2,777,767 and $2,469,503, respectively.

F-66
<PAGE> 221
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

6A. ACQUISITIONS OF BROADCASTING PROPERTIES:

On January 19, 1995, BRAF VIII purchased substantially all the assets of
WYYD-FM for approximately $8.5 million, including acquisition costs and an
agreement by the seller not to compete with the station. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.

The acquisition is summarized as follows (in thousands):

<S> <C>
Assets acquired:
Property and equipment.................................... $1,059
Goodwill and other intangibles............................ 7,441
------
Purchase price.............................................. $8,500
======
</TABLE>

On February 10, 1995, BRAF IV purchased substantially all of the assets of
WVOC-AM for approximately $2.5 million including acquisition costs and an
agreement by the seller not to compete with the station. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.

The acquisition is summarized as follows (in thousands):

<S> <C>
Assets acquired:
Property and equipment.................................... $1,006
Goodwill and other intangibles............................ 1,494
------
Purchase price.............................................. $2,500
======
</TABLE>

On March 1, 1995, BRAF VII purchased substantially all the assets of
WESC-AM/FM for approximately $8.1 million, including acquisition costs and an
agreement by the seller not to compete with the station. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.

The acquisition is summarized as follows (in thousands):

<S> <C>
Assets acquired:
Property and equipment.................................... $3,447
Goodwill and other intangibles............................ 4,653
------
Purchase price.............................................. $8,100
======
</TABLE>

On January 1, 1996, BRAF VIII purchased substantially all the assets of
WROV-AM/FM for approximately $5.8 million, including acquisition costs and an
agreement by the seller not to compete with the stations. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.

F-67
<PAGE> 222
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $1,388
Goodwill and other intangibles............................ 4,412
------
Purchase price.............................................. $5,800
======
</TABLE>

On November 27, 1996, BRAF IV purchased substantially all the assets of
KRMD-AM/FM in Shreveport, Louisiana (Shreveport) for approximately $7.5 million,
including acquisition costs and an agreement by the seller not to compete with
the stations. The acquisition has been accounted for as a purchase and,
accordingly, the results of operations associated with the acquired assets have
been included in the accompanying statement from the date of the acquisition.

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $1,330
Goodwill and other intangibles............................ 6,170
------
Purchase price.............................................. $7,500
======
</TABLE>

On December 9, 1996, BRAF VII purchased substantially all the assets of
WJMZ-FM in Greenville, South Carolina (Greenville) for approximately $7.5
million, including acquisition costs and an agreement by the seller not to
compete with the station. The acquisition has been accounted for as a purchase
and, accordingly, the results of operations associated with the acquired assets
have been included in the accompanying statements from the date of the
acquisition.

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $ 903
Goodwill and other intangibles............................ 6,597
------
Purchase price.............................................. $7,500
======
</TABLE>

UNAUDITED

On January 10, 1997, BRAF IX purchased substantially all the assets of
WSIC-AM and WFMX-FM for approximately $9.8, including acquisition costs and an
agreement by the seller not to compete with the stations. The acquisition has
been accounted for a purchase and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $2,119
Goodwill and other intangibles............................ 7,681
------
$9,800
======
</TABLE>

F-68
<PAGE> 223
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

On March 11, 1997, BRAF IV purchased substantially all the assets of
WSCQ-FM in the Columbia, South Carolina market for approximately $4.1 million,
including acquisition costs. The acquisition has been accounted for as a
purchase and, accordingly, the results of operations associated with the
acquired assets have been included in the accompanying statements from the date
of acquisition.

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $ 736
Goodwill and other intangibles............................ 3,364
------
Purchase price.............................................. $4,100
======
</TABLE>

On April 9, 1997, BRAF XI purchased substantially all the assets of WZHT-FM
and WMCZ-FM for approximately $17.8 million, including acquisition costs and an
agreement by the seller not to compete with the stations. The acquisition has
been accounted for a purchase and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $ 915
Goodwill and other intangibles............................ 16,885
-------
$17,800
=======
</TABLE>

The following table presents the operating results of Benchmark for the six
months ended June 30, 1997, compared to pro forma operating results for such
period, reflecting the acquisition of WSIC-AM, WFMX-FM, WSCQ-FM, WZHT-FM and
WMCZ-FM. The unaudited pro forma information presents combined operating results
as though these acquisitions and acquisitions completed during 1997 had occurred
at the beginning of the period (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
--------------------
ACTUAL PRO FORMA
------- ---------
(UNAUDITED)
<S> <C> <C>
Net revenue................................................. $19,566 $20,512
Net loss.................................................... $ 2,020 $ 1,805
</TABLE>

The following summarizes the combined historical and unaudited pro forma
data for the years ended December 31, 1996 and 1995, as though Benchmark's
acquisitions of WYYD-FM, WVOC-AM, WESC-AM/FM, WROV-AM/FM, KRMD-AM/FM and
WJMZ-FM, had occurred as of January 1, 1995 (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- -----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenue............................. $27,255 $30,002 $23,147 $30,615
Net income (loss)....................... $ 6,076 $ 7,334 $(4,344) $(3,352)
</TABLE>

F-69
<PAGE> 224
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

6B. RADIO BROADCASTING DISPOSITIONS:

During 1994, Benchmark sold substantially all of the assets of WZNY-FM and
WXFQ-FM/ WGUS-AM for $3,600,000 and $1,284,700, respectively, and had recorded
gains of $1,316,741 and $121,076, respectively.

In October 1996, BRAF IV sold substantially all of the assets of WLTY-FM,
WTAR-AM and WKOC-FM for $14.1 million, net of closing costs of approximately
$500,000. Benchmark received cash proceeds from the sale and, in November 1996,
acquired the assets of KRMD-AM/FM valued at $7.5 million. BRAF IV recorded a
gain of $9.6 million.

7. DEBT:

Debt at December 31, 1996 and 1995 consists of the following:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
BRAF I:
Term note, maximum principal amount of $4,700,000;
interest at bank's prime plus applicable margin ranging
from 1/2% to 1 1/2% (9.75% at December 31, 1996 and
1995), due in full on December 31, 2002................ $ 4,249,986 $ 2,269,761
BRAF IV:
Revolving line of credit, maximum principal amount of
$13,500,000; interest at LIBOR plus 2% -- 2 3/4% (8.2%
at December 31, 1996 and 7.4% at December 31, 1995),
due in full on June 30, 1997........................... 11,900,039 10,600,038
Subordinated promissory note, maximum principal amount of
$500,000; interest at 10% per annum due quarterly; due
in full on October 23, 1996............................ -- 437,500
Notes payable for vehicles................................ 12,361 30,594
Subordinated promissory note, maximum principal amount of
$1,200,000; interest at 8.25% per annum due monthly;
due in full in October 1996; personally guaranteed by
the general partners of BCRLP.......................... -- 1,200,000
BRAF VII:
Bank debt; interest at 8.4% per annum due monthly; due in
full on June 1, 1999; paid in full on December 9,
1996................................................... -- 3,325,998
Line of credit agreement, maximum principal amount of
$200,000; interest at bank's prime plus 2% (8.25% at
December 31, 1995); due in full on January 1, 1997;
paid in full on December 9, 1996....................... -- 50,000
Note payable to Fund III Acquisition Sub. (See Note 12),
maximum principal amount of $12,600,000, interest due
monthly at prime plus 1% (9.25% at December 31, 1996)
due in full on March 9, 1998........................... 12,600,000 --
</TABLE>

F-70
<PAGE> 225
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
BRAF VIII:
Revolving line of credit, maximum principal amount of
$14,500,000; interest at bank's prime rate plus
applicable margin ranging from 1/4% to 1/2% (8.63% at
December 31, 1996 and 8.75% at December 31, 1995) per
annum due monthly; due in full in December 2002........ 13,198,441 8,325,000
Subordinated promissory note, maximum principal amount of
$500,000; interest at 8% per annum payable monthly; due
in full on August 31, 1997............................. 425,000 475,000
Subordinated promissory note, maximum principal amount of
$1,500,000; interest at bank's prime plus 1% (8.9% at
December 31, 1996 and 9.25% at December 31, 1995); due
in full on January 1, 2001............................. 1,500,000 --
Notes payable for vehicles................................ 14,134 --
BCRLP:
Note payable, maximum principal amount of $75,000;
interest at 7% per annum due monthly; due in full on
demand; guaranteed jointly and severally by certain
general and limited partners of BCRLP.................. 75,000 75,000
Note payable, maximum principal amount of $37,500 assumed
from an affiliated entity; due in full on demand (See
Note 10)............................................... 20,000 20,000
Revolving line of credit, maximum principal amount of
$250,000; interest at bank's prime rate (8.25% at
December 31, 1996 and 8.5% at December 31, 1995); due
in full on demand...................................... 65,535 165,535
----------- -----------
44,060,496 26,974,426
Less: Current portion..................................... 14,219,155 12,846,733
----------- -----------
$29,841,341 $14,127,693
=========== ===========
</TABLE>

Borrowings were primarily used to finance the acquisition of additional
stations and are collateralized by substantially all of Benchmark's assets.

The various agreements impose restrictive covenants on Benchmark with
respect to, among other things, the maintenance of certain financial ratios and
limits on capital expenditures, new indebtedness, investments and disposition of
assets. Benchmark was in compliance with all such financial covenants or had
obtained waivers for any items of noncompliance as of December 31, 1996.

At December 31, 1996 the aggregate amounts of debt due during the next five
years are as follows:

<TABLE>
<S> <C>
1997........................................................ $14,219,155
1998........................................................ 14,767,925
1999........................................................ 2,766,704
2000........................................................ 3,217,662
2001........................................................ 5,421,900
2002 and thereafter......................................... 3,667,150
-----------
$44,060,496
===========
</TABLE>

8. LEASES AND OTHER COMMITMENTS:

Effective May 22, 1992, BRAF I entered into a participation agreement with
the General Manager of WDSD-FM, WDOV-AM and WSRV-FM which provides for the
General Manager to receive a portion (based upon certain vesting criteria) of
the "Net Sales Proceeds," as defined, in the event that the stations are sold or
a percentage of adjusted cash flow (as defined in the agreement) in the event
that the General
F-71
<PAGE> 226
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Manager ceases to be employed by BRAF I. At December 31, 1996, Benchmark had
recorded an expense of $140,000 related to this participation agreement due to
the agreement dated December 9, 1996 to sell the stations. See Note 12.

Benchmark leases certain transmitting tower facilities, vehicles, and
office space under various operating leases.

Future minimum lease payments (which reflect leases having noncancelable
lease terms in excess of one year) are as follows for the year ended December
31:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1997........................................................ $100,821 $ 346,575
1998........................................................ 69,316 276,964
1999........................................................ 10,156 204,000
2000........................................................ 7,090 155,212
2001........................................................ -- 53,195
Thereafter.................................................. -- 97,171
-------- ----------
Total............................................. 187,383 $1,133,117
==========
Less amount representing interest........................... (29,579)
--------
Present value of minimum lease payments..................... 157,804
Less current portion........................................ (78,984)
--------
Obligations under capital leases, net of current portion.... $ 78,820
========
</TABLE>

Rental expense under operating leases for the years ended December 31,
1996, 1995 and 1994 was approximately $365,000, $414,000 and $366,000,
respectively.

9. PROFIT SHARING PLAN:

The employees of Benchmark are included in a 401(k) profit sharing plan
(the "Plan"). All full-time employees of Benchmark who have attained the age of
21 years are eligible for participation in the Plan after one year and one
thousand hours of service. The Plan allows the employees to defer up to 16% of
their compensation through a salary reduction arrangement. Benchmark makes a
matching contribution equal to 25% of the employees' salary reduction. In
addition, Benchmark may make a discretionary contribution to the Plan.
Participation in the Plan is subject to a five year vesting schedule. During the
years ended December 31, 1996, 1995 and 1994, Benchmark's combined expense
related to the Plan was approximately $85,900, $70,700 and $40,300,
respectively.

10. RELATED PARTY TRANSACTIONS:

The various entities defined in Note 1 are involved in certain transactions
with each other related to sharing of services and purchasing. These
transactions are settled on a current basis through adjustments to partners'
equity accounts.

In February 1996, BRAF VII borrowed $1,500,000 from a limited partner to
finance the escrow deposit for the acquisition of WJMZ-FM (Greenville). The note
was paid in full on December 9, 1996. In connection with such debt, interest
expense of $287,436 was recorded for the year ended December 31, 1996.

As of July 1, 1992, BCRLP assumed $37,500 of a note payable to limited
partners in Benchmark made by an affiliated entity. Interest expense related to
this note was immaterial for the years ended December 31, 1996, 1995 and 1994,
respectively.

F-72
<PAGE> 227
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

11. LITIGATION:

Benchmark is the plaintiff or the defendant in several legal actions, the
probable outcomes of which are not considered material, either individually or
in the aggregate.

12. PENDING SALE OF BENCHMARK AND OTHER TRANSACTIONS (UNAUDITED):

On December 9, 1996, Benchmark agreed to be acquired by Capstar Radio
Broadcasting Partners, Inc. (Capstar Radio), a Delaware corporation, through an
acquisition affiliate, Fund III Acquisition Sub. The sale was completed in
August 1997. The purchase price was approximately $189.7 million. In connection
with the sale, a general partner received 1,538,461 shares of Capstar Class A
Common Stock in lieu of cash, in consideration of a portion of his ownership
interest in Benchmark. No adjustments have been made to the combined financial
statements to reflect the sale, except as described in Note 8 relating to the
participation agreement.

As part of the acquisition of Benchmark by Capstar Radio and Fund III
Acquisition Sub, BRAF VII, along with BRAF IX, BRAF X and BRAF XI entered into
separate senior credit agreements with Fund III Acquisition Sub. Under these
agreements, BRAF VII, BRAF IX, BRAF X and BRAF XI can collectively borrow up to
approximately $60.0 million. Approximately $60.0 million has been loaned to BRAF
VII , BRAF IX and BRAF X, net of expenses, of which approximately $12.6 million
as of December 31, 1996 has been loaned to BRAF VII, to consummate the
acquisition of substantially all of the assets of WJMZ-FM (Greenville) and to
refinance debt, and, during January 1997, the remainder has been borrowed by
BRAF IX, BRAF X, and BRAF XI to consummate the acquisitions of Statesville,
Jackson, and Montgomery and for working capital purposes. All loans under the
agreements were repaid in August 1997.

F-73
<PAGE> 228

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners
Community Pacific Broadcasting Company L.P.:

We have audited the accompanying balance sheet of Community Pacific
Broadcasting Company L.P. (the "Partnership") as of December 31, 1996, and the
related statements of operations, partners' equity and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Community Pacific
Broadcasting Company L.P. as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

San Jose, California
February 13, 1997

F-74
<PAGE> 229

COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ -- $ 38,532
Accounts receivable, net of allowance for doubtful
accounts of $41,337 and $70,525, respectively.......... 91,875 1,708,213
Due from Pacific Star..................................... 4,985 --
Prepaid expenses and other current assets................. 163,453 97,239
----------- -----------
Total current assets.............................. 260,313 1,843,984
Property and equipment, net................................. 3,768,774 3,843,508
Intangible assets, net...................................... 12,465,169 12,817,337
Other assets................................................ -- 125,453
----------- -----------
Total assets........................................... $16,494,256 $18,630,282
=========== ===========

LIABILITIES AND PARTNERS' EQUITY

Current liabilities:
Accounts payable.......................................... $ 32,329 $ 237,996
Accrued liabilities....................................... 177,672 483,065
Due to Pacific Star....................................... -- --
Current portion of long-term debt......................... 758,750 1,175,125
----------- -----------
Total current liabilities......................... 968,751 1,896,186
Long-term debt, net of current portion...................... 7,906,250 8,696,875
----------- -----------
Total liabilities................................. 8,875,001 10,593,061
Commitments (Note 9)
Partners' equity............................................ 7,619,255 8,037,221
----------- -----------
Total liabilities and partners' equity............ $16,494,256 $18,630,282
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements

F-75
<PAGE> 230

COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Broadcasting revenue...................................... $2,627,496 $12,318,547
Less agency commissions................................... 169,368 1,119,613
---------- -----------
Net revenue....................................... 2,458,128 11,198,934
---------- -----------
Station operating expenses:
Programming and technical expense......................... 623,793 3,935,571
Selling and promotion expense............................. 334,582 2,981,563
General and administrative expense........................ 357,334 1,998,698
---------- -----------
Total station operating expenses.................. 1,315,709 8,915,832
Corporate expenses.......................................... 372,694 760,150
Depreciation and amortization............................... 713,398 1,416,077
---------- -----------
Operating income (loss)................................... 56,327 106,875
Other income (expense), net................................. (3,095) (8,438)
Loss on disposal of assets.................................. -- (10,611)
Interest expense............................................ (468,589) (933,315)
---------- -----------
Net loss.......................................... $ (415,357) $ (845,489)
========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-76
<PAGE> 231

COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)

STATEMENTS OF CHANGES IN PARTNERS' EQUITY

<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Balances as of January 1, 1996......................... $ 272,872 $ 7,583,322 $ 7,856,194
Capital contributions from partners.................. 20,000 3,058,916 3,078,916
Capital distributions to partners.................... (800) (2,051,600) (2,052,400)
Net loss............................................. (176,474) (669,015) (845,489)
--------- ----------- -----------
Balances as of December 31, 1996....................... 115,598 7,921,623 8,037,221
Capital distributions to partners (unaudited)........ (800) (1,809) (2,609)
Net loss (unaudited)................................. (86,685) (328,672) (415,357)
--------- ----------- -----------
Balances as of June 30, 1997 (unaudited)............... $ 28,113 $ 7,591,142 $ 7,619,255
========= =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-77
<PAGE> 232

COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (415,357) $ (845,489)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 713,398 1,416,077
Loss on sale of fixed assets........................... -- 10,611
Changes in operating assets and liabilities:
Accounts receivable, net............................. 1,616,338 116,834
Prepaid expenses and other current assets............ (66,214) 41,643
Accounts payable..................................... (205,667) (345,207)
Accrued liabilities.................................. (305,393) (108,490)
Due from Pacific Star................................ (4,985) --
----------- -----------
Net cash provided by operating activities......... 1,332,120 285,979
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment, net of acquisition.... (180,962) (408,731)
Proceeds from sale of fixed assets........................ -- 3,500
Intangible assets, net of acquisition..................... (105,535) (103,635)
(Increase) decrease in other assets....................... 125,454 (17,919)
Cash used in acquisition.................................. -- (450,000)
----------- -----------
Net cash used in investing activities............. (161,043) (976,785)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable............................... -- 1,408,000
Repayment of notes payable................................ (1,207,000) (1,650,000)
Capital contributions from partners....................... -- 3,092,954
Capital distributions to partners......................... (2,609) (2,209,658)
----------- -----------
Net cash (used in) provided by financing
activities...................................... (1,209,609) 641,296
----------- -----------
Net increase (decrease) in cash............................. (38,532) (49,510)
Cash, beginning of year..................................... 38,532 88,042
----------- -----------
Cash, end of year........................................... $ -- $ 38,532
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 627,774 $ 991,233
=========== ===========
Supplemental disclosure of noncash activities:
Revenue related to barter transactions.................... $ 322,837 $ 2,171,006
=========== ===========
Advances from partners converted into equity.............. $ -- $ 427,046
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-78
<PAGE> 233

COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:

Community Pacific Broadcasting Company L.P. (the Partnership), a Delaware
limited partnership, was formed April 1, 1992 and operates AM and FM radio
broadcasting stations in the following communities as of December 31, 1996:

- Modesto, California -- KFIV-AM, KJSN-FM, KVFX-FM and KJAX-AM

- Anchorage, Alaska -- KASH-AM, KASH-FM, KENI-AM and KBFX-FM

- Des Moines, Iowa -- KGGO-FM, KDMI-AM, and KHKI-FM

Interim Periods

The balance sheet as of June 30, 1997 and the statements of operations,
partners' equity and cash flows for the three month period ended June 30, 1997
are unaudited. However, in the opinion of management, all adjustments necessary
(consisting only of normal recurring adjustments) for a fair presentation of
such financial statements have been included. Interim results are not
necessarily indicative of results for a full year.

2. USE OF ESTIMATES AND UNCERTAINTIES:

The Partnership's financial statements have been prepared in accordance
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses for the period presented. They also affect
the disclosures of contingencies. Actual results could differ from those
estimates.

On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires the Federal
Communications Commission (the "FCC") to relax its numerical restrictions on
local ownership and affords renewal applicants significant new protections from
competing applications for the broadcast licenses. The ultimate effect of this
legislation on the competitive environment is currently undeterminable.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the estimated useful
life of the assets as follows:

<TABLE>
<S> <C>
Tower and antennae.................. 7-20 years
Broadcast equipment................. 7 to 10 years
Building............................ 30 years
Furniture and fixtures.............. 7 to 10 years
Automobiles......................... 3-5 years
Leasehold improvements.............. Shorter of the life of the asset or the lease
</TABLE>

When items are retired or sold, the cost and accumulated depreciation are
removed and any gain or loss is included in income.

F-79
<PAGE> 234
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Intangible Assets:

Intangible assets are stated at cost, less accumulated amortization.
Amortization is determined using the straight-line method based upon the
estimated useful lives of the assets as follows:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
FCC licenses and goodwill................................... 20
Organization costs.......................................... 5
Noncompetition agreements................................... 5
Other....................................................... 2-5
</TABLE>

On an ongoing basis, management evaluates the recoverability of the net
carrying value of intangible assets by reference to the Company's undiscounted
anticipated future cash flows.

Revenue:

Revenue is recognized when advertisements are broadcast.

Barter Transactions:

The Partnership trades or barters commercial air time for syndicated radio
shows and for goods and services used for promotional, sales and other business
activities. These exchanges are recorded at the fair market value of the radio
shows or the goods or services received or the value of the advertising time
provided, whichever is more clearly determinable. Revenue from barter
transactions is recognized as income when advertisements are broadcast, and
radio shows are charged to expense when broadcast, and goods or services are
charged to expense or capitalized when used or received. Barter revenue totaled
$2,171,006 for the year ended December 31, 1996.

Advertising Costs:

The Partnership incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred and totaled
approximately $1,007,626 for the year ended December 31, 1996.

Concentration of Credit Risk:

The Partnership's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast areas.
The Partnership's management perform ongoing credit evaluations of the
customers' financial condition and, generally, require no collateral from their
customers. The Partnership maintains an allowance for doubtful accounts and past
credit losses have been within management's expectations.

Income Taxes:

No provision has been made for income taxes since the Partnership is not a
taxable entity. Partners report their share of the Partnership's income on their
respective tax returns.

F-80
<PAGE> 235
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT:

At December 31, 1996, property and equipment consist of the following:

<TABLE>
<S> <C>
Land and improvements....................................... $ 131,130
Buildings................................................... 400,603
Tower and antenna systems................................... 952,025
Broadcast and transmitter equipment......................... 2,644,931
Furniture and fixtures...................................... 878,730
Leasehold improvements...................................... 93,038
----------
5,100,457
Less accumulated depreciation............................... 1,256,949
----------
$3,843,508
==========
</TABLE>

Depreciation expense was $473,380 in 1996.

5. INTANGIBLE ASSETS:

At December 31, 1996, intangible assets consist of the following:

<TABLE>
<S> <C>
FCC licenses and goodwill................................... $15,451,996
Organization costs.......................................... 103,511
Noncompetition agreements................................... 117,500
Other....................................................... 26,100
-----------
15,699,107
Less accumulated amortization............................... 2,881,770
-----------
$12,817,337
===========
</TABLE>

Amortization expense was $942,697 in 1996.

6. LONG-TERM DEBT:

In January 1995, the Partnership entered into a variable rate loan
agreement with a bank whereby the Partnership could borrow up to $11,500,000.
Borrowings under this agreement bear interest at a rate based on the London
Interbank Offered Rate (LIBOR) or the bank's prime rate plus the applicable
margin, which ranges from 1.50% to 2.75% for LIBOR and prime depending on ratios
of debt to operating cash flow. The interest rate is approximately 8.75% as of
December 31, 1996 and $9,872,000 is outstanding under this agreement. The
Partnership pays a commitment fee of 0.5% per annum on the unused portion of the
loan commitment and paid a onetime facility fee of $115,000 in January 1995,
which is being amortized over the term of the loan agreement.

The credit facility agreement contains certain financial and operational
covenants and other restrictions with which the Partnership must comply, which
include limitations on incurrence of additional indebtedness, partner
distributions and redemptions.

Borrowings under this agreement are collateralized by substantially all
assets of the Partnership.

The carrying amount reported for long-term debt approximates fair value
since the underlying instrument bears interest at a variable rate that reprices
frequently.

F-81
<PAGE> 236
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Total annual maturities of long-term debt, excluding mandatory prepayments,
are as follows:

<TABLE>
<S> <C>
1997........................................................ $1,175,125
1998........................................................ 1,653,125
1999........................................................ 1,725,000
2000........................................................ 2,156,250
2001........................................................ 2,515,625
Thereafter.................................................. 646,875
----------
$9,872,000
==========
</TABLE>

7. PARTNERS' EQUITY:

Under the amended and restated agreement of limited partnership dated
December 1, 1995, the general partner is authorized to manage the activities of
the Partnership. No management fee is to be paid, although the general partner
is reimbursed for expenses incurred. Extraordinary actions, as defined, require
the approval of the holders of a majority of the voting partner units (general
partner plus Classes B and C limited partner units).

Losses and profits are allocated among the partners in accordance with the
partnership agreement.

For tax purposes, any gain, loss, income or deductions with respect to
property contributed to the Partnership are subject to the special allocation
rules of Section 704 of the Internal Revenue Code.

In December 1995, the Partnership issued warrants to purchase 76,868 units
of Class C stock at $0.75 per unit. In July 1996, the Partnership issued
warrants to purchase 11,647 units of Class C stock at $0.825 per unit. The
warrants expire five years after the date of issuance.

8. EMPLOYEE BENEFIT PLAN:

The Company maintains a salary deferral 401(k) Plan (the Plan) that allows
eligible employees, at their discretion, to make pre-tax contributions to the
Plan. The Partnership may make discretionary contributions to the Plan. No
amounts have been accrued or paid for such discretionary contributions in
respect of the year ended December 31, 1996.

9. COMMITMENTS:

The Partnership rents certain facilities and equipment under noncancelable
operating leases. Minimum annual payments under these leases as of December 31,
1996 are as follows:

<TABLE>
<S> <C>
1997........................................................ $323,670
1998........................................................ 269,566
1999........................................................ 245,175
2000........................................................ 204,547
2001........................................................ 151,938
Thereafter.................................................. 220,388
----------
Total............................................. $1,415,284
==========
</TABLE>

Rent expense was approximately $362,685 for the year ended December 31,
1996.

The Partnership has entered into several royalty agreements in order to
broadcast music. Most of these contracts require payments based upon related
advertising revenue.

F-82
<PAGE> 237
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

10. ACQUISITION:

In April 1996, the Partnership acquired substantially all the assets of
KJAX-AM in Stockton, California, for $450,000 plus acquisition costs of $64,757.
The purchase price has been allocated $100,000 to property and equipment,
$325,000 to FCC licenses and goodwill and $25,000 to other intangibles.

The acquisition has been accounted for as an asset purchase. The purchase
price has been allocated to the assets acquired based on their estimated fair
market value at the date of the acquisition.

Accordingly, the accompanying financial statements include the results of
operations of the acquired entity from the date of acquisition. Had the
acquisition occurred January 1, 1996 the Partnership's results of operations for
the year ended December 31, 1996 would not have been materially different.

11. PENDING SALE OF PARTNERSHIP:

On December 26, 1996, the Partnership agreed to be acquired by Capstar
Radio Broadcasting Partners, Inc. ("Capstar"), a Delaware corporation, through
an acquisition affiliate, Community Acquisition Company, Inc. The sale is
subject to regulatory approval. The purchase price is estimated to be
approximately $35.0 million and is subject to adjustment. No adjustments have
been made to the financial statements to reflect the pending sale.

12. SUBSEQUENT EVENTS (UNAUDITED):

During the period from March 1, 1997 to July 13, 1997, the Partnership
operated under a Local Marketing Agreement ("LMA") with Pacific Star
Communications, Inc., an operating subsidiary of Capstar. Pursuant to the LMA,
Pacific Star pays the Partnership a fee and assumes operating revenues and
certain sales, programming and marketing expenses for the Partnership's radio
stations. For the six months ended June 30, 1997, the Partnership recorded
broadcasting revenue of $1,040,000 in connection with the LMA.

On July 14, 1997, Capstar Radio Broadcasting Partners, Inc. acquired
substantially all of the assets of the Partnership for approximately $35.0
million.

F-83
<PAGE> 238

MADISON RADIO GROUP

CONDENSED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)

ASSETS

<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 386,043
Certificate of deposit.................................... 93,441
Accounts receivable, net of $25,678 allowance for doubtful
accounts............................................... 1,290,216
Accounts receivable, related parties...................... 238,832
Prepaid expenses.......................................... 28,651
-----------
Total current assets.............................. 2,037,183

Property and equipment, net................................. 2,590,492
Intangible assets, net...................................... 12,596,369
Other....................................................... 259,157
-----------
Total assets...................................... $17,483,201
===========

LIABILITIES AND PARTNERS' EQUITY

Current liabilities:
Current portion of long-term debt......................... $ 500,000
Accounts payable.......................................... 531,324
Accrued expenses.......................................... 207,577
Trade payable, net........................................ 30,830
-----------

Total current liabilities......................... 1,269,731
Long-term debt.............................................. 13,000,000
Partners' equity............................................ 3,213,470
-----------
Total liabilities and partners' equity............ $17,483,201
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-84
<PAGE> 239

MADISON RADIO GROUP

CONDENSED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 2, 1997 TO JUNE 30, 1997
(UNAUDITED)

<TABLE>
<S> <C>
Broadcasting revenue:
Gross revenue............................................. $4,646,877
Less agency commissions................................... 516,635
----------
Net broadcasting revenue.......................... 4,130,242
Operating expenses:
Sales and promotion....................................... 1,000,334
Programming, engineering and news......................... 1,176,275
General and administrative................................ 410,079
Depreciation and amortization............................. 752,407
Management fees and other expenses........................ 75,416
----------
3,414,511
----------
Operating income.................................. 715,731
Interest expense............................................ 686,344
----------
Net income........................................ $ 29,387
==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-85
<PAGE> 240

MADISON RADIO GROUP

CONDENSED STATEMENT OF PARTNERS' EQUITY
FOR THE PERIOD FROM JANUARY 2, 1997 TO JUNE 30, 1997
(UNAUDITED)

<TABLE>
<S> <C>
Partners' initial capital contributions, January 2, 1997.... $ 7,146,583
Distribution to partner..................................... (3,962,500)
Net income for the period from January 2, 1997 to June 30,
1997...................................................... 29,387
-----------
Partners' equity, June 30, 1997............................. $ 3,213,470
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-86
<PAGE> 241

MADISON RADIO GROUP

CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 2, 1997 TO JUNE 30, 1997
(UNAUDITED)

<TABLE>
<S> <C>
Cash from operating activities:
Net income................................................ $ 29,387
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.......................... 752,407
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,290,216)
Prepaid expenses..................................... 29,954
Accounts payable and accrued expenses................ 774,036
Trade payable, net................................... 2,840
-----------
Net cash provided by operating activities......... 298,408
-----------
Cash flows from investing activities:
Advances to related party................................. (238,832)
Purchases of property and equipment....................... (27,195)
Capstar Broadcasting Partners, Inc. related costs......... (259,157)
-----------
Net cash used in investing activities............. (525,184)
-----------
Cash flows from financing activities:
Proceeds from term loan................................... 3,962,500
Distribution to partner................................... (3,962,500)
Proceeds from capital contributions....................... 612,819
-----------
Net cash provided by financing activities......... 612,819
-----------
Net increase in cash and cash equivalents......... 386,043
Cash and cash equivalents, beginning of period.............. --
-----------
Cash and cash equivalents, end of period.................... $ 386,043
===========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 686,344
===========
Supplemental schedule of noncash activities:
The Company recorded its initial capital contributions as
follows:
Cash................................................... $ 612,819
Certificate of deposit................................. 93,441
Prepaid expenses and other............................. 93,740
Property and equipment................................. 2,841,865
Intangible assets...................................... 13,070,208
Long-term debt......................................... (9,537,500)
Trade payable, net..................................... (27,990)
-----------
$ 7,146,583
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-87
<PAGE> 242

MADISON RADIO GROUP

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. Organization and Basis of Presentation: Madison Radio Group (the
"Company"), a general partnership, was formed on January 2, 1997, to own and
operate radio stations WIBA-AM, WIBA-FM, WMAD-FM, WZEE-FM, WMLI-FM and WTSO-AM,
servicing the Madison, Wisconsin area. At Madison Radio Group's inception, Point
Communications Limited Partnership ("Point") exchanged its broadcasting and real
estate assets of stations WIBA-AM, WIBA-FM, and WMAD-FM and $400,000 cash,
subject to its long-term debt, for a 50% partnership interest in the Company and
$3,962,500 cash (which was financed by Madison Radio Group borrowings).
Simultaneously, Midcontinent Broadcasting Company of Wisconsin, Inc.
("Midcontinent") exchanged its broadcasting and real estate assets of stations
WZEE-FM, WMLI-FM and WTSO-AM and $400,000 cash for the remaining 50% partnership
interest in the Company. The broadcasting and real estate assets exchanged were
recorded at the transferors' cost basis by the Company.

The Company's financial statements have been prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses for the period presented. They also affect
the disclosures of contingencies. Actual results could differ from those
estimates.

b. Cash Equivalents: For purposes of the Statement of Cash Flows, the
Company considers all highly liquid, short-term investments purchased with
original maturities of three months or less to be cash equivalents.

c. Property and Equipment: Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, as follows: buildings and
improvements 5-39 years, tower and antennae 3-15 years, equipment 5-15 years,
and other 3-10 years. Expenditures for repairs are expensed while major
additions are capitalized. Upon sale or disposal, the asset cost and accumulated
depreciation are removed and any gain or loss is recognized in earnings.

d. Intangible Assets: Intangible assets are stated at cost and amortized on
a straight-line basis over their estimated useful lives, as follows:

FCC broadcast licenses -- 15 years. Accumulated amortization as of June 30,
1997 was $411,984.

Other intangibles -- 5-15 years. Accumulated amortization as of June 30,
1997 was $14,580.

Goodwill -- Goodwill acquired prior to November 1, 1970 ($374,223) is not
being amortized. Goodwill arising from acquisitions subsequent to November 1,
1970 is being amortized over 15-40 years. Accumulated amortization as of June
30, 1997, was $11,492.

Deferred financing costs -- loan term. Accumulated amortization as of June
30, 1997 was $25,474.

Organization costs -- 5 years. Accumulated amortization as of June 30, 1997
was $10,309.

On an ongoing basis, management evaluates the recoverability of the net
carrying value of intangible assets by reference to the Company's undiscounted
anticipated future cash flows.

F-88
<PAGE> 243
MADISON RADIO GROUP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
e. Barter Transactions: The Company exchanges advertising airtime for goods
and services, as is customary in the broadcast industry. In accordance with
Statement of Financial Accounting Standards No. 63, "Financial Reporting by
Broadcasters", revenue is recognized as the advertising is broadcast at the
estimated fair market value of goods or services received or to be received. The
value of the goods and services received in barter transactions is charged to
expense when received or used. Barter revenues and expenses approximated
$130,000 for the period from January 2, 1997 to June 30, 1997.

f. Revenue Recognition: Revenue from the sale of air-time is recognized at
the time the related program or advertisement is broadcast.

g. Concentration of Risk: The Stations operate within the Madison,
Wisconsin geographic area. They extend credit to their various customers in the
form of accounts receivable. The Company performs ongoing credit evaluations of
its customers and maintains an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information.

h. Allocations and Distributions: The profits and losses of the Company are
being allocated among the partners, and cash flow from operations or cash from
capital transactions, if any, will be distributed to the partners in accordance
with the terms of the partnership agreement.

i. Income Taxes: No provision for federal or state income taxes has been
provided as the partners report their pro rata share of the partnership profits
or losses on their tax returns.

2. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following at June 30, 1997:

<TABLE>
<S> <C>
Land and improvements....................................... $277,058
Buildings................................................... 830,738
Tower and antennae.......................................... 833,737
Equipment................................................... 860,999
Other....................................................... 66,528
----------
2,869,060
Less accumulated depreciation............................... 278,568
----------
$2,590,492
==========
</TABLE>

Depreciation expense was $278,568 for the period from January 2, 1997 to
June 30, 1997.

3. INTANGIBLE ASSETS:

Intangible assets consisted of the following at June 30, 1997:

<TABLE>
<S> <C>
FCC broadcast licenses...................................... $11,210,008
Other intangibles........................................... 850,277
Goodwill.................................................... 720,010
Deferred financing costs.................................... 186,816
Organization costs.......................................... 103,097
-----------
13,070,208
Less accumulated amortization............................... 473,839
-----------
$12,596,369
===========
</TABLE>

F-89
<PAGE> 244
MADISON RADIO GROUP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

4. LONG-TERM DEBT:

Long-term debt consisted of the following at June 30, 1997:

<TABLE>
<S> <C>
Term loan payable in quarterly installments of $250,000 to
$400,000 beginning January, 1998, with a balloon payment
of remaining balance due October 1, 2001.................. $13,500,000
Less current portion........................................ 500,000
-----------
$13,000,000
===========
</TABLE>

The term loan is subject to certain restrictive financial covenants,
including the maintenance of minimum broadcast operating cash flow amounts, and
limitations on additional indebtedness, capital expenditures, lease agreements,
investments and distributions to partners. The term loan is collateralized by
substantially all assets of the Company. The term loan bears interest at the
bank's reference rate plus 1.25%-2.50% subject to operating cash flow results
(the reference rate was 8.50% at June 30, 1997).

The carrying amount reported for long-term debt approximates fair value
since the underlying instrument bears interest at a variable rate that reprices
frequently.

The aggregate scheduled maturities of debt is as follows:

<TABLE>
<S> <C>
July 1, 1997 to December 31, 1997........................... $ --
1998........................................................ 1,000,000
1999........................................................ 1,250,000
2000........................................................ 1,400,000
2001........................................................ 9,850,000
-----------
$13,500,000
===========
</TABLE>

5. OPERATING LEASES:

The Company leases vehicles, office equipment, office space and a tower
site under operating leases with future minimum rental payments as follows:

<TABLE>
<S> <C>
July 1, 1997 to December 31, 1997........................... $ 46,602
1998........................................................ 67,512
1999........................................................ 67,512
2000........................................................ 67,512
2001........................................................ 38,705
Thereafter.................................................. 331,000
--------
$618,843
========
</TABLE>

Rental expense charged to operations was $43,552 for the period from
January 2, 1997 to June 30, 1997.

6. LETTER OF CREDIT:

At June 30, 1997, the Company had a letter of credit outstanding for
$90,000. The letter of credit can be drawn upon if the Company fails to make
payments due under the terms and conditions of a network agreement which expires
in May 1999. The Company has pledged a certificate of deposit as collateral for
the letter of credit.

F-90
<PAGE> 245
MADISON RADIO GROUP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

7. SALE TO CAPSTAR RADIO BROADCASTING PARTNERS, INC.:

On February 4, 1997, the Company entered into an agreement to sell
substantially all the assets of its stations to Capstar Radio Broadcasting
Partners, Inc., a radio investment group, for approximately $39.9 million. The
transaction was completed in August, 1997.

During the period from January 2, 1997 to June 30, 1997, the Company
incurred $259,157 of costs directly related to the pending sale to Capstar Radio
Broadcasting Partners, Inc., which are included in other assets in the
accompanying balance sheet.

F-91
<PAGE> 246

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Capstar Radio Broadcasting Partners, Inc.:

We have audited the accompanying balance sheet of Midcontinent Broadcasting
Co. of Wisconsin, Inc. (the "Company") as of December 31, 1996, and the related
statements of income and retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Midcontinent Broadcasting
Co. of Wisconsin, Inc. as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Milwaukee, Wisconsin
February 3, 1997

F-92
<PAGE> 247

MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.

BALANCE SHEET
DECEMBER 31, 1996

ASSETS

<TABLE>
<S> <C>
Current assets:
Cash...................................................... $ 78,996
Accounts receivable, net of $34,143 allowance for doubtful
accounts............................................... 718,133
Prepaid expenses and other assets......................... 17,088
----------
Total current assets.............................. 814,217
Property and equipment, net................................. 686,433
Intangible assets, net...................................... 3,031,048
Other....................................................... 101,085
----------
Total assets...................................... $4,632,783
==========

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 25,226
Accounts payable, related party........................... 7,083
Accrued expenses.......................................... 119,274
----------
Total current liabilities......................... 151,583
Due to Parent............................................... 1,369,004
Stockholder's equity:
Common stock, no par value, 2,500 shares authorized, 2,000
shares issued and outstanding.......................... 200,000
Retained earnings......................................... 2,912,196
----------
Total stockholder's equity........................ 3,112,196
----------
Total liabilities and stockholder's equity........ $4,632,783
==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-93
<PAGE> 248

MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.

STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
Broadcasting revenue:
Gross revenue............................................. $3,876,324
Less agency commissions................................... 430,031
----------
Net broadcasting revenue.......................... 3,446,293
Operating expenses:
Programming, technical and news........................... 988,406
Sales, advertising and promotion.......................... 1,221,541
General and administrative................................ 345,283
Depreciation and amortization............................. 405,091
----------
2,960,321
----------
Operating income....................................... 485,972
Other income:
Rental income............................................. 47,207
Other..................................................... 21,952
----------
69,159
----------
Income before income taxes............................. 555,131
Provision for income taxes.................................. 188,745
----------
Net income................................................ 366,386
Retained earnings:
Beginning of year......................................... 2,545,810
----------
End of year............................................... $2,912,196
==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-94
<PAGE> 249

MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 366,386
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 405,091
Changes in operating assets and liabilities:
Accounts receivable.................................. (240,785)
Prepaid expenses and other assets.................... 17,838
Accounts payable..................................... (56,069)
Accrued expenses..................................... (72,929)
---------
Net cash provided by operating activities......... 419,532
---------
Cash flows from investing activities:
Purchases of property and equipment....................... (66,893)
Madison Radio Group related costs......................... (101,085)
Other..................................................... (15,182)
---------
Net cash used in investing activities............. (183,160)
---------
Cash flows from financing activities:
Due to Parent............................................. (251,932)
---------
Net cash used in financing activities............. (251,932)
---------
Net decrease in cash.............................. (15,560)
Cash, beginning of year..................................... 94,556
---------
Cash, end of year........................................... $ 78,996
=========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-95
<PAGE> 250

MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. Organization and Basis of Presentation: Midcontinent Broadcasting Co. of
Wisconsin, Inc. (the "Company") is a wholly-owned subsidiary of Midcontinent
Broadcasting Co., which in turn is wholly-owned by Midcontinent Media, Inc. (the
"Parent"). The Company owns and operates radio stations WZEE-FM, WTSO-AM and
WMLI-FM (the "Stations") serving the Madison, Wisconsin area.

The Company's financial statements have been prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses for the period presented. They also affect
the disclosures of contingencies. Actual results could differ from those
estimates.

b. Property and Equipment: Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using accelerated and
straight-line methods over the estimated useful lives of the assets as follows:
buildings and improvements 5-39 years, tower and antennae 3-15 years, equipment
5-15 years, and other 3-10 years. Expenditures for repairs are expensed while
major additions are capitalized. Upon sale or disposal, the asset cost and
accumulated depreciation are removed and any gain or loss is recognized in
earnings.

c. Intangible Assets: Intangible assets are stated at cost and amortized on
a straight-line basis over their estimated useful lives, as follows:

FCC broadcast licenses -- 15 years. Accumulated amortization as of
December 31, 1996 was $190,903.

Goodwill -- Goodwill acquired prior to November 1, 1970 ($374,223) is
not being amortized. Goodwill arising from acquisitions subsequent to
November 1, 1970 is being amortized over 40 years. Accumulated amortization
as of December 31, 1996 was $88,098.

Other -- Five years. Accumulated amortization at December 31, 1996 was
$7,048.

On an ongoing basis, management evaluates the recoverability of the
net carrying value of intangible assets by reference to the Company's
undiscounted anticipated future cash flows.

d. Barter Transactions: The Company exchanges advertising airtime for goods
and services, as is customary in the broadcast industry. In accordance with
Statement of Financial Accounting Standards No. 63, "Financial Reporting by
Broadcasters", revenue is recognized as the advertising is broadcast at the
estimated fair market value of goods or services received or to be received. The
value of the goods and services received in barter transactions is charged to
expense when received or used. Barter revenues and expenses were approximately
$45,000 and $53,000, respectively, for 1996.

e. Revenue Recognition: Revenue from the sale of air-time is recognized at
the time the related program or advertisement is broadcast.

f. Concentration of Risk: The Stations operate within the Madison,
Wisconsin geographic area. They extend credit to their various customers in the
form of accounts receivable. The Company performs ongoing credit evaluations of
its customers and maintains an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information.

F-96
<PAGE> 251
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

g. Income Taxes: The Company files a consolidated federal income tax return
with the Parent, which provides for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
which requires the liability method of accounting for deferred income taxes. The
consolidated provision for income taxes is allocated among the members of the
consolidated group based upon each member's pre-tax earnings compared to the
consolidated pre-tax earnings. The liability for income taxes is included in Due
to Parent in the accompanying balance sheet. At December 31, 1996, there was no
provision for deferred income taxes, as temporary differences between tax and
financial reporting bases of assets and liabilities are immaterial.

2. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following at December 31, 1996:

<TABLE>
<S> <C>
Land........................................................ $ 27,013
Buildings and improvements.................................. 520,077
Tower and antennae.......................................... 567,569
Equipment................................................... 1,249,975
Other....................................................... 66,262
----------
2,430,896
Less accumulated depreciation............................... 1,744,463
----------
$ 686,433
==========
</TABLE>

Depreciation expense was $211,319 in 1996.

3. INTANGIBLE ASSETS:

Intangible assets consisted of the following at December 31, 1996:

<TABLE>
<S> <C>
FCC broadcast licenses...................................... $2,749,000
Goodwill.................................................... 532,523
Other intangibles........................................... 35,574
----------
3,317,097
Less accumulated amortization............................... 286,049
----------
$3,031,048
==========
</TABLE>

4. ACCRUED EXPENSES:

Accrued expenses consisted of the following at December 31, 1996:

<TABLE>
<S> <C>
Salaries, wages and benefits................................ $ 45,149
Property taxes.............................................. 38,367
Music license fees.......................................... 11,478
Professional fees........................................... 9,300
Other....................................................... 14,980
--------
$119,274
========
</TABLE>

F-97
<PAGE> 252
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. INCOME TAXES:

The provision for income taxes for 1996 consists of the following:

<TABLE>
<S> <C>
Currently payable
Federal................................................... $144,190
State..................................................... 44,555
--------
$188,745
========
</TABLE>

The following reconciles the statutory federal income tax rate with the
effective income tax rate:

<TABLE>
<S> <C>
Statutory federal income tax rate........................... 34.0%
State income tax, net....................................... 5.3
Effect of tax sharing arrangement among consolidated
group..................................................... (5.3)
-----
Effective income tax rate................................... 34.0%
=====
</TABLE>

6. EMPLOYEE BENEFIT PLAN:

The Company, along with other affiliated companies, participates in a
profit sharing plan for substantially all full-time employees who have at least
one year of service and have attained age 21. Company contributions, which are
based on a percentage of the compensation paid to eligible employees,
approximated $32,000 for 1996.

The Company is not obligated to provide any postretirement medical and life
insurance benefits or any other postretirement benefits to employees.

7. SUBSEQUENT EVENT:

On January 2, 1997, the Company exchanged its broadcasting and real estate
assets of stations WZEE-FM, WMLI-FM and WTSO-AM and $400,000 cash for a 50%
partnership interest in Madison Radio Group (a general partnership).
Simultaneously, Point Communications Limited Partnership ("Point"), a company
that also owns and operates radio stations serving the Madison, Wisconsin area,
exchanged its broadcasting and real estate assets of stations WMAD-FM, WIBA-FM
and WIBA-AM and $400,000 cash, subject to its long-term debt, for the remaining
50% partnership interest in Madison Radio Group, and $3,962,500 cash (which was
financed by Madison Radio Group borrowings). During 1996, the Company incurred
$101,085 of costs directly related to its investment in Madison Radio Group,
which are included in other assets on the accompanying balance sheet.

In February 1997, Madison Radio Group entered into an agreement to sell
substantially all the assets of its stations to Capstar Broadcasting Partners,
Inc., a radio investment group. The transaction was completed in August 1997.

F-98
<PAGE> 253

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
Point Communications Limited Partnership:

We have audited the accompanying balance sheet of Point Communications
Limited Partnership (the "Partnership") as of December 31, 1996, and the related
statements of operations, partners' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Point Communications Limited
Partnership as of December 31, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Milwaukee, Wisconsin
February 3, 1997

F-99
<PAGE> 254

POINT COMMUNICATIONS LIMITED PARTNERSHIP

BALANCE SHEET
DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 260,670
Certificate of deposit.................................... 93,441
Accounts receivable, net of $65,000 allowance for doubtful
accounts............................................... 1,309,154
Accounts receivable, related party........................ 59,320
Prepaid expenses.......................................... 43,064
-----------
Total current assets.............................. 1,765,649
Property and equipment, net................................. 2,339,617
Intangible assets, net...................................... 10,060,913
Other....................................................... 103,097
-----------
Total assets...................................... $14,269,276
===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 912,500
Accounts payable.......................................... 204,645
Accounts payable, related party........................... 15,765
Accrued expenses.......................................... 135,156
Trade payable, net........................................ 25,311
-----------
Total current liabilities......................... 1,293,377
Long-term debt.............................................. 8,625,000
Partners' equity............................................ 4,350,899
-----------
Total liabilities and partners' equity............ $14,269,276
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-100
<PAGE> 255

POINT COMMUNICATIONS LIMITED PARTNERSHIP

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
Broadcasting revenue:
Gross revenue............................................. $ 6,235,475
Less agency commissions................................... 634,833
-----------
Net broadcasting revenue.......................... 5,600,642
Operating expenses:
Sales and promotion....................................... 1,276,030
Programming, engineering and news......................... 1,467,136
General and administrative................................ 685,926
Depreciation and amortization............................. 1,538,196
Management fees and other expenses........................ 178,749
-----------
5,146,037
-----------
Operating income....................................... 454,605
Other income (expense):
Interest expense.......................................... (1,071,241)
Interest income........................................... 7,916
-----------
(1,063,325)
-----------
Net loss............................................... $ (608,720)
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-101
<PAGE> 256

POINT COMMUNICATIONS LIMITED PARTNERSHIP

STATEMENT OF PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- ---------- ----------
<S> <C> <C> <C>
Partners' equity, January 1, 1996...................... $50,484 $4,909,135 $4,959,619
Net loss for 1996...................................... (6,195) (602,525) (608,720)
------- ---------- ----------
Partners' equity, December 31, 1996.................... $44,289 $4,306,610 $4,350,899
======= ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-102
<PAGE> 257

POINT COMMUNICATIONS LIMITED PARTNERSHIP

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (608,720)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,538,196
Changes in operating assets and liabilities:
Accounts receivable.................................. (293,368)
Prepaid expenses..................................... 3,648
Accounts payable and accrued expenses................ 90,615
Trade payable, net................................... 19,584
----------
Net cash provided by operating activities......... 749,955
----------
Cash flows from investing activities:
Madison Radio Group related costs......................... (103,097)
Advances to related party................................. (32,082)
Purchases of property and equipment....................... (80,058)
Other..................................................... (5,510)
----------
Net cash used in investing activities............. (220,747)
----------
Cash flows from financing activities:
Principal payments on term loan........................... (462,500)
----------
Net cash used in financing activities............. (462,500)
----------
Net increase in cash and cash equivalents......... 66,708
Cash and cash equivalents, beginning of year................ 193,962
----------
Cash and cash equivalents, end of year...................... $ 260,670
==========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 985,801
==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-103
<PAGE> 258

POINT COMMUNICATIONS LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. Organization and Basis of Presentation: Point Communications Limited
Partnership (the "Partnership") was formed to acquire, own and operate radio
stations WIBA-AM, WIBA-FM, WMAD-AM and WMAD-FM (the "Stations") servicing the
Madison, Wisconsin area. The general partner of Point Communications L.P. is a
corporation wholly-owned by the president of the radio stations. Included in
management fees and other expenses in the Statement of Operations are management
fees paid to the general partner and other costs related to the general
partner's activities.

The Partnership's financial statements have been prepared in accordance
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses for the period presented. They also affect
the disclosures of contingencies. Actual results could differ from those
estimates.

b. Cash Equivalents: For purposes of the Statement of Cash Flows, the
Partnership considers all highly liquid, short-term investments purchased with
original maturities of three months or less to be cash equivalents.

c. Property and Equipment: Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, as follows: buildings and
improvements 15-39 years, tower and antennae 5-15 years, equipment 5-7 years,
and other 3-5 years. Expenditures for repairs are expensed while major additions
are capitalized. Upon sale or disposal, the asset cost and accumulated
depreciation are removed and any gain or loss is recognized in earnings.

d. Intangible Assets: Intangible assets are stated at cost and amortized on
a straight-line basis over their estimated useful lives, as follows:

FCC broadcast licenses -- 15 years. Accumulated amortization as of
December 31, 1996 was $848,533.

Other intangibles -- 15 years. Accumulated amortization as of December
31, 1996 was $82,089.

Goodwill -- 15 years. Accumulated amortization as of December 31, 1996
was $25,721.

Deferred financing costs -- loan term. Accumulated amortization as of
December 31, 1996 was $67,933.

Organization cost -- 5 years. Accumulated amortization as of December
31, 1996 was $26,033.

On an ongoing basis, management evaluates the recoverability of the net
carrying value of intangible assets by reference to the Partnership's
undiscounted anticipated future cash flows.

e. Barter Transactions: The Partnership exchanges advertising airtime for
goods and services, as is customary in the broadcast industry. In accordance
with Statement of Financial Accounting Standards No. 63, "Financial Reporting by
Broadcasters", revenue is recognized as the advertising is broadcast at the
estimated fair market value of goods or services received or to be received. The
value of the goods and services

F-104
<PAGE> 259
POINT COMMUNICATIONS LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

received in barter transactions is charged to expense when received or used.
Barter revenues and expenses approximated $214,000 for 1996.

f. Revenue Recognition: Revenue from the sale of air-time is recognized at
the time the related program or advertisement is broadcast.

g. Concentration of Risk: The Stations operate within the Madison,
Wisconsin geographic area. They extend credit to their various customers in the
form of accounts receivable. The Partnership performs ongoing credit evaluations
of its customers and maintains an allowance for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical trends and
other information.

h. Allocations and Distributions: The profits and losses of the Partnership
are being allocated among the partners, and cash flow from operations or cash
from capital transactions, if any, will be distributed to the partners in
accordance with the terms of the partnership agreement.

i. Income Taxes: No provision for federal or state income taxes has been
provided as the partners report their pro rata share of the partnership profits
or losses on their individual tax returns.

2. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following at December 31, 1996:

<TABLE>
<S> <C>
Land and improvements....................................... $ 283,200
Buildings................................................... 725,720
Tower and antennae.......................................... 986,770
Equipment................................................... 703,640
Other....................................................... 148,983
----------
2,848,313
Less accumulated depreciation............................... 508,696
----------
$2,339,617
==========
</TABLE>

Depreciation expense was $383,010 in 1996.

3. INTANGIBLE ASSETS:

Intangible assets consisted of the following at December 31, 1996:

<TABLE>
<S> <C>
FCC broadcast licenses...................................... $ 9,546,000
Other intangibles........................................... 911,544
Goodwill.................................................... 301,306
Deferred financing costs.................................... 254,749
Organization costs.......................................... 97,623
------------
11,111,222
Less accumulated amortization............................... 1,050,309
------------
$ 10,060,913
============
</TABLE>

F-105
<PAGE> 260
POINT COMMUNICATIONS LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT:

Long-term debt consisted of the following at December 31, 1996:

<TABLE>
<S> <C>
Term loan payable in quarterly installments of $212,500 to
$400,000, with a balloon payment of remaining balance due
August 1, 2000, bearing interest at the bank's reference
rate plus 2.5% (reference rate was 8.25% at December 31,
1996)..................................................... $9,537,500
Less current portion........................................ 912,500
----------
$8,625,000
==========
</TABLE>

The term loan is collateralized by substantially all assets of the
Partnership.

The carrying amount reported for long-term debt approximates fair value
since the underlying instrument bears interest at a variable rate that reprices
frequently.

The aggregate scheduled maturities of debt in subsequent years is as
follows:

5. OPERATING LEASES:

The Partnership leases vehicles, office equipment, office space and a tower
site under operating leases with future minimum rental payments as follows:

<TABLE>
<S> <C>
1997........................................................ $ 87,004
1998........................................................ 67,512
1999........................................................ 67,512
2000........................................................ 67,512
2001........................................................ 38,705
Thereafter.................................................. 331,000
--------
$659,245
========
</TABLE>

Rental expense charged to operations was $84,382 for 1996.

6. LETTER OF CREDIT:

At December 31, 1996, the Partnership had a letter of credit outstanding
for $90,000. The letter of credit can be drawn upon if the Partnership fails to
make payments due under the terms and conditions of a network agreement which
expires in May 1997. The Partnership has pledged a certificate of deposit as
collateral for the letter of credit.

F-106
<PAGE> 261
POINT COMMUNICATIONS LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. SUBSEQUENT EVENTS:

On January 2, 1997, the Partnership exchanged its broadcasting and real
estate assets of stations WMAD-FM, WIBA-FM and WIBA-AM and $400,000 cash,
subject to its long-term debt, for a 50% partnership interest in Madison Radio
Group (a general partnership), and $3,962,500 cash (which was financed by
Madison Radio Group borrowings). Simultaneously, Midcontinent Broadcasting Co.
of Wisconsin, Inc. ("Midcontinent"), a company that also owns and operates radio
stations serving the Madison, Wisconsin area, exchanged its broadcasting and
real estate assets of stations WZEE-FM, WMLI-FM and WTSO-AM and $400,000 cash
for the remaining 50% partnership interest in Madison Radio Group. During 1996,
the Partnership incurred $103,097 of costs directly related to its investment in
Madison Radio Group, which are included in other assets on the accompanying
balance sheet. Also, on January 2, 1997, the Partnership contributed the assets
of its WMAD-AM station with a net book value of approximately $230,000 to an
educational institution and received $85,000 cash.

On February 4, 1997, Madison Radio Group entered into an agreement to sell
substantially all the assets of its stations to Capstar Radio Broadcasting
Partners, Inc., a radio investment group. The transaction was completed in
August 1997.

F-107
<PAGE> 262

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Ameron Broadcasting, Inc.:

We have audited the accompanying balance sheet of Ameron Broadcasting, Inc.
(a Missouri corporation) as of December 31, 1996, and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ameron Broadcasting, Inc. as
of December 31, 1996, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

St. Louis, Missouri
May 14, 1997

F-108
<PAGE> 263

AMERON BROADCASTING, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 306,685 $ 54,237
Accounts receivable, net of allowance for doubtful
accounts of $43,310 and $115,697, respectively......... 1,748,948 1,758,295
Prepaid assets and other.................................. 195,011 158,131
----------- -----------
Total current assets.............................. 2,250,644 1,970,663
----------- -----------
PROPERTY, PLANT AND EQUIPMENT............................... 3,982,096 3,949,846
ACCUMULATED DEPRECIATION.................................... (2,179,527) (1,962,993)
----------- -----------
Net property, plant and equipment................. 1,802,569 1,986,853
----------- -----------
INTANGIBLE ASSETS:
Federal Communications Commission licenses................ 7,024,472 7,182,920
Goodwill.................................................. 5,789,368 5,919,954
----------- -----------
Total intangible assets........................... 12,813,840 13,102,874
----------- -----------
Total assets...................................... $16,867,053 $17,060,390
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Note payable to related party............................. $ 4,430,000 $ 4,320,000
Current maturities of long-term debt...................... 1,000,000 1,000,000
Accounts payable and accrued liabilities.................. 692,660 677,154
----------- -----------
Total current liabilities......................... 6,122,660 5,997,154
LONG-TERM DEBT.............................................. 4,062,500 4,812,500
----------- -----------
Total liabilities................................. 10,185,160 10,809,654
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 1,410,000 shares authorized,
1,316,502 shares issued and outstanding................ 1,316,502 1,316,502
Additional paid-in capital................................ 12,433,654 12,433,654
Accumulated deficit....................................... (7,068,263) (7,499,420)
----------- -----------
Total stockholders' equity........................ 6,681,893 6,250,736
----------- -----------
Total liabilities and stockholders' equity........ $16,867,053 $17,060,390
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-109
<PAGE> 264

AMERON BROADCASTING, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>

REVENUE..................................................... $6,884,649 $ 9,123,212
LESS Agency commissions..................................... 789,786 992,249
---------- -----------
Total net revenue................................. 6,094,863 8,130,963
---------- -----------
OPERATING EXPENSES:
Engineering and programming............................... 1,749,007 2,581,547
Selling, general and administrative....................... 2,603,446 3,276,141
Depreciation and amortization............................. 505,568 662,903
---------- -----------
Total operating expenses.......................... 4,858,021 6,520,591
---------- -----------
Income from operations............................ 1,236,842 1,610,372
---------- -----------
OTHER EXPENSE (INCOME):
Interest expense.......................................... 658,941 842,881
Interest income........................................... (13,046) (6,810)
Other, net................................................ 159,790 83,446
---------- -----------
Other expense, net................................ 805,685 919,517
---------- -----------
Net income (loss)................................. $ 431,157 $ 690,855
========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-110
<PAGE> 265

AMERON BROADCASTING, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................ $1,316,002 $12,426,559 $(8,190,275) $5,552,286
Net income.............................. -- -- 690,855 690,855
Issuance of 500 shares of common
stock................................ 500 7,095 -- 7,595
---------- ----------- ----------- ----------
BALANCE, December 31, 1996................ 1,316,502 12,433,654 (7,499,420) 6,250,736
Net income (unaudited).................. -- -- 431,157 431,157
---------- ----------- ----------- ----------
BALANCE, September 30, 1997 (unaudited)... $1,316,502 $12,433,654 $(7,068,263) $6,681,893
========== =========== =========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-111
<PAGE> 266

AMERON BROADCASTING, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 431,157 $ 690,855
Adjustments to reconcile net income to cash provided by
operating activities --
Depreciation and amortization.......................... 505,568 663,106
Loss on sale of fixed assets........................... -- 592
Changes in net assets and liabilities --
Accounts receivable.................................... 9,347 (372,472)
Prepaid and other assets............................... (36,880) (41,068)
Accounts payable and accrued liabilities............... 15,506 (54,011)
--------- -----------
Net cash provided by operating activities......... 924,698 887,002
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (32,250) (177,444)
Proceeds from sale of fixed assets........................ -- 4,900
--------- -----------
Net cash used in investing activities............. (32,250) (172,544)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on note payable to related party........... 110,000 390,000
Payments on long-term debt................................ (750,000) (1,000,000)
Decrease in outstanding check liability................... -- (57,916)
Proceeds from issuance of common stock.................... -- 7,595
--------- -----------
Net cash used in financing activities............. (640,000) (660,321)
--------- -----------
Net increase in cash.............................. 252,448 54,137
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD............... 54,237 100
--------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD..................... $ 306,685 $ 54,237
========= ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE INFORMATION -- Cash paid
during the period for interest............................ $ 687,443 $ 776,618
========= ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-112
<PAGE> 267

AMERON BROADCASTING, INC.

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS:

Ameron Broadcasting, Inc. (the Company), a Missouri corporation, operates
three radio stations in the Birmingham, Alabama, market. The Company operates in
a highly competitive market and revenues may fluctuate significantly based on
programming ratings of the stations within the market.

Unaudited Interim Financial Statements

The financial statements and notes, in so far as they are applicable to the
nine-month period ended September 30, 1997, are not covered by the Report of
Independent Accountants. The unaudited interim financial statements reflect all
adjustments consisting of only normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of financial position
and results of operations. Operating results for the nine months ended September
30, 1997, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Uncertainties and Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.

On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires the Federal
Communications Commission to relax its numerical restrictions on local ownership
and affords renewal applicants significant new protections from competing
applications for their broadcast licenses. The ultimate effect of this
legislation on the competitive environment is currently indeterminable.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and other investments with
original maturities of three months or less.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets as follows:

<TABLE>
<CAPTION>
ASSET
LIFE
-----
<S> <C>
Buildings................................................... 30
Towers and transmitters..................................... 10
Leasehold improvements...................................... 10
Studio equipment............................................ 5-10
Office furniture............................................ 5
Automobiles................................................. 2-5
</TABLE>

F-113
<PAGE> 268
AMERON BROADCASTING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property, plant and equipment consists of the following as of December 31,
1996:

<TABLE>
<S> <C>
Land........................................................ $ 465,370
Buildings and equipment..................................... 1,035,595
Towers and transmitters..................................... 1,673,707
Furniture and fixtures...................................... 512,593
Leasehold improvements and other............................ 262,581
----------
$3,949,846
==========
</TABLE>

Intangible Assets

Intangible assets are being amortized on a straight-line basis over the
life of the assets as follows:

<S> <C>
Federal Communications Commission licenses.................. 40
Goodwill.................................................... 40
</TABLE>

Amortization expense on intangible assets totaled approximately $385,000
for the year ended December 31, 1996. Accumulated amortization aggregated
$2,106,649 at December 31, 1996.

Revenue Recognition

Broadcasting revenue is recognized when commercials are aired.

Concentration of Credit Risk

The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast areas.
The Company performs ongoing credit evaluation of its customers and maintains an
allowance for doubtful accounts based on factors surrounding the credit risk of
specific customers, historical trends and other information.

Barter Transactions

The Company enters into barter agreements involving the exchange of
advertising time for products or services. In accordance with industry
standards, all barter transactions are valued at the estimated fair value of the
products or goods received. Barter revenue is recorded when the advertisement is
broadcast and barter expenses are recorded when the products or services are
used.

Income Taxes

The Company has made an election to be treated as an S Corporation under
the provisions of the Internal Revenue Code. All income and losses flow through
to the stockholders who are responsible for all applicable income taxes.
Accordingly, no provision or credit is reflected in the financial statements for
federal and state income taxes.

F-114
<PAGE> 269
AMERON BROADCASTING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The accounting methods used by the Company are substantially the same for
financial reporting and tax purposes with the exception of accounting for
depreciation and amortization expenses and the allowance for doubtful accounts.
The following summarizes the significant differences between the financial
reporting basis and federal income tax basis of certain assets and liabilities:

<TABLE>
<S> <C>
Assets:
FCC licenses and other intangible assets.................. $ 992,000
Accrued expenses.......................................... 28,000
Reserve for bad debts..................................... 13,000
----------
$1,033,000
==========
Liabilities:
Property, plant and equipment............................. $ (282,000)
==========
</TABLE>

3. LONG-TERM DEBT:

Long-term debt at December 31, 1996, consists of a term loan payable to
SouthTrust Bank of Alabama, N.A. (the "Bank") maturing on June 30, 2000.
Interest on this loan is at the Bank's base rate or LIBOR plus 1.75%, as elected
by the Company. In 1996, the Company changed its election from the Bank's base
rate to LIBOR plus 1.75%. At December 31, 1996, LIBOR plus 1.75% was 7.10%. The
term loan is secured by securities pledged by the primary stockholder of the
Company.

Long-term debt maturities as of December 31, 1996, are summarized as
follows:

<TABLE>
<S> <C>
1997........................................................ $1,000,000
1998........................................................ 1,000,000
1999........................................................ 1,000,000
2000........................................................ 2,812,500
2001........................................................ --
----------
Total debt........................................ 5,812,500
Less -- Current maturities.................................. 1,000,000
----------
Long-term debt.................................... $4,812,500
==========
</TABLE>

The carrying amount of the Company's debt approximates market value.

4. COMMITMENTS AND CONTINGENCIES:

The Company has entered into operating leases related to the stations'
corporate offices, tower and the studio facilities. Future minimum lease
payments excluding amounts payable for common area maintenance as of December
31, 1996, are as follows:

F-115
<PAGE> 270
AMERON BROADCASTING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Rent expense excluding amounts related to common area maintenance for the
year ended December 31, 1996, was approximately $76,000. The Company recognizes
rent expense on a straight-line method over the lease term. As of December 31,
1996, cumulative rent expense in excess of rent payments totaled $51,000 and is
included in accounts payable and accrued liabilities in the accompanying balance
sheet.

The Company is involved in certain legal proceedings and other claims
arising in the ordinary course of business. The Company's management believes
the final resolution of these matters will not have a material impact on the
financial statements.

5. BENEFIT PLANS:

The Company has a defined contribution plan which covers substantially all
full-time employees. The plan is a combined 401(k) plan with companies
affiliated by common ownership. Under the plan, employees are permitted to defer
receipt of a portion of their compensation. The Company's matching rate is
discretionary, with a current rate of 65% of each employee's contribution up to
6% of compensation. Additionally, the Company can make additional discretionary
contributions. Total matching contributions were $47,000 for the year ended
December 31, 1996. There were no additional discretionary contributions made in
1996.

6. RELATED-PARTY TRANSACTIONS:

The Company has a $4,320,000 short-term note payable due to Ameron Fund,
Inc., an entity related by common ownership. The note is a revolving line of
credit which is due upon demand and expires July 1999. Under the agreement,
borrowings up to $4,500,000 are available. Interest is payable monthly based on
the prime rate. The prime interest rate was 8.25% at December 31, 1996. The
Company paid approximately $403,000 in interest to Ameron Fund, Inc. during
1996. The carrying amount of the related party debt approximates market value.

The Company has a management agreement with a company owned by the
Company's principal stockholder. Management services include general management,
employee benefits administration, banking and financing services. The management
fee is based on a set agreement and totaled $40,000 in 1996. Management fees
payable to the management company totaled $10,000 at December 31, 1996, and are
included in accounts payable and accrued liabilities in the accompanying balance
sheet.

7. STOCK OPTIONS:

The Company has a stock option plan for key executives and certain board
members. The Company, at its discretion, offers the participant the option to
purchase a number of shares of common stock. The option expires 60 days after
the option date. With the exercise of these options, the participant receives
four additional options which are immediately exercisable, and expire seven
years from the issuance date or upon the participant's termination. All options
are exercisable at prices based upon a formula as defined in the agreement.

In addition, the Company has a stock agreement with an officer which allows
the officer to earn options to purchase up to 7% of the Company's outstanding
common stock at $1 per share based upon the Company achieving specified levels
of operating profits. As of December 31, 1996, 10,460 options have been earned
under the plan. The agreement also contains provisions allowing the Company and
the major stockholder a right of first refusal for any prospective sale of stock
earned under the agreement. In the event of the officer's employment
termination, he has the right to require the Company to repurchase all shares
purchased under the agreement and the Company has the right to require the
officer to sell all shares purchased under the agreement at a selling price
based on the appraised market value of the shares. Neither the officer nor the
F-116
<PAGE> 271
AMERON BROADCASTING, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. STOCK OPTIONS (CONTINUED):
Company may exercise these rights under the earlier of the sale of the
corporation to a third party or five years from the date of the agreement.

No compensation expense has been recorded since inception of the stock
option plans described above as the amount was not material to the financial
statements. During 1996, the Company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date for awards in 1996
consistent with the provisions of this statement, the Company's net income would
have been reduced by approximately $33,000 to arrive at pro forma net income for
December 31, 1996.

The fair value of each option has been estimated on the date of grant using
the estimated fair value of the Company divided by the total number of shares of
stock and options outstanding as of December 31, 1996. The fair value of the
Company is based upon the estimated prospective selling price of the Company's
assets net of reserves and other liabilities.

A summary of the combined activity and balances for the Company's stock
options for the two plans as of December 31, 1996, and changes during the year
ended on that date is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Options outstanding, beginning of year...................... 40,680 $10.37
Options granted............................................. 2,500 12.15
Options exercised........................................... (500) 15.19
Options canceled............................................ -- --
------
Options outstanding, end of year............................ 42,680 10.60
======
Options exercisable at year-end............................. 42,680 10.60
Weighted average fair value of options granted during the
year...................................................... $13.40
======
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1996 LIFE PRICE 1996 PRICE
--------------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 1.00 to $ 4.36..................... 19,132 48.2 months $ 2.23 19,132 $ 2.23
$10.06 to $14.10..................... 6,672 36.2 months 12.24 6,672 12.24
$15.19 to $20.00..................... 16,876 36.6 months 19.43 16,876 19.43
------ ------
42,680 $10.60 42,680 $10.60
====== ======
</TABLE>

8. SUBSEQUENT EVENT:

On April 24, 1997, a contract was signed with another broadcast company for
the sale of the Company. The transaction was completed in October 1997 pending
FCC approval.

F-117
<PAGE> 272

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Patterson Broadcasting, Inc.:

We have audited the accompanying consolidated balance sheets of Patterson
Broadcasting, Inc. and subsidiaries (a Delaware corporation) as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years ended December 31, 1997 and
1996, and for the period from May 1, 1995 (inception) through December 31, 1995,
as revised for 1996 (see Note 1). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Patterson
Broadcasting, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
results of their operations and cash flows for the years ended December 31,
1997, 1996, and for the period from May 1, 1995 (inception) to December 31,
1995, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
March 20, 1998

F-118
<PAGE> 273

PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,084,000 $ 3,046,000
Accounts receivable, less allowances for doubtful accounts
of $758,000 at December 31, 1997, and $402,000 at
December 31, 1996...................................... 10,506,000 9,426,000
Prepaid expenses and other current assets................. 1,088,000 932,000
Deferred income taxes (Note 6)............................ 579,000 458,000
------------ ------------
Total current assets.............................. 13,257,000 13,862,000
------------ ------------
PROPERTY, PLANT, AND EQUIPMENT:
Land and land improvements................................ 1,290,000 1,261,000
Buildings and leasehold improvements...................... 3,718,000 3,362,000
Equipment................................................. 17,778,000 15,809,000
------------ ------------
22,786,000 20,432,000
Less accumulated depreciation............................. (2,875,000) (1,305,000)
------------ ------------
Total property, plant and equipment -- net............. 19,911,000 19,127,000
------------ ------------
INTANGIBLE AND OTHER ASSETS:
Cost of purchased businesses in excess of net tangible
assets acquired (Note 2)............................... 119,961,000 109,089,000
Deposits.................................................. 53,000 40,000
Other assets.............................................. 3,595,000 4,315,000
Deferred income taxes (Note 6)............................ -- 196,000
------------ ------------
Total intangible and other assets -- net............... 123,609,000 113,640,000
------------ ------------
Total assets...................................... $156,777,000 $146,629,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 3,606,000 $ 3,503,000
Accrued interest.......................................... 251,000 393,000
Accrued dividends......................................... 302,000 250,000
Note payable (Note 2)..................................... -- 600,000
Accrued income taxes...................................... 110,000 173,000
------------ ------------
Total current liabilities......................... 4,269,000 4,919,000
------------ ------------
DEFERRED INCOME TAXES (Note 6).............................. 1,455,000 --
------------ ------------
LONG-TERM DEBT (Note 3)..................................... 79,500,000 67,000,000
------------ ------------
REDEEMABLE WARRANTS (Note 4)................................ 13,943,000 11,921,000
------------ ------------
OTHER LIABILITIES........................................... 56,000 97,000
------------ ------------
REDEEMABLE PREFERRED STOCK, $1.00 par value, 100,000 shares
authorized 3,016 and 2,700 issued and outstanding at
December 31, 1997 and 1996, respectively (Note 4)......... 23,723,000 19,816,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Note 5):
Class A Common Stock, $.01 par value, 200,000 shares
authorized, 70,571.91 issued and outstanding at
December 31, 1997 and 1996............................. 1,000 1,000
Class B Common Stock, $.01 par value, 200,000 shares
authorized, 4,227 issued and outstanding at December
31, 1997 and 1996 Additional paid-in capital........... 52,901,000 52,137,000
Accumulated deficit....................................... (19,071,000) (9,262,000)
------------ ------------
Total stockholders' equity........................ 33,831,000 42,876,000
------------ ------------
Total liabilities and stockholders' equity........ $156,777,000 $146,629,000
============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-119
<PAGE> 274

PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
YEAR ENDED (INCEPTION)
DECEMBER 31, THROUGH
-------------------------- DECEMBER 31,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues........................................ $53,053,000 $41,369,000 $ 4,613,000
----------- ----------- -----------
Operating expenses.................................. 37,271,000 29,725,000 3,623,000
LMA fee............................................. 63,000 500,000 --
Corporate expense................................... 3,749,000 2,374,000 1,217,000
Regional expense.................................... 947,000 143,000 --
Patterson planning management fee................... 250,000 250,000 146,000
Depreciation and amortization....................... 5,273,000 3,537,000 391,000
----------- ----------- -----------
47,553,000 36,529,000 5,377,000
----------- ----------- -----------
Income (loss) from operations....................... 5,500,000 4,840,000 (764,000)
----------- ----------- -----------
Other income (expense):
Interest expense.................................. (7,574,000) (5,052,000) (458,000)
Increase in fair value of redeemable warrants
(Note 4)....................................... (2,022,000) (5,499,000) --
Interest income................................... 13,000 70,000 148,000
Other -- net...................................... (63,000) (33,000) (3,000)
----------- ----------- -----------
Loss before income taxes............................ (4,146,000) (5,674,000) (1,077,000)
Income tax (expense) benefit (Note 6)............... (1,704,000) 282,000 --
----------- ----------- -----------
Net loss............................................ $(5,850,000) $(5,392,000) $(1,077,000)
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-120
<PAGE> 275

PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, May 1, 1995 (inception)......... $ -- $ -- $ -- $ --
Equity contribution.................... 1,000 35,099,000 -- 35,100,000
Net loss............................... -- -- (1,077,000) (1,077,000)
------ ----------- ------------ -----------
BALANCE, December 31, 1995............... 1,000 35,099,000 (1,077,000) 34,023,000
Equity contribution, net of issuance
costs............................... -- 17,038,000 -- 17,038,000
Accretion of redeemable preferred
stock............................... -- -- (543,000) (543,000)
Dividends declared on redeemable
preferred stock..................... -- -- (2,250,000) (2,250,000)
Net loss............................... -- -- (5,392,000) (5,392,000)
------ ----------- ------------ -----------
BALANCE, December 31, 1996............... 1,000 52,137,000 (9,262,000) 42,876,000
Accretion of redeemable preferred
stock............................... -- -- (747,000) (747,000)
Dividends declared on redeemable
preferred stock..................... -- -- (3,212,000) (3,212,000)
Contingent award of common stock
pursuant to compensation plan....... -- 764,000 -- 764,000
Net loss............................... -- -- (5,850,000) (5,850,000)
------ ----------- ------------ -----------
BALANCE, December 31, 1997............... $1,000 $52,901,000 $(19,071,000) $33,831,000
====== =========== ============ ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-121
<PAGE> 276

PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
YEAR ENDED (INCEPTION)
DECEMBER 31, 1995 THROUGH
--------------------------- DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................... $ (5,850,000) $ (5,392,000) $ (1,077,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation.................................. 1,580,000 1,175,000 166,000
Amortization.................................. 3,693,000 2,362,000 225,000
Deferred financing costs...................... 636,000 429,000 --
Contingent award of common stock.............. 764,000 -- --
Increase in fair value of redeemable
warrants.................................... 2,022,000 5,499,000 --
Loss on disposal of property, plant, and
equipment................................... 71,000 31,000 --
Changes in assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable........................... (1,080,000) (5,243,000) (2,492,000)
Prepaid expenses and other current assets..... (156,000) (53,000) (279,000)
Accounts payable and accrued expenses......... 103,000 955,000 1,219,000
Accrued interest.............................. (142,000) 359,000 34,000
Accrued income taxes.......................... (63,000) 173,000 --
Deferred income taxes......................... 1,530,000 (455,000) --
Other......................................... (53,000) 35,000 (28,000)
------------ ------------ ------------
Net cash provided by (used in) operating
activities.................................. 3,055,000 (125,000) (2,232,000)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of media properties, net of cash
acquired...................................... (16,213,000) (92,915,000) (36,923,000)
Purchases of property, plant, and equipment...... (1,233,000) (1,036,000) (107,000)
Disposal of property, plant, and equipment,
net........................................... (71,000) 21,000 --
Deposits in escrow............................... -- -- (2,900,000)
Net proceeds on disposal of media property....... -- 2,100,000 --
Deferred acquisition costs....................... -- (84,000) (768,000)
Other............................................ -- -- (156,000)
------------ ------------ ------------
Net cash used in investing activities......... (17,517,000) (91,914,000) (40,854,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Equity contributions............................. -- 17,500,000 35,100,000
Issuance of redeemable preferred stock and
warrants...................................... -- 25,000,000 --
Borrowings under bank credit facility............ 17,500,000.. 86,500,000 10,000,000
Repayment of borrowings under bank credit
facility...................................... (5,000,000) (29,500,000) --
Financing and issuance costs..................... -- (4,629,000) (1,800,000)
------------ ------------ ------------
Net cash provided by financing activities..... 12,500,000 94,871,000 43,300,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH.................... (1,962,000) 2,832,000 214,000
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................................ 3,046,000 214,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD........... $ 1,084,000 $ 3,046,000 $ 214,000
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-122
<PAGE> 277

PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES:

Patterson Broadcasting, Inc. was organized in May 1995 for the purpose of
owning and operating radio stations. At December 31, 1997, the Company owned and
operated radio stations in Savannah, Georgia; Allentown, Pennsylvania; Honolulu,
Hawaii; Fresno, California; Grand Rapids, Michigan; Battle Creek, Michigan;
Reno, Nevada; Harrisburg, Pennsylvania; Pensacola, Florida; and Springfield,
Illinois.

Of the 70,572 issued shares of Class A common stock, 65.9% are held by The
Dyson-Kissner-Moran Corporation (DKM).

Revision to 1996 Financial Statements

Previously issued financial statements for 1996 included a $2,062,000
deferred tax asset attributable to the expense of $5,499,000 recognized for the
increase in the fair value of redeemable warrants (Note 4). Based on additional
analysis of the potential federal income tax consequences of redeeming the
warrants, management has concluded that the Company can not derive a federal
income tax benefit from redeeming the warrants. Accordingly, the 1996 financial
statements have been revised to eliminate the $2,062,000 deferred tax asset
thereby increasing the 1996 net loss from the $3,330,000 previously reported to
$5,392,000.

Principles of Consolidation

The consolidated financial statements include the accounts of Patterson
Broadcasting, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions are eliminated in
consolidation.

Revenue Recognition

Radio advertising revenues are recognized when the related advertisements
are broadcast and are recorded net of advertising agency commissions. Exchanges
of advertising time for products and services are recorded at the estimated fair
value of the products or services received.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, money market funds, overnight
deposits, and investments with original maturities of three months or less when
purchased.

Property, Plant, and Equipment

Property, plant, and equipment is stated at cost. Depreciation is computed
by the straight-line method using estimated useful lives of the individual
assets which range from 5 to 40 years.

Deferred Financing Costs

Costs associated with obtaining debt financing are capitalized and
amortized over the term of the related debt.

Intangible and Other Assets

Costs of purchased businesses in excess of net tangible assets acquired are
stated at cost less accumulated amortization and primarily consist of FCC
broadcast licenses and goodwill. The FCC licenses and goodwill, recorded at
$122,520,000 and $110,306,000 at December 31, 1997 and 1996, respectively, are
being amortized using the straight-line method over periods not exceeding 40
years. Noncompete agreements and other intangibles, recorded at $3,708,000 and
$1,358,000 at December 31, 1997 and 1996, respectively, are being

F-123
<PAGE> 278
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

amortized using the straight-line method over two to five years. Accumulated
amortization at December 31, 1997 and 1996, was $6,267,000 and $2,575,000,
respectively.

On a continuing basis, the Company reviews the financial statement carrying
amounts of its operating units for impairment. Specifically, this process
includes a comparison of the carrying amounts of the operating units to their
estimated fair values, an analysis of estimated future cash flows and an
evaluation as to whether an operating unit might be sold in the near future. If
this process concludes that the carrying amount of an operating unit's assets
will not be recovered from either future operations or sale, a write down of the
operating unit's assets is recognized through a charge to operations.

Income Taxes

Deferred income taxes are recorded using Statements of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No. 109 requires
the Company to compute deferred income taxes based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2. ACQUISITIONS, DISPOSITIONS AND PRO FORMA FINANCIAL INFORMATION:

In July 1995, the Company purchased radio station WCHY-AM/FM in Savannah,
Georgia, for $5,200,000 in cash. In September 1995, the Company purchased radio
stations WEEX-AM and WODE-FM in Allentown, Pennsylvania, radio stations KRZR-FM
and KTHT-FM in Fresno, California, and radio stations KSSK-AM/FM and KUCD-FM in
Honolulu, Hawaii, for $30,590,000 in cash.

In January 1996, the Company purchased radio stations WLHT-FM, WGRD-FM and
WRCV-AM in Grand Rapids, Michigan, and radio stations WBCK-AM, WBXX-FM, WRCC-AM
and WWKN-FM in Battle Creek, Michigan, for $21,400,000 in cash.

In January 1996, the Company purchased radio stations KCBN-AM, KRNO-FM and
KWNZ-FM in Reno, Nevada, for $4,100,000 in cash.

In January 1996, the Company purchased radio stations KCBL-AM and KBOS-FM
in Fresno, California, for $6,250,000 in cash.

In January 1996, the Company sold radio station KTHT-FM in Fresno,
California, for $2,200,000 in cash.

In March 1996, the Company purchased radio stations WTCY-AM, WNNK-FM in
Harrisburg, Pennsylvania, and radio station WXBM-FM in Pensacola, Florida, for
$31,200,000 in cash, including accounts receivable.

In April 1996, the Company purchased radio station WYKZ-FM in Savannah,
Georgia, for $1,500,000 in cash.

In August 1996, the Company purchased radio stations WFMB-AM/FM, WCVS-FM in
Springfield, Illinois, for $7,000,000 in cash.

F-124
<PAGE> 279
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In November 1996, the Company purchased radio stations KIKI-AM/FM, KKLV-FM
and KHVH-AM in Honolulu, Hawaii, for $9,100,000 in cash, of which $600,000 was
paid in January 1997. Such amount is recorded as a note payable at December 31,
1996.

In November 1996, the Company purchased radio stations WAEV-FM, WLVH-FM and
WSOK-AM in Savannah, Georgia, for $11,000,000 in cash, including accounts
receivable.

In November 1996, the Company purchased radio station WWSF-FM in Pensacola,
Florida, for $1,820,000 in cash, including accounts receivable.

In June 1997, the Company purchased radio station WMEZ-FM in Pensacola,
Florida, for $7,000,000 in cash.

In August 1997, the Company purchased radio stations KSOF-FM and KRDU-AM in
Fresno, California, for $6,000,000 in cash. The Company began to operate these
stations under LMA agreements in April 1997.

In October 1997, the Company purchased radio station WQFN-FM in Grand
Rapids, Michigan, for approximately $1,900,000 in cash. The Company began to
operate this station under an LMA agreement in May 1997.

The acquisitions have been accounted for using the purchase method of
accounting. The consolidated statements of operations include the operations of
the acquired businesses since their respective date of acquisition.

The following unaudited pro forma financial information gives effect to the
above acquisitions and disposition as if such transactions had occurred at the
beginning of the period presented.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues............................... $53,934,000 $51,514,000 $47,281,000
Income from operations..................... 6,093,000 6,638,000 5,640,000
Net loss................................... (2,446,000) (6,578,000) (1,831,000)
</TABLE>

The pro forma information also reflects adjustments to interest expense and
income taxes resulting from the transactions and is not necessarily indicative
of either results of operations that would have been achieved if such
transactions had occurred at the beginning of the periods presented or of future
results of operations.

The Company has operated stations under time brokerage agreements (TBA's)
or local marketing agreements (LMA's) whereby the Company agreed to purchase
from the broadcast station licensee certain broadcast time on the station and to
provide programming to and sell advertising on the station during the purchased
time. Accordingly, the Company received all the revenue derived from the
advertising sold during the purchased time, paid certain expenses of the station
and performed other functions. The broadcast station licensee retains
responsibility for ultimate control of the station in accordance with FCC
policies. As of December 31, 1997, the Company had acquired all stations
operated under LMA's during 1997.

3. LONG-TERM DEBT:

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Bank Credit Facility..................................... $79,500,000 $67,000,000
</TABLE>

F-125
<PAGE> 280
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On June 20, 1996, the Company amended and restated its variable rate loan
agreement (the "Credit Facility"). The agreement was amended to increase the
available credit up to $150,000,000 by adding new lenders and amending certain
other provisions. The interest rate on the Credit Facility floats with the prime
rate established by the agent but can be fixed by the Company for up to six
months based upon a Eurodollar rate. The interest rate includes a borrowing
premium which varies from 1/4% to 3 1/4% depending on the Company's ratio of
total indebtedness to annualized operating cash flow for revolving credit loans,
as defined in the Credit Facility, and based on the interest rate option
selected. The Credit Facility also includes a commitment fee of 1/2% on the
unused portion of the Credit Facility. The Company may incur borrowings under
the Credit Facility until June 30, 2003; however, commitment reductions begin
December 31, 1997, with a final commitment reduction date of June 30, 2003. In
addition, beginning in 1998, the Company is required to prepay outstanding
borrowings to the extent of any excess cash flow as defined. The Credit Facility
is secured by a pledge of the stock of and is guaranteed by all subsidiaries of
the Company and contains certain restrictive covenants, including the
maintenance of cash flow ratios and limitations on additional borrowings,
mergers, acquisitions, dispositions, and certain restricted payments.

In connection with the sale of the Company (Note 13), the debt was repaid
in January 1998.

4. REDEEMABLE PREFERRED STOCK AND WARRANTS:

In April 1996, the Company issued 2,500 shares of Series A Cumulative
Redeemable Preferred Stock (the Preferred Stock) along with warrants for total
proceeds of $25,000,000. The Preferred Stock carries a 12% per annum cumulative
dividend rate and is redeemable April 2005, at $25,000,000 plus accrued and
unpaid dividends. The proceeds were allocated between the Preferred Stock and
warrants based on their estimated fair values. The Preferred Stock is being
increased to its redemption price during the period from date of issuance until
April 2005. The dividends are payable in cash or at the option of the Company in
additional shares of Preferred Stock at a rate of 3/100 of one share for each
$300 of such dividends paid. The dividend payment date is each March 1, June 1,
September 1, and December 1, beginning June 1, 1996. During 1997, the Company
paid $3,160,000 in dividends by issuing 316 additional shares, and during 1996,
the Company paid $2,000,000 in dividends by issuing 200 additional shares. In
addition, the shares of Preferred Stock are subject to mandatory redemption upon
the occurrence of certain specified events and are subject to optional
redemption by the Company at any time and upon the occurrence of certain
specified events, in each case at specified redemption prices based upon the
date of any such event. There are no redemption requirements for the next five
years.

The warrants, which are exercisable upon issuance, entitle the holder to
receive 12,177 shares of Class A Common Stock at an exercise price of $.01 per
share. The warrants expire April 2006. In addition, subject to certain
conditions, the warrants (and any shares of Common Stock issued upon the
exercise thereof) may be put to the Company at any one time after April 1, 2001,
and may be called at the option of the Company after April 1, 2002. The warrants
are measured at their fair value at December 31, 1997 and 1996, and, as a
result, a change in the fair value of $2,022,000 and $5,499,000 was recorded as
other expense during 1997 and 1996, respectively.

In connection with the sale of the Company (Note 13), the Preferred Stock
was redeemed and the warrants were exercised in January 1998.

5. STOCKHOLDERS' EQUITY:

In February 1996, the Company reclassified the initial Common Stock to
Class A Common Stock and increased the authorized shares to 200,000, $.01 par
value per share. The Company also created a new class of non-voting Common Stock
known as Class B Common Stock, with 200,000 shares authorized, $.01 par value
per share.

F-126
<PAGE> 281
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company issued Class A Common Stock of 7,221.25 shares for $5,125,000
in February 1996, 3,452.16 shares for $2,450,000 in July 1996, and 9,757.59
shares for $6,925,000 in October 1996. The Company also issued 4,227 shares of
Class B Common Stock for $3,000,000 in February 1996.

One of the shareholders has the right to purchase up to 1,160 additional
shares of Class A Common Stock at a price of $.01 per share on the earlier of
the occurrence of certain specified events or February 27, 1999. These
additional shares were issued in January 1998 in connection with the sale of the
Company (Note 13).

6. INCOME TAXES:

Income tax expense (benefit) is summarized as follows:

<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current:
Federal........................... $ -- $ -- $ --
State............................. 173,000 173,000 --
---------- --------- ---------
Total................... 173,000 173,000 --
---------- --------- ---------
Deferred:
Federal........................... 1,410,000 108,000 (374,000)
State............................. 121,000 (143,000) (46,000)
Change in valuation allowance..... -- (420,000) 420,000
---------- --------- ---------
Total................... 1,531,000 (455,000) --
---------- --------- ---------
Income tax expense (benefit)...... $1,704,000 $(282,000) $ --
========== ========= =========
</TABLE>

Income tax expense (benefit) computed using the federal statutory tax rate
is reconciled to the reported income tax expense (benefit) as follows:

<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Federal statutory tax rate........ $(1,451,000) $(1,986,000) $(377,000)
State income taxes, net of federal
tax benefit..................... 90,000 (183,000) (46,000)
Change in valuation allowance..... -- (420,000) 420,000
Nondeductible amortization........ 1,171,000 131,000 --
Nondeductible depreciation........ 264,000 -- --
Nondeductible meals and
entertainment................... 97,000 59,000 --
Nondeductible adjustment to NOL... 455,000 -- --
Nondeductible increases in fair
value of warrants............... 768,000 2,062,000 --
Nondeductible transaction costs... 205,000 -- --
Other -- net...................... 105,000 55,000 3,000
----------- ----------- ---------
Total................... $ 1,704,000 $ (282,000) $ --
=========== =========== =========
</TABLE>

F-127
<PAGE> 282
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of significant items comprising the Company's net deferred
tax asset are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets
Accruals not currently deductible....................... $ 441,000 $ 374,000
Compensation accruals not currently deductible.......... 125,000 84,000
Operating loss carryforward............................. 6,134,000 4,053,000
Other................................................... 13,000 5,000
----------- -----------
Total deferred tax assets....................... 6,713,000 4,516,000
Deferred tax liabilities:
Difference in book and tax basis of property............ (2,601,000) (1,503,000)
Difference in book and tax basis of intangible assets... (3,542,000) (913,000)
----------- -----------
Total deferred tax liabilities.................. (6,143,000) (2,416,000)
----------- -----------
Valuation allowance....................................... (1,446,000) (1,446,000)
----------- -----------
Net deferred tax asset (liability)........................ $ (876,000) $ 654,000
=========== ===========
</TABLE>

For 1995, the Company was included in the consolidated federal income tax
return of DKM. Effective February 27, 1996, the Company was no longer included
in DKM's consolidated federal income tax return. This deconsolidation resulted
from additional equity contributions which lowered DKM's stock ownership below
eighty percent.

The Company and DKM have a tax sharing agreement addressing the utilization
of the Company's net operating losses in DKM's consolidated federal tax return.
Per this agreement, the Company computed its tax liability as if it filed a
separate tax return. DKM will reimburse the Company when the Company would have
utilized the net operating loss carryforward generated through February 27,
1996, on a stand alone basis. DKM's obligation to reimburse remains in effect
although the Company no longer files a consolidated return with DKM.

At February 27, 1996, the net operating loss carryforward included in DKM's
consolidated federal income tax return was estimated at $2,180,000. This net
operating loss carryforward is subject to separate return limitations as the
result of the deconsolidation discussed above.

At December 31, 1997 and 1996, the Company had approximately $16,143,000
and $10,509,000, respectively, in net operating loss carryforwards for federal
income tax purposes. Such amounts include the portion attributable to losses
included in DKM's consolidated return. These loss carryforwards, unless
utilized, will expire between 2008 and 2011. At December 31, 1997, $3,982,000 of
these loss carryforwards result from an acquisition and are subject to separate
return limitations as well as certain limitations under Section 382 described
below. Limitations imposed by Section 382 of the Internal Revenue Code, after a
change of control, will limit the amount of net operating loss which will be
available to offset future taxable income at December 31, 1997, the Company has
a valuation allowance against such restricted net operating loss for the excess
of the net operating loss over the amount of taxable temporary differences which
will reverse during the permitted carryover period.

7. EMPLOYEE BENEFIT PLAN:

Effective January 1, 1997, the Company sponsors a 401(k) Plan for the
benefit of eligible employees. The Company matches 25% of the first 6% of each
participant's salary contributed to the plan. The Company expense under the plan
was $166,000 for the year ended December 31, 1997.

F-128
<PAGE> 283
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES:

The Company leases office facilities, transmitter sites, and various items
of equipment under noncancelable operating leases. Many of these lease
agreements contain renewal options. Total rental expense was $1,369,000,
$1,062,000 and $179,000, for the years ended December 31, 1997 and 1996, and for
the period from May 1, 1995, through December 31, 1995, respectively.

The following summary sets forth annual commitments under noncancelable
leases, net of sublease rentals of $136,000, $125,000, $80,000, and $36,000 for
the years ending December 31, 1998, 1999, 2000, and 2001, respectively.

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------------------------------------------------------
<S> <C>
1998........................................................ $1,097,000
1999........................................................ 820,000
2000........................................................ 547,000
2001........................................................ 318,000
2002........................................................ 328,000
Thereafter.................................................. 6,669,000
----------
$9,779,000
==========
</TABLE>

The Company has employment agreements with its two top executive officers.
Pursuant to the agreements, which expire in 2000, the executives receive an
aggregate annual salary of $500,000, plus, beginning in 1996, an incentive bonus
based upon the Company achieving certain operating objectives. Bonus amounts for
1995 were determined at the discretion of the Board of Directors of the Company.
At December 31, 1997 and 1996, amounts accrued under these agreements were
$182,000 and $294,000, respectively.

The Company, from time to time, is involved in litigation incidental to the
conduct of its business. The Company is not a party to any lawsuit or legal
proceedings that, in the opinion of the management, is likely to have a material
adverse effect on the Company's financial position or results of operations.

9. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL INFORMATION:

<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
YEAR ENDED YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -------------------
<S> <C> <C> <C>
Cash paid for interest........... $7,080,000 $4,264,000 $313,000
Cash paid for income taxes....... 301,000 -- --
</TABLE>

10. RELATED-PARTY TRANSACTIONS:

The Company is a party to a management agreement with an affiliate of DKM.
Under the agreement, the Company pays an annual fee of $250,000 for various
financial services.

As discussed in Note 6, the Company has a tax sharing agreement with DKM.

In May 1995, the Company received a 5 1/2% promissory note, payable on
demand, from DKM, representing a portion of DKM's initial capital contribution.
This note was repaid in October 1995. The Company recorded $107,000 in interest
income related to this note for the period from May 1, 1995 (inception) through
December 31, 1995.

F-129
<PAGE> 284
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. STOCK-BASED COMPENSATION:

Pursuant to the formation of the Company, certain members of the Company's
management were granted the right to receive up to a total of 2,840 additional
shares of Common Stock on the earlier of the occurrence of certain events or May
3, 2000. The number of shares to be granted is based upon the appreciation in
the fair value of the Company. As of December 31, 1996, no compensation expense
was recorded due to the uncertainty associated with estimating the total
ultimate value of the shares to be granted.

Based upon the sale transaction (Note 13), for the year ended December 31,
1997, the Company recorded $764,000 of compensation expense based on the total
ultimate number of shares granted. This amount is included in corporate expense.

In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". In accordance with the provisions of SFAS No. 123, the Company
has applied the provisions of APB Opinion 25 in accounting for its stock
compensation plans. If the Company had elected to recognize compensation cost
based on the fair value of the stock compensation granted as prescribed by SFAS
No. 123, there would have been no impact on net income for the years and period
ended December 31, 1997, 1996 and 1995, respectively.

12. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amount.

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents... $ 1,084,000 $ 1,084,000 $ 3,046,000 $ 3,046,000
Liabilities:
Long-term debt.............. 79,500,000 79,500,000 67,000,000 67,000,000
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

Cash and Cash Equivalents

The carrying amount approximates fair value because of the short maturity
of these instruments.

Long-Term Debt

The fair value of long-term debt is estimated based on financial
instruments with similar terms, credit characteristics, and expected maturities.

The fair value estimates presented herein are based on pertinent
information available to the Company as of December 31, 1997 and 1996. Although
the Company is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
reevaluated for

F-130
<PAGE> 285
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purposes of these financial statements since that date, and current estimates of
fair value may differ significantly from the amounts presented herein.

13. SUBSEQUENT EVENT:

In June 1997, the Company and its stockholders signed an agreement pursuant
to which all of the outstanding common stock and common stock equivalents would
be sold to Capstar Acquisition Company, Inc. and Capstar Broadcasting Partners,
Inc. for $215,000,000 plus cash on hand, subject to certain conditions.
Completion of the transaction occurred in January 1998. In connection with this
transaction, the Company recorded expense of $540,000 during 1997 which is
included in corporate expense in the accompanying consolidated statements of
operations.

In connection with the transaction, the long-term debt (Note 3) of the
Company was repaid. The preferred stock (Note 4) was repaid for $33,025,000,
including $25,000,000 principal, plus $2,262,000 premium and $5,763,000 in
dividends. The warrants (Note 4) were exercised for $13,943,000. The 1,160
additional shares (Note 5) were issued for $1,328,000. The management contingent
stock (Note 11) was issued for 666 additional shares totaling $764,000.

F-131
<PAGE> 286

(This page intentionally left blank)

F-132
<PAGE> 287

REPORT OF INDEPENDENT AUDITORS

Board of Directors
SFX Broadcasting, Inc.

We have audited the accompanying consolidated balance sheets of SFX
Broadcasting, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SFX Broadcasting, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
March 5, 1998 except for
Notes 2 and 14
as to which the date
is April 27, 1998

F-133
<PAGE> 288

SFX BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 38,464 $ 24,686 $ 10,601
Cash pledged for letters of credit.................... -- -- 20,000
Accounts receivable less allowance for doubtful
accounts of $2,400 in 1998, $2,264 in 1997 and
$1,620 in 1996..................................... 64,447 71,241 47,275
Assets under contract for sale........................ 38,268 42,883 8,352
Prepaid and other current assets...................... 3,791 3,109 2,461
Receivable from SFX Entertainment..................... 125,378 11,539 --
---------- ---------- --------
Total current assets.......................... 270,348 153,458 88,689
Property and equipment:
Land.................................................. 6,169 6,169 6,791
Buildings and improvements............................ 20,389 18,295 11,485
Broadcasting equipment and other...................... 68,714 67,821 54,736
---------- ---------- --------
95,272 92,285 73,012
Less accumulated depreciation and amortization.......... (19,976) (17,456) (10,192)
---------- ---------- --------
Net property and equipment.............................. 75,296 74,829 62,820
Intangible Assets:
Broadcast licenses.................................... 915,020 913,887 558,640
Goodwill.............................................. 131,601 131,601 98,165
Deferred financing costs.............................. 22,250 22,250 19,504
Other................................................. 5,406 5,406 4,727
---------- ---------- --------
1,074,277 1,073,144 681,036
Less accumulated amortization........................... (46,898) (39,580) (16,933)
---------- ---------- --------
Net intangible assets................................... 1,027,379 1,033,564 664,103
Net assets to be distributed to shareholders............ 11,454 102,144 --
Deposits and other payments for pending acquisitions.... 4,295 5,830 31,692
Other assets............................................ 5,123 5,790 12,023
---------- ---------- --------
Total Assets.................................. $1,393,895 $1,375,615 $859,327
========== ========== ========
</TABLE>

See accompanying notes.

F-134
<PAGE> 289

SFX BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current Liabilities:
Accounts payable........................................ $ 14,624 $ 8,665 $ 10,921
Accrued expenses........................................ 11,966 19,246 21,913
Payable to former national sales representative......... 11,783 23,025 --
Accrued interest and dividends.......................... 25,851 20,475 7,111
Income tax payable...................................... 115,037 -- --
Current portion of long-term debt....................... 535 509 231
Current portion of capital lease obligations............ 82 101 150
---------- ---------- --------
Total current liabilities................................. 179,878 72,021 40,326
Long-term debt, less current portion...................... 763,882 763,966 480,875
Capital lease obligations, less current portion........... 103 126 204
Deferred income taxes..................................... 77,781 102,681 91,352
---------- ---------- --------
Total liabilities......................................... 1,021,644 938,794 612,757
Redeemable preferred stock................................ 376,615 361,996 145,999
Minority interests -- SFX Entertainment................... 56,200 -- --
Commitments and contingencies
Shareholders' Equity (Deficit):
Class A Voting common stock, $.01 par value; 100,000,000
shares authorized; and 9,562,602 issued and 9,532,157
outstanding at March 31, 1998, 9,508,379 issued and
9,477,934 outstanding at December 31, 1997 and
8,089,367 issued and 8,063,348 outstanding at
December 31, 1996.................................... 95 95 81
Class B Voting convertible common stock, $.01 par value;
10,000,000 shares authorized; 1,190,911 issued and
1,047,037 outstanding at March 31, 1998 and at
December 31, 1997 and 1,208,810 issued and 1,064,936
outstanding at December 31, 1996..................... 12 12 12
Additional paid-in capital................................ 183,141 185,537 189,920
Treasury Stock; 174,319 shares at March 31, 1998 and
December 31, 1997 and 170,192 shares at December 31,
1996.................................................... (6,523) (6,523) (6,393)
Accumulated deficit....................................... (237,289) (104,296) (83,049)
---------- ---------- --------
Total shareholders' equity (deficit)...................... (60,564) 74,825 100,571
---------- ---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)...... $1,393,895 $1,375,615 $859,327
========== ========== ========
</TABLE>

See accompanying notes.

F-135
<PAGE> 290

SFX BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------
1998 1997 1997 1996 1995
---------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenues................................. $ 74,405 $ 50,994 $ 306,842 $ 162,011 $ 87,140
Less agency commissions........................ (8,654) (6,003) (36,478) (18,950) (10,310)
---------- --------- --------- --------- ---------
Net revenues................................... 65,751 44,991 270,364 143,061 76,830
Station operating expenses..................... 44,636 29,916 167,063 92,816 51,039
Depreciation, amortization, duopoly integration
costs and acquisition related costs.......... 10,653 7,485 38,232 17,311 9,137
Corporate expenses, net of $2,206 allocated to
SFX Entertainment in 1997, including related
party expenses of $151 in 1996 and $330 in
1995, net of related party advisory fees of
$802 in 1996................................. 1,569 1,035 6,837 6,261 3,797
Non-cash stock compensation.................... 138 156 624 52 --
Non-recurring and unusual charges, including
adjustments to broadcast rights agreement.... 24,974 -- 20,174 28,994 5,000
---------- --------- --------- --------- ---------
Total operating expenses....................... 81,970 38,592 232,930 145,434 68,973
---------- --------- --------- --------- ---------
Operating income (loss)........................ (16,219) 6,399 37,434 (2,373) 7,857
Investment income.............................. (202) (1,654) 2,821 4,017 650
Interest expense............................... 19,190 12,712 (64,506) (34,897) (12,903)
Loss on sale of radio station.................. -- -- -- (1,900) --
---------- --------- --------- --------- ---------
Loss from continuing operations before income
taxes and extraordinary item................. (35,207) (4,659) (24,251) (35,153) (4,396)
Income tax expense............................. 210 285 810 480 --
---------- --------- --------- --------- ---------
Loss from continuing operations before
extraordinary item........................... (35,417) (4,944) (25,061) (35,633) (4,396)
Discontinued operations:
Income (loss) from operations to be
distributed to shareholders, net of
taxes...................................... (97,576) (1,544) 3,814 -- --
Loss on disposal of operations to be
distributed to shareholders................ -- -- -- -- --
---------- --------- --------- --------- ---------
Income (loss) from discontinued operations..... (97,576) (1,544) 3,814 -- --
---------- --------- --------- --------- ---------
Loss before extraordinary item................. (132,993) (6,488) (21,247) (35,633) (4,396)
Extraordinary loss on debt retirement.......... -- -- -- 15,219 --
---------- --------- --------- --------- ---------
Net loss....................................... (132,993) (6,488) (21,247) (50,852) (4,396)
Redeemable preferred stock dividends and
accretion.................................... 10,350 7,952 38,510 6,061 291
---------- --------- --------- --------- ---------
Net loss applicable to common stock............ $ 143,343 $ (14,440) $ (59,757) $ (56,913) $ (4,687)
========== ========= ========= ========= =========
Loss per basic common share from continuing
operations................................... $ (4.34) $ (1.41) $ (6.67) $ (5.51) $ (0.71)
(Loss) income per basic common share from
operations to be distributed to
shareholders................................. (9.24) (0.17) 0.40 -- --
---------- --------- --------- --------- ---------
Loss per basic common share before
extraordinary item........................... $ (13.58) $ (1.58) $ (6.27) $ (5.51) $ (0.71)
Extraordinary loss on debt retirement per basic
common share................................. -- -- -- (2.01) --
---------- --------- --------- --------- ---------
Loss per basic common share.................... $ (13.58) $ (1.58) $ (6.27) $ (7.52) $ (0.71)
========== ========= ========= ========= =========
Weighted average common shares outstanding..... 10,554,130 9,161,433 9,526,429 7,563,600 6,595,728
========== ========= ========= ========= =========
</TABLE>

See accompanying notes.

F-136
<PAGE> 291

SFX BROADCASTING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND THREE MONTHS ENDED MARCH 31,
1998
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
CLASS A CLASS B PAID-IN TREASURY ACCUMULATED
COMMON COMMON CAPITAL STOCK DEFICIT TOTAL
------- ------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994..... $48 $ 9 $ 76,600 -- $ (27,801) $ 48,856
Public offering, net of
expenses..................... 17 39,149 39,166
Redemption of Class C Common... (459) (459)
Accretion and dividends on
redeemable preferred stock... (291) (291)
Conversion of Class A Common to
Class B Common............... (1) 1 --
Decrease in unrealized holding
losses....................... 185 185
Net loss....................... (4,396) (4,396)
--- --- -------- ------- --------- ---------
Balance, December 31, 1995..... $64 $10 $115,184 $ -- $ (32,197) $ 83,061
=== === ======== ======= ========= =========
Accretion and dividends on
redeemable preferred stock... (6,061) (6,061)
Issuance upon exercise of stock
options...................... 370 370
Issuance of warrants to SCMC... 8,905 8,905
Issuance of equity securities
for MMR Merger............... 17 2 71,522 71,541
Repurchase of common stock..... (6,393) (6,393)
Net loss....................... (50,852) (50,852)
--- --- -------- ------- --------- ---------
Balance, December 31, 1996..... $81 $12 $189,920 $(6,393) $ (83,049) $ 100,571
=== === ======== ======= ========= =========
Issuance upon exercise of stock
options...................... 11 21,132 21,143
Issuance upon exercise of Class
B Warrants................... 2,476 2,476
Issuance of stock for
acquisitions................. 3 9,519 9,522
Payment from shareholder....... 1,000 1,000
Accretion and dividends on
redeemable preferred stock... (38,510) (38,510)
Repurchase of common stock..... (130) (130)
Net loss....................... (21,247) (21,247)
--- --- -------- ------- --------- ---------
Balance, December 31, 1997..... $95 $12 $185,537 $(6,523) $(104,296) $ 74,825
=== === ======== ======= ========= =========
Redeemable preferred stock
dividends and accretion...... (10,350) (10,350)
Other, principally shares
issued pursuant to stock
option plans................. 7,954 7,954
Net loss....................... (132,993) (132,993)
--- --- -------- ------- --------- ---------
Balance at March 31, 1998
(unaudited).................. $95 $12 $183,141 $(6,523) $(237,289) $ (60,564)
=== === ======== ======= ========= =========
</TABLE>

See accompanying notes.

F-137
<PAGE> 292

SFX BROADCASTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- --------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss.............................................. $(132,993) $ (6,488) $ (21,247) $ (50,852) $ (4,396)
Income from operations to be distributed to
shareholders........................................ 27,296 1,544 (3,814) -- --
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation........................................ 2,986 2,253 10,955 5,972 2,658
Amortization........................................ 7,546 4,932 26,406 10,202 5,099
Noncash portion of non-recurring and unusual
charge............................................ 4,196 -- 4,712 9,878 --
Extraordinary loss on debt repayment................ -- -- -- 15,219 --
Loss on sale of radio station and other noncash
items............................................. -- -- -- 1,900 (207)
Deferred taxes...................................... (13,500) -- -- (710) --
Changes in assets and liabilities, net of amounts
acquired:
Accounts receivable............................... 6,794 6,076 (22,189) (13,839) (5,164)
Prepaid and other assets.......................... 6,140 (1,256) 2,599 (1,704) 2,052
Accrued interest and dividends.................... 12,098 11,966 345 3,841 6
Accounts payable, accrued expenses and other
liabilities..................................... (14,991) (9,959) 6,275 6,646 451
--------- --------- --------- --------- --------
Cash provided by (used in) continuing
operations................................... (94,428) 9,068 4,042 (13,447) 499
Cash from operating activities of SFX
Entertainment.............................. 9,140 307 1,005 -- --
--------- --------- --------- --------- --------
Net cash provided by (used in) operating
activities................................... (85,288) 9,375 5,047 (13,447) 499
Investing activities:
Purchase of stations and related businesses, net of
cash acquired..................................... -- (63,667) (408,788) (493,433) (26,057)
Proceeds from sales of stations and other assets.... 4,692 717 1,836 56,943 703
Deposits and other payments for pending
acquisitions...................................... (59) (14,545) (3,594) (30,799) (3,000)
Purchase of property and equipment.................. (3,602) (2,763) (12,409) (3,224) (3,261)
Sale of short-term investments...................... -- -- -- -- 7,918
Loans and advances to related parties............... -- (2,800) (2,800) -- (2,000)
Net tax liability on Spin-Off to be reimbursed...... 105,975 -- -- -- --
--------- --------- --------- --------- --------
Net cash used in investing activities........... 107,006 (83,058) (425,755) (470,513) (25,697)
Cash from investing activities of SFX
Entertainment..................................... (379,782) (22,612) (73,296) -- --
--------- --------- --------- --------- --------
Net cash used in investing activities........... (272,776) (105,670) (499,051) (470,513) (25,697)
Financing activities:
Payments on long-term debt, including prepayment
premiums.......................................... (100) (50,123) (73,863) (110,396) (22,521)
Additions to debt issuance costs.................... -- (52) (3,006) (19,505) (2,139)
Proceeds from issuance of senior and subordinated
debt.............................................. -- 20,000 356,500 501,500 22,000
Net proceeds from sales of preferred stock.......... -- 215,258 215,258 143,445 --
Dividends paid on preferred stock................... (2,459) (2,459) (23,487) (4,983) --
Proceeds from issuance of common stock and
shareholders...................................... 3,759 46 24,619 -- 39,166
Purchases of treasury stock......................... -- -- (130) (6,393) --
Stock, redemptions, retirements and other........... -- -- (1,000) (1,000) (2,609)
--------- --------- --------- --------- --------
Net cash provided by financing activities....... 1,200 182,670 494,891 502,668 33,897
Cash from financing activities of SFX
Entertainment..................................... 458,654 (29) (823) -- --
--------- --------- --------- --------- --------
Net cash provided by financing activities....... 459,854 182,641 494,068 502,668 33,897
Net increase in cash and cash equivalents........... 101,790 86,346 64 18,708 8,699
Cash and cash equivalents at beginning of period.... 30,666 30,601 30,601 11,893 3,194
Cash of SFX Entertainment at the end of period...... 93,992 (2,622) (5,979) -- --
--------- --------- --------- --------- --------
Cash and equivalents at end of period............... $ 38,464 $ 114,325 $ 24,686 $ 30,601 $ 11,893
========= ========= ========= ========= ========
</TABLE>

Supplemental disclosure of cash flow information (See Note 13).

See accompanying notes.

F-138
<PAGE> 293

SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

SFX Broadcasting, Inc. (the "Company"), a Delaware corporation, is one of
the largest radio station groups in the United States. At December 31, 1997, the
Company owned and operated, provided programming to or sold advertising on
behalf of sixty-three FM stations and nineteen AM stations serving the following
twenty-three markets: Dallas, Texas; Houston, Texas; Pittsburgh, Pennsylvania;
Milwaukee, Wisconsin; San Diego, California; Providence, Rhode Island;
Indianapolis, Indiana; Charlotte, North Carolina; Hartford, Connecticut;
Greensboro, North Carolina; Nashville, Tennessee; Raleigh-Durham, North
Carolina; Jacksonville, Florida; Richmond, Virginia; Albany, New York;
Greenville-Spartanburg, South Carolina; Tucson, Arizona;
Springfield/Northampton, Massachusetts; Wichita, Kansas; Daytona Beach, Florida;
New Haven, Connecticut; Jackson, Mississippi and Biloxi, Mississippi.

In addition, in 1997, the Company, through the acquisitions of
Delsener/Slater Enterprises, Ltd. ("Delsener/Slater"), a concert promotion
company based in New York City, Sunshine Promotions, Inc., ("Sunshine
Promotions"), an Indianapolis concert promotion company which owns the Deer
Creek Music Theater and the Polaris Amphitheater and certain related companies,
and certain companies which collectively own and operate the Meadows Music
Theater, (the "Meadows"), a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut, became one of the largest live entertainment groups in
the United States.

As more fully described in Note 2, the Company has entered into an
Agreement and Plan of Merger and intends to distribute to its shareholders its
live entertainment business. Therefore, the live entertainment business has been
classified as net assets to be distributed to shareholders and income from
operations to be distributed to shareholders in the consolidated financial
statements. The Company has also recently completed substantial additional
acquisitions in the live entertainment business (see Note 14).

NOTE 2 -- RECENT DEVELOPMENT; SPIN-OFF AND PENDING MERGER

On August 24, 1997, the Company entered into an Agreement and Plan of
Merger with SBI Holdings Corporation, a wholly owned subsidiary of Capstar
Broadcasting Corporation ("Buyer"), and SBI Radio Acquisition Corporation
pursuant to which the Company will become a wholly owned subsidiary of Buyer
(the "Merger"). In the Merger, holders of the Company's Class A Common Stock
will receive $75.00 per share, Class B Common Stock will receive $97.50 per
share, and the 6 1/2% Series D Cumulative Convertible Exchangeable Preferred
Stock will convert into the right to receive an amount equal to the product of
(i) $75.00 and (ii) the number of shares of Class A Common Stock into which that
share would convert immediately prior to the consummation of the Merger; in each
case, subject to adjustment under certain circumstances. Pursuant to the merger
agreement, the Company distributed the net assets (the "Spin-Off") of its live
entertainment business ("SFX Entertainment") pro-rata to its stockholders and
the holders of certain warrants, options and stock appreciation rights on April
27, 1998.

Until the consummation of the Merger, senior management of the Company will
continue to serve in their present capacities with the Company while devoting
such time as they deem reasonably necessary to conduct the operations of SFX
Entertainment. Although SFX Entertainment has not yet entered into employment
agreements with such members of senior management, most members of existing
management have agreed in principle to become full-time employees of SFX
Entertainment and Mr. Sillerman, Executive Chairman, will continue to be
Executive Chairman of SFX Entertainment upon consummation of the Merger.

SFX Entertainment is required to repay to the Company all amounts paid in
connection with its concert promotion acquisitions and certain capital
improvements since the date of the Merger agreement and SFX Entertainment will
assume all the liabilities and obligations related to such company's business.
As of March 31, 1998, the Company had a $5.4 million receivable from SFX
Entertainment related to such obligations. In April 1998, SFX Entertainment
reimbursed such amount to the Company.

F-139
<PAGE> 294
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Upon the consummation of the Merger, all net working capital of the
Company, as determined in accordance with the merger agreement, will be paid to
SFX Entertainment by the Company or any net negative working capital will be
paid to the Company by SFX Entertainment. As of March 31, 1998, the Company
estimates that the working capital to be paid by SFX Entertainment would have
been approximately $3.3 million.

The consummation of the Merger is subject to the receipt of certain
regulatory approvals. In February 1998, the Company received the consents of the
holders of the Series E Preferred Stock and certain of the Company's outstanding
notes and in March 1998 the required approval of the shareholders.

SFX Entertainment also will be responsible for any taxes of the Company
resulting from the Spin-Off, including any income taxes to the extent that the
income taxes result from gain on the distribution that exceeds the net operating
losses of the Company and SFX Entertainment available to offset gain. In
connection with the use of the Company's NOL's to offset the Spin-Off gain, a
tax benefit of $13.5 million has been recorded in operations to be distributed
to shareholders. Such tax benefit includes a $8.5 million reversal of the
Company's deferred tax asset valuation allowance at December 31, 1997, the
remainder reflects a benefit for a $5.0 million estimated use of the Company's
NOL generated during the first quarter of 1998. In addition, the Spin-Off gain
was also offset by the Company NOL's generated from the exercise of stock
options in 1997. As a result, the deferred tax asset valuation allowance at
December 31, 1997 was reduced by an additional $11.4 million and the related tax
benefit has reduced the income (loss) from operations to be distributed to
shareholders, net of taxes, in the consolidated statement of operations for the
three months ended March 31, 1998. Also included in income (loss) from
operations to be distributed to shareholders, net of tax benefit for the three
months ended March 31, 1998 is estimated tax expense of $117 million related to
the taxable gain on the spin-off.

The actual amount of the tax indemnification payment will be based largely
on the excess of the value of SFX Entertainment's Common Stock on the date of
the Spin-Off over the tax basis of that stock. Management estimates that SFX
Entertainment will be required to pay approximately $120.0 million pursuant to
such indemnification obligation, based on the $30 1/2 average per share price on
the Spin-Off date. The Company expects that such indemnity payment will be due
on or about June 15, 1998. It is the Company's understanding that SFX
Entertainment intends to pay such indemnification amount with the proceeds from
a public offering of SFX Entertainment's capital stock. No assurances can be
given that SFX Entertainment's public offering will be successful or, if
successful, that such payment will be received in time by the Company to pay
such tax liability.

The Company anticipates that the Merger will be consummated in the second
quarter of 1998. There can be no assurance that the regulatory approvals will be
given or that the conditions to consummating the Merger will be met.

The operations of SFX Entertainment have been presented in the financial
statements as operations to be distributed to shareholders pursuant to the
Spin-Off. During the three months ended March 31, 1998, revenue and loss from
operations for SFX Entertainment were $61.0 million and $27.6 million,
respectively. Included in operating expenses is $1.3 million of allocated
corporate expenses, net of $133,000 of reimbursements from Triathlon (Note 9).
Additionally, interest expense relating to the debt to be distributed to the
shareholders pursuant to the Spin-off of $6.7 million has been allocated to SFX
Entertainment. During the year ended December 31, 1997, revenue and income from
operations for SFX Entertainment were $96.1 million and $5.1 million,
respectively. Included in operating expenses is $2.2 million of allocated
corporate expenses net of $1.8 million of reimbursement from Triathlon (Note 9).
Additional, interest expense relating to the debt to be distributed to the
shareholders pursuant to the Spin-Off of $1.6 million has been allocated to SFX
Entertainment. The Company provides various administrative services to SFX
Entertainment. It is the Company's policy to allocate these expenses on the
basis of direct usage. In the opinion of management, this

F-140
<PAGE> 295
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

method of allocation is reasonable and allocated expenses approximate what SFX
Entertainment would have occurred on a stand-alone basis.

NOTE 3 -- ACQUISITIONS AND DISPOSITIONS

Radio Broadcasting Acquisitions. In August 1997, the Company acquired two
radio stations operating in Pittsburgh, Pennsylvania and two radio stations in
Milwaukee, Wisconsin for $35.0 million (the "Hearst Acquisition").

In August 1997, the Company exchanged one radio station in Pittsburgh,
Pennsylvania, which the Company had recently acquired from Secret Communications
Limited Partnership ("Secret Communications") (part of the Secret Communications
Acquisition, as defined below), and $20.0 million in cash for one radio station
in Charlotte, North Carolina (the "Charlotte Exchange"). The Company operated
the radio station in Charlotte, North Carolina pursuant to a local market
agreement during July 1997.

In July 1997, the Company acquired substantially all of the assets of four
radio stations operating in Richmond, Virginia for approximately $46.5 million
in cash, including payments made to buy out minority equity interests which the
Company had originally agreed to provide to certain of the sellers (the
"Richmond Acquisition").

In April 1997, the Company acquired substantially all of the assets of
three radio stations in Indianapolis, Indiana and in June 1997 the Company
acquired substantially all of the assets of four stations in Pittsburgh,
Pennsylvania from Secret Communications for a total purchase price of $255.0
million in cash (collectively, the "Secret Communications Acquisition").

Also in April 1997, the Company sold one radio station operating in Little
Rock, Arkansas (the "Little Rock Disposition") to Triathlon Broadcasting
Company, a related party. The station was sold for $4.1 million, of which $3.5
million had been held as a deposit by the Company since 1996. No gain or loss
was recorded on the transaction as the radio station was recently acquired in
connection with the MMR Merger, as defined below.

In March 1997, the Company acquired two radio stations operating in
Houston, Texas, for a purchase price of approximately $43.0 million in cash,
exclusive of certain additional contingent liabilities which may become payable
(the "Texas Coast Acquisition"). The Texas Coast Acquisition increased the
number of stations the Company owns in the Houston market to four.

In March 1997, the Company exchanged one radio station operating in
Washington D.C./Baltimore, Maryland, for two radio stations operating in Dallas,
Texas (the "CBS Exchange") and completed the sale of two radio stations
operating in the Myrtle Beach, South Carolina market for $5.1 million payable in
installments over a five year period (present value approximately $4.3 million).
The CBS Exchange was structured as a substantially tax free exchange of
like-kind assets. The contract for the sale of the Myrtle Beach stations was in
place prior to the merger with Multi-Market Radio, Inc. ("MMR"). No gain or loss
was recognized on the Myrtle Beach stations that were recently acquired in the
MMR Merger, as defined below.

Costs of $871,000 related to the reformatting of the Dallas stations was
included in depreciation, amortization, duopoly integration costs and
acquisition related costs in 1997.

In February 1997, the Company purchased WWYZ-FM, operating in Hartford,
Connecticut, for a purchase price of $25.9 million in cash (the "Hartford
Acquisition"). The Hartford Acquisition increased the number of stations the
Company owns in the Hartford market to five.

In January 1997, the Company purchased one radio station operating in
Albany, New York, for $1.0 million in cash (the "Albany Acquisition").

F-141
<PAGE> 296
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In December 1996, the Company acquired substantially all of the assets of
WHSL-FM, operating in Greensboro, North Carolina, for a purchase price of $6.0
million in cash (the "Greensboro Acquisition") and exchanged radio station
KRLD-AM, Dallas, Texas and the Texas State Networks for radio station KKRW-FM,
Houston, Texas (the "Houston Exchange"). The Houston Exchange was structured as
a substantially tax free exchange of like kind assets. No gain or loss was
recorded on the Houston Exchange as the book values of KRLD-AM and the Texas
State Networks approximated the fair value of the assets of KKRW-FM.

In November 1996, the Company consummated its merger with MMR (the "MMR
Merger"), pursuant to which it acquired MMR in exchange for 1,631,450 shares of
Class A Common Stock, 208,810 shares of Class B Common Stock both valued at $34
per share and other equity securities with a total market value for all
securities issued of approximately $71.5 million in cash (Note 7). Concurrently
with the consummation of the MMR Merger, the Company paid approximately $43.0
million in cash to satisfy outstanding indebtedness of MMR. MMR was organized in
1992 by the Company's executive chairman and another officer and director of the
Company. The Company's executive chairman owned a substantial equity interest in
MMR which was exchanged for Class B Common Stock of the Company upon the
consummation of the MMR Merger. MMR owned and operated, provided programming to
or sold advertising on behalf of thirteen FM stations and on AM station located
in eight markets: New Haven, Connecticut; Hartford, Connecticut;
Springfield/Northampton, Massachusetts; Daytona Beach, Florida; Augusta,
Georgia; Biloxi, Mississippi; Myrtle Beach, South Carolina and Little Rock,
Arkansas. Prior to the MMR Merger, MMR had entered into agreements to sell two
stations operating in Myrtle Beach, South Carolina and one station operating in
Little Rock, Arkansas (the "MMR Dispositions"). The MMR Dispositions, which were
completed in 1997 as described above, are classified as assets under contract
for sale in the accompanying balance sheet at December 31, 1996. The Company
also terminated a Joint Sales Agreement ("JSA") with one station operating in
Augusta, Georgia and its Local Marketing Agreement ("LMA") with one station
operating in Myrtle Beach, South Carolina in December 1996.

In October 1996, the Company sold radio station KTCK-AM, Dallas, Texas for
approximately $13.4 million in cash, net of certain sale expenses (the "Dallas
Disposition"). The Company acquired the assets of KTCK-AM in Dallas, Texas (the
"Dallas Acquisition") in September 1995 from a third party for $8,633,000 in
cash (including $133,000 in transaction costs) and $2,000,000 of 6% current
coupon Series C Redeemable Preferred Stock (Note 6). The purchase agreement
contains a provision for a contingent payment not to exceed $7,500,000 payable
in 1998 if the Company's Dallas properties achieve certain ratings and financial
goals. In 1996, the Company recorded a loss of $1.9 million on the Dallas
disposition, based on its estimate of the ultimate resolution of the
contingency. During 1997, the company paid $3,000,000 to the Seller in
connection with this provision, leaving a remaining accrual at December 31, 1997
of approximately $300,000, and it is unable to reasonably estimate future
amounts due, if any. The Company had provided programming to KTCK-AM pursuant to
an LMA since March 1, 1995.

In July 1996, the Company acquired Liberty Broadcasting, Inc. ("Liberty
Broadcasting") for a purchase price of approximately $239.7 million in cash,
including $10.4 million for working capital (the "Liberty Acquisition"). Liberty
Broadcasting was a privately-held radio broadcasting company which owned and
operated, provided programming to or sold advertising on behalf of fourteen FM
and six AM radio stations (the "Liberty Stations") located in six markets:
Washington, DC/Baltimore, Maryland; Nassau-Suffolk, New York; Providence, Rhode
Island; Hartford, Connecticut; Albany, New York and Richmond, Virginia.

In July 1996, the Company sold three of the Liberty Stations operating in
the Washington, DC/Baltimore, Maryland market (the "Washington Dispositions")
for $25.0 million. No gain or loss was recognized on the Washington
Dispositions.

In July 1996, the Company acquired from Prism Radio Partners, L.P.
("Prism"), substantially all of the assets used in the operation of eight FM and
five AM radio stations located in four markets: Jacksonville,
F-142
<PAGE> 297
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Florida; Raleigh, North Carolina; Tucson, Arizona and Wichita, Kansas. In
September 1996, the Company also acquired from Prism substantially all of the
assets of three radio stations operating in Louisville, Kentucky (the
"Louisville Stations"), upon renewal of the Federal Communications Commission
("FCC") licenses of such stations (the "Louisville Acquisition") (collectively
the "Prism Acquisition"). The total purchase price for the Prism Acquisition was
approximately $105.3 million in cash. In October 1996, the Company sold the
Louisville Stations (the "Louisville Disposition") for $18.5 million in cash.
The Company recognized no gain or loss on the Louisville Disposition.

In July 1996, the Company acquired substantially all of the assets of
WJDX-FM, Jackson, Mississippi for a purchase price of approximately $3.2
million. In addition, in August 1996, the Company acquired substantially all of
the assets of WSTZ-FM and WZRX-AM, each operating in Jackson, Mississippi, for
approximately $3.5 million in cash (collectively, the "Jackson Acquisitions").

In June 1996, the Company acquired substantially all of the assets of
WROQ-FM, Greenville, South Carolina, for approximately $14.0 million in cash
(the "Greenville Acquisition") and WTRG-FM and WRDU-FM, both operating in
Raleigh, North Carolina, and WMFR-AM, WMAG-FM and WTCK-AM (formerly WWWB-AM),
each operating in Greensboro, North Carolina for approximately $36.8 million in
cash (the Raleigh-Greensboro Acquisition").

In February 1996, the Company acquired radio stations WTDR-FM and WLYT-FM
(formerly WEZC-FM), both operating in Charlotte, North Carolina (the "Charlotte
Acquisition"), for an aggregate purchase price of $24.3 million in cash. Costs
of $785,000 related to the integration and reformatting of the Charlotte
stations were included in depreciation, amortization, duopoly integration costs
and acquisition related costs in 1996.

In April 1995, the Company acquired all of the outstanding stock of Parker
Broadcasting Company ("Parker"), the owner and licensee of radio station KYXY-FM
in San Diego, California (the "San Diego Acquisition"), for approximately
$17,424,000 in cash (including transaction costs of $831,000 of which $175,000
was paid to Sillerman Communications Management Company ("SCMC") for providing
or paying for legal services necessary in negotiating and documenting the
transaction), including a $650,000 three year covenant not to compete with the
former owners. In addition, costs of $1,380,000 related to the integration of
KYXY-FM and reformatting of its duopoly partner, KPLN-FM, were included in
depreciation, amortization, duopoly integration costs and acquisition related
costs in 1995. The Company had provided programming to and sold advertising on
behalf of KYXY-FM pursuant to an LMA since January 18, 1995.

For financial statement purposes, all of the acquisitions described above
were accounted for using the purchase method, with the aggregate purchase price
allocated to the tangible and identifiable intangible assets based upon current
estimated fair market values. Certain of the recent transactions are based on
preliminary estimates of the fair value of the net assets acquired and subject
to final adjustment. The assets and liabilities of these acquisitions and the
results of their operations for the period from the date of acquisition have
been included in the accompanying consolidated financial statements. The
following unaudited pro forma summary presents the consolidated results of
operations, excluding operations to be distributed to shareholders, for the
years ended December 31, 1997, 1996 and 1995 as if the acquisitions for any
given year and the subsequent year had occurred at the beginning of such year
after giving effect to certain adjustments, including amortization of goodwill
and interest expense on the acquisition debt. These pro forma results have been

F-143
<PAGE> 298
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made as of that date or of
results which may occur in the future.

PRO FORMA
YEAR ENDED DECEMBER 31
IN THOUSANDS EXCEPT PER SHARE DATA
(UNAUDITED)

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues.......................................... $ 309,049 $ 276,075 $ 189,595
========== ========== ==========
Loss before extraordinary item........................ $ (23,436) $ (49,285) $ (16,978)
========== ========== ==========
Net loss.............................................. $ (23,436) $ (64,504) $ (32,197)
========== ========== ==========
</TABLE>

Pending Radio Broadcasting Transactions.

Pursuant to separate agreements, the Company has agreed to: (i) exchange
four radio stations owned by the Company and located on Long Island, New York,
for $11 million cash and two radio stations operating in Jacksonville, Florida,
where the Company currently owns four stations, (the "Chancellor Exchange");
(ii) acquire three radio stations operating in Nashville, Tennessee, where the
Company currently owns two radio stations, for $35 million (the "Nashville
Acquisition"); and (iii) sell six stations in Jackson, Mississippi and two
stations in Biloxi, Mississippi for $66.0 million in cash (the "Jackson and
Biloxi Disposition"). The assets related to the Jackson and Biloxi Deposition
are classified as assets under contract for sale in the accompanying balance
sheet as of December 31, 1997. The Chancellor Exchange and the Nashville
Acquisition are collectively referred to as the "Pending Acquisition." The
Jackson and Biloxi Disposition is referred to herein as the "Pending
Disposition." The U.S. Department of Justice, Antitrust Division (the "DOJ") has
brought suit alleging that the Chancellor Exchange is likely to reduce
competition. The complaint requests permanent injunctive relief preventing the
consummation of the acquisition of the Long Island stations by Chancellor Media
Corporation ("Chancellor"). The Company, Chancellor, an affiliate of Buyer, and
DOJ are currently involved in settlement discussions. If successfully concluded,
these settlement discussions will resolve all competitive issues raised by DOJ
and will terminate all investigations or litigation by DOJ with respect to the
Company, the Merger, the Pending Acquisitions and the Pending Disposition. The
Company cannot, however, be certain that the settlement discussions will be
successful. If the Company fails to reach an acceptable settlement agreement
with DOJ, the Company intends to defend the suit vigorously. At December 31,
1997, the Company had capitalized $1.7 million of costs related to the
acquisition of the Jacksonville radio stations. In the event the Chancellor
Exchange does not take place the Company will be required to write-off such
costs.

The aggregate proceeds to be received from these transactions, net of
acquisitions, is approximately $42 million. The Company has deposited $2.0
million in escrow to secure its obligations under these agreements. The Company
expects to record a pre-tax gain of approximately $20.0 million on the Jackson
and Biloxi Disposition. The Company does not expect to record a gain or loss on
the other transactions as the assets were recently acquired.

Concert Promotion Acquisitions. During 1997, the Company also acquired the
following concert promotion companies, which are expected to be contributed to
SFX Entertainment at the Spin-Off date.

In January 1997, the Company purchased Delsener/Slater for an aggregate
consideration of approximately $26.6 million, including $2.9 million for working
capital and the present value of deferred payments of $3.0 million to be paid,
without interest, over five years and $1.0 million to be paid, without interest,
over ten years (the "Delsener/Slater Acquisition"). The deferred payments are
subject to acceleration in certain circumstances.

F-144
<PAGE> 299
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In March 1997, Delsener/Slater consummated the acquisition of certain
companies which collectively own and operate the Meadows (the "Meadows
Acquisition") for $900,000 in cash, 250,838 shares of SFX Class A Common Stock
with a value of approximately $7.5 million and the assumption of approximately
$15.4 million of debt.

SFX Entertainment may assume the obligation to exercise an option held by
the Company to repurchase 250,838 shares of the Company's Class A Common Stock
for an aggregate purchase price of $8.3 million (the "Meadows Repurchase"). This
option was granted in connection with the acquisition of the Meadows Music
Theater. If the option were exercised by the Company, the exercise would result
in a reduction of working capital in connection with the Spin-Off by
approximately $8.3 million. If the option were not exercised, working capital
would decrease by approximately $10.5 million.

Also in March 1997, the Company, in partnership with Pavilion Partners,
entered into a twenty-two year lease to operate the PNC Bank Arts Center, a
10,800 seat complex located in Holmdel, New Jersey. The lease also granted
Pavilion Partners the right to expand the capacity to 17,500 prior to the 1998
season.

In June 1997, the Company acquired Sunshine Promotions for $53.9 million in
cash at closing, $2.0 million in cash payable over 5 years, 62,792 shares of
Class A Common Stock issued and issuable over a two year period with a value of
approximately $4.0 million and the assumption of approximately $1.6 million of
debt. The assets to be acquired include Deer Creek Music Center, a 21,000 seat
complex located in Indianapolis, Indiana, the Polaris Amphitheater, a 20,000
seat complex located in Columbus, Ohio and a 99 year lease to operate Murat
Centre, a 2,700 seat theater and 2,200 seat ballroom, located in Indianapolis,
Indiana.

For financial statement purposes, all of the concert acquisitions described
above were accounted for using the purchase method, with the aggregate purchase
price allocated to the tangible and identifiable intangible assets based upon
current estimated fair market values. The concert acquisitions are based on
preliminary estimates of the fair value of the net assets acquired and subject
to final adjustment. The assets and liabilities of these acquisitions and the
results of their operations for the period from the date of acquisition have
been included as net assets and income from operations to be distributed to
shareholders in the accompanying consolidated financial statements.

NOTE 4 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts for
transactions have been eliminated in consolidation. The Company accounts for
investments in which it has a 50% or less and 20% or greater ownership interest
under the equity method.

Cash and Cash Equivalents

All highly liquid investments with an original maturity of less than three
months are classified as cash equivalents. The carrying amounts of cash and cash
equivalents reported in the balance sheet approximate their fair values.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization is
provided on the straight-line method over the estimated useful lives of the
assets as follows:

<TABLE>
<S> <C>
Buildings and improvements.................................. 7-20 years
Broadcasting equipment and other............................ 5-7 years
</TABLE>

F-145
<PAGE> 300
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets. Amortization of assets recorded under
capital leases is included in depreciation expense.

Amortization of Intangible Assets

Broadcast licenses and goodwill are amortized using the straight-line
method over 40 years. Other intangible assets are being amortized using the
straight-line method over their estimated remaining useful lives from 1 to 10
years. Debt issuance costs and discounts are being amortized by the
straight-line method, which closely approximates the interest method, over the
life of the respective debt. Concert promotion goodwill was amortized using the
straight-line method over 15 years.

In 1996 the Company adopted FAS No. 121 "Accounting for the Impairment of
Long-Lived Assets". Under FAS No. 121, the carrying values of intangible assets
are reviewed if the facts and circumstances suggest that they may be impaired.
If this review indicates the intangible assets will not be recoverable as
determined based on the undiscounted cash flows of the Company over the
remaining amortization period, the Company's carrying value of the intangible
assets will be reduced to their estimated fair values, if lower than the
carrying value. The impact of this adoption had no effect on the consolidated
financial statements.

Payable to Former National Sales Representative

The Company is obligated to pay $23 million to a national advertising
representative company in 1998 in connection with switching its affiliations.
The amount is classified in the current liabilities section of the consolidated
balance sheets at December 31, 1997.

Revenue Recognition

The Company's primary source of revenue is the sale of airtime to
advertisers. Revenue from the sale of airtime is recorded when the
advertisements are broadcast.

Barter Transactions

The Company barters unsold advertising time for products and services. Such
transactions are recorded at the estimated fair value of the products or
services received or used. Barter revenue is recorded when commercials are
broadcast and related expenses are recorded when the product or service is
received or used. For the years ended December 31, 1997, 1996 and 1995, the
Company recorded barter revenue of $11,995,000, $8,029,000 and $4,961,000
respectively, and expenses of $11,281,000, $7,476,000 and $4,811,000
respectively.

Use of Estimates

Local Marketing Agreements/Joint Sales Agreements

From time to time, the Company enters into LMAs and JSAs with respect to
radio stations owned by third parties including radio stations which it intends
to acquire. Terms of the agreements generally require the Company to pay a
monthly fee in exchange for the right to provide station programming and sell
related advertising time in the case of an LMA or sell advertising in the case
of a JSA. The agreements terminate upon the acquisition of the stations. It is
the Company's policy to expense the fees as incurred as a component of operating
income (loss). The Company accounts for payments received pursuant to LMAs of
owned

F-146
<PAGE> 301
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stations as net revenue to the extent that the payment received represents a
reimbursement of the Company's ownership costs.

Advertising Costs

Advertising costs are expensed as incurred and approximated $9,789,000,
$5,068,000 and $3,336,000 in 1997, 1996 and 1995, respectively.

Concentration of Credit Risk

The Company's revenue and accounts receivable primarily relate to the sale
of advertising within the radio stations' broadcast areas. Credit is extended
based on an evaluation of a customer's financial condition, and generally
collateral is not required. Credit losses are provided for in the financial
statements and consistently have been within management's expectations.

New Accounting Pronouncement

Reclassification

Certain amounts in 1995 and 1996 have been reclassified to conform to the
1997 presentation.

Interim Financial Information

Information as of March 31, 1998 and for the three months ended March 31,
1998 and 1997 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the unaudited interim financial statements contain
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position, results of operations and cash flows of
the Company, for the periods presented. The results of operations for the three
month period are not necessarily indicative of the results of operations for the
full year.

NOTE 5 -- DEBT AND SUBORDINATED NOTES

Debt consists of the following at December 31, 1997 and 1996 (in
thousands):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Senior subordinated notes................................... $450,566 $450,566
Senior credit facility...................................... 313,000 30,000
Other....................................................... 909 540
-------- --------
764,475 481,106
Less: current portion....................................... (509) (231)
-------- --------
$763,966 $480,875
======== ========
</TABLE>

F-147
<PAGE> 302
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The aggregate contractual maturities of long-term debt for the years ending
December 31 are as follows: 1998 -- $509,000; 1999 -- $200,000;
2000 -- $766,000; 2001 -- $57,000,000; 2002 -- $72,000,000;
thereafter -- $634,000,000.

In May 1996, the Company completed the placement of $450.0 million in
aggregate principal amount of its 10.75% Senior Subordinated Notes due 2006 (the
"Note Offering"). Interest is payable semi-annually on May 15 and November 15.
The notes are unsecured obligations of the Company and are subordinate to all
senior debt of the Company. The Company incurred issuance costs totaling $15.3
million related to the Note Offering which were recorded as deferred financing
costs. In addition to the Note Offering, the Company sold in a private placement
2,990,000 shares of Series D Preferred Stock aggregating $149.5 million in
liquidation preference (the "Preferred Stock Offering").

Concurrently with the closings of the Note Offering and the Preferred Stock
Offering, the Company completed a tender offer (the "Tender Offer") and related
consent solicitation with respect to its 11.375% Senior Subordinated Notes due
2000 (the "Old Notes"). SFX repurchased approximately $79.4 million in principal
amount of the $80.0 million in principal amount of the Old Notes outstanding in
the Tender Offer. The Company also entered into a supplemental indenture
amending the terms of the indenture pursuant to which the remaining Old Notes
were issued.

In March 1995, the Company entered into a $50.0 million senior credit
facility (the "Old Credit Facility") pursuant to which the Company made
borrowings to finance the Charlotte Acquisition and certain working capital
needs. On May 31, 1996 all amounts outstanding under the Old Credit Facility
were repaid with a portion of the proceeds of the Note Offering and the
Preferred Stock Offering.

In connection with the repurchase of the Old Notes and the repayment of the
Old Credit Facility, the Company recorded an extraordinary loss on debt
retirement of approximately $15.2 million to reflect the cost of prepayment
premiums and the write-off of debt issuance costs.

On November 22, 1996, the Company entered into a new credit facility, as
amended (the "New Credit Agreement"), a senior revolving credit facility
providing for borrowings of up to $400 million. Borrowings under the New Credit
Agreement may be used to finance permitted acquisitions, for working capital and
general corporate purposes, and for letters of credit up to $20.0 million. The
credit facility will be reduced by $18 million on a quarterly basis commencing
March 31, 2000 to December 31, 2004 and two final payments of $20 million will
be paid on March 31, 2005 and June 30, 2005. Interest on the funds borrowed
under the New Credit Agreement is based on a floating rate selected by the
Company of either (i) the higher of (a) the Bank of New York's prime rate and
(b) the federal funds rate plus 0.5%, plus a margin which varies from 0.25% to
1.5%, based on the Company's then-current leverage ratio, or (ii) the LIBOR rate
plus a margin which varies from 1.875% to 2.75%, based on the Company's
then-current leverage ratio. The Company must prepay certain outstanding
borrowings in advance of their scheduled due dates in certain circumstances,
including but not limited to achieving certain cash flow levels or receiving
certain proceeds from asset disposition as defined. The Company must also pay
annual commitment fees of 0.5% of the unutilized total commitments under the New
Credit Agreement. The Company's obligations under the New Credit Agreement are
secured by substantially all of its assets, including property, stock of
subsidiaries and accounts receivable, and are guaranteed by the Company's
subsidiaries. At December 31, 1997, the weighted average interest rate was
8.19%.

The New Credit Agreement and the indentures related to the Company's
subordinated notes contain covenants that impose certain restrictions on the
Company, such as total leverage, pro forma debt service and pro forma interest
expense ratios.

The fair value of the Company's senior subordinated notes was $493,313,000
at December 31, 1997 based upon the quoted market price. The book value of the
Company's senior credit facility and other debt approximates fair value, which
was estimated using discounted cash flow analysis based on the Company's
incremental borrowing rate for similar types of borrowing arrangements.

F-148
<PAGE> 303
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's 10.75% senior subordinated notes and 11.375% senior
subordinated notes are guaranteed by every direct and indirect subsidiary of the
Company. There are no non-guarantor subsidiaries. The guarantees by the
guarantor subsidiaries are full, unconditional, and joint and several. All of
the guarantor subsidiaries are wholly-owned. The Company is a holding company
with no assets, liabilities or operations other than its investment in its
subsidiaries. Separate financial statements of each guarantor have not been
included as management has determined that they are not material to investors.

NOTE 6 -- REDEEMABLE PREFERRED STOCK

Preferred stock consists of the following at December 31, 1997 and 1996
(dollars in thousands):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Preferred Stock of the Company, $.01 par value, 10,012,000
shares authorized:
Series B Redeemable, 0 and 1,000 shares issued and
outstanding in 1997 and 1996, respectively................ $ -- $ 917
Series C Redeemable, 2,000 shares issued and outstanding in
1997 and 1996, includes accreted dividends of $197 in 1997
and $108 in 1996.......................................... 1,725 1,636
Series D Cumulative Convertible Exchangeable Preferred
Stock, 2,990,000 shares issued and outstanding, includes
accreted issuance costs of $878 in 1997................... 144,324 143,446
Series E Cumulative Exchangeable Preferred Stock, 2,250,000
shares issued and outstanding, net of issuance costs,
includes accreted issuance costs of $951 in 1997.......... 215,947 --
-------- --------
$361,996 $145,999
======== ========
</TABLE>

The Series B Redeemable Preferred Stock which was non-voting and not
entitled to receive dividends was redeemed in October 1997 at the liquidation
value of $1,000 per share.

The shares of Series C Redeemable Preferred Stock receive cumulative
dividends equal to 6% per annum paid by the Company in arrears on a quarterly
basis. The shares are non-voting and are redeemable by the Company after
September 15, 1998 or by the holder after September 15, 2000, at the liquidation
value of $1,000 per share. The Series C Redeemable Preferred Stock ranks senior
to other preferred stock and to the Company's common stock as to dividends and
liquidation rights.

The shares of Series D Cumulative Convertible Exchangeable Preferred Stock
(the "Series D Preferred Stock") receive cumulative dividends equal to 6 1/2%
per annum ($0.8125 per share) which are paid by the Company on a quarterly
basis. The shares of Series D Preferred Stock are redeemable at the option of
the Company on or after June 1, 1999, in whole or in part, at redemption prices
ranging from 104.5% in 1999 to 100.0% in 2006, plus accrued and unpaid dividends
to the redemption date. The Series D Preferred Stock is not subject to any
scheduled mandatory redemption prior to its maturity. The Series D Preferred
Stock will mature on May 31, 2007.

The Series D Preferred Stock is convertible at the option of the holder
into shares of Class A Common Stock of the Company at any time prior to maturity
at a conversion price of $45.51 per share (equivalent to a conversion rate of
1.0987 shares per $50 in Liquidation Preference of Series D Preferred Stock),
subject to adjustment in certain events. The Series D Preferred Stock is
exchangeable in full but not in part, at the Company's option on any dividend
payment date, for the Company's 6 1/2% Convertible Subordinated Exchange Notes
due 2007.

The Series D Preferred Stock ranks senior to the Company's common stock as
to dividends and liquidation rights.

The shares of Series E Cumulative Exchangeable Preferred Stock (the "Series
E Preferred Stock") receive cumulative dividends equal to the rate of 12 5/8%
per annum which are paid by the Company on

F-149
<PAGE> 304
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

January 15 and July 15 of each year. Dividends may be paid, at the Company's
option, through January 15, 2002, in cash or additional shares of Series E
Preferred Stock. Subject to certain condition, the shares of the Series E
Preferred Stock are exchangeable in whole or in part on a pro rata basis, at the
option of the Company, on any dividend payment date, for the Company's 12 5/8%
Senior Subordinated Exchangeable Debentures due 2006. The Company is required,
subject to certain conditions, to redeem all of the Series E Preferred Stock
outstanding on October 31, 2006. The semi-annual dividend payable on January 15,
1998 was paid in additional shares of preferred stock.

NOTE 7 -- SHAREHOLDER'S EQUITY

Common Stock

The holders of Class A Common Stock are entitled to one vote per share and
the holders of Class B Common Stock are entitled to ten votes per share on all
matters to be voted on by stockholders, except (i) for the election of
directors, (ii) with respect to any "going private" transaction between the
Company and its Chairman, or any of his affiliates, and (iii) as otherwise
provided by law. The holders of Class A and Class B Common Stock share ratably
in all dividends and other distributions. As of December 31, 1997, 1,047,937
shares of Class A Common Stock, authorized but unissued, are reserved for
conversion of the Class B Common Stock. Shares of the Company's Class B Common
Stock convert on a share per share basis into the same number of Class A Common
Stock under certain circumstances.

In December 1995, 16,784 shares of non-voting Class C Common Stock were
repurchased and retired by the Company for $459,000. In May 1996, 26,318 shares
of Class A common Stock and 143,874 shares of Class B Common Stock were
repurchased from the Company's former President. In July 1997, the Company
repurchased 3,667 shares of Class A Common for $111,000. In addition, in
September 1997, the Company repurchased 460 shares of Class A Common Stock for
$19,000.

In July 1995, the Company completed an offering of 1,725,000 shares of its
Class A Common Stock for $24.50 per share. The net proceeds of the offering were
$39,166,000 after underwriting discounts, commissions and other costs of the
offering. The net proceeds were utilized to repay senior indebtedness of
$21,500,000 and to fund the Dallas Acquisition and a portion of the Charlotte
Acquisition.

Securities Issued in MMR Merger

The following MMR warrants and options issued and outstanding at the date
of the merger were assumed by the Company and are now convertible into SFX
shares:

<TABLE>
<CAPTION>
NUMBER MMR NUMBER SFX
OF MMR EXERCISE OF SFX EXERCISE
SECURITIES SHARES PRICE SECURITIES PRICE
---------- ------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Underwriters Warrants exercisable
through July 22, 1998................ 125,000 $9.10 37,288 $30.51
Class B Warrants exercisable through
March 22, 1999....................... 749,460 $11.50 217,162 $38.55
Unit Purchase Options exercisable
through March 22, 1999 (entitle the
holder to purchase one share of MMR
Common Stock, one MMR Class A Warrant
and one MMR Class B Warrant)......... 160,000 $7.75-$11.50 47,728 $25.98-$38.55
Stock options exercisable at various
dates through November 22, 2006...... 305,000 $5.00-$10.50 90,982 $16.76-$35.20
Warrants issued to Huff Alternative
Income Fund, L.P. exercisable through
March 31, 2005....................... 728,000 $7.75 223,564 $25.98
Sillerman Options...................... 10,000 $2.50 2,983 $8.38
</TABLE>

F-150
<PAGE> 305
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The former MMR warrants and options are exercisable for that number of
shares of the Company's Class A Common Stock equal to the product of the number
of MMR shares covered by the security times 0.2983 and the per share exercise
price for the share of the Company's Class A Common Stock issuable upon the
exercise of each warrant and option is equal the quotient determined by dividing
the exercise price per share of the MMR shares specified for such security by
0.2983.

During 1997, certain holders of the former MMR securities exercised 95,874,
215,344, 153,445, and 142,001 of Underwriters Warrants, Class B Warrants, Unit
Purchase Options and Stock Options, respectively, of the securities describe
above. The warrants issued to the Huff Alternative Income Fund, L.P. were
exercised through election of cashless exercise provisions whereby the Company
issued 165,023 shares of the Company's Class A Common Stock.

Stock Options

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to employees" ("APB25") and related
interpretations in accounting for its employee stock options, as opposed to the
fair value accounting provided for under FAS Statement No. 123, "Accounting for
Stock-Based Compensation."

Under stock option plans adopted annually since 1993, stock options to
acquire Class A Common Stock have been granted to certain officers, key
employees and other key individuals who perform services for the Company.
Options granted under these plans are generally granted at option prices equal
to the fair market value of the Class A Common Stock on the date of grant. As
such, under APB25, no expense is recorded in the statement of operations. Terms
of the options, determined by the Company, provided that the maximum term of
each options shall not exceed ten years and the options become fully exercisable
within five years of continued employment with the exception of certain options
granted to executives which were fully vested upon issuance.

In connection with the Merger, the Board has approved that all outstanding
options will vest immediately upon the date of such Merger.

At December 31, 1997, options outstanding had an average exercise price of
$22.04 and expiration dates ranging from December 1, 2003 to April 15, 2007. The
table below does not include the MMR options described above.

<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Options outstanding at beginning of
year................................. 910,000 748,000 500,000
Option price........................... $13.00-$33.75 $13.00-$21.25 $13.00-$13.50
Options granted........................ 420,000 349,000 248,000
Options price.......................... $28.00 $27.25-$33.75 $21.25
Options exercised...................... 726,050 -- --
Option price........................... $13.00-$33.75 -- --
Options repurchased.................... -- 187,000 --
Option price........................... -- $13.00-$21.25
Options expired or canceled............ -- -- --
Options outstanding at end of year..... 603,950 910,000 748,000
Option price........................... $13.00-$28.75 $13.00-$33.75 $13.00-$21.25
Options exercisable at end of year..... 439,750 461,200 153,000
</TABLE>

F-151
<PAGE> 306
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- INCOME TAXES

The provision for income taxes for the years ended December 31, 1997, 1996
and 1995 is summarized in thousands as follows:

<TABLE>
<CAPTION>
1997 1996 1995
----- ------ ------
<S> <C> <C> <C>
Current
Federal................................................. $ -- $ -- $ --
State................................................... 990 1,190 --
----- ------ ------
990 1,190 --
----- ------ ------
Deferred
Federal................................................. -- -- --
State................................................... (180) (710) --
----- ------ ------
(180) (710) --
----- ------ ------
$ 810 $ 480 $ --
===== ====== ======
</TABLE>

The Company files a consolidated tax return for federal income tax
purposes. As a result of current losses, no federal tax provision was recorded
for the year ended December 31, 1997 and 1996. The current income tax expense
recorded during 1997 and 1996 is a result of current state and local income
taxes in certain states where subsidiaries file separate tax returns. Deferred
state tax benefit was recognized in 1997 and 1996 attributable to the
disposition of stations acquired in transactions in which associated deferred
tax liabilities were recorded in purchase accounting. As a result of current
losses and the deferred benefit associated with the losses, no current or
deferred expense or benefit was recorded for the year ended December 31, 1995.

At December 31, 1997, the Company had total net operating loss
carryforwards of approximately $69,000,000 that will expire from 2003 through
2012, including net operating losses of acquired subsidiaries. Due to ownership
changes related to the acquisition of subsidiaries, the utilization of
approximately $15,300,000 of which losses is subject to various limitations. The
future use of remaining net operating loss carryforwards may be impacted and
subject to additional limitations as a result of the Merger.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The

F-152
<PAGE> 307
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred Tax Assets:
Accounts receivable......................................... $ 860 $ 563
Net operating loss carryforwards............................ 23,965 12,044
Management service contract................................. 2,356 2,128
Other reserves.............................................. 113 646
National sales representative contract settlement........... 8,740 --
Accrued bonuses and other compensation...................... 1,563 997
--------- ---------
Total deferred tax assets................................... 37,597 16,378
Valuation allowance......................................... (21,876) (5,623)
--------- ---------
Net Deferred Tax Assets................................... 15,721 10,755
Deferred Tax Liabilities:
Property, plant and equipment............................... (684) (372)
Intangible assets........................................... (117,718) (101,658)
Other....................................................... -- (77)
--------- ---------
Total Deferred Tax Liabilities............................ (118,402) (102,107)
--------- ---------
Net Deferred Tax Liabilities.............................. $(102,681) $ (91,352)
========= =========
</TABLE>

The acquisition of radio station WWYZ resulted in the recognition of
deferred tax liabilities of approximately $10 million under the purchase method
of accounting. The amounts were based upon the excess of the financial statement
basis over the tax basis in assets, primarily intangibles.

The 1997, 1996 and 1995 effective tax rate varied from the statutory
federal income tax rate as follows (in thousands):

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income taxes at the statutory rate................. $ (8,488) $(16,924) $ (1,495)
Effect of non-recurring and unusual charges........ 6,781 6,875 --
Valuation allowance................................ 13,977 9,859 1,434
Effect of nondeductible amortization of
intangibles...................................... 295 264 198
Nonqualified stock options......................... (12,380) -- --
State and local income taxes (net of federal
benefit)......................................... 535 317 (145)
Other.............................................. 90 89 8
-------- -------- --------
Total.................................... $ 810 $ 480 $ --
======== ======== ========
</TABLE>

NOTE 9 -- RELATED PARTY TRANSACTIONS

Prior to April 1996, SCMC, where Robert F.X. Sillerman, the Company's
Executive Chairman, serves as Chairman of the Board of Directors and Chief
Executive Officer, had been engaged by the Company from time to time for
advisory services with respect to specific transactions. In April 1996, the
Company and SCMC entered into the SCMC Termination Agreement, pursuant to which
SCMC assigned to the Company its rights to provide services to, and receive fees
payable by each of, MMR and Triathlon in respect of such consulting and
marketing services to be performed on behalf of such companies, except for fees
related to certain transactions pending at the date of such agreement. In
addition, the Company and SCMC terminated the arrangement pursuant to which SCMC
performed financial consulting services for the Company. Upon

F-153
<PAGE> 308
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

consummation of the MMR Merger, SCMC's agreement with MMR was terminated. Prior
to consummation of the MMR Merger, MMR paid an annual fee of $500,000 to SCMC
and Triathlon paid SCMC an annual fee of $300,000 (which increased to $500,000
effective January 1, 1997). In addition, Triathlon has agreed to advance to SCMC
an amount of $500,000 per year in connection with transaction-related services
to be rendered by SCMC. However, if the agreement between SCMC and Triathlon is
terminated or if an unaffiliated person acquires a majority of the capital stock
of Triathlon the unearned fees must be repaid. Pursuant to the SCMC Termination
Agreement, the Company has agreed to continue to provide consulting and
marketing services to Triathlon until the expiration of their agreement on June
1, 2005, and not to perform any consulting or investment banking services for
any person or entity other than Triathlon in the radio broadcasting industry or
in any business which uses technology for the audio transmission of information
or entertainment. In consideration of the foregoing agreements, the Company
issued to SCMC warrants to purchase up to 600,000 shares of Class A Common Stock
at an exercise price, subject to adjustment, of $33.75 (the market price at the
time the financial consulting arrangement was terminated). The Company also
forgave a $2.0 million loan made by the Company to SCMC, plus accrued and unpaid
interest thereon. Pursuant to such agreement, the Chairman has agreed with the
Company that he will supervise, subject to the direction of the Board of
Directors, the performance of the financial consulting and other services
previously performed by SCMC for the Company. During 1996, the Company received
fees of $292,000 from MMR and $511,000 from Triathlon. During 1997, the Company
received fees of $1,794,000 from Triathlon. In connection with this agreement,
the Company had a $44,000 receivable from Triathlon at December 31, 1997.
Pursuant to the Merger, the Company will transfer the Triathlon consulting
contract to SFX Entertainment. Triathlon has previously announced that it is
exploring ways of maximizing stockholder value, including possible sale to a
third party. If Triathlon were acquired by a third party, the agreement might
not continue for the remainder of its term.

In 1996, the Company paid to SCMC advisory fees of $4.0 million in
connection with the Liberty Acquisition, the Prism Acquisition, the Greenville
Acquisition, the Jackson Acquisitions, the Greensboro Acquisition and the
Raleigh-Greensboro Acquisition. In addition, the Company paid SCMC, on behalf of
MMR, a non-refundable fee of $2.0 million for investment banking services
provided to MMR in connection with the MMR Merger.

No pending transactions, as described in Note 3, predate the SCMC
Termination Agreement, and therefore no fees are payable to SCMC.

Prior to June 1996, the Company held a non-recourse note receivable from
the Company's former President in the amount of $2,000,000 which was secured by
133,333 shares of Class B Common Stock. The note bore interest at 6% per annum.
Interest income of $60,000 and $120,000 was accrued in 1996 and 1995 on the
loan, respectively. The loan and interest accrued were forgiven in June 1996
pursuant to an agreement with the former President and are included in
non-recurring and unusual charges.

In January 1995, the Company paid a $1,000,000 fee to SCMC in connection
with the transfer of shares of the Company's Class C Common Stock.

During the last quarter of 1996, the Company consolidated all of its
corporate office functions in New York. Prior to such time, the Company had an
agreement with the Chairman related to the maintenance of the Company's New York
Office whereby the Company reimbursed SCMC for certain office expenses and
salaries for certain employees of SCMC who provided services on behalf of the
Company. In addition certain of the Company's employees performed certain
services for other entities affiliated with SCMC. In connection with SCMC
Termination Agreement and the consolidation of the Company's Corporate Office in
New York, SCMC employees who provided services on behalf of the Company became
employees of the Company. Total reimbursements paid to SCMC for office expenses
and salaries totaled approximately $1,082,000 and $530,000 for the years ended
December 31, 1996 and 1995. The reimbursements paid to SCMC in 1996 included
$292,000 and $261,000 of fees paid by MMR and Triathlon, respectively, directly
to SCMC
F-154
<PAGE> 309
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

following the effective date of the SCMC Termination Agreement. The timing of
these payments during the year were such that the Company had advanced amounts
to SCMC of up to $230,000 during the period. As of December 31, 1996 and 1997,
there are no amounts due to or from SCMC.

The transactions above were not negotiated on an arms-length basis.
Accordingly, each transaction was approved by the Company's Board of Directors,
including the Company's independent directors, in accordance with the provisions
relating to affiliate transactions in the Company's by-laws, bank agreements and
Indenture, which provisions require a determination as to the fairness of the
transactions to the Company.

The Company's Executive Vice President, General Counsel and Director is Of
Counsel to the law firm of Baker & McKenzie. Baker & McKenzie serves as counsel
to the Company in certain matters. Baker & McKenzie compensates the executive
based, in part, on the fees it receives from providing legal services to the
Company and other clients originated by the executive. The Company paid Baker &
McKenzie $6,813,000, $4,886,000 and $793,000 for legal services during 1997,
1996 and 1995, respectively. During February 1998, the Company was reimbursed by
SFX Entertainment for approximately $2,948,000 of legal fees related to concert
acquisitions and the Spin-Off. As of December 31, 1997 and 1996, the Company
accrued Baker & McKenzie legal fees of approximately $4,782,000 and $1,550,000,
respectively.

NOTE 10 -- NON-RECURRING AND UNUSUAL CHARGES, INCLUDING ADJUSTMENTS TO BROADCAST
RIGHTS AGREEMENT

Audited:

The Company recorded non-recurring and unusual charges related to the
Merger of SFX Broadcasting and the Spin-Off of SFX Entertainment of $20,174,000
in 1997 which consisted primarily of (i) $12,140,000 related to bonuses paid to
officers of the Company (ii) a write-off of a $2,500,000 loan made to the
Company's Executive Chairman (iii) $1,713,000 relating to an increase in value
of certain Stock Appreciation Rights and (iv) $3,821,000 of other expenses,
primarily legal, accounting and regulatory fees.

The Company recorded non-recurring and unusual charges of $28,994,000 in
1996 which consisted primarily of payments in excess of the fair value of stock
repurchased totaling $12,461,000 to the company's former President and the
reserve by the Company of $2,330,000 relating to the loan and accrued interest
to the Company's former President, $5,586,000 related to the SCMC Termination
Agreement (Note 9), $4,575,000 for the repurchase of options and rights to
receive options held by the Chief Operating Officer, and a charge of $1,600,000
related to the termination of the Company's contractual four-year broadcast
rights of Texas Rangers baseball and an adjustment in the value of the contract
for the 1996 season. In 1995, the Company recorded a $5 million charge related
to the write down in value of the Company's Texas Rangers broadcast rights.

Unaudited:

In the first quarter of 1998, the Company recorded non-recurring and
unusual charges of $25.0 million which consisted primarily of (i) $4.2 million
of compensation expense related to options issued, (ii) $550,000 relating to the
settlement of a lawsuit, (iii) $489,000 relating to the increase in value of
certain SARs, (iv) $16.6 million relating to the consent solicitations from the
holders of its Senior Subordinated Notes due 2006 and the holders of its 12 5/8%
Series E Preferred Stock in connection with the Spin-Off and (v) $3.2 million of
expenses, primarily legal, accounting and regulatory fees associated with the
pending Merger and the consent solicitations in connection with the Spin-Off.

NOTE 11 -- COMMITMENTS AND CONTINGENCIES

The Company has entered into various operating leases, broadcast rights
agreements and employment agreements. Total rent expense was $5,403,000,
$2,903,000 and $1,506,000 for the years ending December 31, 1997, 1996 and 1995,
respectively. The Company has entered into employment agreements with certain

F-155
<PAGE> 310
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

officers and other key employees. Expenses under the contracts approximated
$19,748,000 for the year ended December 31, 1997. Future minimum payments in the
aggregate for all noncancelable operating leases including broadcast rights
agreements and employment agreements with initial terms of one year or more
consist of the following at December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
SFX BROADCASTING, INC. SFX ENTERTAINMENT, INC.
---------------------- ------------------------
OPERATING EMPLOYMENT OPERATING EMPLOYMENT
LEASES AGREEMENTS LEASES AGREEMENTS
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998.............................................. $11,186 $18,090 $ 3,366 $1,900
1999.............................................. 7,232 12,394 3,823 1,864
2000.............................................. 6,373 5,638 1,648 1,624
2001.............................................. 4,084 2,133 1,666 1,534
2002.............................................. 2,913 1,471 1,678 300
2003 and thereafter............................... 7,725 1,159 14,117 --
------- ------- ------- ------
$39,513 $40,885 $26,298 $7,222
======= ======= ======= ======
</TABLE>

The future minimum payments pursuant to operating leases does not include
the New York offices as theses facilities will be transferred to SFX
Entertainment.

Future minimum payments in the aggregate for all noncancelable capital
leases with initial terms of one year or more consist of the following at
December 31, 1997 (in thousands)

<TABLE>
<CAPTION>
CAPITAL
LEASES
-------
<S> <C>
1998........................................................ $ 124
1999........................................................ 86
2000........................................................ 43
2001........................................................ 14
2002 and thereafter......................................... --
-----
Total minimum lease payments................................ 267
Less: amount representing interest.......................... (40)
-----
Present value of future minimum lease payments.............. 227
Less: current portion....................................... (101)
-----
Long-term capital lease obligations......................... $ 126
=====
</TABLE>

The Company is the subject of various claims and litigation principally in
the normal course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse impact on the
consolidated financial statements. SFX Entertainment has committed to certain
renovation and construction projects totaling $35.5 million.

NOTE 12 -- DEFINED CONTRIBUTION PLAN

The Company sponsors a 401(k) defined contribution plan in which most of
its employees were eligible to participate. The Plan presently provides for
discretionary employer contributions. The Company made no contributions in 1997,
1996 or 1995.

F-156
<PAGE> 311
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................................ $65,184 $30,898 $12,903
Income taxes............................................ $ 1,059 $ 81 $ --
</TABLE>

Supplemental schedule of noncash investing and financing activities:

Issuance of equity securities, including deferred equity security issuance, and
assumption of debt in connection with certain acquisitions (Note 3)

Agreements to pay future cash consideration in connection with certain
acquisitions (Note 3)

Exchange of radio stations (Note 3)

Issuance of warrants in connection with SCMC termination agreement (Note 9).

NOTE 14 -- SUBSEQUENT EVENTS

Radio Broadcasting. In January 1998, the Company sold one radio station
operating in Richmond, Virginia (the "Richmond Disposition") for $4.3 million.

Concert Promotion Acquisitions and Financing. In February and March 1998,
SFX Entertainment acquired the following live entertainment businesses which
were contributed to SFX Entertainment upon the Spin-Off.

PACE Entertainment Corporation ("PACE"), one of the largest diversified
producers and promoters of live entertainment in the United States, having what
SFX Entertainment believes to be the largest distribution network in the United
Sates in each of its music, theater and specialized motor sports businesses (the
"PACE Acquisition"), for total consideration of approximately $156,056,000. In
connection with the PACE Acquisition, SFX Entertainment acquired 100% of
Pavilion Partners, a partnership that owns interest in 10 venues ("Pavilion"),
through the PACE Acquisition and directly from PACE's various partners for
$90,627,000. The Company has guaranteed the performance of SFX Entertainment's
obligation to PACE until PACE is issued the SFX Entertainment stock it is
entitled to under the acquisition agreement.

The Contemporary Group ("Contemporary"), a fully-integrated live
entertainment and special event promoter and producer, venue owner and operator
and consumer marketer, for total consideration of approximately $101,402,000.

The Network Magazine Group ("Network Magazine"), a publisher of trade
magazines for the radio broadcasting industry, and SJS Entertainment ("SJS"), an
independent creator, producer and distributor of music-related radio
programming, services and research which it exchanges with radio broadcasters
for commercial air-time sold, in turn, to national network advertisers (the
"Network Acquisition"), for total consideration of approximately $66,784,000.

BG Presents ("BGP"), one of the oldest promoters of, and owner-operators of
venues for, live entertainment in the United States, and a leading promoter in
the San Francisco Bay area (the "BGP Acquisition"), for total consideration of
approximately $80,327,000.

Concert/Southern Promotions ("Concert/Southern"), a promoter of live music
events in the Atlanta, Georgia metropolitan area (the "Concert/Southern
Acquisition"), for total consideration of approximately $16,600,000.

F-157
<PAGE> 312
SFX BROADCASTING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Westbury Music Fair, a theater located in Westbury, New York for aggregate
consideration of $3.0 million in cash and an agreement to issue 75,019 shares of
Class A Common Stock of SFX Entertainment.

On February 11, 1998, SFX Entertainment completed the private placement of
$350.0 million of 9 1/8% Senior Subordinated Notes (the "Notes") due 2008.
Interest is payable on the Notes on February 1 and August 1 of each year.

On February 26, 1998, SFX Entertainment executed a Credit and Guarantee
Agreement (the "Credit Agreement") which established a $300.0 million senior
secured credit facility comprised of (i) a $150.0 million eight-year term loan
(the "Term Loan") and (ii) a $150.0 million seven-year reducing revolving credit
facility. Borrowings under the Credit Agreement are secured by substantially all
of the assets of SFX Entertainment, including a pledge of the outstanding stock
of substantially all of its subsidiaries and guaranteed by all of SFX
Entertainment's subsidiaries. On February 27, 1998, SFX Entertainment borrowed
$150.0 million under the Term Loan. Together with the proceeds from the Notes,
the proceeds from the Term Loan were used to finance the 1998 acquisitions
discussed above.

Consent Solicitation. To facilitate the Spin-Off, SFX Entertainment's 1998
acquisitions and its financing thereof, the Company sought and obtained consents
from the holders of its Old Notes and the holders of its Senior Subordinate
Notes due 2006 and the holders of its 12 5/8% Series E Preferred Stock. In
connection with these consents, the Company modified certain covenants.
Management anticipates that the Company will be in compliance with these
covenants in the foreseeable future. Fees and expenses of approximately $18.0
million were incurred by the Company in connection with the consent
solicitations and were reimbursed by SFX Entertainment with the proceeds of the
SFX Entertainment Notes. Such charges are included in non-recurring and unusual
charges, including adjustments to broadcast rights agreement.

Legal Proceedings

On August 29, 1997, two lawsuits were commenced against the Company and its
directors which allege that the consideration to be paid as a result of the
Merger to the holders of the Company's Class A Common Stock is unfair and that
the individual defendants have breached their fiduciary duties.

On March 16, 1998, all of the parties entered into a Memorandum of
Understanding, pursuant to which they have reached an agreement providing for a
settlement of the action (the "Settlement"). The Settlement provides for the
Company to pay plaintiffs' counsel an aggregate of $950,000, including all fees
and expenses as approved by the court. The Company anticipates that a
significant portion of such payment will be funded by the Company's insurance.
The Settlement is conditioned on the (a) consummation of the Merger, (b)
completion of the confirmatory discovery and (iii) approval of the court.

F-158
<PAGE> 313

- ------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY U.S. UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Summary Historical Financial Data.......... 12
Summary Pro Forma Financial Data........... 13
Risk Factors............................... 15
Use of Proceeds............................ 23
Dividend Policy............................ 24
Dilution................................... 25
Capitalization............................. 26
Unaudited Pro Forma Financial
Information.............................. 28
Selected Historical Financial Data......... 45
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 47
Business................................... 58
The Transactions........................... 81
Management................................. 86
Security Ownership of Certain Beneficial
Owners................................... 97
Certain Relationships and Related
Transactions............................. 99
Description of Capital Stock............... 106
Shares Eligible for Future Sale............ 116
Description of Indebtedness................ 117
Certain U.S. Tax Considerations Applicable
to Non-U.S. Holders of the Class A Common
Stock.................................... 139
Underwriting............................... 142
Notice to Canadian Residents............... 145
Legal Matters.............................. 146
Experts.................................... 146
Available Information...................... 147
Glossary of Certain Terms.................. 148
Index to Financial Statements.............. F-1
</TABLE>

------------------

UNTIL JUNE 20, 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================

LOGO

31,000,000 Shares

CAPSTAR BROADCASTING
CORPORATION

Class A
Common Stock
($.01 par value)
PROSPECTUS
Joint Lead Managers

CREDIT SUISSE FIRST BOSTON

BT ALEX. BROWN

MORGAN STANLEY DEAN WITTER

------------------

BEAR, STEARNS & CO. INC.

GOLDMAN, SACHS & CO.

NATIONSBANC MONTGOMERY
SECURITIES LLC

SALOMON SMITH BARNEY

- ------------------------------------------------------