CAPSTAR BROADCASTING CORP, DEFM14A, 1999-06-09

CAPSTAR BROADCASTING CORP
DEFM14A, 1999-06-09
RADIO BROADCASTING STATIONS

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<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14a INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>

Capstar Broadcasting Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[ ] No fee required.

[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

Common Stock, par value $.01 per share, of Chancellor Media Corporation
------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

54,648,985 shares of common stock, par value $.01 per share, of
-----------------------------------------------------------------------
Chancellor Media Corporation
-----------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

$50.90
-----------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

$1,810,112,275
-----------------------------------------------------------------------

(5) Total fee paid:

(See below)
-----------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.

(1) Amount Previously Paid:

$503,212
-----------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

Form S-4; Registration No. 333-80173
-----------------------------------------------------------------------

(3) Filing Party:

Chancellor Media Corporation
-----------------------------------------------------------------------

(4) Date Filed:

June 8, 1999
-----------------------------------------------------------------------
<PAGE> 2

CAPSTAR BROADCASTING CORPORATION
600 Congress Avenue, Suite 1400
Austin, Texas 78701
---------------------

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 13, 1999
---------------------

To our Stockholders:

A special meeting of the holders of class A common stock, $0.01 par value, and
class C common stock, $0.01 par value, in each case of Capstar Broadcasting
Corporation, a Delaware corporation, referred to herein as Capstar, will be held
at 9:00 a.m., local time, on July 13, 1999, at The Hotel Crescent Court, 400
Crescent Court, Dallas, Texas 75201, for the following purposes, as further
described in the accompanying joint proxy statement/ prospectus:

1. To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of August 26, 1998 and amended and restated
as of April 29, 1999, by and among Chancellor Media Corporation, a
Delaware corporation, referred to herein as Chancellor Media, Capstar,
CBC Acquisition Company, Inc., a Delaware corporation, and CMC Merger
Sub, Inc., Inc., a Delaware corporation and wholly-owned subsidiary of
Chancellor Media, referred to herein as Merger Sub, under the terms of
which, among other things:

- Merger Sub will be merged with and into Capstar, with Capstar
surviving the merger as a wholly-owned subsidiary of Chancellor Media;

- Each share of Capstar class A common stock, class B common stock and
class C common stock issued and outstanding immediately prior to the
merger will be converted into a right to receive 0.4955 of a validly
issued, fully paid and nonassessable share of common stock of
Chancellor Media; and

- Each Capstar stock option and warrant that is outstanding and
unexercised immediately prior to the effective time of the merger will
be assumed by Chancellor Media and will thereafter be an option or
warrant to acquire shares of common stock of Chancellor Media in such
amount and at the exercise price as set forth in the merger agreement.

2. To consider and transact any other business as may properly come before
the meeting or any adjournment or postponement of the meeting.

Information regarding the merger and related matters is contained in the
accompanying joint proxy statement/prospectus and the annexes, all of which are
incorporated by reference into this notice and which form a part of this notice.

The affirmative vote of at least a majority of the voting power of the
outstanding shares of Capstar class A common stock and class C common stock,
voting together as a single class, is required for approval and adoption of the
merger agreement. As a condition and inducement to Chancellor Media entering the
merger agreement, Thomas O. Hicks,
<PAGE> 3

R. Steven Hicks and Capstar Broadcasting Partners, L.P., which collectively hold
a majority of the voting power of the outstanding shares of Capstar class A
common stock and class C common stock, have entered into a voting agreement
under which they have agreed to vote the shares of Capstar class A common stock
and class C common stock held by them in favor of the approval and adoption of
the merger agreement. As a result, the approval and adoption of the merger
agreement by the Capstar stockholders is assured. As described in the
accompanying joint proxy statement/prospectus, holders of Capstar class B common
stock and class C common stock will be entitled to appraisal rights under
Delaware law in connection with the merger. Holders of Capstar class A common
stock do not have any appraisal rights under Delaware law in connection with the
merger.

The Board of Directors of Capstar, upon the recommendation of its Special
Committee consisting of its disinterested director, has determined that the
merger is fair to, advisable and in the best interest of Capstar's stockholders
and recommends that you vote "FOR" the approval and adoption of the merger
agreement. See "The Merger -- Background of the Merger" and "-- Recommendation
of the Capstar Board of Directors; Capstar's Reasons for the Merger" in the
accompanying joint proxy statement/prospectus.

The Board of Directors of Capstar has established the close of business on May
19, 1999 as the record date for determination of Capstar's stockholders entitled
to notice of and to vote at the special meeting or any adjournments or
postponements of the meeting. Only holders of record of shares of Capstar class
A common stock and class C common stock at the close of business on the record
date are entitled to notice of, and to vote at, the special meeting.

Your vote is very important. You are requested to complete, sign and date the
enclosed proxy card and return it promptly in the enclosed envelope, whether or
not you expect to attend the special meeting, to assure that your shares will be
represented. You may revoke your proxy and vote in person if you decide to
attend the special meeting.

By Order of the Board of
Directors:
/s/ KATHY ARCHER
Kathy Archer
Assistant Secretary

Austin, Texas

June 9, 1999

<PAGE> 4

JOINT PROXY STATEMENT/PROSPECTUS

[CHANCELLOR MEDIA CORP. LOGO][CAPSTAR LOGO]

Merger Proposed -- Your Vote is Important

The Boards of Directors of Chancellor Media Corporation, referred to herein as
Chancellor Media, and Capstar Broadcasting Corporation, referred to herein as
Capstar, have agreed on a merger involving the two companies to create the
largest radio broadcasting company in the United States.

In the proposed merger,

(1) Chancellor Media will amend its certificate of incorporation prior to
the effective time of the merger to, among other things, change its name to AMFM
Inc. and increase its number of authorized shares of common stock, and

(2) Stockholders of Capstar will receive 0.4955 of a share of common stock
of Chancellor for each share of Capstar class A common stock, class B common
stock and class C common stock that they own. Chancellor Media stockholders will
continue to hold their shares of Chancellor Media common stock after the merger.

The merger cannot be completed unless certain government approvals are obtained
and the stockholders of both Chancellor Media and Capstar approve the matters
relating to the merger described in this joint proxy statement/ prospectus. The
approval of the other annual meeting proposals of Chancellor Media is not a
condition to the merger.

This joint proxy statement/prospectus relates to the stockholders' meetings of
Chancellor Media and Capstar that each Board of Directors has called to vote on
the matters described in this joint proxy statement/prospectus or otherwise
validly coming before the meetings. This joint proxy statement/prospectus also
constitutes a prospectus for Chancellor Media with respect to the shares of
Chancellor Media common stock to be issued under the merger agreement. We
encourage you to read this entire document carefully.

If the merger is completed, Capstar stockholders will hold approximately 27.2%
of the aggregate outstanding common stock of Chancellor Media following the
merger.

After careful consideration of the recommendations and advice of their
respective financial advisors and, for Capstar, the Special Committee of
Capstar's Board of Directors, the Boards of Directors of Chancellor Media and
Capstar have respectively determined that the merger is fair to, advisable and
in the best interests of their stockholders and recommend that their
stockholders vote in favor of the matters described in this joint proxy
statement/prospectus.

<TABLE>
<S> <C>
/s/ Thomas Hicks /s/ Steven Hicks
Thomas O. Hicks R. Steven Hicks
Chairman and Chief Executive Officer President and Chief Executive Officer
Chancellor Media Corporation Capstar Broadcasting Corporation
</TABLE>

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

The Chancellor Media common stock is currently quoted on The Nasdaq Stock Market
under the symbol "AMFM." Chancellor Media intends to apply for the listing of
the outstanding shares of Chancellor Media common stock and the shares offered
in connection with the merger on the New York Stock Exchange under the symbol
"AFM," effective at the closing of the merger.

THE "RISK FACTORS" SECTION OF THIS JOINT PROXY STATEMENT/PROSPECTUS (BEGINNING
ON PAGE 22) LISTS SOME OF THE IMPORTANT FACTORS YOU SHOULD CONSIDER IN
EVALUATING THE MERGER.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The joint proxy statement/prospectus is dated June 9, 1999, and it was first
mailed to stockholders on or about June 11, 1999.
<PAGE> 5

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY OF DEFINED TERMS..................... iv
SUMMARY....................................... 1
The Companies............................... 1
Recent Developments......................... 2
The Merger.................................. 4
The Chancellor Media Annual Stockholders'
Meeting................................... 9
The Capstar Special Stockholders' Meeting... 10
The Voting Agreement........................ 10
Market Price and Dividend Information....... 11
Summary Pro Forma Financial Information..... 13
Comparative Per Share Data.................. 15
Chancellor Media Selected Consolidated
Historical Financial Data................. 16
Capstar Selected Consolidated Historical
Financial Data............................ 18
RISK FACTORS.................................. 22
Potential Negative Consequences of
Substantial Indebtedness of Chancellor
Media and Capstar......................... 22
Restrictions Imposed on Chancellor Media and
Capstar by Agreements Governing Debt
Instruments and Preferred Stock........... 22
Fixed Charges of Chancellor Media and
Capstar Negatively Impact Results of
Operations................................ 23
Competitive Nature of Radio Broadcasting and
Media Representation...................... 23
Potential Effects on Licenses and Ownership
of Regulation of the Radio Broadcasting
Industries................................ 23
Risks Associated with Investment in Outdoor
Advertising............................... 24
Potential Conflict of Interest as a Result
of Cross-Ownership........................ 24
Difficulty of Integrating Acquisitions and
Entering New Lines of Business............ 25
Possible Delay in Consummation of Pending
Transactions Due to Antitrust and FCC
Review.................................... 26
Control of the Combined Company by Hicks
Muse...................................... 26
Investors Should Not Place Undue Reliance on
Forward-Looking Information............... 27
THE COMPANIES................................. 28
Chancellor Media............................ 28
Capstar..................................... 56
THE CHANCELLOR MEDIA ANNUAL MEETING........... 93
Date, Time, Place and Purpose............... 93
Record Date, Voting Rights and Quorum....... 94
Voting and Revocation of Proxies............ 95
THE CAPSTAR SPECIAL MEETING................... 96
Date, Time, Place and Purpose............... 96
Record Date, Voting Rights and Quorum....... 96
Voting and Revocation of Proxies............ 97
THE MERGER.................................... 98
Background of the Merger.................... 98
Recommendation of the Chancellor Media Board
of Directors; Chancellor Media's Reasons
for the Merger............................ 111
Opinions of Financial Advisors to the
Chancellor Media Board of Directors and
Chancellor Special Committee.............. 112
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Recommendation of the Capstar Board of
Directors; Capstar's Reasons for the
Merger.................................... 139
Opinions of Financial Advisors to the
Capstar Special Committee and Capstar
Board of Directors........................ 140
Interests of Certain Persons in the
Merger.................................... 165
Appraisal and Dissenters' Rights............ 167
Accounting Treatment........................ 170
Federal Income Tax Consequences of the
Merger.................................... 171
Certain Regulatory Matters.................. 172
Restriction on Resales of Chancellor Media
Common Stock by Affiliates of Capstar..... 179
THE MERGER AGREEMENT.......................... 180
General..................................... 180
Effective Time.............................. 180
Conversion of Shares........................ 180
Treatment of Stock Options and Warrants..... 181
Exchange Procedures......................... 181
Directors and Officers...................... 183
Certificate of Incorporation and Bylaws..... 183
Representations and Warranties.............. 184
Certain Covenants........................... 186
Conditions to the Merger.................... 188
Additional Agreements....................... 190
Indemnification and Insurance............... 192
Termination................................. 193
Amendment and Modification.................. 194
Fees and Expenses........................... 194
THE VOTING AGREEMENT.......................... 194
THE CHANCELLOR MEDIA PROPOSALS................ 196
The Merger Proposals........................ 196
Other Chancellor Media Annual Meeting
Proposals................................. 198
DIRECTORS AND MANAGEMENT FOLLOWING THE
MERGER...................................... 211
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF CHANCELLOR MEDIA... 254
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF CAPSTAR............ 257
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................ 260
DESCRIPTION OF CHANCELLOR MEDIA CAPITAL
STOCK....................................... 266
Chancellor Media Common Stock............... 266
Preferred Stock............................. 268
COMPARATIVE RIGHTS OF HOLDERS OF CHANCELLOR
MEDIA COMMON STOCK AND CAPSTAR COMMON
STOCK....................................... 277
Authorized Capital Stock.................... 278
Preemptive Rights........................... 278
Liquidation Rights.......................... 278
Voting Rights Generally..................... 279
Amendment of Bylaws......................... 280
</TABLE>

ii
<PAGE> 6

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Number and Classification of the Board of
Directors................................. 280
Indemnification of Directors and Officers
and Limitation of Liability............... 281
Restrictions on Foreign Ownership........... 282
Voting with Respect to Certain Business
Combinations.............................. 284
LEGAL MATTERS................................. 284
EXPERTS....................................... 284
STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS................................. 286
PRO FORMA FINANCIAL INFORMATION............... P-1
INDEX TO FINANCIAL STATEMENTS................. F-1
</TABLE>

ANNEXES

Annex I -- Amended and Restated Agreement and Plan of Merger

Annex II -- Opinion of Salomon Smith Barney Inc.

Annex III-A -- Opinion of Wasserstein Perella & Co., Inc.

Annex III-B -- Opinion of Wasserstein Perella & Co., Inc.

Annex IV -- Opinion of Morgan Stanley & Co. Incorporated

Annex V -- Opinion of Bear, Stearns & Co., Inc.

Annex VI -- Opinion of Credit Suisse First Boston
Corporation

Annex VII -- Opinion of BT Wolfensohn

Annex VIII -- Section 262 of the DGCL

Annex IX -- Second Amended and Restated Certificate of Incorporation of
Chancellor Media

Annex X -- Chancellor Media Corporation 1999 Stock Option Plan

iii
<PAGE> 7

GLOSSARY OF DEFINED TERMS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6% Exchange Debentures.................... 276
7% Junior Dividend Stock.................. 268
7% Junior Liquidation Stock............... 270
7% Parity Dividend Stock.................. 269
7% Parity Liquidation Stock............... 270
7% Senior Dividend Stock.................. 270
7% Senior Liquidation Stock............... 270
8% Senior Notes........................... 51
8 1/8% Notes.............................. 47
8 3/4% Notes.............................. 47
9 1/4% Capstar Radio Notes................ 86
9 3/8% Notes.............................. 47
10 1/2% Notes............................. 47
10 3/4% CCI Notes......................... 86
11 3/8% CCI Notes......................... 86
12% Capstar Partners Preferred Stock...... 86
12% Preferred Stock....................... 48
12 1/4% Exchange.......................... 34
12 1/4% Preferred Stock................... 48
12 3/4% Capstar Partners Notes............ 86
13 1/4% Capstar Radio Notes............... 84
1999 Plan................................. 52
$3.00 Junior Dividend Stock............... 272
$3.00 Junior Liquidation Stock............ 274
$3.00 Parity Dividend Stock............... 273
$3.00 Senior Dividend Stock............... 274
$3.00 Senior Liquidation Stock............ 274
Acquisition Proposal...................... 191
Adjusted EBITDA........................... 143
Affiliate................................. 179
AMFMi..................................... 2
Atlantic Star............................. 57
ATCF...................................... 143
BCF....................................... 143
Bear Stearns.............................. 101
BPI....................................... 201
Capstar................................... i
Capstar common stock...................... 4
Capstar Communications.................... 78
Capstar Hicks Muse Parties................ 258
Capstar L.P. ............................. 258
Capstar Named Executive Officers.......... 244
Capstar Partners.......................... 86
Capstar Record Date....................... 96
Capstar/SFX Transaction................... 100
Capstar Special Committee................. 96
Capstar Transfer Agent.................... 97
Central Star.............................. 57
CCI Series E Preferred Stock.............. 87
Chancellor Exchange Stations.............. 262
Chancellor Media.......................... i
Chancellor Media Record Date.............. 94
Chancellor Transfer Agent................. 95
Claim..................................... 253
CMCLA..................................... 34
Code...................................... 171
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Committee................................. 203
Communications Act........................ 172
Comparable Radio Broadcasting Companies... 145
Continuing Directors...................... 252
Credit Suisse First Boston................ 148
DARS...................................... 177
DCF....................................... 146
Debenture Exchange Date................... 276
Deferral Period........................... 208
Deferral Election......................... 263
DGCL...................................... 94
DOJ....................................... 174
Enterprise Value.......................... 159
Equity Value.............................. 159
Exercisability Value...................... 204
FCC....................................... 33
First Chancellor Special Committee........ 98
Fund III Inc.............................. 258
FTC....................................... 177
Goldman Sachs............................. 98
Gulf Star................................. 18
Hicks Muse................................ 6
Hicks Muse Partners....................... 165
HM2/Management............................ 260
HM3/Capstar............................... 258
HSR Act................................... 33
IBOC...................................... 177
Incentive Options......................... 204
Indemnifiable Event....................... 253
ISOs...................................... 204
JSAs...................................... 82
Katz...................................... 29
Lamar..................................... 2
Lamar Shares.............................. 30
LAN International......................... 62
LIN....................................... 3
LIN merger................................ 3
LMAs...................................... 18
Marcus Cable.............................. 213
Merger Sub................................ 4
Morgan Stanley............................ 102
MSA....................................... 40
MSO....................................... 213
Muzak Holdings............................ 62
Noddings.................................. 78
NQSO...................................... 207
Opinion................................... 141
Options................................... 203
Outdoor Group Disposition................. 30
Pacific Star.............................. 57
Paying Agent.............................. 181
Pegasus................................... 33
Pending Transactions...................... 33
Precedent Radio Broadcasting
Transactions............................ 145
Qualifying Cash Consideration............. 252
Related Entities.......................... 203
</TABLE>

iv
<PAGE> 8

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Representatives........................... 190
Rule 13e-3 Transaction.................... 279
Salomon................................... 98
Sea Star.................................. 57
SEC....................................... 54
Second Chancellor Special Committee....... 100
Senior Credit Facility.................... 50
SFAS...................................... 53
SFX....................................... 62
Southern Star............................. 57
STC....................................... 25
Stock Option Plan......................... 244
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Structured Exchange Ratio................. 106
Subordinated Notes........................ 51
Subsidiary Guarantors..................... 51
superduopolies............................ 28
TBAs...................................... 175
Telecom Act............................... 56
Triathlon................................. 62
Value Options............................. 52
Voting Agreement.......................... 194
Warrants.................................. 252
Wasserstein Perella....................... 102
Y2K....................................... 53
</TABLE>

Chancellor Media has supplied all information contained in this joint proxy
statement/ prospectus relating to Chancellor Media and Capstar has supplied all
of the information relating to Capstar.

CHANCELLOR MEDIA AND CAPSTAR HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS ABOUT THE MERGER AND OTHER
TRANSACTIONS DISCUSSED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OTHER THAN THOSE
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. IF YOU ARE GIVEN ANY
INFORMATION OR REPRESENTATIONS ABOUT THESE MATTERS THAT IS NOT DISCUSSED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS, YOU MUST NOT RELY ON THAT INFORMATION.

THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM IT WOULD BE
UNLAWFUL TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW.

THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS OR THE COMMON STOCK OF
CHANCELLOR MEDIA OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT,
UNDER ANY CIRCUMSTANCES, MEAN THAT THERE HAS NOT BEEN A CHANGE IN THE AFFAIRS OF
CHANCELLOR MEDIA OR CAPSTAR SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. IT ALSO DOES NOT MEAN THAT THE INFORMATION IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS CORRECT AFTER THIS DATE.

v
<PAGE> 9

SUMMARY

This brief summary highlights selected information from the joint proxy
statement/ prospectus. It does not contain all of the information that is
important to you. You are urged to read carefully the entire joint proxy
statement/prospectus and the other documents to which it refers to fully
understand the merger. See "The Companies -- Chancellor Media -- Where You Can
Find More Information About Chancellor Media" on page 55 and
"-- Capstar -- Where You Can Find More Information About Capstar" on page 92.

THE COMPANIES (SEE PAGE 28)

CHANCELLOR MEDIA CORPORATION
(to be renamed AMFM Inc.)
1845 Woodall Rodgers Freeway, Suite 1300
Dallas, Texas 75201
(214) 922-8700

Chancellor Media is a large national pure-play radio broadcasting and related
media company with operations in radio broadcasting and media representation,
which consist of:

- - a radio station portfolio consisting of 124 radio stations (92 FM and 32 AM)
concentrated in the top 30 markets in the continental United States and in
Puerto Rico, including 13 stations currently operated under time brokerage
agreements which allow Chancellor Media to program another person's station
and sell the advertising; and

- - Katz Media, a full-service media representation firm that sells national spot
advertising time for its clients in the radio and television industries
throughout the United States and for Chancellor Media's portfolio of radio
stations.

In addition, upon the consummation of the pending sale of Chancellor Media's
outdoor advertising business and related transactions, Chancellor Media will own
an approximate 30.0% equity interest in Lamar Advertising Company, one of the
largest owners and operators of outdoor advertising structures in the United
States. Chancellor Media has also recently announced the formation of three new
business units as part of a broad-based Internet initiative designed to leverage
the value of its national radio station portfolio, proprietary content,
advertiser relationships and listener base.

CAPSTAR BROADCASTING CORPORATION
600 Congress Avenue, Suite 1400
Austin, Texas 78701
(512) 340-7800

Capstar is the largest radio broadcaster in the United States operating
primarily in mid-sized markets based on number of stations and 1998 revenue.
Since its first acquisition in October 1996, Capstar has assembled a nationwide
portfolio of 329 owned and operated stations and 10 programmed stations in 81
markets. Upon completion of its pending transactions, Capstar will own and
operate or program 342 stations in 81 markets located throughout the United
States. This portfolio includes clusters of four or more stations in 51 markets
and comprises the leading station group, in terms of revenue share and/or
audience share, in 49 markets.
1
<PAGE> 10

RECENT DEVELOPMENTS

OUTDOOR GROUP DISPOSITION

On June 1, 1999, Chancellor Media agreed to sell to Lamar Advertising Company,
referred to herein as Lamar, all of the outstanding shares of Chancellor Media
Outdoor Corporation, an indirect wholly-owned subsidiary of Chancellor Media
which holds all of Chancellor Media's assets used in its outdoor advertising
business. Under the terms of the stock purchase agreement and related
agreements, Chancellor Media will receive:

(1) cash proceeds of approximately $700.0 million, subject to a net working
capital adjustment, and

(2) 26,227,273 shares of Lamar class A common stock.

Chancellor Media intends to use the net cash proceeds from the Outdoor Group
disposition to repay outstanding indebtedness. Upon completion of the Outdoor
Group disposition, Chancellor Media will own approximately 30.0% of the
aggregate number of outstanding shares of common stock of Lamar.

INTERNET INITIATIVE

On May 19, 1999, Chancellor Media announced a broad-based Internet strategy
intended to leverage the value of its national radio station portfolio,
proprietary content, advertiser relationships and listener base. As part of this
strategy, Chancellor Media has formed three new business units: AMFM
Interactive, Inc., referred to herein as AMFMi; AMFM.com; and AMFM Equities.

Together, AMFMi and AMFM.com are intended to develop and position Internet web
sites representing Chancellor Media's portfolio of radio stations as highly
trafficked Internet destinations designed to further Chancellor Media's
relationship with its listening audience. These web sites are expected to
encompass a variety of functionality including online streaming of Chancellor
Media's on-air programming and other media. In addition, AMFM Equities is
intended to promote emerging Internet and new media business. Each of these new
Internet business units will be led by Mr. R. Steven Hicks, President and Chief
Executive Officer of the AMFM New Media Group.

REVIEW OF STRATEGIC ALTERNATIVES

On January 20, 1999, Chancellor Media announced that its Board of Directors
engaged the investment banking firm of BT Alex. Brown Incorporated as financial
advisor for the purpose of assisting management and the Board of Directors of
Chancellor Media in developing, reviewing and structuring a range of strategic
alternatives intended to maximize stockholder value. On February 11, 1999,
Chancellor Media announced that it had added additional advisors Morgan Stanley
Dean Witter, Hicks, Muse, Tate & Furst Incorporated, Goldman, Sachs & Co.,
Greenhill & Co., LLC and Chase Securities Inc. to assist in exploring these
alternatives, which included the potential sale, merger or consolidation of the
entire company or some of its operating assets.
2
<PAGE> 11

On March 15, 1999, Chancellor Media announced that it had completed the review
of strategic alternatives and announced the following series of steps to better
position Chancellor Media strategically, operationally and financially:

LIN Merger Termination. On July 7, 1998, Chancellor Media entered into a merger
agreement with the indirect parent of LIN Television Corporation, referred to
herein as LIN, to acquire LIN in a stock for stock transaction. Effective March
15, 1999, Chancellor Media and LIN agreed to terminate the LIN merger agreement.

Executive Management Realignment. On March 15, 1999, Chancellor Media announced
the following executive management changes:

- - the appointments of Thomas O. Hicks as Chief Executive Officer of Chancellor
Media, of James E. de Castro as President and Chief Executive Officer of a
newly created Radio and Outdoor Group and of R. Steven Hicks, currently
President and Chief Executive Officer of Capstar, as President and Chief
Executive Officer of the newly created AMFM New Media Group, formerly known as
the Chancellor Media Services Group;

- - the creation of an Office of the Chairman of Chancellor Media's Board of
Directors, in which Mr. de Castro and Mr. R. Steven Hicks will join Chancellor
Media's Chairman, Mr. Thomas O. Hicks, as Vice Chairmen;

- - the resignation of Jeffrey A. Marcus as Chancellor Media's President and Chief
Executive Officer effective March 15, 1999;

- - the appointments of Kenneth J. O'Keefe as Chief Operating Officer of
Chancellor Media's Radio Group and James A. McLaughlin as President and Chief
Operating Officer of Chancellor Media's Outdoor Group;

- - the appointment of D. Geoffrey Armstrong, former Chief Operating Officer of
Capstar, as Executive Vice President and Chief Financial Officer, replacing
Thomas P. McMillin, who also resigned from his executive positions with
Chancellor Media effective March 15, 1999;

- - the resignation of Eric C. Neuman as Chancellor Media's Senior Vice
President -- Strategic Development effective March 15, 1999; and

- - the appointment of William S. Banowsky, Jr., currently Executive Vice
President and General Counsel of Capstar, as Executive Vice President and
General Counsel, replacing Richard A. B. Gleiner, formerly Senior Vice
President, Secretary and General Counsel of Chancellor Media effective March
15, 1999.

Termination of Petry Acquisition. On April 28, 1999, Chancellor Media terminated
its previously announced acquisition of Petry Media Corporation, a television
representation firm.

Chancellor Media recorded non-recurring charges of $29.0 million in the first
quarter of 1999 related to the write-off of transaction costs related to the
termination of the LIN and Petry Media Corporation acquisitions and executive
severance and other costs related to the executive management realignment
discussed above.
3
<PAGE> 12

THE MERGER

The merger agreement is attached as Annex I to this joint proxy
statement/prospectus. You are encouraged to read the merger agreement, as it is
the legal document that governs the merger.

GENERAL

If the proposed merger and related transactions described in this joint proxy
statement/prospectus are approved, prior to the effective time of the merger,
Chancellor Media will amend its certificate of incorporation to, among other
things, increase its number of authorized shares of common stock. Following the
amendment of Chancellor Media's certificate of incorporation, CMC Merger Sub,
Inc., referred to herein as Merger Sub, will merge with and into Capstar, with
Capstar surviving the merger as a wholly-owned subsidiary of Chancellor Media.
The following chart describes the effect of the proposed transaction:
[GRAPH]

CONVERSION OF SHARES (SEE PAGE 180)

Capstar Stockholders: Each share of Capstar class A common stock, class B common
stock and class C common stock, referred to herein collectively as Capstar
common stock, will be converted in the merger into the right to receive 0.4955
of a share of Chancellor Media common stock. The total number of shares of
Chancellor Media common stock that you will receive will be equal to the number
of shares of Capstar class A common stock, class B common stock or class C
common stock that you own at the time of the merger, multiplied by 0.4955.

Chancellor Media will not issue fractional shares in the merger. As a result,
you will be paid in cash for the market value of any fractional shares of
Chancellor Media common stock that you otherwise might be entitled to. You will
need to exchange your Capstar
4
<PAGE> 13

common stock certificates to receive new certificates representing Chancellor
Media common stock. This will not be necessary until you receive written
instructions after we have completed the merger.

Chancellor Media Stockholders: Each share of Chancellor Media common stock, 7%
convertible preferred stock, and $3.00 convertible exchangeable preferred stock
will remain outstanding and unaffected by the merger.

OWNERSHIP OF CHANCELLOR MEDIA FOLLOWING THE MERGER

Based upon the number of shares of Capstar common stock outstanding on May 19,
1999, the shares of Chancellor Media common stock issued to Capstar stockholders
in the merger will constitute approximately 27.2% of the aggregate outstanding
common stock of Chancellor Media after the merger, or about 23.6% when all of
the outstanding options, warrants and other convertible securities of Chancellor
Media following the merger are taken into account. It is anticipated that
Chancellor Media will issue an aggregate of approximately 53.4 million shares of
common stock to Capstar stockholders in the merger. Chancellor Media will also
assume options, warrants and other equity rights in Capstar which represent up
to an additional 3.3 million shares.

APPRAISAL AND DISSENTERS' RIGHTS (SEE PAGE 167)

Capstar Stockholders: Under Delaware law, you do not have a right to an
appraisal of your shares of Capstar class A common stock as a result of the
merger.

The full text of Section 262 of the General Corporation Law of the State of
Delaware is included as Annex VIII to this joint proxy statement/prospectus. It
is the section of Delaware law that governs appraisal rights.

Chancellor Media Stockholders: Under Delaware law, you do not have a right to an
appraisal of your shares of Chancellor Media common stock as a result of the
merger.

FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 171)

Capstar Stockholders: For United States federal income tax purposes, the merger
is intended to qualify as a tax-free reorganization. Accordingly, the exchange
of your shares of Capstar common stock for shares of Chancellor Media common
stock generally will not cause you to recognize any gain or loss. You will,
however, have to recognize gain or loss in connection with any cash you receive
instead of fractional shares or for dissenting shares.
5
<PAGE> 14

THIS TAX TREATMENT MAY NOT APPLY TO EVERY CAPSTAR STOCKHOLDER. DETERMINING THE
ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU MAY BE VERY COMPLICATED AND DEPEND
ON YOUR SPECIFIC SITUATION. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR FOR A
FULL UNDERSTANDING OF THE MERGER'S TAX CONSEQUENCES TO YOU.

Chancellor Media Stockholders: Since your shares of Chancellor Media common
stock will remain unchanged as a result of the merger, you will not recognize
any gain or loss for purposes of United States federal income tax.

TREATMENT OF CAPSTAR STOCK OPTIONS AND WARRANTS (SEE PAGE 181)

Chancellor Media has agreed to assume the obligations of Capstar under
outstanding Capstar stock options and warrants if the merger is completed. After
the merger, these Capstar stock options, when vested in accordance with their
terms, will be exercisable for shares of Chancellor Media common stock, with
appropriate adjustments for share amounts and exercise price to reflect the
exchange ratio of the merger.

INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 165)

Some of the officers and directors of Chancellor Media have interests in the
merger that are different from, or in addition to, their interests as officers,
directors and stockholders of Chancellor Media. Four of Chancellor Media's
directors, Thomas O. Hicks, R. Steven Hicks, Lawrence D. Stuart, Jr. and Michael
J. Levitt, are also directors of Capstar, with Mr. Thomas O. Hicks serving as
the Chairman of both companies and Mr. R. Steven Hicks serving as President and
Chief Executive Officer of Capstar and Vice Chairman of Chancellor Media and
President and Chief Executive Officer of the AMFM New Media Group. Mr. D.
Geoffrey Armstrong, Executive Vice President and Chief Financial Officer of
Chancellor Media, is also a director of Capstar, and William S. Banowsky, Jr.,
Executive Vice President and General Counsel of Chancellor Media, is also
Executive Vice President and General Counsel of Capstar. Additionally, three
directors of Chancellor Media, Messrs. Thomas O. Hicks, Levitt and Stuart, also
serve as officers, directors and partners of various entities affiliated with
Hicks, Muse, Tate & Furst Incorporated, referred to herein as Hicks Muse. Thomas
O. Hicks and affiliates of Hicks Muse currently control approximately 17.9% of
the outstanding shares of Chancellor Media common stock and approximately 94.6%
of the voting power of the outstanding shares of Capstar common stock. Finally,
certain affiliates of Hicks Muse will receive, in addition to the shares of
Chancellor Media common stock received in the merger in exchange for Capstar
common stock, payments under contracts they have with Capstar aggregating $31.7
million.

The following table sets forth the approximate pro rata share attributable to
each of Messrs. Thomas O. Hicks, Stuart and Levitt of the fee income to be
received by affiliates of Hicks Muse at the completion of the merger:

PRO RATA SHARE OF HICKS MUSE FEE INCOME

<TABLE>
<CAPTION>
APPROXIMATE
NAME AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
Thomas O. Hicks............................................. $8,777
Lawrence D. Stuart, Jr...................................... 1,714
Michael J. Levitt........................................... 3,255
</TABLE>

6
<PAGE> 15

Because of these interests, none of Messrs. Thomas O. Hicks, Levitt or Stuart
served on the respective special committees of Chancellor Media's Board of
Directors or Capstar's Board of Directors, and each of them abstained from
voting on the merger as a member of Chancellor Media's Board of Directors. Mr.
R. Steven Hicks was not a director or officer of Chancellor Media when the
Capstar Board of Directors first voted on the merger. These interests were also
known by the Chancellor Media Board of Directors, the Capstar Board of Directors
and the special committees thereof when they considered and approved the merger
agreement and the merger.

In September 1998, a stockholder class action complaint was filed in the
Delaware Court of Chancery by a stockholder purporting to act individually and
on behalf of all other persons, other than defendants, who own securities of
Chancellor Media and are similarly situated. The defendants in the case include
Chancellor Media, Hicks Muse and some of Chancellor Media's directors. The
plaintiff alleges breach of fiduciary duties, gross mismanagement, gross
negligence or recklessness, and other matters relating to the defendants'
actions in connection with the proposed merger. Chancellor Media believes that
this lawsuit is without merit and intends to vigorously defend the action. For a
more detailed description of the lawsuit, see "The Companies -- Chancellor
Media -- Legal Proceedings."

Additionally, some of Capstar's officers and directors have the following
interests in the merger that are different from their interests as officers and
directors:

- - effective March 15, 1999, D. Geoffrey Armstrong who serves as a Capstar
director and who began service on March 15, 1999 as Executive Vice President
and Chief Financial Officer of Chancellor Media, resigned from his position as
Capstar's Chief Operating Officer and became entitled to receive a bonus in
the amount of $600,000, and the outstanding Capstar options and warrants held
by Mr. Armstrong fully vested and became exercisable;

- - at the effective time of the merger, the outstanding Capstar options and
warrants held by Mr. R. Steven Hicks, William S. Banowsky, Jr. who serves as
Executive Vice President and the General Counsel of Capstar and Chancellor
Media, and Paul D. Stone who serves as Executive Vice President and the Chief
Financial Officer of Capstar will fully vest and become exercisable, Messrs.
R. Steven Hicks, Banowsky and Stone each will be entitled to receive a bonus
from Capstar in the amount of $1,500,000, $600,000 and $600,000, respectively,
and Mr. Stone will become entitled to receive severance compensation from
Capstar equal to $650,000 under the terms of his employment agreement with
Capstar if Mr. Stone is not employed by Chancellor Media after the merger;

- - Messrs. R. Steven Hicks, Armstrong and Banowsky have entered into employment
agreements with Chancellor Media; and

- - Chancellor Media has agreed to maintain for a period of not less than six
years after the merger Capstar's existing directors' and officers' insurance
and indemnification policies for coverage for events occurring prior to the
merger, subject to some limitations.
7
<PAGE> 16

REGULATORY APPROVALS (SEE PAGE 172)

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, prevents
the completion of the merger until after required materials and information have
been furnished to the Antitrust Division of the Department of Justice and
Federal Trade Commission and a required waiting period has ended. The waiting
period for this transaction is expected to expire before July 13, 1999.
Permission was obtained from the Federal Communications Commission on May 12,
1999 to transfer control of the Federal Communications Commission licenses for
the Capstar radio stations to the public stockholders of Chancellor Media.

CONDITIONS TO THE MERGER (SEE PAGE 188)

The completion of the merger depends upon the satisfaction of a number of
conditions. While Chancellor Media and Capstar expect that all of the conditions
to completing the merger will be satisfied, there can be no assurance that they
will be. Either company may waive compliance with the conditions at its
discretion if the law allows it. The merger is expected to be completed no later
than the second business day following the satisfaction or waiver of all of
these conditions.

TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 193)

The companies can agree to terminate the merger agreement without completing the
merger, and either one can terminate the merger agreement if particular events
occur. If the merger agreement is terminated by either company because the other
party does not receive stockholder approval or materially breaches the merger
agreement, then the other party will reimburse the party that did not breach the
merger agreement or fail to receive stockholder approval for all of its
substantiated out-of-pocket expenses incurred in connection with the merger.
Also, if the merger agreement is terminated by either party after its Board of
Directors determines in good faith that in order to comply with its fiduciary
duties it is necessary to withdraw or modify, in a manner materially adverse to
the other party, its approval or recommendation of the merger agreement or the
merger, the party electing to terminate the agreement must pay to the
non-terminating party an amount of $50,000,000 in cash. Finally, if one of the
parties willfully breaches the merger agreement in a material way, the other
party may seek damages or other appropriate remedies from the courts.
8
<PAGE> 17

THE CHANCELLOR MEDIA ANNUAL STOCKHOLDERS' MEETING (SEE PAGE 93)

The annual meeting of Chancellor Media stockholders will be held on July 13,
1999 at 10:00 a.m., local time, at The Hotel Crescent Court, 400 Crescent Court,
Dallas, Texas. At the Chancellor Media meeting, you will be asked to:

(1) approve the issuance of shares of Chancellor Media common stock to Capstar's
stockholders in the merger;

(2) approve the amendment and restatement of Chancellor Media's amended and
restated certificate of incorporation to:

- change its name to AMFM Inc.;

- increase its number of authorized shares of common stock from 200,000,000
to 750,000,000;

- eliminate the 75,000,000 authorized shares of class A common stock of
Chancellor Media, none of which is outstanding;

- eliminate certain provisions relating to "going private transactions"
with Scott K. Ginsburg, Chancellor Media's former President and Chief
Executive Officer;

- increase the maximum number of directors comprising the Chancellor Media
Board of Directors from thirteen to fourteen; and

- add a provision conferring authority in the Board of Directors of
Chancellor Media to exercise all power lawfully vested in the Board of
Directors by Delaware corporate law, including the power to adopt, amend
and repeal the bylaws of Chancellor Media;

(3) elect three (3) Class II directors for terms expiring in 2002;

(4) approve a proposal to adopt the Chancellor Media Corporation 1999 Stock
Option Plan that provides for 10,000,000 shares of Chancellor Media common
stock to be authorized for issuance thereunder; and

(5) act on other matters that may be properly submitted to a vote at the
meeting.

The affirmative vote of at least a majority of the votes cast by holders of
shares of Chancellor Media common stock is required for approval of the issuance
of shares of Chancellor Media common stock in the merger and the adoption of the
Chancellor Media Corporation 1999 Stock Option Plan. The affirmative vote of at
least a majority of the outstanding shares of Chancellor Media common stock is
required for approval of the amendment and restatement of Chancellor Media's
certificate of incorporation. Directors are elected by a plurality of the votes
represented by the shares of Chancellor Media common stock present at the
meeting in person or by proxy. The issuance of shares of common stock in the
merger will not be completed and the Chancellor Media charter amendments will
not be effected unless both are approved by the appropriate vote of Chancellor
Media's stockholders. The approval of the other annual meeting proposals
described in this joint proxy statement/prospectus is not a condition of the
merger.
9
<PAGE> 18

THE CAPSTAR SPECIAL STOCKHOLDERS' MEETING (SEE PAGE 96)

The special meeting of Capstar stockholders will be held on July 13, 1999 at
9:00 a.m., local time, at The Hotel Crescent Court, 400 Crescent Court, Dallas,
Texas. At the Capstar meeting, you will be asked to:

- - approve and adopt the merger agreement that provides for:

(1) the merger of Merger Sub with and into Capstar, with Capstar surviving the
merger as a wholly-owned subsidiary of Chancellor Media;

(2) the issuance of Chancellor Media common stock to holders of Capstar class
A common stock, class B common stock and class C common stock; and

(3) the assumption by Chancellor Media of each Capstar stock option and
warrant that is outstanding and unexercised immediately prior to the effective
time of the merger, and thereafter each option and warrant will be an option
or warrant to acquire shares of common stock of Chancellor Media in the amount
and at the exercise price as set forth in the merger agreement; and

- - act on other matters that may be properly submitted to a vote at the meeting.

A vote in favor of the merger agreement by at least a majority of the voting
power of the outstanding shares of Capstar class A common stock and class C
common stock entitled to vote at the special meeting, voting together as a
single class, is required in order to approve and adopt the merger agreement.

THE VOTING AGREEMENT (SEE PAGE 194)

When Chancellor Media and Capstar entered into the merger agreement, Chancellor
Media required that Thomas O. Hicks, R. Steven Hicks and Capstar Broadcasting
Partners, L.P., enter into a voting agreement to vote at any meeting of Capstar
stockholders called to vote on the merger. Under the terms of the voting
agreement, as amended, Thomas O. Hicks, R. Steven Hicks and Capstar Broadcasting
Partners, L.P., which collectively own a majority of the voting power of the
Capstar class A common stock and class C common stock, are required to vote
their shares of Capstar class A common stock and class C common stock in favor
of the merger and the adoption and approval of the merger agreement. As a
result, the approval and adoption of the merger agreement by the Capstar
stockholders is assured.
10
<PAGE> 19

MARKET PRICE AND DIVIDEND INFORMATION

Chancellor Media common stock is quoted on The Nasdaq Stock Market's National
Market under the symbol "AMFM." The following table gives you, on a per share
basis, for the periods indicated, the high and low closing sale prices per share
of the Chancellor Media common stock as reported by The Nasdaq Stock Market:

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter........................................ $12.25 $ 8.42
Second Quarter....................................... 14.75 10.92
Third Quarter........................................ 16.63 12.87
Fourth Quarter....................................... 16.13 11.75
1997
First Quarter........................................ $17.00 $11.88
Second Quarter....................................... 22.31 14.31
Third Quarter........................................ 27.50 20.63
Fourth Quarter....................................... 37.31 25.81
1998
First Quarter........................................ $49.13 $32.69
Second Quarter....................................... 51.00 40.19
Third Quarter........................................ 57.25 24.13
Fourth Quarter....................................... 47.88 23.94
1999
First Quarter........................................ $57.94 $40.75
Second Quarter (through June 4, 1999)................ 56.94 46.63
</TABLE>

Capstar class A common stock is listed on the New York Stock Exchange under the
symbol "CRB." The following table gives you, on a per share basis, for the
periods indicated, the high and low closing sale prices per share of the Capstar
class A common stock as reported by the New York Stock Exchange:

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1998
Second Quarter (from May 27, 1998)................... $26.25 $17.00
Third Quarter........................................ 26.63 13.56
Fourth Quarter....................................... 22.88 10.13
1999
First Quarter........................................ $26.44 $18.94
Second Quarter (through June 4, 1999)................ 27.63 22.50
</TABLE>

On August 26, 1998, the last trading day prior to the announcement by Capstar
and Chancellor Media that they had entered into the merger agreement, the last
reported sale price of the Capstar class A common stock as listed by the New
York Stock Exchange was $21.50 per share and the last reported sale price of the
Chancellor Media common stock as reported by The Nasdaq Stock Market was $44.75
per share. On June 4, 1999, the last reported sale price of the Capstar class A
common stock by the New York Stock
11
<PAGE> 20

Exchange was $26.81 per share and the last reported sale price of the Chancellor
Media common stock as reported by The Nasdaq Stock Market was $55.44 per share.
CAPSTAR AND CHANCELLOR MEDIA URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS FOR
CAPSTAR CLASS A COMMON STOCK AND CHANCELLOR MEDIA COMMON STOCK.

Neither Chancellor Media nor Capstar has paid dividends on its shares of common
stock in the past and, following the completion of the merger, Chancellor Media
does not intend to pay any cash dividends on the shares of Chancellor Media
common stock. Furthermore, since Chancellor Media is a holding company, the only
way it can pay dividends in the future is by indirectly receiving dividends from
Chancellor Media Corporation of Los Angeles, its principal operating subsidiary,
and assuming the merger is completed, indirectly from Capstar Radio Broadcasting
Partners, Inc., currently Capstar's principal operating subsidiary. Chancellor
Media Corporation of Los Angeles is, and Capstar Radio Broadcasting Partners,
Inc. will be, restricted from paying Chancellor Media dividends by the terms of
their respective debt instruments.
12
<PAGE> 21

SUMMARY PRO FORMA FINANCIAL INFORMATION

The summary historical financial information set forth below as of and for the
year ended December 31, 1998 and the three months ended March 31, 1999 has been
derived from the historical financial statements of Chancellor Media included
elsewhere in this joint proxy statement/prospectus. The information should be
read in conjunction with the unaudited pro forma condensed financial statements
beginning on page P-1 of this joint proxy statement/prospectus and in
conjunction with Chancellor Media's historical financial statements and related
notes and other financial information included in this joint proxy
statement/prospectus.

EBITDA, before stock option compensation and merger, nonrecurring and systems
development expense, consists of operating income or loss excluding depreciation
and amortization, stock option compensation and merger, nonrecurring and systems
development expense. Although EBITDA, before stock option compensation and
merger, nonrecurring and systems development expense, is not calculated in
accordance with generally accepted accounting principles, Chancellor Media
believes that EBITDA, before stock option compensation and merger, nonrecurring
and systems development expense, is widely used by analysts, investors and
others in the broadcast industry as a measure of operating performance. In
addition, EBITDA, before stock option compensation and merger, nonrecurring and
systems development expense, is one of the financial measures by which certain
covenants under Chancellor Media's indentures governing its long-term
indebtedness are calculated. EBITDA, before stock option compensation and
merger, nonrecurring and systems development expense, eliminates the non-cash
effect of considerable amounts of depreciation and amortization primarily
resulting from the significant number of recent acquisitions. Nevertheless, this
measure should not be considered in isolation or as a substitute for operating
income, cash flows from operating activities or any other measure for
determining Chancellor Media's operating performance or liquidity that is
calculated in accordance with generally accepted accounting principles. EBITDA,
before stock option compensation and merger, nonrecurring and systems
development expense, does not take into account Chancellor Media's debt service
requirements and other commitments and, accordingly, EBITDA, before stock option
compensation and merger, nonrecurring and systems development expense, is not
necessarily indicative of amounts that may be available for reinvestment in
Chancellor Media's business or other discretionary uses. In addition, Chancellor
Media's calculation of EBITDA, before stock option compensation and merger,
nonrecurring and systems development expense, is not necessarily comparable to
similarly titled measures reported by other companies, including Capstar.

You should be aware that this pro forma information may not be indicative of
what actual results will be in the future or would have been for the periods
presented.
13
<PAGE> 22

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, 1998 ENDED MARCH 31, 1999
------------------------ ------------------------
COMPANY COMPANY COMPANY COMPANY
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net revenues......................... $ 1,273,856 $1,902,861 $ 350,265 $ 431,537
Operating expenses excluding
depreciation and amortization...... 682,061 1,073,607 208,510 276,346
Depreciation and amortization........ 446,338 857,407 147,744 214,526
Corporate general and
administrative..................... 36,722 66,975 17,814 21,803
Stock option compensation............ -- 21,401 -- 2,045
Merger, nonrecurring and systems
development expense................ 63,661 78,553 28,979 30,391
Operating income (loss).............. 45,074 (195,082) (52,782) (113,574)
Interest expense, net................ 201,486 433,260 84,392 121,932
Gain on disposition of assets........ (123,845) (123,845) -- --
Gain on disposition of representation
contracts.......................... (32,198) (32,198) (3,603) (3,603)
Other (income) expense, net.......... (3,221) (743) -- 382
Income (loss) before income taxes,
equity in net loss of affiliate and
extraordinary item................. 2,852 (500,121) (133,571) (232,285)
Income tax expense (benefit)......... 33,751 (120,059) (30,126) (67,554)
Dividends on preferred stock of
subsidiary......................... 17,601 25,586 -- 6,899
Equity in net loss of affiliate...... -- (33,806) -- (11,163)
Income (loss) before extraordinary
item............................... (48,500) (439,454) (103,445) (182,793)
Extraordinary loss, net of tax
benefit............................ 47,089 -- -- --
Net loss............................. (95,589) (439,454) (103,445) (182,793)
Preferred stock dividends............ 25,670 25,670 6,417 6,417
Net loss attributable to common
stockholders....................... (121,259) (465,124) (109,862) (189,210)
Basic and diluted loss per common
share(1)........................... $ (.88) $ (2.43) $ (.77) $ (.96)
Weighted average common shares
outstanding(1)..................... 137,979 191,303 142,960 196,284
BALANCE SHEET DATA (END OF PERIOD):
Working capital (excluding current
portion of long-term debt)......... $ 188,193 $ 112,397 $ 138,585
Intangible assets, net............... 5,056,047 5,294,161 10,968,824
Total assets......................... 7,227,907 7,447,590 13,051,604
Long-term debt (including current
portion)........................... 4,096,000 4,378,000 5,740,445
Redeemable preferred stock........... -- -- 305,229
Stockholders' equity................. 2,391,830 2,285,304 4,741,047
OTHER DATA:
EBITDA, before stock option
compensation and merger,
nonrecurring and systems
development expense................ $ 555,073 $ 762,279 $ 123,941 $ 133,388
CASH FLOWS RELATED TO:
Operating activities................. $ 267,631 $ 346,996 $ 91,236 $ 166,555
Investing activities................. (2,291,169) (113,672) (375,342) (28,101)
Financing activities................. 2,019,210 (233,324) 278,919 (138,454)
</TABLE>

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

(1) Gives effect to the two-for-one common stock split effected in the form of a
stock dividend paid on January 12, 1998.
14
<PAGE> 23

COMPARATIVE PER SHARE DATA

We have summarized below the per share information of Chancellor Media and
Capstar on a historical, pro forma combined and pro forma equivalent basis. The
information should be read in conjunction with the unaudited pro forma condensed
financial statements beginning on page P-1 of this joint proxy
statement/prospectus and in conjunction with the historical financial statements
and related notes contained in this joint proxy statement/ prospectus and in the
other information included in this joint proxy statement/prospectus.

You should be aware that this pro forma information may not be indicative of
what actual results will be in the future or would have been for the periods
presented.

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED AS OF AND FOR THE THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
------------------------------------- -------------------------------------
CHANCELLOR CHANCELLOR
PRO MEDIA PRO MEDIA
HISTORICAL FORMA(1) EQUIVALENT(2) HISTORICAL FORMA(1) EQUIVALENT(2)
---------- -------- ------------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Book value per share(3)
Chancellor Media.......... $13.86 $ -- $ -- $13.10 $22.04 $ --
Capstar................... 12.50 -- -- 12.21 -- 10.92
Loss per share before
extraordinary items
Chancellor Media.......... (.54) (2.43) -- (.77) (.96) --
Capstar................... (1.02) -- (1.20) (.30) -- (.48)
Cash dividends per share
Chancellor Media.......... -- -- -- -- -- --
Capstar................... -- -- -- -- -- --
</TABLE>

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

(1) The pro forma combined per share data for Chancellor Media and Capstar for
the year ended December 31, 1998 and the three months ended March 31, 1999
have been prepared as if the transactions described in "Pro Forma Financial
Information" beginning on page P-1 had occurred on January 1, 1998.

(2) The equivalent pro forma per share amounts of Capstar are calculated by
multiplying pro forma net loss per share of Chancellor Media and pro forma
book value per share of Chancellor Media by an exchange ratio of existing
Capstar common stock to Chancellor Media common stock of 0.4955 to 1.

(3) Book value per share was calculated using common stockholders' equity as
reflected in the historical and pro forma financial statements of Chancellor
Media and Capstar, respectively, divided by the number of shares
outstanding.
15
<PAGE> 24

CHANCELLOR MEDIA SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

Chancellor Media is providing the following financial information to aid you in
your analysis of the financial aspects of the merger. Chancellor Media derived
this information from Chancellor Media's audited financial statements for 1994
through 1998 and Chancellor Media's unaudited financial statements for the three
months ended March 31, 1998 and 1999. The information is only a summary and you
should read it in conjunction with Chancellor Media's historical financial
statements and related notes contained in this joint proxy statement/prospectus.

EBITDA, before non-cash and non-recurring charges, consists of operating income
or loss excluding depreciation and amortization and non-cash and non-recurring
charges. Although EBITDA, before non-cash and non-recurring charges, is not
calculated in accordance with generally accepted accounting principles,
Chancellor Media believes that EBITDA, before non-cash and non-recurring
charges, is widely used by analysts, investors and others in the broadcast
industry as a measure of operating performance. In addition, EBITDA, before
non-cash and non-recurring charges, is one of the financial measures by which
certain covenants under Chancellor Media's indentures governing its long-term
indebtedness are calculated. EBITDA, before non-cash and non-recurring charges,
eliminates the non-cash effect of considerable amounts of depreciation and
amortization primarily resulting from the significant number of recent
acquisitions. Nevertheless, this measure should not be considered in isolation
or as a substitute for operating income, cash flows from operating activities or
any other measure for determining Chancellor Media's operating performance or
liquidity that is calculated in accordance with generally accepted accounting
principles. EBITDA, before non-cash and non-recurring charges, does not take
into account Chancellor Media's debt service requirements and other commitments
and, accordingly, EBITDA, before non-cash and non-recurring charges, is not
necessarily indicative of amounts that may be available for reinvestment in
Chancellor Media's business or other discretionary uses. In addition, Chancellor
Media's calculation of EBITDA, before non-cash and non-recurring charges, is not
necessarily comparable to similarly titled measures reported by other companies,
including Capstar.
16
<PAGE> 25

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------ -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- ---------- ----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Gross revenues.......................... $125,478 $186,365 $ 337,405 $ 663,804 $ 1,440,357 $ 262,421 $ 394,123
Net revenues............................ 109,516 162,931 293,850 582,078 1,273,856 233,557 350,265
Operating expenses excluding
depreciation and amortization.......... 68,852 97,674 174,344 316,248 682,061 148,019 208,510
Depreciation and amortization........... 30,596 47,005 93,749 185,982 446,338 91,936 147,744
Corporate general and administrative.... 2,672 4,475 7,797 21,442 36,722 6,803 17,814
Non-cash and non-recurring charges(1)... -- -- -- -- 63,661 -- 28,979
-------- -------- ---------- ----------- ----------- ---------- ----------
Operating income (loss)................. 7,396 13,777 17,960 58,406 45,074 (13,201) (52,782)
Interest expense, net................... 13,718 19,144 37,050 83,095 201,486 48,300 84,392
Gain on disposition of assets........... (6,991) -- -- (18,380) (123,845) -- --
Gain on disposition of representation
contracts.............................. -- -- -- -- (32,198) -- (3,603)
Other (income) expense, net............. 630 291 -- 383 (3,221) -- --
-------- -------- ---------- ----------- ----------- ---------- ----------
Income (loss) before income taxes and
extraordinary item..................... 39 (5,658) (19,090) (6,692) 2,852 (61,501) (133,571)
Income tax expense (benefit)............ -- 192 (2,896) 7,802 33,751 (2,941) (30,126)
Dividends on preferred stock of
subsidiary............................. -- -- -- 12,901 17,601 10,011 --
-------- -------- ---------- ----------- ----------- ---------- ----------
Income (loss) before extraordinary
item................................... 39 (5,850) (16,194) (27,395) (48,500) (68,571) (103,445)
Extraordinary loss, net of tax
benefit(2)............................. 3,585 -- -- 4,350 47,089 -- --
-------- -------- ---------- ----------- ----------- ---------- ----------
Net loss................................ (3,546) (5,850) (16,194) (31,745) (95,589) (68,571) (103,445)
Preferred stock dividends............... 4,830 4,830 3,820 12,165 25,670 6,417 6,417
-------- -------- ---------- ----------- ----------- ---------- ----------
Net loss attributable to common
stockholders........................... $ (8,376) $(10,680) $ (20,014) $ (43,910) $ (121,259) $ (74,988) $ (109,862)
======== ======== ========== =========== =========== ========== ==========
Basic and diluted loss per common
share(3)............................... $ (.32) $ (.26) $ (.33) $ (.46) $ (.88) $ (.60) $ (.77)
Weighted average common shares
outstanding(3)......................... 26,004 41,442 60,414 95,636 137,979 124,718 142,960
CONSOLIDATED BALANCE SHEET DATA (END OF
PERIOD):
Working capital......................... $ 15,952 $ 30,556 $ 41,421 $ 112,724 $ 188,193 $ 400,667 $ 112,397
Intangible assets, net.................. 233,494 458,787 853,643 4,404,443 5,056,047 4,351,021 5,294,161
Total assets............................ 297,990 552,347 1,020,959 4,968,875 7,227,907 5,195,422 7,447,590
Long-term debt (including current
portion)............................... 174,000 201,000 358,000 2,573,000 4,096,000 1,900,000 4,378,000
Redeemable preferred stock.............. -- -- -- 331,208 -- 331,208 --
Stockholders' equity.................... 112,353 304,577 549,411 1,480,207 2,391,830 2,402,886 2,285,304
OTHER FINANCIAL DATA:
EBITDA, before non-cash and
non-recurring charges.................. $ 37,992 $ 60,782 $ 111,709 $ 244,388 $ 555,073 $ 78,735 $ 123,941
CASH FLOWS RELATED TO:
Operating activities.................... $ 19,880 $ 39,693 $ 47,481 $ 139,514 $ 267,631 $ 30,640 $ 91,236
Investing activities.................... (32,928) (192,112) (461,938) (1,423,009) (2,291,169) (42,676) (375,342)
Financing activities.................... 11,683 154,633 414,087 1,297,019 2,019,210 301,757 278,919
</TABLE>

- -------------------------
(1) For 1998, consists of a one-time charge related to the resignation of Scott
K. Ginsburg as President and Chief Executive Officer of Chancellor Media and
Matthew E. Devine as Senior Vice President and Chief Financial Officer of
Chancellor Media and new employment agreements entered into with certain
members of executive management. For 1999, consists of a write-off of
transaction costs related to the termination of the LIN Television
Corporation and Petry Media Corporation acquisitions and executive severance
and other costs related to the executive management realignment.

(2) Extraordinary losses consist of charges incurred in connection with various
refinancings. These charges are reported net of the related tax benefit.

(3) Gives effect to the two-for-one common stock split effected in the form of a
stock dividend paid on January 12, 1998 and to the three-for-two common
stock split effected in the form of a stock dividend paid on August 26,
1996, retroactively adjusted for all periods presented.
17
<PAGE> 26

CAPSTAR SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

Capstar is providing the following financial information to aid you in your
analysis of the financial aspects of the merger. In July 1997, Capstar through a
wholly-owned subsidiary merged with GulfStar Communications, Inc. in a
transaction between entities under common control which was accounted for in a
manner similar to a pooling of interests. The following table presents only the
financial data of GulfStar from January 1, 1994 through October 16, 1996, the
date Capstar commenced operations. Subsequent to October 16, 1996, the
historical financial data of Capstar and GulfStar have been combined. Capstar is
also providing selected historical financial data for Capstar Communications,
Inc. (formerly SFX Broadcasting, Inc.), acquired by Capstar on May 29, 1998, and
Commodore Media, Inc., acquired by Capstar on October 16, 1996, for the periods
prior to acquisition by Capstar. You should read the information in conjunction
with Capstar's historical financial statements and related notes contained in
this joint proxy statement/prospectus.

Broadcast cash flow is defined as operating income excluding corporate expenses,
depreciation and amortization, non-cash compensation expense, local marketing
agreement ("LMA") fees, and merger, non-recurring and systems development
expense. EBITDA, before non-cash compensation expense, LMA fees, and merger,
non-recurring and systems development expense, is defined as operating income
excluding depreciation and amortization, non-cash compensation expense, LMA
fees, and merger, non-recurring and systems development expense. Broadcast cash
flow and EBITDA, before non-cash compensation expense, LMA fees, and merger,
non-recurring and systems development expense, are not measures of performance
calculated in accordance with generally accepted accounting principles. However,
Capstar believes that broadcast cash flow is useful to a prospective investor
because it is a measure widely used in the broadcast industry to evaluate a
radio broadcast company's operating performance and that EBITDA, before non-cash
compensation expense, LMA fees, and merger, non-recurring and systems
development expense, is useful to a prospective investor because it is widely
used in the broadcast industry to evaluate a radio broadcast company's ability
to service debt. Broadcast cash flow and EBITDA, before non-cash compensation
expense, LMA fees, and merger, non-recurring and systems development expense,
should not be considered in isolation of or as a substitute for net income
(loss), cash flows from operating activities and other income and cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of liquidity or profitability. Broadcast cash flow
and EBITDA, before non-cash compensation expense, LMA fees, and merger, non-
recurring and systems development expense, as determined above may not be
comparable to the broadcast cash flow and EBITDA, before non-cash compensation
expense, LMA fees, and merger, non-recurring and systems development expense,
measures reported by other companies, including Chancellor Media. In addition,
these measures do not represent funds available for discretionary use.
18
<PAGE> 27

CAPSTAR BROADCASTING CORPORATION

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- --------- --------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIO, MARGIN AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Gross revenues.................. $ 10,639 $ 17,322 $ 47,200 $ 189,820 $ 568,050 $ 70,086 $ 155,721
Net revenues.................... 9,834 15,797 42,866 175,445 517,467 64,075 142,005
Station operating expenses...... 6,662 11,737 30,481 122,135 304,565 47,760 92,186
Corporate expenses.............. 339 513 2,523 14,221 23,678 3,757 6,306
Noncash compensation
expense(1).................... -- -- 6,176 10,575 21,260 15,793 2,002
LMA fees........................ 330 341 834 2,519 4,103 1,871 319
Depreciation and amortization... 712 1,134 4,141 26,415 96,207 11,032 36,439
Merger, nonrecurring and systems
development expense........... -- -- -- 4,729 12,970 -- 2,548
Operating income (loss)......... 1,791 2,072 (1,289) (5,149) 54,684 (16,138) 2,205
Interest expense................ 635 3,737 8,907 47,012 121,145 15,897 40,958
Net income (loss)............... 645 1,570 (11,957) (45,740) (96,761) (29,805) (31,941)
Net income (loss) attributable
to common stock............... 645 1,562 (13,307) (52,811) (96,761) (29,805) (31,941)
Basic and diluted income (loss)
per common share.............. $ 0.11 $ 0.25 $ (1.50) $ (2.07) $ (1.10) $ (0.65) $ (0.30)
Weighted average common shares
outstanding................... 5,940 6,286 8,880 25,455 87,678 46,131 107,610
CONSOLIDATED BALANCE SHEET DATA
(END OF PERIOD):
Cash and cash equivalents....... $ 913 $ 220 $ 9,821 $ 70,059 $ 17,117 $ 216,374 $ 12,583
Intangible and other assets,
net........................... 15,094 39,003 344,524 900,045 4,263,998 1,202,002 4,248,724
Total assets.................... 20,991 49,000 402,632 1,121,456 4,663,002 1,612,601 4,628,685
Long-term debt (including
current portion).............. 18,719 37,427 191,170 594,572 1,778,589 459,725 1,809,814
Redeemable preferred stock...... -- 758 23,098 101,493 262,368 104,545 269,267
Stockholders' equity............ 970 2,563 93,736 232,085 1,344,762 775,782 1,314,181
OTHER FINANCIAL DATA:
Broadcast cash flow............. $ 3,172 $ 4,060 $ 12,385 $ 53,310 $ 212,902 $ 16,315 $ 49,819
Broadcast cash flow margin...... 32.3% 25.7% 28.9% 30.4% 41.1% 25.5% 35.1%
EBITDA(before noncash
compensation expense, LMA fees
and merger, nonrecurring and
systems development
expense)...................... $ 2,833 $ 3,547 $ 9,862 $ 39,089 $ 189,224 $ 12,558 $ 43,513
CASH FLOWS RELATED TO:
Operating activities............ $ 1,833 $ 1,259 $ (2,339) $ 6,699 $ (8,062) $ (1,029) $ (5,937)
Investing activities............ (11,531) (19,648) (155,579) (487,002) (1,420,198) (267,709) (24,466)
Financing activities............ 10,325 17,696 167,519 540,541 1,375,318 415,053 25,869
CAPITAL EXPENDITURES............ $ 1,192 $ 495 $ 2,478 $ 10,020 $ 44,886 $ 4,162 $ 11,788
</TABLE>

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

(1) Consists of noncash compensation charges resulting from the grant of
warrants, options and stock subscriptions.
19
<PAGE> 28

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------- MAY 31,
1994 1995 1996 1997 1998
-------- -------- --------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Gross revenue.............................. $ 63,116 $ 87,140 $ 162,011 $ 306,842 $ 141,369
Net revenue................................ 55,556 76,830 143,061 270,364 124,677
Station operating expenses................. 33,956 51,039 92,816 167,063 78,235
Corporate expenses......................... 2,964 3,797 6,261 6,837 3,069
Depreciation, amortization, duopoly
integration costs and acquisition related
costs.................................... 5,873 9,137 17,311 38,232 17,668
Nonrecurring and unusual charges, including
adjustments to broadcast rights
agreements............................... -- 5,000 28,994 20,174 35,318
Operating income (loss).................... 12,763 7,857 (2,373) 37,434 (84,509)
Interest expense........................... (9,332) (12,903) (34,897) (64,506) (30,867)
Net income (loss).......................... 1,836 (4,396) (50,852) (21,247) (201,616)
Net income (loss) attributable to common
stock.................................... 1,488 (4,687) (56,913) (59,757) (218,880)
Basic and diluted income (loss) per common
share....................................
Weighted average common shares
outstanding..............................
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents.................. $ 3,194 $ 11,893 $ 10,601 $ 24,686
Intangible and other assets, net........... 102,152 129,543 664,103 1,039,394
Total assets............................... 145,808 187,337 859,327 1,375,615
Total debt and capital lease obligations,
including current portion................ 81,516 81,850 481,460 764,702
Redeemable preferred stock................. 2,466 3,285 152,053 375,796
Total stockholders' equity................. 48,856 83,061 94,517 74,825
OTHER FINANCIAL DATA:
Broadcast cash flow........................ $ 21,600 $ 25,791 $ 50,245 $ 103,301 $ 46,442
Broadcast cash flow margin................. 38.9% 33.6% 35.1% 38.2% 37.2%
EBITDA, before settlement of options and
warrants, LMA fees, nonrecurring and
unusual charges and income (loss) from
operations to be distributed to
shareholders............................. $ 18,636 $ 21,994 $ 43,984 $ 96,464 $ 43,373
CASH FLOWS RELATED TO:
Operating activities....................... $ 1,174 $ 499 $ (13,447) $ 5,047 $ (11,716)
Investing activities....................... (6,184) (25,697) (470,513) (499,051) (398,342)
Financing activities....................... (2,083) 33,897 502,668 494,068 482,451
CAPITAL EXPENDITURES......................... $ 1,951 $ 3,261 $ 3,224 $ 12,409 $ 5,179
</TABLE>

20
<PAGE> 29

COMMODORE MEDIA, INC.

<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1996 --
----------------------- OCTOBER 16,
1994 1995 1996(1)
---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING DATA:
Gross revenue.................................... $ 28,686 $ 33,653 $ 34,826
Net revenue...................................... 26,225 30,795 31,957
Station operating expenses....................... 16,483 19,033 21,292
Depreciation and amortization.................... 2,145 1,926 2,158
Corporate expenses............................... 2,110 2,051 1,757
Other expense(2)................................. 2,180 2,007 13,834
Operating income (loss).......................... 3,307 5,778 (7,083)
Interest expense................................. 3,152 7,806 8,861
Net loss......................................... (527) (2,240) (17,836)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents........................ $ 2,042 $ 10,891
Intangible and other assets, net................. 21,096 27,422
Total assets..................................... 36,283 52,811
Long-term debt, including current portion........ 36,962 66,261
Redeemable preferred stock....................... 8,414 --
Total stockholders' deficit...................... (18,038) (18,555)
OTHER FINANCIAL DATA:
Broadcast cash flow.............................. $ 9,742 $ 11,762 $ 10,665
Broadcast cash flow margin....................... 37.1% 38.2% 33.4%
EBITDA, before noncash compensation expense, LMA
fees and merger, nonrecurring and systems
development expense........................... $ 7,632 $ 9,711 $ 8,909
CASH FLOWS RELATED TO:
Operating activities............................. 4,061 1,245 1,990
Investing activities............................. (50) (4,408) (34,358)
Financing activities............................. (2,855) 12,013 26,724
CAPITAL EXPENDITURES............................... 623 321 449
</TABLE>

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

(1) Represents the results of operations of Commodore Media, Inc. for the period
from January 1, 1996 through October 16, 1996.

(2) In 1996, other expense consists of merger-related compensation charges in
connection with Capstar's acquisition of Commodore Media, Inc. Such expenses
are not expected to recur. In 1994 and 1995 other operating expenses consist
of non-cash compensation charges resulting from the grant of employee
options, warrants, and stock subscriptions.
21
<PAGE> 30

RISK FACTORS

The following risks should be considered by the Chancellor Media and Capstar
stockholders in evaluating the merger. In addition, you are strongly urged to
consider the information set forth elsewhere in this joint proxy
statement/prospectus.

POTENTIAL NEGATIVE CONSEQUENCES OF SUBSTANTIAL INDEBTEDNESS OF CHANCELLOR MEDIA
AND CAPSTAR

Please be aware of the following:

- - as of March 31, 1999, Chancellor Media had outstanding long-term indebtedness
of approximately $4.4 billion, an accumulated deficit of $388.5 million and
stockholders' equity of $2.3 billion; and

- - as of March 31, 1999, Capstar had outstanding long-term indebtedness of
approximately $1.8 billion, an accumulated deficit of $183.9 million and
stockholders' equity of $1.3 billion.

If Chancellor Media completes the merger with Capstar, Chancellor Media and its
subsidiaries will have even more outstanding indebtedness.

Such a large amount of indebtedness could have negative consequences for
Chancellor Media following the merger, including without limitation the
following:

- - limitations on its ability to obtain financing in the future;

- - much of its cash flow will be dedicated to interest obligations and
unavailable for other purposes;

- - the high level of indebtedness limits its flexibility to deal with changing
economic, business and competitive conditions; and

- - approximately 43% of its borrowings are at variable rates of interest which
will make Chancellor Media vulnerable to increases in interest rates, subject
to certain interest rate swaps entered into by Chancellor Media.

The failure to comply with the covenants in the agreements governing the terms
of Chancellor Media's indebtedness could be an event of default and could
accelerate the payment obligations and, in some cases, could affect other
obligations with cross-default and cross-acceleration provisions.

RESTRICTIONS IMPOSED ON CHANCELLOR MEDIA AND CAPSTAR BY AGREEMENTS GOVERNING
DEBT INSTRUMENTS AND PREFERRED STOCK

The senior loan agreements and the various indentures governing the debt
instruments of Chancellor Media and Capstar and their respective subsidiaries
and the terms of the preferred stock of Capstar's subsidiaries contain certain
covenants that restrict or will restrict, among other things, their ability to:

- - incur additional debt, issue preferred stock, incur liens, pay dividends or
make other types of payments;

22
<PAGE> 31

- - sell assets;

- - enter into transactions with affiliates;

- - enter into sale and leaseback transactions;

- - conduct businesses other than the ownership and operation of broadcast
stations and related businesses; or

- - merge or consolidate with any other person or dispose of all or substantially
all of their assets.

Also, the senior loan agreements require Chancellor Media and Capstar to
maintain particular financial ratios and satisfy financial condition tests.

FIXED CHARGES OF CHANCELLOR MEDIA AND CAPSTAR NEGATIVELY IMPACT RESULTS OF
OPERATIONS

In the past, Chancellor Media has experienced net losses as a result of
significant interest charges and amortization charges relating to acquisitions.
It is expected that increased interest and amortization relating to acquisitions
will continue to have a negative impact on Chancellor Media's results.

Historically, Capstar has also experienced net losses as a result of significant
interest and amortization charges relating to acquisitions since its
organization in October 1996. It is expected that increased interest and
amortization relating to acquisitions will continue to have a negative impact on
Capstar's results.

COMPETITIVE NATURE OF RADIO BROADCASTING AND MEDIA REPRESENTATION

Chancellor Media's lines of business are in highly competitive industries.
Chancellor Media's radio broadcasting stations and, upon completion of the
merger, Capstar's radio broadcasting stations compete for audiences and
advertising revenues with other radio stations, as well as a wide variety of
other media, including broadcast and cable television and newspapers,
billboards, magazines and other print media such as direct mail. Chancellor
Media's media representation business competes not only with other independent
and network media representatives but also with direct national advertising.
Audience ratings and market shares are subject to change, which could have an
adverse effect on Chancellor Media revenues in that market following the merger.
Consequently, Chancellor Media may not be able to maintain or increase its
current audience ratings or advertising revenues.

POTENTIAL EFFECTS ON LICENSES AND OWNERSHIP OF REGULATION OF THE RADIO
BROADCASTING INDUSTRIES

The radio broadcasting industry is subject to regulation by governmental
entities. In particular, under the Communications Act of 1934, as amended, the
Federal Communications Commission licenses radio stations and extensively
regulates their ownership and operation. Both Chancellor Media and Capstar
depend on their ability to hold their respective Federal Communications
Commission broadcast licenses, which are normally

23
<PAGE> 32

granted for terms of eight years and are renewable. Although the vast majority
of Federal Communications Commission broadcast licenses are routinely renewed
when their terms expire, there can be no assurance that a renewal will be
granted in any given case or, if granted, that restrictive conditions will not
be imposed on the grant. In addition, limitations on the ownership of radio
stations under the Federal Communications Commission's current rules, or under
revised rules now being considered by the Federal Communications Commission,
could restrict the ability of Chancellor Media and Capstar to consummate future
transactions and in certain circumstances could require that some radio stations
be sold.

RISKS ASSOCIATED WITH INVESTMENT IN OUTDOOR ADVERTISING

Upon the consummation of the pending sale of its outdoor advertising business,
Chancellor Media will own an approximate 30.0% equity interest in Lamar, a large
owner and operator of outdoor advertising structures in the United States.
Outdoor advertising displays are subject to regulation at the federal, state and
local levels, which in some cases limit the height, size, location, operation or
content of billboards. Federal, state and local ordinances also subject some
outdoor displays to removal, in some cases without compensation to the owner
under amortization ordinances. In addition, the major U.S. tobacco companies
that are defendants in numerous class action suits throughout the country
recently reached out-of-court settlements with the 46 states that includes a ban
on outdoor advertising of tobacco products. The remaining four states have also
reached separate settlement agreements with the tobacco companies. Additionally,
state and local governments are also regulating the outdoor advertising of
tobacco products, and may propose or pass similar ordinances to limit outdoor
advertising of alcohol and other products or services in the future. Following
the consummation of the sale of Chancellor Media's outdoor advertising business
to Lamar, there can be no assurance that the effect of these regulations,
potential legislation and ban on outdoor advertising of tobacco products will
not have a material impact on Lamar's financial condition and results of
operations and, consequently, the value of Chancellor Media's equity interest in
Lamar.

POTENTIAL CONFLICT OF INTEREST AS A RESULT OF CROSS-OWNERSHIP

The merger of Capstar and Chancellor Media represents a combination of two
companies in which Hicks Muse has a substantial economic interest. You should be
aware that Thomas O. Hicks, the Chairman of the Board of Chancellor Media, is
also the Chairman of the Board of Capstar, and he is a shareholder, director,
principal, managing director and executive officer of various entities
affiliated with Hicks Muse. The following table

24
<PAGE> 33

demonstrates the various overlapping interests of directors and officers of
Chancellor Media and Capstar and Hicks Muse affiliates:

<TABLE>
<CAPTION>
CHANCELLOR MEDIA
DIRECTOR CAPSTAR DIRECTOR HICKS MUSE
NAME AND/OR OFFICER AND/OR OFFICER AFFILIATE
- ---- ------------------- ---------------- ----------
<S> <C> <C> <C>
Thomas O. Hicks.............. YES YES YES
Michael J. Levitt............ YES YES YES
R. Steven Hicks.............. YES YES --
Lawrence D. Stuart, Jr. ..... YES YES YES
D. Geoffrey Armstrong........ YES YES --
William S. Banowsky, Jr. .... YES YES --
</TABLE>

You also need to be aware that Thomas O. Hicks and affiliates of Hicks Muse own
as of the date of this joint proxy statement/prospectus approximately 17.9% of
the outstanding common stock and voting power of Chancellor Media, and
approximately 94.6% of the voting power of the outstanding common stock of
Capstar (66.1% of the economic interest in the outstanding Capstar common
stock). After the merger is completed, it is expected that Thomas O. Hicks and
affiliates of Hicks Muse will own approximately 31.0% of the aggregate
outstanding Chancellor Media common stock, or about 26.2% when all of the
outstanding options, warrants and convertible securities of Chancellor Media
following the merger are taken into account. Also, as part of the Capstar
merger, affiliates of Hicks Muse are expected to receive approximately $31.7
million in payments under contracts they have with Capstar.

In addition to the above interests, you should know that Hicks Muse is in the
business of making significant investments in existing companies or forming new
ones. In the past, these have included broadcast businesses other than
Chancellor Media or Capstar that may compete with them for acquisition
opportunities or advertising business. Currently, besides Capstar and Chancellor
Media, Hicks Muse also has an interest in LIN, Southwest Sports Group, Inc. and
STC Broadcasting, Inc., which own or operate a number of television stations.
This cross-ownership may prevent Chancellor Media from acquiring radio stations
in markets where LIN, Southwest Sports Group, Inc. or STC own or operate
television stations because of Federal Communications Commission rules.

DIFFICULTY OF INTEGRATING ACQUISITIONS AND ENTERING NEW LINES OF BUSINESS

Both Chancellor Media and Capstar have acquired or are in the process of
acquiring a number of entities in radio broadcasting and media representation.
Also, Chancellor Media has recently created a national radio network and has
recently created the AMFM New Media Group, which will combine Chancellor Media's
current media representation operations, its new Internet initiative, and the
development and delivery of various programming, sales training, digital
technology, traffic, billing and yield management systems. Consequently,
management's focus will be on integrating many new acquisitions, developing its
new Internet initiative and conducting its operations on a much larger scale.

The acquisition strategy of Chancellor Media and Capstar involves other risks,
including without limitation, increasing their debt payment obligations and the
potential loss of valuable employees. The availability of additional financing
cannot be assured and,

25
<PAGE> 34

depending on the terms of the potential acquisitions, may be restricted by the
terms of the senior loan agreements of subsidiaries of Chancellor Media and
Capstar, the indentures relating to the various outstanding debt instruments of
those subsidiaries and the terms of the preferred stock of some of Capstar's
subsidiaries. There can be no assurance that any future acquisitions will not
have a material adverse effect on Chancellor Media's financial condition and
results of operations following the merger.

POSSIBLE DELAY IN CONSUMMATION OF PENDING TRANSACTIONS DUE TO ANTITRUST AND FCC
REVIEW

As a result of the concentration of ownership in the radio broadcast industry,
the U.S. Department of Justice has been looking closely at acquisitions in the
industry, including some of Chancellor Media's and Capstar's transactions. The
consummation of each of its pending transactions is, and any of the future
transactions contemplated by Chancellor Media will likely be, subject to the
notification filing requirements, applicable waiting periods and possible review
by the U.S. Department of Justice or the U.S. Federal Trade Commission under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. U.S.
Department of Justice review of certain transactions has caused, and may
continue to cause, delays in anticipated closings of particular transactions
and, in some cases, may result in attempts by the U.S. Department of Justice to
enjoin these transactions or negotiate modifications to the proposed terms.
These delays, injunctions or modifications could have a negative effect on
Chancellor Media and Capstar and result in the abandonment of some otherwise
attractive opportunities.

In addition to review by the U.S. Department of Justice and the U.S. Federal
Trade Commission, the Federal Communications Commission has also recently issued
public notices in connection with particular transactions expressing concern
that the proposed acquisition of radio stations would give the acquiring party
an excessive share of the radio advertising revenues in a given market or would
otherwise result in excessive concentration of ownership. It is not clear how
the Federal Communications Commission will proceed in this area or how any
policy it may adopt will interact with the review of similar issues by the U.S.
Department of Justice and the U.S. Federal Trade Commission.

CONTROL OF THE COMBINED COMPANY BY HICKS MUSE

Thomas O. Hicks and affiliates of Hicks Muse beneficially own approximately
17.9% of the outstanding shares of Chancellor Media common stock and 94.6% of
the voting power of the outstanding shares of Capstar common stock. Immediately
following the merger and the issuance of Chancellor Media common stock, it is
expected that Mr. Thomas O. Hicks and affiliates of Hicks Muse will control
approximately 31.0% of the outstanding common stock of Chancellor Media, or
about 26.2% when all of the outstanding options, warrants and other convertible
securities of Chancellor Media following the merger are taken into account.
Additionally, Messrs. Thomas O. Hicks, Lawrence D. Stuart, Jr., and Michael J.
Levitt, each directors of Chancellor Media, are also principals or executive
officers of Hicks Muse. Accordingly, Mr. Thomas O. Hicks and Hicks Muse will
continue to have a great deal of influence over the management policies of
Chancellor Media and all matters submitted to a vote of the holders of
Chancellor Media common stock. Also, the combined voting power of Mr. Thomas O.
Hicks and Hicks Muse may have the effect of

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<PAGE> 35

discouraging selected transactions involving an actual or potential change of
control of Chancellor Media.

INVESTORS SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING INFORMATION

Information contained in this joint proxy statement/prospectus may contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which can be identified by the use of forward-looking terminology
like "may," "will," "expect," "intend," "anticipate," "believe," "project,"
"foresee," "could," "estimate" or "continue" or the negative thereof or other
variations of those words or comparable terminology. All statements other than
statements of historical facts included in this joint proxy statement/
prospectus, including those regarding Chancellor Media's and Capstar's financial
position, business strategy, projected costs and plans and objectives of
management for future operations are forward-looking statements. The foregoing
matters and other factors noted throughout this joint proxy statement/prospectus
are cautionary statements identifying factors with respect to any
forward-looking statements, including particular risks and uncertainties, that
could cause actual results to differ materially from those in the forward-
looking statements.

All forward-looking statements contained in this joint proxy
statement/prospectus are expressly qualified in their entirety by the cautionary
statements. Stockholders of Chancellor Media and Capstar are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
the date of the joint proxy statement/ prospectus. Neither Chancellor Media nor
Capstar undertakes any responsibility to update you on the occurrence of any
unanticipated events which may cause actual results to differ from those
expressed or implied by the forward-looking statements contained in this joint
proxy statement/prospectus.

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<PAGE> 36

THE COMPANIES

CHANCELLOR MEDIA

GENERAL

Chancellor Media is a large national pure-play radio broadcasting and related
media company with operations in radio broadcasting and media representation. In
addition, upon the consummation of the pending sale of its outdoor advertising
business, Chancellor Media will own an approximate 30.0% equity interest in
Lamar, one of the largest owners and operators of outdoor advertising structures
in the United States. Chancellor Media has also recently announced the formation
of three new business units as part of a broad-based Internet initiative.

AMFM RADIO GROUP

Chancellor Media's current station portfolio consists of 124 radio stations (92
FM and 32 AM) concentrated in the top 30 markets in the continental United
States and in Puerto Rico, including 13 radio stations operated under time
brokerage agreements. Chancellor Media owns superduopolies (clusters of four or
five FM stations) in 11 of the nation's 15 largest radio markets -- New York,
Los Angeles, Chicago, San Francisco, Philadelphia, Detroit, Dallas/Ft. Worth,
Washington, D.C., Houston, Puerto Rico and Phoenix and in five other large
markets -- Minneapolis-St. Paul, Pittsburgh, Denver, Cleveland and Orlando. Upon
consummation of the Pending Transactions (as defined on page 33) and the Capstar
merger, including completion of Capstar's pending transactions, Chancellor Media
will own 466 radio stations serving 105 markets and will increase its number of
superduopolies to 45.

Chancellor Media also operates a national radio network, The AMFM Radio
Networks, which broadcasts advertising and syndicated programming shows to a
national audience of approximately 66 million listeners in the United States
(including approximately 39 million listeners from the Company's portfolio of
stations). The AMFM Radio Networks' syndicated programming shows include, among
others, American Top 40 with Casey Kasem, Rockline, The Dave Koz Show, The Bob
and Tom Morning Show and special events such as the Kentucky Derby.

Chancellor Media's portfolio of radio stations is geographically diversified and
employs a wide variety of programming formats, including adult contemporary,
contemporary hit radio, jammin' oldies, urban, jazz, country, oldies, news/talk,
rock and sports. Each Chancellor Media station targets a specific demographic
audience within a market, with the majority of the stations appealing primarily
to 18 to 34 or 25 to 54 year old men and/or women, the demographic groups most
sought after by advertisers. Management believes that, because of the size and
diversity of its station portfolio, Chancellor Media is not unduly reliant on
the performance of any one station or market. Management also believes that the
diversity of its portfolio of radio stations helps to insulate Chancellor Media
from downturns in specific markets and changes in musical tastes.

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<PAGE> 37

would have generated approximately 85% and 87%, respectively, of its net
revenues from radio broadcasting operations.

AMFM NEW MEDIA GROUP

Media Representation

Chancellor Media entered into the media representation business with the
acquisition of Katz Media Group, Inc. and its subsidiaries ("Katz") on October
28, 1997. Katz is a full-service media representation firm that sells national
spot advertising time for its clients in the radio and television industries
throughout the United States. Katz is retained on an exclusive basis by radio
and television stations in over 200 designated market areas throughout the
United States, including at least one radio or television station in each of the
50 largest designated market areas. Katz is the exclusive representation firm
for over 2,200 radio stations, including radio stations owned and operated by
Chancellor Media, Capstar, Jacor Communications, Inc., CBS Radio, Inc., Cox
Radio, Inc. and Heftel Broadcasting Corporation. Katz is also the exclusive
representation firm for over 365 television stations, including television
stations owned and operated by Paramount Communications, Inc., Hearst Argyle
Television, Inc., The E.W. Scripps Company, Clear Channel Communications, Inc.,
Allbritton Communications Company and Sinclair Broadcast Group, Inc., among
others.

For the year ended December 31, 1998 and the three months ended March 31, 1999,
on a pro forma basis after giving effect to the transactions described in "Pro
Forma Financial Information" beginning on page P-1, except for the Capstar
Merger, Chancellor Media would have generated approximately 15% and 13%,
respectively, of its net revenues from media representation operations.

Internet Initiative

Chancellor Media has recently initiated a broad-based Internet strategy intended
to leverage the value of its national radio station portfolio, proprietary
content, advertiser relationships and listener base. As part of this strategy,
Chancellor Media has formed three new business units: AMFMi; AMFM.com; and AMFM
Equities. Together, AMFMi and AMFM.com are intended to develop and position
Internet web sites representing Chancellor Media's portfolio of radio stations
as highly trafficked Internet destinations designed to further Chancellor
Media's relationship with its listening audience. These web sites are expected
to encompass a variety of functionality including online streaming of Chancellor
Media's on-air programming and other media. In addition, AMFM Equities is
intended to promote emerging Internet and new media businesses. Each of these
new Internet business units will be led by Mr. R. Steven Hicks, President and
Chief Executive Officer of the AMFM New Media Group.

LAMAR ADVERTISING COMPANY INVESTMENT

Following the completion of the sale of Chancellor Media's outdoor advertising
business to Lamar, Chancellor Media will own an approximate 30.0% equity
interest in Lamar. See "-- Recent Developments -- Outdoor Group Disposition."
Chancellor Media currently intends to retain the shares of common stock of Lamar
that it will receive in the Outdoor Group disposition for investment purposes.

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<PAGE> 38

Lamar is one of the largest and most experienced owners and operators of outdoor
advertising structures in the United States. Upon consummation of the Outdoor
Group disposition, Lamar will operate approximately 118,000 outdoor advertising
displays in 39 states and will be ranked first in the United States in terms of
the number of display faces. In addition, Lamar operates the largest logo sign
business (signs located near highway exits which deliver brand name and
directional information on available gas, food lodging and camping services) in
the United States. Lamar also operates transit advertising displays on bus
shelters, bus benches and buses in several markets. Lamar's overall business
strategy is to be the leading provider of outdoor advertising in the markets it
serves, with a historical emphasis on providing a full range of outdoor
advertising services in middle markets (i.e., markets with a population ranking
between 50 and 250).

For the twelve months ended December 31, 1998 and the three months ended March
31, 1999, Lamar reported net revenue of $288.6 million and $85.8 million,
respectively, and operating income before depreciation and amortization of
$134.8 million and $35.9 million, respectively.

RECENT DEVELOPMENTS

Outdoor Group Disposition

On June 1, 1999, Chancellor Media agreed to sell to Lamar all of the outstanding
shares of Chancellor Media Outdoor Corporation, an indirect wholly-owned
subsidiary of Chancellor Media which holds all of Chancellor Media's assets used
in its outdoor advertising business (the "Outdoor Group Disposition"). Under the
terms of the stock purchase agreement and related agreements, Chancellor Media
will receive

(1) cash proceeds of approximately $700.0 million, subject to a net working
capital adjustment, and

(2) 26,227,273 shares of Lamar class A common stock (the "Lamar Shares").

Chancellor Media intends to use the net cash proceeds from the Outdoor Group
Disposition to repay outstanding indebtedness. Upon consummation of the Outdoor
Group Disposition, Chancellor Media will own approximately 30.0% of the
aggregate number of outstanding shares of common stock of Lamar, based upon the
number of shares of Class A Common Stock and Class B Common Stock of Lamar
outstanding as of May 31, 1999.

Under the terms of the stock purchase agreement, Lamar, Chancellor Media, and
the controlling stockholder of Lamar have agreed to enter into a stockholders
agreement upon completion of the Outdoor Group Disposition, under which:

- - Chancellor Media will have the right to designate two members of Lamar's Board
of Directors;

- - Chancellor Media will agree not to sell any of the Lamar Shares for a period
of 12 months from the closing date; and

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<PAGE> 39

- - Lamar will agree not to take any action without the prior written consent of
Chancellor Media that would result in

(1) a "change of control," as defined in the stockholders agreement, or

(2) the acquisition or disposition of assets worth in excess of $500.0
million;

provided, in each case that these restrictions will not apply in any transaction
in which all of the owners of Lamar common stock cease to own any equity
interest in Lamar or a successor, in any merger where all common stockholders of
Lamar are entitled to statutory appraisal rights, or in any sale of
substantially all of the assets of Lamar to an unaffiliated third party in which
the net proceeds thereof are promptly distributed to the common stockholders of
Lamar.

In addition, Lamar and CMCLA will enter into a registration rights agreement at
the closing of the Outdoor Group Disposition which will give Chancellor Media
the right to require Lamar to register the sale of the Lamar Shares under
applicable securities laws in some circumstances.

Review of Strategic Alternatives

On January 20, 1999, Chancellor Media announced that its Board of Directors
engaged the investment banking firm of BT Alex. Brown Incorporated as financial
advisor for the purpose of assisting management and the Board of Directors of
Chancellor Media in developing, reviewing and structuring a range of strategic
alternatives intended to maximize stockholder value. On February 11, 1999,
Chancellor Media announced that it had added additional advisors Morgan Stanley
Dean Witter, Hicks Muse, Goldman, Sachs & Co., Greenhill & Co., LLC and Chase
Securities Inc. to assist in exploring these alternatives, which included the
potential sale, merger or consolidation of the entire company or some of its
operating assets.

LIN Merger Termination. On July 7, 1998, Chancellor Media entered into a merger
agreement with the indirect parent of LIN to acquire LIN in a stock for stock
transaction. Effective March 15, 1999, Chancellor Media and LIN agreed to
terminate the LIN merger agreement.

Executive Management Realignment. On March 15, 1999, Chancellor Media announced
the following executive management changes:

- - the resignation of Jeffrey A. Marcus as Chancellor Media's President and Chief
Executive Officer effective March 15, 1999;

- - the resignation of Eric C. Neuman as Chancellor Media's Senior Vice
President -- Strategic Development effective March 15, 1999; and

- - the appointment of William S. Banowsky, Jr., currently Executive Vice
President, and General Counsel of Capstar, as Executive Vice President and
General Counsel, replacing Richard A. B. Gleiner, formerly Senior Vice
President, Secretary and General Counsel of Chancellor Media effective March
15, 1999.

Termination of Petry Acquisition. On April 28, 1999, Chancellor Media terminated
its previously announced acquisition of Petry Media Corporation, a television
representation firm.

Transactions Completed Since January 1, 1998

Chancellor Media completed the following transactions from January 1, 1998
through May 15, 1999:

- - the acquisition of approximately 42,500 outdoor advertising billboards and
display faces for approximately $1.7 billion in cash;

- - the acquisition of 17 radio stations (14 FM and three AM) for approximately
$459.4 million in cash;

- - the exchange of five radio stations (four FM and one AM) and approximately
$153.3 million in cash for four FM radio stations;

- - the acquisition of various national radio network syndicated programming shows
and related programming or music production libraries, including American Top
Forty with Casey Kasem, for approximately $36.7 million in cash;

- - the sale of one AM radio station in Chicago for approximately $21.0 million in
cash; and

- - the sale of approximately 466 outdoor advertising displays for approximately
$25.5 million in cash.

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<PAGE> 41

Pending Transactions

The following transactions are referred to collectively as the "Pending
Transactions."

On February 20, 1998, Chancellor Media entered into an agreement to acquire from
Capstar, over a period of three years, eleven radio stations from Capstar for an
aggregate purchase price of $637.5 million, of which the acquisition of one
radio station was completed on May 29, 1998 for approximately $143.3 million.
Chancellor Media is currently assessing the effects of the Capstar merger on the
February 20, 1998 purchase agreement. On February 1, 1999, Chancellor Media
began operating WKNR-AM in Cleveland, a station owned by Capstar, under a time
brokerage agreement.

On September 15, 1998, Chancellor Media entered into an agreement to acquire
KKFR-FM and KFYI-AM in Phoenix from The Broadcast Group, Inc. for $90.0 million
in cash. Chancellor Media began operating KKFR-FM and KFYI-AM under a time
brokerage agreement effective November 5, 1998. Although there can be no
assurance, Chancellor Media expects that the Phoenix acquisition will be
consummated in the second quarter of 1999.

On June 1, 1999, Chancellor Media entered into a definitive agreement to sell
its outdoor advertising subsidiary to Lamar. See "-- Outdoor Group Disposition."

Consummation of each of the transactions discussed above is subject to various
conditions, including approval from the Federal Communications Commission
("FCC"), in the case of radio broadcast station transactions, and the expiration
or early termination of any waiting period required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Chancellor Media
believes that such conditions will be satisfied in the ordinary course, but
there can be no assurance that this will be the case.

Other Transactions

On September 3, 1998, Chancellor Media entered into an agreement to acquire
Pegasus Broadcasting of San Juan, L.L.C. ("Pegasus"), a television broadcasting
company which owns a television station in Puerto Rico, for approximately $69.6
million in cash. In connection with the decision by Chancellor Media and LIN to
terminate the LIN merger, the Board of Directors of Chancellor Media approved
the negotiation of the assignment of Chancellor Media's agreement to acquire
Pegasus to LIN. The assignment of the agreement to acquire Pegasus is still
subject to negotiation of definitive documentation, third-party approval and
various other conditions, including governmental approvals and, accordingly,
there can be no assurance that such a transaction will be completed by
Chancellor Media on favorable terms, if at all. In the event that an assignment
to LIN of the Pegasus acquisition agreement cannot be finalized, Chancellor
Media expects to solicit another third-party buyer for such company.

1998 Financing Transactions

On March 13, 1998, Chancellor Media completed an offering of 21,850,000 shares
of its common stock for net proceeds of approximately $994.6 million. The net
proceeds were used to reduce bank borrowings under the revolving credit portion
of Chancellor Media's senior credit facility and the excess proceeds were
initially invested in short-term

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<PAGE> 42

investment grade securities. Chancellor Media subsequently used the excess
proceeds for general corporate purposes, including the financing of certain
acquisitions and exchanges.

On May 8, 1998, Chancellor Media Corporation of Los Angeles ("CMCLA"), an
indirect wholly-owned subsidiary of Chancellor Media, completed a consent
solicitation to modify certain timing restrictions on its ability to exchange
all shares of its 12% exchangeable preferred stock for its 12% Subordinated
Exchange Debentures due 2009. Consenting holders of 12% exchangeable preferred
stock received payments of $0.05 per share of 12% exchangeable preferred stock.
On May 13, 1998, CMCLA exchanged the shares of 12% exchangeable preferred stock
for 12% Subordinated Exchange Debentures due 2009. In connection with the
consent solicitation and the exchange, CMCLA incurred approximately $0.3 million
in transaction costs which were recorded as deferred debt issuance costs.

On June 10, 1998, CMCLA completed a cash tender offer for all of its 12%
Subordinated Exchange Debentures due 2009 for an aggregate repurchase cost of
$262.5 million which included

- - the principal amount of the 12% Subordinated Exchange Debentures due 2009 of
$211.8 million,

- - premiums on the repurchase of the 12% Subordinated Exchange Debentures due
2009 of $47.8 million,

- - accrued and unpaid interest on the 12% Subordinated Exchange Debentures due
2009 from May 13, 1998 through June 10, 1998 of $2.0 million and

- - estimated transaction costs of $0.9 million.

In connection with the tender offer, CMCLA recorded an extraordinary charge of
$31.9 million (net of a tax benefit of $17.2 million) consisting of the
premiums, estimated transaction costs and the write-off of the unamortized
balance of deferred debt issuance costs.

On July 20, 1998, CMCLA completed a consent solicitation to modify certain
timing restrictions on its ability to exchange all shares of its 12 1/4% Series
A senior cumulative exchangeable preferred stock for its 12 1/4% Subordinated
Exchange Debentures due 2008. Consenting holders of 12 1/4% Series A senior
cumulative exchangeable preferred stock received payments of $0.05 per share of
12 1/4% preferred stock. On July 23, 1998, CMCLA exchanged the shares of 12 1/4%
Series A senior cumulative exchangeable preferred stock for 12 1/4% Subordinated
Exchange Debentures due 2008 (the "12 1/4% Exchange"). In connection with the
consent solicitation and the 12 1/4% Exchange, CMCLA incurred approximately $0.2
million in transaction costs which were recorded as deferred debt issuance
costs.

On August 19, 1998, CMCLA completed a cash tender offer for all of its 12 1/4%
Subordinated Exchange Debentures due 2008 for an aggregate repurchase cost of
$143.8 million which included

- - the principal amount of the 12 1/4% Subordinated Exchange Debentures due 2008
of $119.4 million,

- - premiums on the repurchase of the 12 1/4% Subordinated Exchange Debentures due
2008 of $22.7 million,

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<PAGE> 43

- - accrued and unpaid interest on the 12 1/4% Subordinated Exchange Debentures
due 2008 from July 23, 1998 through August 19, 1998 of $1.1 million and

- - estimated transaction costs of $0.6 million.

In connection with the tender offer, CMCLA recorded an extraordinary charge of
$15.2 million (net of a tax benefit of $8.2 million) consisting of the premiums,
estimated transaction costs and the write-off of the unamortized balance of
deferred debt issuance costs.

On September 30, 1998, CMCLA issued $750.0 million aggregate principal amount of
9% Senior Subordinated Notes due 2008 for estimated net proceeds of $730.0
million in a private placement and subsequently exchanged the 9% Senior
Subordinated Notes due 2008 on December 10, 1998 for substantially identical
notes in a registered exchange offer. Interest on the 9% Senior Subordinated
Notes due 2008 is payable semiannually, on April 1 and October 1 of each year.

On November 17, 1998, CMCLA issued $750.0 million aggregate principal amount of
8% Senior Notes due 2008 for estimated net proceeds of $730.0 million in a
private placement. Interest on the 8% Senior Notes due 2008 is payable
semiannually, on May 1 and November 1 of each year.

COMPANY STRATEGY

Chancellor Media's overall strategy is to enhance stockholder value by focusing
on revenue and cash flow growth and the reduction of leverage through the
successful operation of its radio and media representation business assets, as
well as through the development of Chancellor Media's new Internet initiative as
part of the AMFM New Media Group. In this regard, Chancellor Media has built a
large portfolio of radio broadcasting and related media assets which enables
Chancellor Media to deliver more options and greater value to its advertising
clients. Chancellor Media plans to continue to enhance revenue and cash flow
growth by leveraging the extensive operating experience of its senior management
team.

AMFM Radio Group Strategy. Chancellor Media's senior management team, led by
James E. de Castro, President and Chief Executive Officer of AMFM Radio Group
and Kenneth J. O'Keefe, Chief Operating Officer of AMFM Radio Group, has
extensive experience in acquiring and operating radio station groups. Chancellor
Media's business strategy is to assemble and operate radio station clusters in
order to maximize the broadcast cash flow generated in each market.

Chancellor Media seeks to capitalize on the revenue growth and expense savings
opportunities through the successful integration of station cluster groups.
Management believes that radio station clusters can attract increased revenues
in a market by delivering larger combined audiences to advertisers and by
engaging in joint marketing and promotional activities. In addition, management
expects to realize expense savings through the consolidation of facilities and
through the economies of scale created in areas such as national representation
commissions, employee benefits, insurance premiums and other operating costs.

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<PAGE> 44

Chancellor Media also seeks to maximize station operating performance through
intense market research, innovative programming and unique marketing campaigns
to establish strong listener loyalty and ensure steady long-term audience share
ratings. Management believes its ratings growth in many of its markets is driven
by Chancellor Media's ability to attract talented people and to continue
delivering quality programming to its listeners.

Chancellor Media also seeks to leverage its radio expertise and platform and
enhance revenue and cash flow growth through the continued expansion of its
national radio network, The AMFM Radio Networks, as well as through the newly
formed Chancellor Marketing Group, which provides full service sales promotion
and marketing programs for Fortune 100 companies.

AMFM New Media Group Strategy. Chancellor Media's overall strategy for its media
representation business is to create a leading national representation firm
serving all types of electronic media. Chancellor Media believes it can continue
to generate revenue and cash flow growth in the media representation business by
expanding its market share and improving its national sales effort. Management
will seek to increase market share by developing new clients, expanding
operations in existing and new markets and acquiring representation contracts of
its competitors. Chancellor Media will continue to provide the highest level of
quality service to its clients by offering comprehensive advertisement, planning
and placement services, as well as a broad range of value added benefits,
including marketing, research, consulting and programming advisory services.
Chancellor Media will also have the ability to expand its level of service to
advertisers through the growth of its unwired network of radio and television
stations which provides advertisers with greater flexibility and the ability to
target specific demographic groups or markets.

Chancellor Media also intends to enhance its radio station operations by
extending the reach and presence of its radio stations on the Internet through
its newly created Internet business units, AMFMi, AMFM.com and AMFM Equities.
Although currently in the development stage, it is expected that Chancellor
Media's three new business units will allow it to transform members of its loyal
weekly audience of over 66 million listeners into active members of locally
customized communities and e-commerce buying clubs. The web sites of AMFMi will
be designed to strengthen each individual listener's relationship with the
respective radio broadcast stations by providing information and interactive
functionality that augment the individual user's listening experience.
Chancellor Media believes that these new business units can take advantage of
the unique opportunity to use the complementary nature of radio and the Internet
to derive revenue from a variety of sources, including e-commerce, increased
traditional advertising from its radio stations through a strengthened affinity
between the stations and their audiences, and the sales of online advertising
and online commercial sponsorships.

RADIO BROADCASTING

The primary source of Chancellor Media's radio revenues is the sale of
broadcasting time for local, regional and national advertising. Approximately
69% of Chancellor Media's gross radio revenues were generated from the sale of
local advertising in 1996 and 1997, and approximately 66% of Chancellor Media's
gross radio revenues were generated from the sale of local advertising in 1998.
Chancellor Media believes that radio is one of the most

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<PAGE> 45

efficient, cost-effective means for advertisers to reach specific demographic
groups. The advertising rates charged by Chancellor Media's radio stations are
based primarily on

(1) a station's ability to attract audiences in the demographic groups
targeted by its advertisers (as measured principally by quarterly
Arbitron rating surveys that quantify the number of listeners tuned to
the station at various times) and

(2) the supply of and demand for radio advertising time.

Advertising rates generally are the highest during morning and evening
drive-time hours. Depending on the format of a particular station, there are
predetermined numbers of advertisements that are broadcast each hour. Chancellor
Media determines the number of advertisements broadcast hourly that can maximize
available revenue dollars without jeopardizing listening levels. Although the
number of advertisements broadcast during a given time period may vary, the
total number of advertisements broadcast on a particular station generally does
not vary significantly from year to year.

A station's sales staff generates most of its local and regional advertising
sales. To generate national advertising sales, Chancellor Media engages an
advertising representative for each of its stations that specializes in national
sales and is compensated on a commission-only basis. Most advertising contracts
are short-term and generally run only for a few weeks.

The following table sets forth selected information with respect to the
portfolio of radio stations that are owned and/or programmed by Chancellor Media
as of May 15, 1999.

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<TABLE>
<CAPTION>
STATION RANKING
MSA AUDIENCE TARGET IN TARGET
MARKET(1) RANK(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
--------- ------- ------------------ ----------- ---------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
San Francisco, CA.... 4 KYLD-FM 4.0 Contemporary Hit Persons
Radio/Dance 18-34 1
KMEL-FM 3.4 Contemporary Hits Persons
18-34 2
KISQ-FM 3.4 Hit Base R&B Adult Persons
Contemporary 25-54 2
KKSF-FM 3.3 Smooth Jazz Persons
25-54 7
KIOI-FM(5) 2.8 Adult Contemporary Women 25-54 3
KABL-AM 3.1 Adult Standards Persons
35-64 13
KNEW-AM(5) 0.1 Adult Contemporary Women 25-54 43
Philadelphia, PA..... 5 WDAS-FM 5.8 Urban Contemporary Persons
25-54 1
WUSL-FM 5.0 Urban Contemporary Women 18-34 2
WJJZ-FM 4.9 Smooth Jazz Persons
35-54 5
WIOQ-FM 3.7 Contemporary Hit Radio Persons
18-34 4
WYXR-FM 3.1 Hot Adult Contemporary Women 18-49 3
WDAS-AM 1.1 Gospel N/A N/A
Detroit, MI.......... 6 WNIC-FM 8.2 Adult Contemporary Women 25-54 1
WJLB-FM 6.6 Urban Contemporary Persons
18-34 1
WMXD-FM 4.3 Adult Urban Persons
Contemporary 25-54 5
WWWW-FM 3.1 Country Women 25-54 11
WKQI-FM 3.7 Hot Adult Contemporary Women 25-54 2
WDFN-AM 1.4 Sports Men 25-49 8
WYUR-AM 0.3 Nostalgic Persons
35-64 31
Dallas, TX........... 7 KHKS-FM 6.3 Top 40 Women 18-34 1
KZPS-FM 4.1 Classic Rock Persons
25-54 1
KDGE-FM 3.1 Alternative Rock Persons
18-34 9
KSKY-AM N/A Southern Gospel N/A N/A
Music/Religious
KTXQ-FM** 3.3 Jammin' Oldies Persons
25-54 8
KBFB-FM** 1.6 Soft Rock Persons
25-54 20
Boston, MA........... 8 WJMN-FM 6.6 Contemporary Hits Persons
Radio/Rhythmic 18-34 1
WXKS-FM 5.8 Contemporary Hit Women 25-34 1
Radio/Top 40
WXKS-AM 1.8 Bloomberg News/ Music Persons
Memory 35-64 26
Washington, D.C. .... 9 WBIG-FM 4.2 Oldies Persons
25-54 7
WGAY-FM 4.1 Jammin' Oldies Persons
35-44 N/M
WMZQ-FM 3.9 Country Persons
25-54 8
WWDC-FM 3.7 Album Oriented Rock Persons
18-34 5
WASH-FM 3.6 Adult Contemporary Women 25-54 2
WTEM-AM 1.7 Sports/Talk Men 18-49 11
WWDC-AM 0.1 Music of Your Life Persons 55+ 13
WWRC-AM 0.3 Talk Persons
35-64 27
Houston, TX.......... 10 KODA-FM 6.2 Adult Contemporary Persons
25-54 1
KTRH-AM 4.1 News/Info/Sports Persons
35-54 7
KLDE-FM 3.9 Oldies Persons
25-54 8
KLOL-FM 3.6 Rock Men 18-34 3
KBME-AM 2.6 Popular Standards Persons
35-64 18
KKBQ-FM 2.5 Country Persons
25-54 15
KKRW-FM**(6) 3.4 Classic Rock Persons
25-54 7
KQUE-AM**(6) N/A Classic Rock Persons
25-54 36
Miami/Ft. Lauderdale,
FL.................. 11 WEDR-FM 6.7 Urban Contemporary Persons
25-54 1
WVCG-AM 0.4 Brokered(7) N/A N/A
</TABLE>

38
<PAGE> 47

<TABLE>
<CAPTION>
STATION RANKING
MSA AUDIENCE TARGET IN TARGET
MARKET(1) RANK(2) STATION SHARE(%)(3) STATION FORMAT DEMOGRAPHICS DEMOGRAPHICS(4)
--------- ------- ------------------ ----------- ---------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Atlanta, GA.......... 12 WFOX-FM 3.5 Oldies Persons
25-54 10
Puerto Rico.......... 13 WZNT-FM N/A Oldies/Classic Music Men 18-49 N/A
WOYE-FM N/A Top 40 Persons
12-24 N/A
WCOM-FM N/A Top 40 Persons
12-24 N/A
WOQI-FM N/A Top 40 Persons
12-24 N/A
WCTA-FM N/A Oldies/Classic Music Men 18-49 N/A
WIOA-FM N/A Continuous Favorite Women 18-49 N/A
Ballads/Today's Hits
WIOB-FM N/A Continuous Favorite Women 18-49 N/A
Ballads/Today's Hits
WIOC-FM N/A Continuous Favorite Women 18-49 N/A
Ballads/Today's Hits
Phoenix, AZ.......... 15 KMLE-FM 4.7 Country Persons
25-54 4
KOOL-FM 4.2 Oldies Persons
25-54 5
KOY-AM 4.2 Adult Standards Persons
35-64 13
KYOT-FM 3.6 Contemporary Jazz Persons
25-54 10
KZON-FM 3.3 Alternative Rock Persons
18-34 4
KISO-AM 0.9 Country Persons
35-54 25
KFYI-AM* 5.6 News/Talk Persons
25-54 7
KKFR-FM* 5.5 Urban Contemporary Hit Persons
Radio 18-34 2
San Diego, CA........ 16 KYXY-FM** 5.6 Soft Adult Women 25-54 3
Contemporary
KPLN-FM** 1.9 Classic Rock Men 25-54 13
Nassau/Suffolk, NY
(Long Island)(8).... 17 WALK-FM 5.3 Adult Contemporary Persons
25-54 2
WALK-AM N/A Adult Contemporary Persons
35-64 N/A
Minneapolis/St. Paul,
MN.................. 18 KDWB-FM 7.5 Contemporary Hit Radio Women 18-49 1
KEEY-FM 6.9 Country Persons
25-54 2
KQQL-FM 4.7 Oldies Persons
25-54 6
KTCZ-FM 3.7 Adult Oriented Rock Persons
25-54 9
WRQC-FM 2.4 Active Rock Men 18-34 3
KFAN-AM(9) 2.3 Sports/Talk Men 25-54 5
KFXN-AM(9) N/A Sports/Talk Men 25-54 N/A
Pittsburgh, PA....... 21 WWSW-FM(10) 4.4 Oldies Person 25-54 6
WWSW-AM(10) 0.6 Oldies Persons
25-54 31
WDVE-FM** 8.3 Rock Persons
25-54 1
WXDX-FM** 5.1 Alternative Rock Persons
18-34 2
WJJJ-FM** 3.5 Smooth Jazz Persons
25-54 12
WPHH-FM (formerly
WDRV-FM)** 2.9 Hot Adult Contemporary Women 25-54 7
Denver, CO........... 23 KALC-FM 4.8 Hot Adult Contemporary Persons
18-34 2
KXKL-FM 4.5 Oldies Persons
25-54 6
KIMN-FM 3.1 Hot Adult Contemporary Persons
25-54 10
KXPK-FM 2.2 Adult Modern Rock Persons
18-49 14
KVOD-FM 2.0 Jammin' Oldies Persons
25-54 N/M
KEXX-AM 0.6 Classical Persons
25-54 N/M
</TABLE>

39
<PAGE> 48

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

<TABLE>
<C> <S>
N/A: Not available
N/M The Winter 1999 station ranking is based on the station's
previous target demographic and/or format and is, therefore,
not considered meaningful.
* Indicates station to be acquired by Chancellor Media in a
pending transaction and currently operated pursuant to a
time brokerage agreement.
** Indicates station currently owned by Capstar and operated by
Chancellor Media pursuant to a time brokerage agreement.
(1) Actual city of license may differ from metropolitan market
served in certain cases.
(2) Metropolitan Statistical Area ("MSA") rank obtained from BIA
Research-Master Access Pro, Version 2.5 Radio Analysis
Database (current as of February 24, 1999), based upon 1998
gross revenue for the indicated markets.
(3) Information derived from The Arbitron Company, Winter 1999,
Local Market Reports in the specified markets for listeners
age 12 and over, Monday to Sunday, 6:00 a.m. to Midnight.
Copyright, The Arbitron Company.
(4) Information derived from The Arbitron Company, Winter 1999,
Local Market Reports in the specified markets for the Target
Demographics specified for listening Monday to Sunday, 6:00
a.m. to Midnight. Copyright, The Arbitron Company.
(5) Programming provided to KNEW-AM via simulcast of programming
broadcast on KIOI-FM.
(6) Programming provided to KQUE-AM via simulcast of programming
broadcast on KKRW-FM.
(7) The Company sells airtime on WVCG-AM to third parties for
broadcast of specialty programming on a variety of topics.
(8) Nassau/Suffolk (Long Island) may be considered part of the
greater New York market, although it is reported separately
as a matter of convention.
(9) KFAN-AM and KFXN-AM are sold in combination.
</TABLE>

40
<PAGE> 49
<TABLE>
<S> <C>
(10) Programming provided to WWSW-AM via simulcast of programming
broadcast on WWSW-FM.
(11) WUBE-FM and WYGY-FM are sold in combination.
</TABLE>

MEDIA REPRESENTATION

Chancellor Media's Katz media representation operations generate revenues
primarily through contractual commissions realized through the sale of national
spot advertising air time. National spot advertising air time is commercial air
time sold to advertisers on behalf of radio and television stations and cable
systems located outside the local markets of those stations and systems. Katz
represents its media clients pursuant to media representation contracts. Media
representation contracts typically have terms of up to ten years in initial
length. In connection with the substantial consolidation that has occurred in
the broadcast industry in recent years and the development of large client
station groups, the frequency of representation contract "buyouts" has
increased. These buyouts occur because station groups have tended to negotiate
exclusive, long-term representation contracts with a single media representation
firm covering all of the station group's stations, including stations acquired
after the date of the initial representation contract. In the event that one of
the station group's stations is sold to an owner represented by a different
firm, representation contracts are frequently bought out by the successor
representation firm. Katz generally amortizes the cost of acquiring new
representation contracts associated with a buyout over the expected benefit
period, and recognizes the gain on the disposition of representation contracts
on the effective date of the buyout agreement.

Certain radio stations owned by Capstar have engaged Katz to sell national spot
advertising air time, and such stations pay customary commissions to Katz for
such services. See "Certain Relationships and Related Party Transactions."

EMPLOYEES

As of May 31, 1999, Chancellor Media had approximately 5,900 full-time employees
and approximately 1,000 part-time employees. Approximately 365 employees are
represented by unions. Chancellor Media believes that it has good relations with
its employees and these unions.

Chancellor Media employs several high-profile on-air personalities who have
large, loyal audiences in their respective markets. Chancellor Media believes
that its relationships with its on-air talent are valuable, and it generally
enters into employment agreements with these individuals.

PROPERTIES

Chancellor Media's corporate headquarters is located in Dallas, Texas. The types
of properties required to support each of Chancellor Media's radio stations and
media representation business include offices, studios, transmitter sites,
antenna sites and production facilities.

A radio station's studio is generally housed with its office in a downtown or
business district. A radio station's transmitter sites and antenna sites
generally are located in a

41
<PAGE> 50

manner that provides maximum market coverage. The media representation business
operates out of 54 separate locations throughout the United States.

The offices and studios of Chancellor Media's corporate headquarters, radio
stations and media representation business are located in leased or owned
facilities. These leases generally have expiration dates that range from one to
thirteen years. Chancellor Media either owns or leases its transmitter and
antenna sites. These leases generally have expiration dates that range from one
to thirty years. Chancellor Media does not anticipate any difficulties in
renewing those leases that expire within the next several years or in leasing
other space, if required. Chancellor Media owns substantially all of the studio
and other equipment used in its radio broadcasting business.

No one property is material to Chancellor Media's overall operations. Chancellor
Media believes that its properties are in good condition and suitable for its
operations.

LEGAL PROCEEDINGS

In July 1998, a stockholder derivative action was commenced in the Delaware
Court of Chancery by a stockholder purporting to act on behalf of Chancellor
Media. The defendants in the case include Hicks Muse, LIN Television Corporation
and some of Chancellor Media's directors. In connection with Chancellor Media's
then proposed merger with LIN, the plaintiff alleges that, among other things:

- - Hicks Muse allegedly caused Chancellor Media to pay too high of a price for
LIN Television Corporation because Hicks Muse had allegedly paid too high of a
price when it acquired LIN; and

- - the transaction therefore allegedly constitutes a breach of fiduciary duty and
a waste of corporate assets by Hicks Muse, which is alleged to control
Chancellor Media, and the directors of Chancellor Media named as defendants.

The plaintiff seeks to enjoin consummation or rescission of the transaction,
compensatory damages, an order requiring that the directors named as defendants
"carry out their fiduciary duties," and attorneys' fees and other costs.

As a result of the termination of the LIN merger, this stockholder derivative
action has become moot and plaintiff, defendants and Chancellor Media have
agreed, subject to a number of conditions, including preparing and finalizing
definitive documentation and notice to stockholders, to a dismissal of the
action. In connection with this dismissal, Chancellor Media's directors' and
officers' insurance carrier has agreed to pay plaintiff's counsel $275,000 in
legal fees plus documented expenses of up to $10,000.

In September 1998, a stockholder class action complaint was filed in the
Delaware Court of Chancery by a stockholder purporting to act individually and
on behalf of all other persons, other than defendants, who own securities of
Chancellor Media and are similarly situated. The defendants named in the case
are Chancellor Media, Hicks Muse, Thomas O. Hicks, Jeffrey A. Marcus, James E.
de Castro, Eric C. Neuman, Lawrence D. Stuart, Jr., Steven Dinetz, Thomas J.
Hodson, Perry Lewis, John H. Massey and Vernon E. Jordan, Jr. The plaintiff
alleges breach of fiduciary duties, gross mismanagement, gross negligence or
recklessness, and other matters relating to the defendants' actions in
connection with the proposed Capstar merger. The plaintiff seeks to certify the
complaint as a class action, enjoin consummation of the Capstar merger, order
defendants to account to plaintiff and other alleged class members for damages,
and award attorneys'

42
<PAGE> 51

fees and other costs. Chancellor Media believes that the lawsuit is without
merit and intends to vigorously defend the action.

On July 10, 1998, Chancellor Media entered into an agreement to acquire a 50%
economic interest in Grupo Radio Centro, S.A. de C.V., an owner and operator of
radio stations in Mexico, for approximately $120.5 million in cash and $116.5
million in Chancellor Media common stock. On October 15, 1998, Chancellor Media
announced that it had provided notice to Grupo Radio that it was terminating the
acquisition agreement in accordance with its terms. Chancellor Media has
received notice from Grupo Radio requesting arbitration under the terms of the
acquisition agreement of allegations that Chancellor Media wrongfully terminated
that agreement and seeking damages of approximately $80 million. The arbitration
hearings are scheduled to begin on June 21, 1999. Chancellor Media believes that
it had a proper basis for terminating the agreement in accordance with its terms
and is contesting these allegations vigorously.

Chancellor Media is also involved in various other claims and lawsuits which are
generally incidental to its business. Chancellor Media is also vigorously
contesting all of these matters and believes that the ultimate resolution of
these matters and those mentioned above will not have a material adverse effect
on its consolidated financial position or results of operations.

43
<PAGE> 52

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

General

Since 1995, Chancellor Media has engaged in an acquisition strategy
concentrating on expanding its presence in the nation's largest radio markets.
Chancellor Media's portfolio of radio stations that it owned and/or programmed
as of December 31, 1996, 1997 and 1998 and March 31, 1999 follows:

<TABLE>
<CAPTION>
DECEMBER 31,
MSA -------------------- MARCH 31,
MARKET RANK(1) 1996 1997 1998 1999
- ------ ------- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
New York................. 1 1 4 5 5
Los Angeles.............. 2 1 5 5 5
Chicago.................. 3 7 7 7 6
San Francisco............ 4 5 7 7 7
Philadelphia............. 5 2 6 6 6
Detroit.................. 6 5 7 7 7
Dallas/Ft. Worth......... 7 1 4 6 6
Boston................... 8 3 3 3 3
Washington, D.C. ........ 9 3 8 8 8
Houston.................. 10 2 4 8 8
Miami/Ft. Lauderdale..... 11 2 2 2 2
Atlanta.................. 12 -- 1 1 1
Puerto Rico.............. 13 -- -- 8 8
Phoenix.................. 15 -- 6 8 8
San Diego................ 16 -- -- 2 2
Nassau/Suffolk (Long
Island)................ 17 -- 2 2 2
Minneapolis/St. Paul..... 18 -- 7 7 7
Pittsburgh............... 21 -- 2 6 6
Denver................... 23 -- 5 6 6
Cleveland................ 24 -- -- 1 7
Cincinnati............... 26 -- 4 4 4
Sacramento............... 28 -- 4 4 4
Riverside/San
Bernardino............. 29 -- 2 2 2
Charlotte................ 37 6 -- -- --
Orlando.................. 39 -- 4 4 4
Jacksonville............. 52 -- 2 -- --
-- -- --- ---
Total.......... 38 96 119 124
== == === ===
</TABLE>

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

(1) MSA rank obtained from BIA Research-Master Access Pro, Version 2.5 Radio
Analysis Database (current as of February 24, 1999), based upon 1998 gross
revenue for the indicated markets.

Chancellor Media will significantly increase its radio broadcasting presence
upon consummation of the Capstar merger, which is expected to be completed in
the third quarter of 1999. Assuming the completion of the Pending Transactions
and the Capstar merger, including the completion of Capstar's pending
transactions, Chancellor Media's portfolio will increase to 466 radio stations
serving 105 markets, thereby creating the nation's largest radio broadcasting
company.

44
<PAGE> 53

Chancellor Media entered the media representation business with the acquisition
of Katz in October 1997. Chancellor Media also entered the outdoor advertising
business with the acquisition of Martin Media in July 1998 and the outdoor
advertising business of Whiteco Industries, Inc. in December 1998; however,
Chancellor Media has recently agreed to sell its outdoor advertising business to
Lamar. See "-- Recent Developments -- Sale of Outdoor Group."

Results of Operations

Three Months Ended March 31, 1999 Compared To Three Months Ended
March 31, 1998

Chancellor Media's results of operations for the three months ended March 31,
1999 are not comparable to the results of operations for the three months ended
March 31, 1998 due to the impact of the various acquisitions and dispositions.
Chancellor Media completed the following transactions from April 1, 1998 through
March 31, 1999 as follows:

- - the acquisition of approximately 42,500 outdoor advertising billboards and
display faces for approximately $1.7 billion in cash;

- - the acquisition of 16 radio stations (13 FM and three AM) for approximately
$433.4 million in cash;

- - the exchange of five radio stations (four FM and one AM) and approximately
$153.3 million in cash for four FM radio stations; and

For a further discussion of the various transactions completed and agreements
entered into since January 1, 1999, see the Consolidated Financial Statements of
Chancellor Media as of and for the quarter ended March 31, 1999 included
elsewhere in this joint proxy statement/prospectus.

Net revenues for the three months ended March 31, 1999 increased 50.0% to $350.3
million compared to $233.6 million for the first quarter of 1998. Operating
expenses excluding depreciation and amortization for the three months ended
March 31, 1999 increased 40.9% to $208.5 million compared to $148.0 million for
the three months ended March 31, 1998. The increase in net revenues and
operating expenses was primarily attributable to the net impact of the various
acquisitions and dispositions discussed elsewhere herein, in addition to the
overall net operational improvements realized by Chancellor Media, as evidenced
by the increase in Chancellor Media's direct operating margin from 36.6% for the
three months ended March 31, 1998 to 40.5% for the three months ended March 31,
1999.

Depreciation and amortization for the three months ended March 31, 1999
increased 60.7% to $147.7 million compared to $91.9 million for the first
quarter of 1998. The increase is primarily due to the impact of the acquisitions
completed during 1998 and to date in 1999.

Corporate general and administrative expenses for the three months ended March
31, 1999 increased 161.9% to $17.8 million compared to $6.8 million for the
first quarter of 1998. The increase is due to the growth of Chancellor Media,
and related increase in properties and staff, primarily due to recent
acquisitions.

45
<PAGE> 54

In March 1999, Chancellor Media recorded non-recurring charges of $29.0 million
related to the write-off of LIN and Petry Media Corporation transaction costs
and executive severance and other costs related to the executive management
realignment.

As a result of the above factors, Chancellor Media realized $52.8 million of
operating loss for the three months ended March 31, 1999 compared to $13.2
million of operating loss for the first quarter of 1998.

Interest expense, net for the three months ended March 31, 1999 increased 74.7%
to $84.4 million compared to $48.3 million for the same period in 1998. The net
increase in interest expense was primarily due to

- - additional bank borrowings under the senior credit facility required to
finance the various acquisitions discussed elsewhere herein offset by
repayment of borrowings from the net proceeds of the March 13, 1998 offering
of 21,850,000 shares of common stock;

- - the issuance of the 9% Senior Subordinated Notes due 2008 by CMCLA on
September 30, 1998; and

- - the issuance of the 8% Senior Notes due 2008 by CMCLA on November 17, 1998.

Chancellor Media recorded a gain on disposition of representation contracts of
$3.6 million for the first quarter of 1999 related to its media representation
operations. The gain represents the sales proceeds received from a successor
representation firm for the buyout of an existing media representation contract,
net of any remaining deferred costs associated with obtaining the original
representation contract. While the consolidation of the radio broadcasting
industry has resulted in an increase in buyout activity, the impact on future
periods cannot be predicted.

The income tax benefit of $30.1 million for the three months ended March 31,
1999 is comprised of current federal and state income tax expense of $3.3
million and a deferred federal income tax benefit of $33.4 million.

Dividends on preferred stock of subsidiary were $10.0 million for the three
months ended March 31, 1998. In May and July 1998, Chancellor Media exchanged
the preferred stock of subsidiaries for CMCLA's 12% Debentures and 12 1/4%
Debentures.

Dividends on Chancellor Media's preferred stock were $6.4 million for the first
quarter of 1999 and 1998. Preferred stock consisted of

- - Chancellor Media's $3.00 convertible exchangeable preferred stock which was
issued in June 1997 and

- - Chancellor Media's 7% convertible preferred stock which was issued in
September 1997 as part of the merger with Chancellor Broadcasting Company.

As a result of the above factors, Chancellor Media incurred a $109.9 million net
loss attributable to common stockholders for the three months ended March 31,
1999 compared to a $75.0 million net loss for the first quarter of 1998.

The basic and diluted net loss per common share for the three months ended March
31, 1999 was $0.77 compared to a $0.60 basic and diluted loss per common share
for the first quarter of 1998.

46
<PAGE> 55

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Chancellor Media's results of operations from period to period have not
historically been comparable because of the impact of the various acquisitions
and dispositions that Chancellor Media has completed. For a further discussion
of the various transactions completed and agreements entered into since January
1, 1996 as part of Chancellor Media's acquisition strategy, see Note 2 to the
Consolidated Financial Statements of Chancellor Media as of and for the year
ended December 31, 1998 included elsewhere in this joint proxy
statement/prospectus.

Net revenues for the year ended December 31, 1998 increased 118.8% to $1.3
billion compared to $582.1 million for the year ended December 31, 1997.
Operating expenses excluding depreciation and amortization for 1998 increased
115.7% to $682.1 million compared to $316.2 million in 1997. The increase in net
revenues and operating expenses was primarily attributable to the net impact of
the various acquisitions and dispositions discussed elsewhere herein, in
addition to the overall net operational improvements realized by Chancellor
Media.

Depreciation and amortization for 1998 increased 140.0% to $446.3 million
compared to $186.0 million in 1997. The increase is primarily due to the impact
of the acquisitions completed during 1998.

Corporate general and administrative expenses for 1998 increased 71.3% to $36.7
million compared to $21.4 million in 1997. The increase is due to the growth of
Chancellor Media, and related increase in properties and staff, primarily due to
recent acquisitions.

The executive severance charge of $63.7 million for 1998 includes one-time
charges incurred in connection with the resignation of Scott K. Ginsburg as
President and Chief Executive Officer of Chancellor Media and Matthew E. Devine
as Senior Vice President and Chief Financial Officer and new employment
agreements entered into with certain members of executive management.

As a result of the above factors, operating income for 1998 decreased 22.8% to
$45.1 million compared to $58.4 million in 1997.

Interest expense for 1998 increased 155.4% to $217.1 million compared to $85.0
million in 1997. The net increase in interest expense was primarily due to

- - additional bank borrowings under the senior credit facility required to
finance the various acquisitions discussed elsewhere offset by repayment of
borrowings from the net proceeds of the March 13, 1998 offering of 21,850,000
shares of common stock;

- - the assumption of the 9 3/8% Senior Subordinated Notes due 2004 (the "9 3/8%
Notes") and 8 3/4% Senior Subordinated Notes due 2007 (the "8 3/4% Notes")
upon consummation of the merger with Chancellor Broadcasting Company on
September 5, 1997;

- - the assumption of 10 1/2% Senior Subordinated Notes due 2007 (the "10 1/2%
Notes") upon consummation of the acquisition of Katz on October 28, 1997;

- - the issuance of the 8 1/8% Senior Subordinated Notes due 2007 (the "8 1/8%
Notes") by CMCLA on December 22, 1997;

- - the issuance of the 9% Senior Subordinated Notes due 2008 by CMCLA on
September 30, 1998; and

- - the issuance of the 8% Senior Notes due 2008 by CMCLA on November 17, 1998.

47
<PAGE> 56

Chancellor Media recorded a gain on disposition of assets of $123.8 million in
1998 related to the exchange of WTOP-AM and WGMS-FM in Washington and KZLA-FM in
Los Angeles plus $63.0 million in cash for WTJM-FM in New York, KLDE-FM in
Houston and KBIG-FM in Los Angeles. Chancellor Media recorded a gain on
disposition of assets of $18.4 million in 1997 related to the dispositions of
WNKS-FM in Charlotte ($3.5 million), WPNT-FM in Chicago ($0.5 million), WEJM-FM
in Chicago ($9.3 million), WEJM-AM in Chicago ($3.4 million) and the FCC
authorizations and certain transmission equipment previously used in the
operation of KYLD-FM in San Francisco ($1.7 million).

Chancellor Media recorded a gain on disposition of representation contracts of
$32.2 million in 1998 related to its media representation operations. A buyout
agreement is typically entered into for the purchase of representation contracts
by a successor representation firm. The purchase price paid by the successor
representation firm is based upon the historic commission income projected over
the remaining contract period, including the evergreen or notice period, plus
two months. The gain represents the sales proceeds received from a successor
representation firm for the buyout of an existing media representation contract,
net of any remaining deferred costs associated with obtaining the original
representation contract. While the consolidation of the radio broadcasting
industry has resulted in an increase in buyout activity, the impact on future
periods cannot be predicted.

The provision for income tax expense of $33.8 million for the year ended
December 31, 1998 is comprised of current federal and state income taxes of $5.0
million and a deferred federal income tax expense of $28.8 million.

Chancellor Media recorded an extraordinary charge of $47.1 million, net of a tax
benefit of $25.4 million, consisting of the premiums, estimated transaction
costs and the write-off of the unamortized balance of deferred debt issuance
costs in connection with the tender offer for the 12% Subordinated Exchange
Debentures due 2009 and the tender offer for the 12 1/4% Subordinated Exchange
Debentures due 2008. Chancellor Media recorded an extraordinary charge of $4.4
million, net of a tax benefit of $2.3 million, in 1997, consisting of the
write-off of the unamortized balance of deferred debt issuance costs related to
the amendment and restatement of Chancellor Media's senior credit facility on
April 25, 1997.

Dividends on preferred stock of subsidiary increased $4.7 million to $17.6
million in 1998 compared to $12.9 million in 1997. The preferred stock of
subsidiaries consisted of

- - CMCLA's 12% Exchangeable Preferred Stock (the "12% Preferred Stock") which was
issued in September 1997 as part of the merger with Chancellor Broadcasting
Company and was subsequently exchanged in May 1998 for CMCLA's 12% Debentures
and

- - CMCLA's 12 1/4% Series A Senior Cumulative Exchangeable Preferred Stock (the
"12 1/4% Preferred Stock") which was issued in September 1997 as part of the
merger with Chancellor Broadcasting Company and was subsequently exchanged in
July 1998 for CMCLA's 12 1/4% Debentures.

Dividends on Chancellor Media's preferred stock were $25.7 million in 1998
compared to $12.2 million in 1997. The increase is due to the issuance of the
Chancellor Media $3.00 convertible exchangeable preferred stock in June 1997 and
the issuance of the Chancellor Media 7% convertible preferred stock in September
1997 as part of the merger with Chancellor Broadcasting Company.

48
<PAGE> 57

As a result of the above factors, Chancellor Media incurred a $121.3 million net
loss attributable to common stockholders in 1998 compared to a $43.9 million net
loss in 1997.

The basic and diluted net loss per common share in 1998 was $0.88 compared to a
$0.46 basic and diluted loss per common share in 1997.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Net revenues for the year ended December 31, 1997 increased 98.1% to $582.1
million compared to $293.9 million for the year ended December 31, 1996.
Operating expenses excluding depreciation and amortization for 1997 increased
81.4% to $316.2 million compared to $174.3 million in 1996. The increase in net
revenues and operating expenses was primarily attributable to the net impact of
the various acquisitions and dispositions discussed elsewhere, in addition to
the overall net operational improvements realized by Chancellor Media.

Depreciation and amortization for 1997 increased 98.4% to $186.0 million
compared to $93.7 million in 1996. The increase is primarily due to the impact
of the various acquisitions and dispositions discussed elsewhere.

Corporate general and administrative expenses for 1997 increased 175.0% to $21.4
million compared to $7.8 million in 1996. The increase is due to the growth of
Chancellor Media, and related increase in properties and staff, primarily due to
recent acquisitions.

As a result of the above factors, operating income for 1997 increased 225.2% to
$58.4 million compared to $18.0 million in 1996.

Interest expense for 1997 increased 126.6% to $85.0 million compared to $37.5
million in 1996. The net increase in interest expense was primarily due to:

- - additional bank borrowings under the senior credit facility required to
finance the various acquisitions discussed elsewhere offset by repayment of
borrowings from the net proceeds of Chancellor Media's various radio station
dispositions;

- - the assumption of the 9 3/8% Notes and the 8 3/4% Notes upon consummation of
the merger with Chancellor Broadcasting Company on September 5, 1997; and

- - the assumption of the 10 1/2% Notes upon consummation of the acquisition of
Katz on October 28, 1997.

Chancellor Media recorded a gain on disposition of assets of $18.4 million in
1997 related to the dispositions of WNKS-FM in Charlotte ($3.5 million), WPNT-FM
in Chicago ($0.5 million), WEJM-FM in Chicago ($9.3 million), WEJM-AM in Chicago
($3.4 million) and the FCC authorizations and certain transmission equipment
previously used in the operation of KYLD-FM in San Francisco ($1.7 million).

The provision for income tax expense of $7.8 million for the year ended December
31, 1997 is comprised of current federal and state income taxes of $6.8 million
and $4.8 million, respectively, and a deferred federal income tax benefit of
$3.8 million.

Chancellor Media recorded an extraordinary charge of $4.4 million, net of a tax
benefit of $2.3 million, in 1997, consisting of the write-off of the unamortized
balance of deferred debt issuance costs related to the amendment and restatement
of CMCLA's senior credit facility on April 25, 1997.

49
<PAGE> 58

Dividends on preferred stock were $12.9 million in 1997, representing dividends
on the 12 1/4% Series A cumulative exchangeable preferred stock and 12%
exchangeable preferred stock issued in September 1997 as part of the merger with
Chancellor Broadcasting Company.

Dividends on Chancellor Media's preferred stock were $12.2 million in 1997
compared to $3.8 million in 1996. The increase in dividends is due to the
issuance of Chancellor Media's $3.00 convertible exchangeable preferred stock in
June 1997 and the issuance of Chancellor Media's 7% convertible preferred stock
in September 1997 as part of the merger with Chancellor Broadcasting Company,
offset by the conversion of a total of 1,608,297 shares of Chancellor Media's
formerly outstanding convertible exchangeable preferred stock into a total of
10,051,832 shares of Chancellor Media's common stock and the redemption of the
remaining 1,703 shares of formerly outstanding convertible exchangeable
preferred stock during 1996.

As a result of the above factors, Chancellor Media incurred a $43.9 million net
loss attributable to common stockholders in 1997 compared to a $20.0 million net
loss in 1996.

The basic and diluted net loss per common share in 1997 was $0.46 compared to a
$0.33 basic and diluted loss per common share in 1996.

Liquidity and Capital Resources

Overview. Chancellor Media historically has generated sufficient cash flow from
operations to finance its existing operational requirements and debt service
requirements, and Chancellor Media anticipates that this will continue to be the
case. Operating activities provided net cash of $91.2 million for the three
months ended March 31, 1999, $267.6 million in 1998, $139.5 million in 1997 and
$47.5 million in 1996. Chancellor Media historically has used the proceeds of
bank debt and private and public debt and equity offerings, supplemented by cash
flow from operations not required to fund operational requirements and debt
service, to fund implementation of Chancellor Media's acquisition strategy.

Long-term debt consisted of the following at December 31, 1998 and March 31,
1999 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
Senior Credit Facility..................................... $1,596,000 $1,878,000
8% Senior Notes............................................ 750,000 750,000
Senior Subordinated Notes.................................. 1,750,000 1,750,000
---------- ----------
Total long-term debt............................. $4,096,000 $4,378,000
========== ==========
</TABLE>

Senior Credit Facility. Chancellor Media's senior credit facility, as amended
(the "Senior Credit Facility"), provides for aggregate commitments under a
revolving loan facility and a term loan facility of $1.6 billion and $900.0
million, respectively. The term loan facility is payable in quarterly
installments commencing on September 30, 2000 and ending June 30, 2005. The
revolving loan facility requires scheduled annual reductions of the commitment
amount, payable in quarterly installments commencing on September 30, 2000 and
ending on June 30, 2005. At May 31, 1999, Chancellor Media had drawn
approximately $1.0 billion of the revolving credit facility and $900.0 million
of the term loan facility.

50
<PAGE> 59

8% Senior Notes. The 8% Senior Notes due 2008 (the "8% Senior Notes") are senior
unsecured obligations of CMCLA and rank equal in right of payment to the
obligations of CMCLA under the Senior Credit Facility and existing and all other
indebtedness of CMCLA not expressly subordinated to the 8% Senior Notes.
However, because the 8% Senior Notes are unsecured, the 8% Senior Notes are
effectively subordinated in right of payment to CMCLA's secured debt, including
the Senior Credit Facility. The 8% Senior Notes are fully and unconditionally
guaranteed, on a joint and several basis, by the Subsidiary Guarantors (as
defined below).

Senior Subordinated Notes. The 9 3/8% Senior Subordinated Notes due 2004, the
8 3/4% Senior Subordinated Notes due 2007, the 10 1/2% Senior Subordinated Notes
due 2007, the 8 1/8% Senior Subordinated Notes due 2007 and the 9% Senior
Subordinated Notes due 2008 (collectively, the "Subordinated Notes") are
unsecured obligations of CMCLA. The Subordinated Notes are subordinated in right
of payment to all existing and any future senior indebtedness of CMCLA. The
Subordinated Notes are fully and unconditionally guaranteed, on a joint and
several basis, by all of CMCLA's direct and indirect subsidiaries other than
certain inconsequential subsidiaries (the "Subsidiary Guarantors"). The
Subsidiary Guarantors are wholly-owned subsidiaries of CMCLA.

The Senior Credit Facility and the indentures governing the 8% Senior Notes and
the Subordinated Notes contain customary restrictive covenants, which, among
other things and with certain exceptions, limit the ability of CMCLA and its
subsidiaries 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, effect an asset
swap and make acquisitions. CMCLA is required under the Senior Credit Facility
to maintain specified financial ratios, including leverage, cash flow and debt
service coverage ratios (as defined). Chancellor Media is in compliance with
these covenants.

Pending Transactions. The $90.0 million in cash required to finance the
acquisition of KKFR-FM and KFYI-AM in Phoenix from The Broadcast Group, Inc. is
expected to be borrowed under Chancellor Media's Senior Credit Facility during
the second quarter of 1999. The $700.0 million in proceeds, less estimated
transaction costs of $20.0 million, from the Outdoor Group disposition to Lamar,
expected to close in the third or fourth quarter of 1999, will be used to repay
outstanding indebtedness under the Senior Credit Facility. Chancellor Media is
currently evaluating the treatment of the February 20, 1998 agreement with
Capstar to acquire ten of Capstar's radio stations for $434.3 million and the
treatment of the $150.0 million note receivable from Capstar assuming the merger
with Capstar is completed. Accordingly, it is unclear when such amounts would be
required to be borrowed by Chancellor Media, if at all. Chancellor Media
believes that amounts available under the Senior Credit Facility will be used to
finance its pending transactions as well as future acquisitions. At May 31,
1999, Chancellor Media had available borrowings of $600.0 million under the
revolving loan facility. Depending on the timing of the consummation of its
pending transactions, the status of the merger with Capstar and any future
acquisitions, Chancellor Media may need to obtain additional financing. Other
potential sources of financing for the pending transactions and future
acquisitions include cash flow from operations, additional debt or equity
financings, the sale of non-core assets or a combination of those sources.

Interest and Dividends. In addition to debt service requirements under the
Senior Credit Facility, CMCLA is required to pay interest on its 8% Senior Notes
and the Subordinated

51
<PAGE> 60

Notes. Interest payment requirements on these notes are $214.9 million per year.
Cash dividend requirements of Chancellor Media on its $3.00 convertible
exchangeable preferred stock and 7% convertible preferred stock are $25.7
million per year. Because Chancellor Media is a holding company with no
significant assets other than the common stock of Chancellor Mezzanine Holdings
Corporation, Chancellor Media will rely solely on dividends from Chancellor
Mezzanine Holdings Corporation, which in turn is expected to distribute
dividends paid to it by CMCLA and other subsidiaries to Chancellor Media, to
permit Chancellor Media to pay cash dividends on the $3.00 convertible
exchangeable preferred stock and the 7% convertible preferred stock. The Senior
Credit Facility and the indentures governing the 8% Senior Notes and the
Subordinated Notes limit, but do not prohibit, CMCLA from paying such dividends
to Chancellor Mezzanine Holdings Corporation.

Potential Non-Cash Compensation Charge

Under the terms of the Chancellor Media Corporation 1999 Stock Option Plan (the
"1999 Plan"), Chancellor Media has granted stock options which become
exercisable upon the value of the underlying shares of such options attaining a
specified value (the "Value Options") as of the date hereof to purchase up to
5,220,000 shares of Chancellor Media common stock to certain members of
management. See "The Chancellor Media Proposals -- Other Chancellor Media Annual
Meeting Proposals -- Chancellor Media Proposal 4 -- Adoption of the Chancellor
Media Corporation 1999 Stock Option Plan." Value Options to purchase 3,400,000
and 1,820,000 shares of Chancellor Media common stock were granted at exercise
prices of $46.63 and $56.06 per share, respectively and vest ratably 20% per
year for a period of five years. Approximately 585,000 of the Value Options with
an exercise price of $56.06 per share were granted to certain members of
Capstar's management and are contingent upon the consummation of the Capstar
merger. The Value Options are exercisable only upon (i) a "Change of Control"
(as defined in the option agreements relating to the Value Options), or (ii) the
average fair market value of Chancellor Media common stock, calculated on a
daily basis, being equal to or exceeding $100.00 per share for a period of 30
consecutive trading days during the five-year period beginning on the date of
grant. Upon the occurrence of one or both of the exercisability triggering
events, Chancellor Media will record a non-cash compensation charge to the
extent that the fair market value of the Chancellor Media common stock exceeds
the exercise price of the Value Options. This non-cash charge, if incurred, will
be recognized over the vesting period of the Value Options.

In addition to the outstanding Value Options, Chancellor Media may grant other
Value Options for up to an aggregate total of 7.0 million shares (including the
Value Options) under the 1999 Plan, which may result in the incurrence of
additional non-cash compensation charges if the exercisability triggering events
for such Value Options occur.

Chancellor Media also has granted to date additional stock options under the
1999 Plan to purchase up to 1,074,850 shares of Chancellor Media common stock to
certain key employees. Options to purchase 1,009,850 and 65,000 shares of
Chancellor Media common stock were granted at exercise prices of $46.63 and
$56.06 per share, respectively, and vest one-half on each of the first two year
anniversaries subsequent to the date of grant. Chancellor Media will record a
non-cash compensation charge to the extent that the fair market value of the
Chancellor Media common stock on July 13, 1999 exceeds the

52
<PAGE> 61

exercise price of these additional options. This non-cash charge, if incurred,
will be recognized over the two year vesting period, beginning in the third
quarter of 1999.

The grant of the Value Options and other options under the 1999 Plan is subject
to stockholder approval of the 1999 Plan at Chancellor Media's annual meeting of
stockholders to be held on July 13, 1999; provided, that Chancellor Media may be
obligated to grant other stock options or equity incentives on terms that are no
less favorable than the terms of the Value Options for 3,400,000 shares of
Chancellor Media common stock in the event that the 1999 Plan is not approved by
Chancellor Media's stockholders. The potential non-cash compensation charges
discussed above, if incurred, may significantly decrease Chancellor Media's net
income or increase its net loss in future periods.

Recently-Issued Accounting Principle

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. Management does not anticipate that this Statement will have a
material impact on Chancellor Media's consolidated financial statements.

Year 2000 Issue

The Year 2000 ("Y2K") issue is whether Chancellor Media'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.

Chancellor Media has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Y2K issue and has developed
an implementation plan. Chancellor Media uses purchased software programs for
corporate financial reporting, radio broadcasting operations and media
representation operations. The companies providing these software programs are
Y2K compliant, and Chancellor Media has received Y2K compliance certificates
from these software vendors. Chancellor Media uses proprietary software programs
for its outdoor advertising operations and is in the process of reviewing
various modifications and replacement plans. Chancellor Media estimates that
approximately 65 percent of the outdoor systems' Y2K remediation has been
completed as of May 31, 1999. The remaining remediation efforts are expected to
be completed by the end of the third quarter of 1999. Chancellor Media's Y2K
implementation plan also includes ensuring that its computer hardware and other
equipment with embedded chips or processors are Y2K compliant.

Costs associated with ensuring that Chancellor Media's existing systems are Y2K
compliant and replacing certain existing systems are currently expected to be
approximately $3.7 million, of which $1.7 million has been incurred through
April 30, 1999. These costs, in conjunction with investments Chancellor Media is
making in information systems and technology, are expected to reduce the risks
associated with Y2K issues. Future costs are to be funded through Chancellor
Media's operating cash flow.

53
<PAGE> 62

In addition, Chancellor Media reviews the computer systems of companies it
intends to acquire in order to assess whether the systems are Y2K compliant. To
the extent the systems are not Y2K compliant, Chancellor Media will develop an
implementation plan to ensure the systems are Y2K compliant or will convert the
systems to Chancellor Media's computer systems which are Y2K compliant.
Chancellor Media continues its comprehensive review of the computer systems
related to the pending merger with Capstar, expected to be consummated in the
second quarter or early third quarter of 1999. Chancellor Media is in the
process of reviewing various modifications and replacement plans related to the
pending merger with Capstar. The costs associated with such efforts may be
material. There is no guarantee that the systems of companies to be acquired by
Chancellor Media in the future will be timely converted and would not have an
adverse effect on the operations of Chancellor Media.

The ability of third parties with whom Chancellor Media transacts business to
adequately address their Y2K issues is outside of Chancellor Media's control.
Therefore, there can be no assurance that the failure of such third parties to
adequately address their Y2K issues will not have a material adverse effect on
Chancellor Media's business, financial condition, cash flows and results of
operations. Chancellor Media has begun development of contingency plans intended
to mitigate any possible disruption in business that may result from certain of
Chancellor Media's systems or the systems of third parties that are not Y2K
compliant.

The Y2K cost estimates are subject to change based on further analysis, and any
change in the costs may be material. As solutions are implemented and new issues
are recognized, the focus of Chancellor Media's efforts and costs to address the
Y2K issue may be adjusted. Furthermore, Chancellor Media cannot guarantee that
there will be no Y2K issues in spite of these efforts and if such modifications
and replacements are not made, or are not completed in time, the Y2K issue could
have a material impact on Chancellor Media's operations.

WHERE YOU CAN FIND MORE INFORMATION ABOUT CHANCELLOR MEDIA

Chancellor Media files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC").
You may read and copy any reports, statements and other information Chancellor
Media files at the SEC's public reference rooms in Washington, D.C., New York,
New York, and Chicago, Illinois. Please call 1-800-SEC-0330 for further
information on the public reference rooms. Chancellor Media's filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at http://www.sec.gov.

Chancellor Media has filed a Registration Statement on Form S-4 to register with
the SEC the Chancellor Media common stock to be issued to Capstar stockholders
in the merger. This joint proxy statement/prospectus is part of that
Registration Statement and constitutes a prospectus of Chancellor Media in
addition to being a proxy statement of Chancellor Media for its annual meeting
of stockholders. Capstar is also using this joint proxy statement/prospectus as
a proxy statement for its special meeting of stockholders. As allowed by the
SEC's rules, this joint proxy statement/prospectus does not contain all of the
information you can find in the Registration Statement or the exhibits to the
Registration Statement.

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<PAGE> 63

A copy of Chancellor Media's annual report on Form 10-K and its most recent
quarterly report on Form 10-Q, as filed with the SEC, will be furnished without
charge to stockholders upon request addressed to:

Investor Relations
Chancellor Media Corporation
1845 Woodall Rodgers Freeway, Suite 1300
Dallas, Texas 75201

55
<PAGE> 64

CAPSTAR

GENERAL

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. 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 Capstar 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 has allowed Capstar to upgrade its stations'
programming, sales, promotions, engineering and administrative operations to
standards previously seen only in larger markets. Management believes that this
has positioned Capstar 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 broadcast cash flow growth rates and margins.

Capstar's large national portfolio of 342 stations has created significant
revenue and cash flow growth opportunities previously unavailable to mid-sized
market operators. For example, Capstar 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 has allowed management
to reduce staffing and programming costs while substantially increasing the
quality of programming. In addition, Capstar's national audience of
approximately 18 million listeners per week, one of the largest national
audiences among radio broadcasters, has created an opportunity for national,
network and regional advertisers to easily reach listeners in mid-sized markets.
Furthermore, management believes that Capstar's well-developed infrastructure
allows it to efficiently acquire and integrate additional stations.

Because Capstar has assembled its portfolio of 342 stations in 81 markets over
the past two and one-half years, management considers over 20 markets to be
underdeveloped with the potential for additional growth as Capstar continues to
capitalize on the opportunities created by industry deregulation and the
implementation of its acquisition strategy.

STATION PORTFOLIO

To effectively and efficiently manage its station portfolio, Capstar has
developed a flexible operating structure designed to manage a large and growing
number of radio stations

56
<PAGE> 65

throughout the United States. The station portfolio is operationally organized
into six regions: Atlantic Star (the Northeast Region), Southern Star (the
Southeast Region), Pacific Star (the West Region), GulfStar (the Southwest
Region), Central Star (the Midwest Region) and Sea Star (the Southeast Atlantic
Region), each of which is managed by regional executives in conjunction with
general managers in each market.

The following table sets forth certain information regarding Capstar's station
portfolio, as of May 15, 1999, assuming consummation of its pending acquisitions
and disposition:

<TABLE>
<CAPTION>
NUMBER OF
STATIONS AUDIENCE
MSA --------- REVENUE SHARE SHARE
MARKET(1) RANK(2) FM AM RANK(2) RANK(2)
- --------- ------- --- --- ------------- --------
<S> <C> <C> <C> <C> <C>
ATLANTIC STAR (NORTHEAST REGION)
Providence, RI....................... 32 2 1 2 2
Hartford, CT......................... 45 4 1 2 2
Albany-Schenectady-Troy, NY.......... 59 4 2 1 2
Allentown-Bethlehem, PA.............. 67 2 2 1 1
Wilmington, DE....................... 75 2 2 3 3
Harrisburg-Lebanon-Carlisle, PA...... 76 3 1 1 2
Springfield, MA...................... 80 2 1 1 3
New Haven, CT(3)..................... 101 2 -- 1 1
Fairfield County, CT(4).............. 108 2 2 2 4
Worcester, MA........................ 112 1 1 1 1
Portsmouth-Dover-Rochester, NH....... 117 4 3 1 1
Huntington, WV-Ashland, KY(3)........ 143 5 5 1 1
Manchester, NH....................... 185 1 1 2 2
Frederick, MD........................ 200 1 1 1 1
Winchester, VA....................... 218 2 1 1 1
Wheeling, WV(3)...................... 220 5 2 1 1
Burlington, VT(3).................... 223 3 1 1 2
--- --
Subtotal........................ 45 27
SOUTHERN STAR (SOUTHEAST REGION)
Jacksonville, FL..................... 52 4 2 1 1
Birmingham, AL(3).................... 56 4 1 2 2
Greenville, SC....................... 58 3 1 1 2
Columbia, SC......................... 88 4 2 1 1
Melbourne-Titusville-Cocoa, FL....... 95 3 2 1 1
Huntsville, AL....................... 115 4 2 1 1
Ft. Pierce-Stuart-Vero Beach, FL..... 118 4 1 1 1
Montgomery, AL....................... 141 3 -- 2 2
Savannah, GA......................... 153 4 2 1 1
Asheville, NC........................ 179 1 1 1 1
Tuscaloosa, AL....................... 214 3 1 1 1
Gadsden, AL.......................... NA 1 1 NA NA
--- --
Subtotal........................ 38 16
</TABLE>

57
<PAGE> 66

<TABLE>
<CAPTION>
NUMBER OF
STATIONS AUDIENCE
MSA --------- REVENUE SHARE SHARE
MARKET(1) RANK(2) FM AM RANK(2) RANK(2)
- --------- ------- --- --- ------------- --------
<S> <C> <C> <C> <C> <C>
PACIFIC STAR (WEST REGION)
Honolulu, HI......................... 60 4 3 1 1
Tucson, AZ........................... 61 2 2 1 2
Fresno, CA........................... 65 6 3 2 2
Modesto-Stockton, CA(4).............. 85 3 2 2 3
Spokane, WA(3)....................... 87 4 2 1 2
Colorado Springs, CO................. 93 2 -- 2 2
Anchorage, AK........................ 171 4 2 1 1
Richland-Kinnewick-Pasco, WA(3)...... 207 4 2 2 1
Fairbanks, AK........................ NA 3 1 NA NA
Farmington, NM....................... NA 3 1 NA NA
Yuma, AZ............................. NA 2 1 NA NA
--- --
Subtotal........................ 37 19
GULFSTAR (SOUTHWEST REGION)
Austin, TX........................... 49 3 1 2 2
Baton Rouge, LA...................... 82 3 3 1 2
Corpus Christi, TX................... 128 4 2 1 1
Shreveport, LA....................... 129 3 1 1 3
Beaumont, TX......................... 130 3 1 1 1
Tyler-Longview, TX................... 140 4 1 1 1
Killeen, TX(3)....................... 149 3 -- 1 1
Lubbock, TX.......................... 175 4 2 1 1
Midland, TX.......................... 176 3 -- 2 2
Amarillo, TX......................... 188 3 1 3 2
Waco, TX............................. 191 4 1 1 1
Alexandria, LA....................... 202 3 1 1 1
Texarkana, TX........................ 242 3 1 1 1
Lufkin, TX........................... NA 3 1 NA NA
Victoria, TX......................... NA 2 -- NA NA
--- --
Subtotal........................ 48 16
CENTRAL STAR (MIDWEST REGION)
Milwaukee, WI........................ 31 1 1 4 5
Grand Rapids, MI..................... 66 3 1 2 3
Omaha, NE............................ 72 3 1 2 2
Wichita, KS.......................... 89 4 -- 1 2
Des Moines, IA....................... 90 2 1 4 4
Madison, WI.......................... 120 4 2 1 1
Fayetteville, AR..................... 156 4 -- 1 1
Ft. Smith, AR........................ 170 2 1 1 1
Lincoln, NE.......................... 172 4 -- 1 2
Springfield, IL...................... 194 2 1 3 3
Cedar Rapids, IA..................... 201 3 -- 2 2
Battle Creek-Kalamazoo, MI........... 235 2 2 1 1
Lawton, OK........................... 251 2 -- 1 1
Ogallala, NE......................... NA 2 1 NA NA
--- --
Subtotal........................ 38 11
</TABLE>

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<PAGE> 67

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

NA Information not available.

t Tied with another radio station group.

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

(2) MSA Rank, Company Revenue Share Rank and Company Audience Share Rank
obtained from BIA Research -- Media Access Pro, Version 2.5 Radio Analysis
Database (current as of February 24, 1999). Revenue figures based upon 1998
gross revenue for the indicated markets. Company Audience Share Rank based
on average quarter hour estimates for the last available reporting period
ending Fall 1998 for the demographic of persons ages 12+, 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 metropolitan statistical area, excluding audience share for listeners
who listen to stations whose signals originate outside the metropolitan
statistical area.

(3) Capstar provides certain sales and marketing services to stations WEEL-FM in
Wheeling, West Virginia, WYBC-FM in New Haven, Connecticut, KLFX-FM in
Killeen, TX and KCDA-FM in Spokane, Washington under separate JSAs. Capstar
provides under local marketing agreements certain sales, programming and
marketing services to stations WHRD-AM in Huntington, West Virginia, WLEE-AM
in Richmond, Virginia, WEAV-AM in Burlington, Vermont and KNLT-FM and KUJ-FM
in Richland-Kennewick-Pasco, Washington and pending consummation of an
acquisition to station WENN-FM in Birmingham, Alabama under separate LMAs.
The table includes these stations. These JSAs and LMAs are referred to in
this joint proxy statement/prospectus as the programmed stations.

(4) Fairfield County, Connecticut is not a custom survey area as defined by BIA
Research -- Media Access Pro, Version 2.5 Radio Analysis Database (current
as of February 24, 1999). The custom survey area includes the BIA
Research -- Media Access Pro, Version 2.5 Radio Analysis Database (current
as of February 24, 1999) markets of Bridgeport, Stamford-Norwalk and
Danbury, Connecticut with market rankings of 108, 138 and 189, respectively.
MSA Rank is listed for the Bridgeport market only. The combined rank for the
custom survey area has not been estimated. Modesto-Stockton, California is
not a custom survey area as defined by BIA Research -- Media Access Pro,
Version 2.5 Radio Analysis Database (current as of February 24, 1999). The
custom survey area includes the BIA Research -- Media Access Pro, Version
2.5 Radio Analysis Database (current as of February 24, 1999) markets of
Modesto and Stockton, California with market ratings of 85 and 122,
respectively. MSA Rank is listed for the Stockton market only. The combined
rank for the custom survey area has not been estimated.

(5) The table does not include the following:

- the stations subject to LMAs with Chancellor Media. See "Certain
Relationships and Related Transactions;" and

- KTOF-AM in Cedar Rapids, Iowa, and KZRX-AM in Jackson, Mississippi, which
are programmed by third parties pursuant to LMAs.

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<PAGE> 68

THE TRANSACTIONS

Completed Transactions

Since January 1, 1998, Capstar has completed the following acquisitions and
dispositions of radio stations through May 15, 1999:

<TABLE>
<CAPTION>
STATIONS
ACQUIRED/
DISPOSED
OF
DATE PURCHASE/SALE ---------
SELLER/PURCHASER CLOSED PRICE(1) FM AM REGION
- ---------------- ------ --------------- --- --- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ACQUISITIONS:
Knight Radio, Inc. and
Affiliates.......... January 1998 $ 66.2 5 3 Atlantic Star
Quass Broadcasting
Company............. January 1998 16.3 2 1 Central Star
East Penn
Broadcasting,
Inc................. January 1998 2.0 -- 1 Atlantic Star
Patterson
Broadcasting,
Inc................. January 1998 227.2 25 14 All Regions except Sea Star
Commonwealth
Broadcasting of
Arizona, L.L.C. .... February 1998 5.5 2 1 Pacific Star
Brantly Broadcast
Associates.......... February 1998 1.7 1 -- Southern Star
KOSO, Inc............. April 1998 8.5 1 -- Pacific Star
Americom II and
Americom Las Vegas
Limited
Partnership......... April 1998 26.7 3 1 Pacific Star
KDOS, Inc............. April 1998 3.5 1 1 Pacific Star
Grant Radio Group..... May 1998 3.4 -- 1 Southern Star
SFX Broadcasting,
Inc.(2)............. May 1998 1,279.7 62 21 All Regions
Butler Broadcasting
Company, Ltd........ May 1998 90.3 2 1 GulfStar
Chancellor Media
Corporation of Los
Angeles and
Affiliates.......... May 1998 53.0 2 -- Southern Star
Class Act of Texas,
Inc................. June 1998 1.1 1 1 GulfStar
KRNA, Inc............. June 1998 6.4 1 -- Central Star
The University of
Alaska.............. June 1998 0.2 1 -- Pacific Star
CBS Radio, Inc........ July 1998 6.5 2 2 Atlantic Star
Watertown Radio
Associates Limited
Partnership and Lake
Champlain Radio
Corporation......... July 1998 5.9 2 -- Atlantic Star
Jacor Broadcasting
Corporation......... August 1998 5.0 -- 1 Sea Star
Ogallala Broadcasting
Company............. September 1998 4.1 2 1 Central Star
</TABLE>

60
<PAGE> 69

<TABLE>
<CAPTION>
STATIONS
ACQUIRED/
DISPOSED
OF
DATE PURCHASE/SALE ---------
SELLER/PURCHASER CLOSED PRICE(1) FM AM REGION
- ---------------- ------ --------------- --- --- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Boswell Broadcasting
Incorporated........ September 1998 11.8 1 -- GulfStar
Foley Broadcasting,
L.P................. October 1998 2.8 1 -- Atlantic Star
Jim Gibbons Radio
Inc................. October 1998 15.2 1 1 Atlantic Star
SunGroup, Inc......... October 1998 5.8 1 -- GulfStar
Appalachian
Broadcasting
Company, Inc........ February 1999 1.0 1 -- Southern Star
Noalmark Broadcasting
Corp................ March 1999 3.4 1 1 GulfStar
Champion Broadcasting
Corporation......... March 1999 12.5 9 2 GulfStar
R. Steven Hicks....... April 1999 8.5 1 -- GulfStar
Triathlon Broadcasting
Company(3).......... April 1999 202.0 22 10 Pacific Star/Central Star
Citadel Broadcasting
Company............. April 1999 4.5 1 -- Pacific Star

DISPOSITIONS:
Clear Channel Radio,
Inc................. January 1998 29.0 1 1 Atlantic Star
Clear Channel Radio,
Inc................. February 1998 20.0 2 2 Southern Star
SWJDR, Corp........... February 1998 3.3 1 -- Atlantic Star
Westchester Radio
LLC................. April 1998 35.1 2 1 Atlantic Star
Americom Las Vegas
Limited
Partnership......... April 1998 4.4 2 1 Pacific Star
Clear Channel Radio,
Inc................. May 1998 35.0 3 1 Southern Star
Clear Channel Radio,
Inc................. May 1998 11.5 1 -- Southern Star
Chancellor Media
Corporation......... May 1998 143.3 1 -- GulfStar
HBC Houston, Inc. and
HBC Houston License
Corporation......... May 1998 52.3 1 -- GulfStar
Cox Radio, Inc........ May 1998 46.0 3 1 Atlantic Star
Capstar Trust(4)...... May 1998 10.5 2 2 Atlantic Star
Cumulus Broadcasting,
Inc................. July 1998 7.8 2 -- Atlantic Star
Jacor Broadcasting
Corporation......... August 1998 5.0 -- 1 Atlantic Star
Boswell Broadcasting
Incorporated........ September 1998 11.8 1 -- GulfStar
Citadel Broadcasting
Company............. April 1999 14.5 2 3 Pacific Star
</TABLE>

61
<PAGE> 70

<TABLE>
<CAPTION>
STATIONS
ACQUIRED/
DISPOSED
OF
DATE PURCHASE/SALE ---------
SELLER/PURCHASER CLOSED PRICE(1) FM AM REGION
- ---------------- ------ --------------- --- --- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Wichita Trust(5)...... April 1999 N/A 2 3 Central Star
Truth Broadcasting
Corporation......... May 1999 0.5 -- 1 Sea Star
</TABLE>

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

(1) Includes transaction costs.

(2) Excludes $812.4 million of debt and $283.6 million of preferred stock
outstanding on the date on which SFX Broadcasting, Inc. ("SFX") was
acquired.

(3) Includes $62.5 million of debt outstanding on the date on which Triathlon
Broadcasting Company was acquired.

(4) The stations were placed in the Capstar Trust in connection with the
acquisition of SFX in order to avoid violation of the multiple station
ownership limitations under the Communications Act of 1934, as amended,
pending the disposition thereof by the trustee of the Capstar Trust. The
trustee will distribute the net proceeds from the sale of the stations to
Capstar if and when the stations are sold.

(5) The stations were placed in the Wichita Trust in connection with the
acquisition of Triathlon in order to avoid violation of the multiple station
ownership limitations under the Communications Act of 1934, as amended,
pending the disposition thereof by the trustee of the Wichita Trust. The
trustee will distribute the net proceeds from the sale of the stations to
Capstar if and when the stations are sold.

In April 1998, Capstar acquired the assets of Prophet Systems, Inc. for a
purchase price of $15.0 million in cash and 285,714 shares of Capstar class A
common stock to be issued to the former owners of Prophet Systems by Capstar
upon satisfaction of certain conditions in the purchase agreement. 95,238 shares
of Capstar class A common stock were issued in April 1999, and the remaining
190,476 shares will be placed in escrow before the merger, to be released upon
satisfaction of certain conditions in the purchase agreement. The acquired
assets permit a single radio personality to introduce programming in multiple
markets by digitally transferring customized introductions for each local market
and inserting them into the playlist via a wide area computer network. Such
technology is utilized in Capstar's StarSystem(TM) and is also marketed to
unrelated third parties.

On March 18, 1999, Capstar contributed to Muzak Holdings LLC Capstar's Muzak
affiliate territories in Atlanta, Albany and Macon, Georgia and Ft. Myers,
Florida in exchange for voting membership units in Muzak Holdings. On May 3,
1999, Capstar contributed to Muzak Holdings, its Muzak affiliate territory
located in Omaha, Nebraska, that Capstar acquired from Triathlon on April 30,
1999, in exchange for additional voting membership units in Muzak Holdings. The
value of the membership units in Muzak Holdings that Capstar then held was
approximately $20.5 million, subject to a working capital adjustment to be
finalized. The investment in Muzak Holdings represents the book value of the net
assets contributed, which approximates fair market value. Upon completion of the
contribution of the Omaha affiliate territory, Capstar then held approximately
22.9% of the then outstanding voting power of Muzak Holdings.

In June 1999, Capstar purchased the assets of LAN International, Inc.'s business
of developing, marketing, selling, licensing and servicing specialized computer
systems and

62
<PAGE> 71

software for use in the radio and television industry for a purchase price of up
to $27.0 million. At closing, Capstar issued a promissory note in favor of the
seller for $14.3 million. The note plus an additional $700,000 is payable upon
the earlier of five days following the closing of the merger with Chancellor
Media or July 15, 1999. The remaining $12.0 million will be due and payable to
LAN International only if the newly-acquired business meets certain post-closing
financial goals.

Pending Transactions

Capstar has also entered into the following:

- - Four agreements to acquire five additional FM stations in four mid-sized
markets for $16.5 million; and

- - one agreement to dispose of 1 AM station for $0.5 million.

Upon completion of the pending transactions, Capstar will own and operate 333
stations and program 9 stations in primarily mid-sized markets located
throughout the United States. Consummation of each of the pending transactions
is subject to numerous conditions, including governmental approvals.
Accordingly, the actual date of consummation of each of the pending transactions
may vary from the anticipated closing dates. No assurances can be given that any
or all of the pending transactions will be consummated or that, if completed,
they will be successful.

Pending Radio Station Acquisitions and Dispositions. The following table
summarizes the pending acquisitions and dispositions of radio stations as of May
15, 1999:

<TABLE>
<CAPTION>
STATIONS TO
BE ACQUIRED/
DISPOSED OF
------------ EXPECTED ESTIMATED
SELLER/PURCHASER FM AM REGION CLOSING DATE PURCHASE PRICE
---------------- ---- ---- ------ ------------ ---------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ACQUISITIONS:
Quaker State Broadcasting
Corporation................. 2 -- Atlantic Star July 1999 $ 12.8
KBED-FM....................... 1 -- GulfStar July 1999 0.4
KRYL-FM....................... 1 -- GulfStar July 1999 0.2
AGM-Birmingham, L.L.C. ....... 1 -- Southern Star October 1999 3.1
-- -- ------
Total............... 5 -- $ 16.5
== == ======
DISPOSITION:
M&M Broadcasters, Ltd......... -- 1 GulfStar August 1999 $ 0.5
</TABLE>

Other Transactions

As part of Capstar's ongoing acquisition strategy, Capstar is continually
evaluating other potential acquisition opportunities. Capstar from time to time
enters into nonbinding letters of intent to acquire, dispose and/or exchange
substantially all of the assets used or useful in the operations of radio
stations, each of which is subject to various conditions, including the ability
of Capstar to enter into a definitive agreement.

OPERATING STRATEGY

Capstar's primary goals are to achieve revenue growth rates at its stations that
are significantly in excess of historical growth rates achieved in comparable
markets and to increase its operating margins at these stations at growth rates
which exceed the average

63
<PAGE> 72

operating margin growth rates being achieved in large markets. Key elements of
its operating strategy are as follows:

Enhance Revenue Growth through Multiple Station Ownership. The ownership of
multiple stations in a market allows Capstar to coordinate its programming to
appeal to a broad spectrum of listeners. Station clusters provide one-stop
shopping to advertisers attempting to reach a wide range of demographic groups.
Management believes that simplifying the buying of advertising time for
customers encourages increased advertiser usage, which enhances Capstar's
revenue generating potential. Management also believes that this simplified
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, Capstar also
competes more effectively against alternative media, such as newspaper,
television, and outdoor advertising, thus potentially increasing radio's share
of the total advertising dollars spent in a given market.

Capstar believes that multiple station ownership allows it to more effectively
pursue national, network and regional advertisers, a source of revenues which
was previously limited in mid-sized markets. For example, Capstar's
participation in The AMFM Radio Networks, the national radio network owned by
Chancellor Media, illustrates Capstar'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, Capstar 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. Historically, inventory management
systems have been very labor intensive. Capstar has designed and created a
state-of-the-art advertising inventory management system known as Galaxy(TM).
The Galaxy(TM) system is similar to the SABRE(TM) airline reservation system. It
is an online, demand-based, centralized purchasing system that will allow
advertisers to determine the availability of inventory, or available advertising
time slots, and the current advertising rates. The Galaxy(TM) system will
simplify the purchasing process, which is a very important factor in mid-sized
markets where very little advertising is outsourced to media buyers. The
Galaxy(TM) system will keep up-to-the-minute tallies on available inventory, or
advertising time slots, which will enable Capstar to maximize advertising rates.
Capstar began installation of the Galaxy(TM) system in March 1999 and is
scheduled to complete installation at substantially all of its stations by March
2000. Capstar is designing an enhancement to the Galaxy(TM) system which, when
completed, will integrate the advertising inventory management systems of all of
its stations, providing up-to-the-minute information on available advertising
time slots at all of Capstar stations and permitting advertisers, with a single
phone call, to buy advertising time from any combination of Capstar's stations
and in any market in which Capstar operates. Management believes that the
enhancement will be completed and implemented sometime during 2000.

Capstar has created Star Performance Group to improve the business performance
of Capstar's stations by improving human performance. Star Performance Group
creates and provides customized training and development programs for Capstar's
employees in the areas of sales, marketing and management. Capstar also utilizes
in-depth music research

64
<PAGE> 73

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. Capstar is an
industry leader in using computer network technology to deliver high quality
programming. Capstar's StarSystem(TM), a company-owned programming distribution
network, is designed to broadcast quality programming from its two centralized
locations in Austin, Texas and Ft. Lauderdale, Florida to selected stations.
With this system, a single radio personality is able to introduce programming in
multiple markets by digitally transferring customized introductions for each
local market and inserting them into the playlist via a wide area computer
network. StarSystem(TM) enables Capstar 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
StarSystem(TM), this system provides a competitive advantage by allowing
management to implement format changes quickly and to integrate newly acquired
stations and clusters more efficiently. As of May 15, 1999, Capstar has
installed this digital technology at 263 stations at a one time cost of
approximately $37,000 per station, which has resulted in average cost reductions
of approximately $44,000 at each such station on an annualized basis. Capstar
intends to expand its StarSystem(TM) to substantially all of the remaining
stations by the end of the second quarter of 2000, and plans to develop
additional regionalized programming centers during 1999 to continue its
expansion of StarSystem(TM).

Create Low Cost Operating Structure. Management believes that it has created a
low cost operating structure in mid-sized markets due to the following reasons:

- - Capstar is less reliant on expensive on-air celebrities and costly advertising
and promotional campaigns to capture listeners because stations in mid-sized
markets typically have less direct format competition;

- - the ownership of multiple stations within a market allows Capstar 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

- - Capstar, as a result of its large station portfolio, 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 Capstar'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.
Capstar 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 Capstar's chief operating officer.
Capstar 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.

65
<PAGE> 74

ACQUISITION STRATEGY

Capstar has historically been 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 Capstar to
develop radio station clusters at reasonable prices. Capstar first seeks to
enter attractive new mid-sized markets by acquiring a leading station (or a
group that owns a leading station). Capstar 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, Capstar may
acquire station groups or companies with one or more stations in large or small
markets. Although Capstar's primary acquisition strategy is to acquire and
operate stations in mid-sized markets, Capstar may in the future retain and
operate such large or small market stations. Any acquisitions made by Capstar
may be for cash, debt, property or capital stock or stock equivalents of Capstar
or some 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 Capstar's radio broadcasting
business.

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.

Atlantic Star. Atlantic Star is managed by its president, James T. Shea, Jr. Mr.
Shea has more than 25 years of radio broadcasting experience. Mr. Shea's
operating knowledge and strong advertising relationships helped Commodore Media,
Inc. become a leading radio group in each of its markets prior to its
acquisition by Capstar in 1996.

Southern Star. Southern Star is managed by its president, Rick Peters. Mr.
Peters has more than 26 years of radio broadcasting experience, 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.

Pacific Star and GulfStar. Pacific Star and GulfStar are managed by their
president James P. Donahoe. Mr. Donahoe has more than 14 years of radio
broadcasting experience. Prior to joining Capstar, Mr. Donahoe served as
regional vice president for SFX Broadcasting, Inc.

Central Star. Central Star is managed by its president, Mary K. Quass. Ms. Quass
has more than 21 years of radio broadcasting experience, including, most
recently, serving as the president and chief executive officer of Quass
Broadcasting Company until its acquisition by Capstar in January 1998.

Sea Star. Sea Star is managed by its president, John King. Mr. King has more
than 27 years of radio broadcasting experience, including most recently serving
as a regional vice president of SFX Broadcasting, Inc. for its southeast
atlantic region.

66
<PAGE> 75

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 people.

Station Portfolio

The following tables set forth certain information regarding Capstar's station
portfolio as of May 15, 1999, assuming consummation of the pending transactions:

<TABLE>
<CAPTION>
TARGET REVENUE AUDIENCE
MARKET AND DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) MSA RANK(2) GROUP RANK(2) RANK(2) FORMAT
--------------- ----------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
MILWAUKEE, WI.......... 31 4 5
WISN-AM.............. 35-64 Talk
WLTQ-FM.............. 25-54 Lite Adult Contemporary
PROVIDENCE, RI......... 32 2 2
WHJJ-AM.............. 35+ News/Talk
WHJY-FM.............. 25-54 Album Rock
WSNE-FM.............. F35-54 Adult Contemporary
CHARLOTTE, NC.......... 37 2 2
WKKT-FM.............. 18-54 Country
WLYT-FM.............. F35-64 Lite Adult Contemporary
WRFX-FM.............. M18-54 Album Rock
INDIANAPOLIS, IN....... 38 2 3
WNDE-AM.............. M18-54 News/Talk
WRZX-FM.............. 18-44 Alternative
WFBQ-FM.............. 25-54 Album Rock
GREENSBORO, NC......... 42 3 3
WHSL-FM.............. 25-54 Country
WMAG-FM.............. 18-34 Adult Contemporary
WMFR-AM.............. 35+ News/Talk
NASHVILLE, TN.......... 44 1 1
WRVW-FM.............. 25-54 Adult Contemporary
WSIX-FM.............. 18-64 Country
WJZC-FM.............. 35-64 Smooth Jazz
WNRQ-FM.............. 35-64 Classic Rock
WLAC-AM.............. 35+ News/Talk
HARTFORD, CT........... 45 2 2
WHCN-FM.............. 18-34 Classic Rock
WKSS-FM.............. F25-54 Top 40
WMRQ-FM.............. 18-54 Modern Rock
WWYZ-FM.............. 25-54 Country
WPOP-AM.............. 35+ Sports
RALEIGH, NC............ 48 1 1
WDCG-FM.............. 25-54 Contemporary Hits
WRDU-FM.............. 25-54 Album Rock
WRSN-FM.............. 25-54 Adult Contemporary
WTRG-FM.............. 35-64 Oldies
AUSTIN, TX............. 49 2 2
KASE-FM.............. 18-34 Country
KVET-FM.............. 25-54 Country
KVET-AM.............. M18-54 Sports
KFMK-FM.............. 25-54 Jammin' Oldies
</TABLE>

67
<PAGE> 76

<TABLE>
<CAPTION>
TARGET REVENUE AUDIENCE
MARKET AND DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) MSA RANK(2) GROUP RANK(2) RANK(2) FORMAT
--------------- ----------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
JACKSONVILLE, FL....... 52 1 1
WAPE-FM.............. 18-54 Contemporary Hits
WFYV-FM.............. 25-54 Album Rock
WMXQ-FM.............. 25-54 Adult Contemporary
WKQL-FM.............. 35-64 Oldies
WOKV-AM.............. 35+ News/Talk
WBWL-AM.............. M18-54 Sports
BIRMINGHAM, AL......... 56 2 2
WQEN-FM.............. 18-34 Adult Contemporary
WENN-FM(3)........... 25-54 Jammin' Oldies
WMJJ-FM.............. F25-54 Adult Contemporary
WERC-AM.............. M35-64 News/Talk
WOWC-FM.............. 25-54 Country
RICHMOND, VA........... 57 2 2
WMXB-FM.............. 35-64 Hot Adult Contemporary
WRCL-FM.............. 35-64 Oldies
WKHK-FM.............. 25-54 Country
WKLR-FM.............. 25-54 Classic Rock
WLEE-AM(4)........... 35-54 Oldies
GREENVILLE, SC......... 58 1 2
WGVL-AM.............. 25-54 Gospel/Country
WMYI-FM.............. 25-54 Adult Contemporary
WROQ-FM.............. 25-54 Classic Rock
WSSL-FM.............. 25-54 Country
ALBANY-SCHENECTADY-
TROY, NY............. 59 1 2
WGNA-FM.............. 25-54 Country
WGNA-AM.............. 25-54 Country
WPYX-FM.............. 18-34 Album Rock
WTRY-AM.............. 25-54 Oldies
WTRY-FM.............. 18-34 Oldies
WXLE-FM.............. F25-54 Jammin' Oldies
HONOLULU, HI........... 60 1 1
KSSK-AM.............. 25-54 Hot Adult Contemporary
KSSK-FM.............. 25-54 Hot Adult Contemporary
KUCD-FM.............. Modern Adult
35-54 Contemporary
KHVH-AM.............. 35-64 News/Talk
KKLV-FM.............. M35-54 Classic Rock
KIKI-AM.............. 18-34 Urban
KIKI-FM.............. 18-34 Urban
TUCSON, AZ............. 61 1 2
KCEE-AM.............. F25-54 Nostalgia
KNST-AM.............. 25-54 News/Talk/Sports
KRQQ-FM.............. 25-54 Contemporary Hits
KWFM-FM.............. 35-64 Oldies
</TABLE>

68
<PAGE> 77

<TABLE>
<CAPTION>
TARGET REVENUE AUDIENCE
MARKET AND DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) MSA RANK(2) GROUP RANK(2) RANK(2) FORMAT
--------------- ----------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
FRESNO, CA............. 65 2 2
KBOS-FM.............. 18-34 Contemporary Hits
KVBL-AM.............. M18-49 Sports/Talk
KRZR-FM.............. M18-49 Album Rock
KRDU-AM.............. NA Religion
KSOF-FM.............. 25-54 Soft Rock
KEZL-FM.............. 35-54 Smooth Jazz
KFSO-FM.............. 35-64 Oldies
KALZ-FM.............. 35-54 Adult Contemporary
KCBL-AM.............. 35-54 Sports Talk
GRAND RAPIDS, MI....... 66 2 3
WGRD-FM.............. 18-34 Modern Rock
WNWZ-AM.............. 35+ News
WLHT-FM.............. 25-54 Adult Contemporary
WTRV-FM.............. F35-64 Soft Adult Contemporary
ALLENTOWN-BETHLEHEM,
PA................... 67 1 1
WAEB-AM.............. 35+ News/Talk/Sports
WAEB-FM.............. F18-49 Hot Adult Contemporary
WZZO-FM.............. M18-49 Album Rock
WKAP-AM.............. 35+ Nostalgia
OMAHA, NE.............. 72 2 2
KFAB-AM.............. 35-64 News/Talk
KGOR-FM.............. 35-64 Oldies
KTNP-FM.............. 25-54 Adult Contemporary
KXKT-FM.............. 25-54 Country
WILMINGTON, DE......... 75 3 3
WJBR-AM.............. F25-54 Nostalgia
WDSD-FM.............. 25-54 Country
WRDX-FM.............. 25-54 Album Rock
WDOV-AM.............. 25-54 News/Talk
HARRISBURG-LEBANON-
CARLISLE, PA......... 76 1 2
WTCY-AM.............. 35-54 Urban Adult Contemporary
WNNK-FM.............. 18-34 Contemporary Hits
WNCE-FM*............. 45+ Easy Listening
WTPA-FM*............. M18-49 Album Rock
SPRINGFIELD, MA........ 80 1 3
WHMP-AM.............. M35-64 News/Talk/Sports
WHMP-FM.............. 25-54 Rock Alternative
WPKX-FM.............. 25-54 Country
BATON ROUGE, LA........ 82 1 2
WYNK-FM.............. 25-54 Country
WYNK-AM.............. 12+ Disney
WJBO-AM.............. M35-64 News/Talk/Sports
WLSS-FM.............. F18-34 Contemporary Hits
KRVE-FM.............. F25-54 Adult Contemporary
WSKR-AM.............. M25-54 Sports
</TABLE>

69
<PAGE> 78

<TABLE>
<CAPTION>
TARGET REVENUE AUDIENCE
MARKET AND DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) MSA RANK(2) GROUP RANK(2) RANK(2) FORMAT
--------------- ----------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
MODESTO-STOCKTON,
CA(5)................ 85 2 3
KFRY-FM.............. 25-54 Country
KJAX-AM.............. 35-64 News/Talk
KJSN-FM.............. 25-54 Adult Contemporary
KFIV-AM.............. 35-64 News/Talk
KOSO-FM.............. 25-54 Adult Contemporary
SPOKANE, WA............ 87 1 2
KAQQ-AM.............. 35-64 MOR
KCDA-FM(4)........... 25-54 Country
KISC-FM.............. 35-64 Oldies
KKZX-FM.............. M25-54 Classic Rock
KNFR-FM.............. 25-54 Country
KUDY-AM.............. 25-64 Religious
COLUMBIA, SC........... 88 1 1
WCOS-FM.............. 18-54 Country
WLTY-FM.............. F35-54 Lite Rock
WVOC-AM.............. 35-64 News/Talk
WSCQ-FM.............. 25-54 Adult Standards
WCOS-AM.............. 25-54 Sports
WNOK-FM.............. 25-54 Contemporary Hits
WICHITA, KS............ 89 1 2
KRBB-FM.............. F25-54 Adult Contemporary
KZSN-FM.............. 25-54 Country
KKRD-FM.............. 18-34 Contemporary Hits
KRZZ-FM.............. 18-34 Classic Rock
DES MOINES, IA......... 90 4 4
KHKI-FM.............. 25-54 Country
KGGO-FM.............. 25-54 Album Rock
KDMI-AM.............. NA Christian
COLORADO SPRINGS, CO... 93 2 2
KKLI-FM.............. 25-54 Soft Adult Contemporary
KVUU-FM.............. 18-44 Hot Adult Contemporary
MELBOURNE-TITUSVILLE-
COCOA, FL............ 95 1 1
WMMB-AM.............. 35-64 Nostalgia
WBVD-FM.............. 35-64 Classic Rock
WMMV-AM.............. 50+ Nostalgia
WLRQ-FM.............. 25-54 Adult Contemporary
WHKR-FM.............. 25-54 Country
NEW HAVEN, CT.......... 101 1 1
WPLR-FM.............. 18-34 Album Rock
WYBC-FM(4)........... 18-34 Urban Adult Contemporary
</TABLE>

70
<PAGE> 79

<TABLE>
<CAPTION>
TARGET REVENUE AUDIENCE
MARKET AND DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) MSA RANK(2) GROUP RANK(2) RANK(2) FORMAT
--------------- ----------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
ROANOKE-LYNCHBURG VA... 105 1 1
WYYD-FM.............. 25-54 Country
WROV-AM.............. 18-49 Album Rock
WRDJ-FM.............. 35-54 Oldies
WJJS-FM.............. 25-54 Contemporary Hits
WLDJ-FM.............. 35-64 Oldies
WJJX-FM.............. 35-54 Contemporary Hits
WGMN-FM.............. 25-54 Album Rock
WJLM-FM.............. 18-54 Country
WVGM-AM.............. 25-54 Sports/Talk
FAIRFIELD COUNTY,
CT(6)................ 108 2 4
WNLK-AM.............. 35+ News/Talk
WEFX-FM.............. F18-49 Classic Hits
WSTC-AM.............. 35-54 News/Talk
WKHL-FM.............. 35-64 Oldies
WORCESTER, MA.......... 112 1 1
WTAG-AM.............. 35-64 News/Talk
WSRS-FM.............. F25-44 Lite Rock
HUNTSVILLE, AL......... 115 1 1
WDRM-FM.............. 25-54 Country
WHOS-AM.............. 25-54 News
WBHP-AM.............. 25-54 CNN News
WTAK-FM.............. 25-54 Classic Rock
WXQW-FM.............. 25-54 Oldies
WWXQ-FM.............. 25-54 Oldies
PORTSMOUTH-DOVER-
ROCHESTER, NH........ 117 1 1
WGIN-AM.............. 35-64 News/Talk/Sports
WGIP-AM.............. 35-64 News/Talk/Sports
WHEB-FM.............. M25-44 Album Rock
WXHT-FM.............. F25-44 Adult Contemporary
WQSO-FM.............. 35-64 Oldies
WERZ-FM.............. 25-54 Contemporary Hits
WTMN-AM.............. M18-50 Sports/Talk
FT. PIERCE-STUART-VERO
BEACH, FL............ 118 1 1
WZZR-FM.............. M18-48 Classic Rock
WQOL-FM.............. 25-54 Oldies
WBBE-FM.............. 25-54 Adult Contemporary
WAVW-FM.............. 25-54 Country
WAXE-AM.............. 35+ News/Talk/Sports
JACKSON, MS............ 119 1 2
WJDX-AM.............. 25-54 Sports
WKTF-FM.............. 25-54 Young Country
WMSI-FM.............. 25-54 Country
WSTZ-FM.............. 25-54 Rock
WQJQ-FM.............. 35-64 Classic Top 40
</TABLE>

71
<PAGE> 80

<TABLE>
<CAPTION>
TARGET REVENUE AUDIENCE
MARKET AND DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) MSA RANK(2) GROUP RANK(2) RANK(2) FORMAT
--------------- ----------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
MADISON, WI............ 120 1 1
WIBA-AM.............. 35-64 News/Talk
WIBA-FM.............. 25-54 Classic Rock
WMAD-FM.............. 18-34 Modern Rock
WTSO-AM.............. 35-64 Nostalgia
WZEE-FM.............. 18-49 Contemporary Hits
WMLI-FM.............. F25-54 Soft Adult Contemporary
PENSACOLA, FL.......... 121 1 1
WMEZ-FM.............. 25-54 Soft Adult Contemporary
WXBM-FM.............. 25-54 Country
WWSF-FM.............. 35-54 Oldies
CORPUS CHRISTI, TX..... 128 1 1
KRYS-FM.............. 25-54 Country
KRYS-AM.............. 12+ Disney
KMXR-FM.............. F35-64 Adult Contemporary
KNCN-FM.............. 25-54 Album Rock
KUNO-AM.............. 25-54 Spanish
KSAB-FM.............. 25-54 Tejano
SHREVEPORT, LA......... 129 1 3
KRMD-FM.............. 25-54 Country
KRMD-AM.............. M18-54 Sports
KMJJ-FM.............. 18-54 Urban
KBED-FM*............. To be To be announced
announced
BEAUMONT, TX........... 130 1 1
KLVI-AM.............. 30+ News/Talk
KYKR-FM.............. 25-54 Country
KKMY-FM.............. 30-54 Adult Contemporary
KIOC-FM.............. 18-34 Album Rock
BILOXI, MS............. 137 1 1
WKNN-FM.............. 25-54 Country
WMJY-FM.............. 25-54 Adult Contemporary
TYLER-LONGVIEW, TX..... 140 1 1
KNUE-FM.............. 25-54 Country
KISX-FM.............. 18-34 Adult Contemporary
KTYL-FM.............. F30-54 Adult Contemporary
KKTX-AM.............. M30-49 Classic Rock
KKTX-FM.............. M18-49 Classic Rock
MONTGOMERY, AL......... 141 2 2
WZHT-FM.............. 25-54 Urban
WMCZ-FM.............. 25-54 Urban/Adult Contemporary
WQLD-FM.............. 35+ R&B/Gospel
</TABLE>

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<PAGE> 81

<TABLE>
<CAPTION>
TARGET REVENUE AUDIENCE
MARKET AND DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) MSA RANK(2) GROUP RANK(2) RANK(2) FORMAT
--------------- ----------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
HUNTINGTON, WV-
ASHLAND, KY.......... 143 1 1
WTCR-AM.............. 25-54 Classic Country
WTCR-FM.............. 25-54 Country
WIRO-AM.............. M25-54 Sports/Talk
WHRD-AM(4)........... M25-54 Sports/Talk
WZZW-AM.............. M25-54 Sports
WKEE-AM.............. 35+ Adult Standards
WKEE-FM.............. 25-54 Adult Contemporary
WAMX-FM.............. M25-54 Rock
WFXN-FM.............. M25-54 Classic Rock
WBVB-FM.............. M18-49 Oldies
KILLEEN, TX............ 149 1 1
KIIZ-FM.............. 25-54 Urban
KLFX-FM(4)........... 18-34 Album Rock
KRYL-FM*............. M25-54 Classic Rock
SAVANNAH, GA........... 153 1 1
WCHY-AM.............. 35-64 Disney
WCHY-FM.............. 25-54 Country
WYKZ-FM.............. 25-54 Soft Adult Contemporary
WAEV-FM.............. 18-34 Adult Contemporary
WSOK-AM.............. 25-54 Gospel
WLVH-FM.............. 25-54 Urban Adult Contemporary
FAYETTEVILLE, AR....... 156 1 1
KEZA-FM.............. F35-64 Adult Contemporary
KKIX-FM.............. 25-54 Country
KMXF-FM.............. 25-54 Hot Adult Contemporary
KJEM-FM.............. 35-64 Classic Rock
FT. SMITH, AR.......... 170 1 1
KWHN-AM.............. 35-54
KMAG-FM.............. 33-54 Country
KZBB-FM.............. 25-54 Contemporary Hits
ANCHORAGE, AK.......... 171 1 1
KBFX-FM.............. 18-49 Classic Rock
KASH-FM.............. 25-54 Country
KENI-AM.............. 25-54 News/Talk
KGOT-FM.............. 25-54 Contemporary Hits
KTZN-AM.............. 12+ Sports
KYMG-FM.............. 25-54 Adult Contemporary
LINCOLN, NE............ 172 1 2
KIBZ-FM.............. 25-54 Album Rock
KKNB-FM.............. 18-34 Alternative
KTGL-FM.............. M25-54 Classic Rock
KZKX-FM.............. 25-54 Country
</TABLE>

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<TABLE>
<CAPTION>
TARGET REVENUE AUDIENCE
MARKET AND DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) MSA RANK(2) GROUP RANK(2) RANK(2) FORMAT
--------------- ----------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
LUBBOCK, TX............ 175 1 1
KFMX-FM.............. M18-34 Active Rock
KKAM-AM.............. 18+ Talk
KZII-FM.............. 12-34 Contemporary Hits
KFYO-AM.............. 35+ News/Talk/Sports
KCRM-FM.............. 12-34 Classic Rock
KKCL-FM.............. 35-64 Oldies
MIDLAND, TX............ 176 2 2
KCDQ-FM.............. 18-34 Classic Rock
KCHX-FM.............. 25-54 Contemporary Hits Radio
KMRK-FM.............. 25-54 Tejano
ASHEVILLE, NC.......... 179 1 1
WWNC-AM.............. 25-54 Country
WKSF-FM.............. 25-55 Country
MANCHESTER, NH......... 185 2 2
WGIR-AM.............. 35+ News/Talk/Sports
WGIR-FM.............. M25-54 Album Rock
AMARILLO, TX........... 188 3 2
KMML-FM.............. 25-54 Country
KBUY-FM.............. 25-54 Rock
KNSY-FM.............. 18-34 Contemporary Hits Radio
KIXZ-AM.............. 18-34 Nostalgia
WACO, TX............... 191 1 1
KBRQ-FM.............. M25-54 Classic Rock
WACO-FM.............. 25-54 Country
KCKR-FM.............. 18-49 New Country
KWTX-FM.............. F25-54 Contemporary Hits
KWTX-AM.............. 25-54 News/Talk
SPRINGFIELD, IL........ 194 3 3
WFMB-AM.............. M35-64 News/Talk/Sports
WFMB-FM.............. 18-34 Country
WCVS-FM.............. 25-54 Classic Hits
FREDERICK, MD.......... 200 1 1
WFRE-FM.............. 35-54 Country
WFMD-AM.............. 35-54 News/Talk
CEDAR RAPIDS, IA....... 201 2 2
KHAK-FM.............. 25-54 Country
KDAT-FM.............. 25-54 Soft Rock
KRNA-FM.............. M18-34 Album Rock
ALEXANDRIA, LA......... 202 1 1
KRRV-FM.............. 25-54 Country
KKST-FM.............. 18-34 Adult Contemporary
KZMZ-FM.............. 18-34 Quality Rock
KDBS-AM.............. 25-54 News/Talk
</TABLE>

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<PAGE> 83

<TABLE>
<CAPTION>
TARGET REVENUE AUDIENCE
MARKET AND DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) MSA RANK(2) GROUP RANK(2) RANK(2) FORMAT
--------------- ----------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
RICHLAND-KINNEWICK-
PASCO, WA............ 207 2 1
KIOK-FM.............. 25-54 Country
KALE-AM.............. 40+ Nostalgia
KEGX-FM.............. 25-54 Classic Rock
KTCR-AM.............. 35+ Talk
KNLT-FM(4)........... 35-64 Oldies
KUJ-FM(4)............ 18-34 Contemporary Hits
TUSCALOOSA, AL......... 214 1 1
WACT-AM.............. 25-54 Gospel
WRTR-FM.............. 25-54 Classic Rock
WTXT-FM.............. 25-54 Country
WZBQ-FM.............. 18-34 Contemporary Hits
WINCHESTER, VA......... 218 1 1
WUSQ-FM.............. 25-54 Country
WFQX-FM.............. 25-54 Classic Rock
WNTW-AM.............. 25-64 News/Sports/Talk
WHEELING, WV........... 220 1 1
WWVA-AM.............. 25-54 News/Talk
WOVK-FM.............. 25-54 Country
WKWK-FM.............. 25-54 Lite Rock
WBBD-AM.............. 25-54 Nostalgia
WZNW-FM.............. 25-54 Hot Adult Contemporary
WEGW-FM.............. 25-54 Rock
WEEL-FM(4)........... 25-54 Oldies
BURLINGTON, VT......... 223 1 2
WXPS-FM.............. M25-54 Country
WEAV-AM(4)........... M25-54 Country
WCPV-FM.............. 25-54 Classic Rock
WEZF-FM.............. F25-54 Adult Contemporary
BATTLE CREEK/KALAMAZOO,
MI................... 235 1 1
WBCK-AM.............. 35-64 News/Talk
WBXX-FM.............. 25-54 Adult Contemporary
WRCC-AM.............. 45+ Nostalgia
WWKN-FM.............. 35-64 Oldies
TEXARKANA, TX.......... 242 1 1
KKYR-AM.............. 35-64 Country
KKYR-FM.............. 25-54 Country
KYGL-FM.............. 25-54 Classic Rock
KPWW-FM.............. 18-34 Pop Top 40
LAWTON, OK............. 251 1 1
KLAW-FM.............. 25-54 Country
KZCD-FM.............. M25-54 Rock
JACKSON, TN............ 262 1 1
WTJS-AM.............. 35-64 News/Talk/Sports
WTNV-FM.............. 25-54 Country
WYNU-FM.............. 25-54 Classic Rock
</TABLE>

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<TABLE>
<CAPTION>
TARGET REVENUE AUDIENCE
MARKET AND DEMOGRAPHIC SHARE SHARE
CALL LETTERS(1) MSA RANK(2) GROUP RANK(2) RANK(2) FORMAT
--------------- ----------- ----------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
FAIRBANKS, AK.......... NA NA NA
KIAK-FM.............. 25-54 Country
KIAK-AM.............. 25-54 Sports
KAKQ-FM.............. 25-54 Adult Contemporary
KKED-FM.............. 25-54 Rock
FARMINGTON, NM......... NA NA NA
KKFG-FM.............. 25-54 Country
KDAG-FM.............. M25-54 Classic Rock
KCQL-AM.............. 35+ Sports
KTRA-FM.............. 18-49 Traditional Country
GADSDEN, AL............ NA NA NA
WAAX-AM.............. 35+ News/Talk
WGMZ-FM.............. 35-64 Contemporary Hits
LUFKIN, TX............. NA NA NA
KYKS-FM.............. 12+ Country
KAFX-FM.............. 18-49 Hot Adult Contemporary
KTBQ-FM.............. 18-34 Classic Rock
KSFA-AM.............. 25-54 News/Talk/Sports
OGALLALA, NE........... NA NA NA
KOGA-FM.............. 25-54 Adult Contemporary
KOGA-AM.............. 35-64 Adult Standard
KMCX-FM.............. 25-54 Country
STATESVILLE, NC........ NA NA NA
WFMX-FM.............. 25-54 Country
WSIC-AM.............. 35-64 News/Talk/Sports
VICTORIA, TX........... NA NA NA
KIXS-FM.............. 25-54 Country
KLUB-FM.............. 25-49 Classic Rock
YUMA, AZ............... NA NA NA
KYJT-FM.............. 25-49 Classic Rock
KTTI-FM.............. 25-54 Country
KBLU-AM.............. 35-64 News/Talk/Sports
</TABLE>

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

F Female

M Male

NA Information not available.

* Indicates station to be acquired by Capstar in a pending transaction.

(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 any stations owned by Capstar
and programmed by Chancellor Media or other third parties.

(2) MSA Rank, Company Revenue Share Rank and Company Audience Share Rank
obtained from BIA Research-Media Access Pro, Version 2.5 Radio Analysis
Database (current as of February 24, 1999). Revenue figures based upon 1998
gross revenue for the indicated markets. Company Audience Share Rank based
on average quarter hour estimates for the last available reporting period
ending Fall 1998, for the demographic of persons ages 12+, 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 metropolitan statistical area, excluding audience share for listeners
who listen to stations whose signal originate outside the metropolitan
statistical area.

(3) Pending the consummation of the pending transactions, Capstar provides
certain sales and marketing services to station WENN-FM in Birmingham,
Alabama under an LMA.

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<PAGE> 85

(4) Capstar provides certain sales, programming and marketing services to
stations WLEE-AM in Richmond, Virginia, WHRD-AM in Huntington, West
Virginia, WEAV-AM in Burlington, Vermont and KNLT-FM and KUJ-FM in
Richland-Kennewick-Pasco, Washington under separate LMAs. Capstar provides
certain sales and marketing services to stations WEEL-FM in Wheeling, West
Virginia, WYBC-FM in New Haven, Connecticut, KLFX-FM in Killeen, Texas and
KCDA-FM in Spokane, Washington under separate JSAs.

(5) Modesto-Stockton, California is not a custom survey area as defined by BIA
Research -- Media Access Pro Version 2.5 Radio Analysis Database (current
as of February 24, 1999). The custom survey area includes the BIA
Research -- Media Access Pro Version 2.5 Radio Analysis Database (current
as of February 24, 1999) markets of Modesto and Stockton, California with
market ratings of 85 and 122, respectively. MSA Rank is listed for the
Stockton market only. The combined rank for the custom survey area has not
been estimated.

(6) Fairfield County is not a custom survey area as defined by BIA
Research -- Media Access Pro Version 2.5 Radio Analysis Database (current
as of February 24, 1999). The custom survey area includes the BIA
Research -- Media Access Pro Version 2.5 Radio Analysis Database (current
as of February 24, 1999) markets of Bridgeport, Stamford-Norwalk, and
Danbury, Connecticut with market rankings of 108, 138, and 189,
respectively. MSA Rank is listed for the Bridgeport market only. The
combined rank for the custom survey area has not been estimated.

EMPLOYEES

As of May 15, 1999, Capstar had a staff of approximately 3,900 full-time
employees and approximately 1,700 part-time employees. There are no collective
bargaining agreements between Capstar and its employees. Capstar believes that
its relations with its employees are good.

PROPERTIES

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

Capstar owns substantially all other equipment, consisting principally of
transmitting antennae, transmitters, studio equipment and general office
equipment. The towers, antennae and other transmission equipment used by
Capstar's stations are generally in good condition, although opportunities to
upgrade facilities are continuously reviewed. All of the owned property, other
than transmitter and antenna sites and immaterial real estate interests, secures
Capstar's borrowings under its credit facility.

Capstar maintains its corporate headquarters at 600 Congress Avenue, Suite 1400,
Austin, Texas 78701. The telephone number of Capstar is (512) 340-7800.

LEGAL PROCEEDINGS

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<PAGE> 86

consideration to be paid as a result of the acquisition of SFX to the holders of
the class A common stock of SFX was unfair and that the individual defendants
breached their fiduciary duties. Both complaints sought to have the actions
certified as class actions and sought to enjoin the SFX acquisition or, in the
alternative, monetary damages. The parties agreed that the lawsuits could 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 reached an agreement
providing for a settlement of the lawsuit. Pursuant to the settlement, SFX
agreed not to seek an amendment to the SFX merger agreement with Capstar to
reduce the consideration to be received by the stockholders of SFX in the SFX
acquisition in order to offset the indemnity obligations of SFX Entertainment,
Inc., a former subsidiary of SFX. The settlement also provides for SFX to pay
plaintiff's counsel an aggregate of $950,000, including all fees and expenses as
approved by the court. The settlement is conditioned on the consummation of the
SFX acquisition (which has been consummated), completion of confirmatory
discovery (which has been completed) and court approval. Pursuant to the
settlement, the defendants have denied, and continue to deny, that they have
acted in bad faith or breached any fiduciary duty. The parties expect to submit
the settlement document soon to the court for its approval. There can be no
assurance that the court will approve the settlement.

On July 13, 1998, Noddings Investment Group, Inc. and Noddings Warrant Limited
Partnership filed Civil Action No. 16538 in the Court of Chancery of the State
of Delaware in and for New Castle County against Capstar Communications, Inc.
Noddings alleges that Capstar Communications, Inc., formerly named SFX
Broadcasting, Inc. and an indirect wholly-owned subsidiary of Capstar, breached
a warrant agreement that Noddings contends requires Capstar Communications to
permit Noddings to exercise warrants in exchange for cash and shares of stock of
SFX Entertainment, Inc. Specifically, Noddings alleges that Capstar
Communications violated the warrant agreement by permitting Noddings to receive
cash in exchange for its warrants, but refusing to convey shares of stock of SFX
Entertainment. In addition to suing on its own behalf, Noddings is seeking to
prosecute the action on behalf of a putative class comprised of all persons who
owned equivalent warrants on April 21, 1998, (the date immediately following the
record date of the distribution of stock of SFX Entertainment to holders of the
stock of SFX) and their transferees and successors in interest. Noddings has
requested that the court:

- - declare that on the exercise of its warrants Capstar Communications transmit
to plaintiffs and members of the class that it seeks to represent $22.3725 in
cash per warrant and 0.2983 shares of common stock of SFX Entertainment per
warrant;

- - require Capstar Communications to pay 0.2983 shares of common stock of SFX
Entertainment per warrant and, (if not previously paid) $22.3725 in cash, to
any putative class member that has exercised or exercises warrants after April
20, 1998;

- - in the alternative, award plaintiffs and members of the putative class
monetary damages in an amount to be determined at trial; and

- - award costs and attorneys' fees.

In March 1999, the court issued an opinion dismissing two of Noddings' counts
and granting summary judgment in favor of Noddings on one count. The court held
that

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<PAGE> 87

Noddings is entitled to 0.2983 shares of SFX Entertainment stock per warrant.
Both parties have filed a notice of appeal.

On July 24, 1998, in connection with Capstar's pending acquisition of Triathlon
Broadcasting Company, Capstar was notified of an action filed on behalf of all
holders of depository shares of Triathlon against Triathlon, Triathlon's
directors, and Capstar. The action was filed in the Court of Chancery of the
State of Delaware (Civil Action No. 16560) in and for New Castle County,
Delaware by Herbert Behrens. The complaint alleges that Triathlon and its
directors breached their fiduciary duties to the class of depository
shareholders by agreeing to a transaction with Capstar that allegedly favored
the Class A common shareholders at the expense of the depository shareholders.
Capstar is accused of knowingly aiding and abetting the breaches of fiduciary
duties allegedly committed by the other defendants. The complaint seeks to have
the action certified as a class action and seeks to enjoin the Triathlon
acquisition, or in the alternative, seeks monetary damages in an unspecified
amount. On February 12, 1999, the parties signed a Memorandum of Understanding
that provides for the settlement of the lawsuit. The amount of the settlement
will equal $0.11 in additional consideration for each depositary share owned by
any class member at the effective time of the Triathlon acquisition. Capstar
also agreed not to oppose plaintiff's counsel's application for attorney fees
and expenses in the aggregate amount of $150,000. The proposed settlement is
contingent upon confirmatory discovery by the plaintiff, execution of a
definitive settlement agreement, and court approval.

Capstar is also involved in various other claims and lawsuits which are
generally incidental to its business. Capstar is also vigorously contesting all
of these matters and believes that the ultimate resolution of these matters and
those mentioned above will not have a material adverse effect on its
consolidated financial position or results of operations. See "The
Companies -- Chancellor Media -- Legal Proceedings" for more information about
legal proceedings relating to Capstar.

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<PAGE> 88

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

General

In Management's Discussion and Analysis management explains the general
financial condition and the results of operation of Capstar including:

- - what factors affect Capstar's business;

- - what Capstar's earnings and costs were for the periods that are discussed;

- - why those earnings and costs were different from the comparable period in the
prior year;

- - where Capstar's earnings come from;

- - how all of this affects Capstar's overall financial condition;

- - what Capstar's expenditures for acquisitions and other capital needs were
since its organization in October 1996 and what management expects them to be
in 1999; and

- - where cash will come from to pay for future capital expenditures and debt
service obligations.

As you read this Management's Discussion and Analysis, it may be helpful to
refer to Capstar's Consolidated Financial Statements beginning on page F-82,
which present the results of operations for the years ended December 31, 1998,
1997 and 1996 and the three months ended March 31, 1999. In Management's
Discussion and Analysis, management analyzes and explains the annual changes in
the specific line items in the consolidated statements of operations and other
data. You should know that these changes are not historically comparable because
of the numerous acquisitions and dispositions that Capstar has completed since
its inception.

The merger with Chancellor Media may impact many of the matters discussed in
this Management's Discussion and Analysis, including earnings, results of
operations, expenses, liquidity and capital resources.

Management believes that it is important to discuss advertising revenues and
seasonal fluctuations of advertising revenues, two factors that have a strong
influence on Capstar's business performance:

- - ADVERTISING REVENUES. Capstar's revenues are derived primarily from the sale
of time to local and national advertisers. These revenues are affected by the
advertising rates that Capstar 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. Capstar
attempts to maximize revenues for each of its stations by adjusting rates
based upon local market conditions, controlling advertising inventory and
creating demand and audience ratings.

- - SEASONALITY. Seasonal revenue fluctuations are common in the radio
broadcasting industry and are due primarily to fluctuations in advertising
expenditures by local and national advertisers. Advertising expenditures are
typically lowest in the first calendar quarter and highest in the second and
fourth calendar quarters of each year. Capstar's

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<PAGE> 89

operating results in any period may be affected by the occurrence of
advertising and promotion expenses that do not produce commensurate revenues
in the period in which the expenditures are made. Because Arbitron reports
audience ratings on a quarterly basis, Capstar'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.

In the following analysis, management discusses broadcast cash flow and EBITDA,
before noncash compensation expense, LMA fees and merger, nonrecurring and
systems development expense, because they are measures widely used in the
broadcasting industry to evaluate a radio company's operating performance.
Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses, LMA fees, noncash compensation expense and
merger nonrecurring and systems development expense. EBITDA, before noncash
compensation expense, LMA fees and merger, nonrecurring and systems development
expense, consists of operating income before depreciation, amortization, LMA
fees, noncash compensation expense fees and merger, nonrecurring and systems
development expense. You should know that broadcast cash flow and EBITDA, before
noncash compensation expense, LMA fees and merger, nonrecurring and systems
development expense, are not measures of performance calculated in accordance
with GAAP. Accordingly, you should also review Capstar's operating income, cash
flows from operating activities and other income or cash flow statements that
are prepared in accordance with GAAP.

Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998

Net Revenue. Net revenue increased $77.9 million or 121.6% to $142.0 million in
the three months ended March 31, 1999 from $64.1 million in the three months
ended March 31, 1998. This increase was attributable to the acquisitions of
radio stations and revenue generated from stations being programmed by
Chancellor Media pursuant to an LMA. On a same store basis, for stations owned
or operated, LMA fees earned and other non-radio operations as of March 31,
1999, net revenue increased $13.8 million or 11.0% to $139.4 million from $125.6
million in the three months ended March 31, 1998. The increase was primarily
attributable to growth in the sale of time to local and national advertisers.

Station Operating Expenses. Station operating expenses increased $44.4 million
or 93.0% to $92.2 million in the three months ended March 31, 1999 from $47.8
million in the three months ended March 31, 1998. On a same store basis, for
stations owned or operated, LMA fees earned and other non-radio operations as of
March 31, 1999, operating expenses increased $8.4 million or 10.4% to $89.8
million from $81.4 million in the three months ended March 31, 1998. As a
percent of revenue, historical operating expenses have declined from 74.5% in
1998 to 64.9% in 1999 as a result of cost savings measures implemented by
Capstar in connection with its acquisitions and the spreading of fixed costs
over a larger revenue base.

Corporate Expenses. Corporate expenses increased $2.5 million or 67.8% to $6.3
million in the three months ended March 31, 1999 from $3.8 million in the same
period during 1998 primarily as a result of higher salary expense for additional
staffing. As a percent of revenue, historical corporate expenses have declined
from 5.9% in 1998 to 4.4% in 1999 as

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<PAGE> 90

a result of cost savings measures implemented by Capstar in connection with its
acquisitions and the spreading of fixed costs over a larger revenue base.

Other Operating Expenses. Depreciation and amortization increased $25.4 million
or 230.3% to $36.4 million in the three months ended March 31, 1999 from $11.0
million in the same period in 1998 primarily due to radio station acquisitions
consummated in 1998 and the first quarter of 1999. Noncash compensation expense
related to certain options, warrants and stockholder non-recourse notes
decreased $13.8 million or 87.3% to $2.0 million in 1999 from $15.8 million in
1998 due to a significant increase in the fair value of the Capstar class A
common stock during the first quarter of 1998 compared to an insignificant
change in the fair value of the Capstar class A common stock in the first
quarter of 1999. In the quarter ended March 31, 1999, Capstar recorded merger,
nonrecurring and systems development expense of $2.5 million which consisted of
$1.1 million of investment banking, legal and other expense related to the
pending merger with Chancellor Media, $0.7 million consisting primarily of
startup costs associated with Capstar's sales training initiative and $0.7
million of business process reengineering and training expense incurred in
connection with Capstar's development of the Galaxy(TM) system.

Other Income (Expense). Interest expense increased $25.1 million or 157.6% to
$41.0 million in the three months ended March 31, 1999 from $15.9 million in the
same period in 1998 primarily due to the interest expense associated with
indebtedness incurred in connection with Capstar's acquisitions.

Net Loss. As a result of the factors described above, net loss increased by $2.1
million to a $31.9 million net loss in the three months ended March 31, 1999
from a $29.8 million net loss in the three months ended March 31, 1998.

Broadcast Cash Flow. As a result of the factors described above, broadcast cash
flow increased $33.5 million or 205.4% to $49.8 million in the three months
ended March 31, 1999 from $16.3 million in the three months ended March 31,
1998. The broadcast cash flow margin was 35.1% in the three months ended March
31, 1999 as compared to 25.5% in the same period in 1998. On a same store basis,
for stations owned or operated, LMA fees earned and other non-radio operations
as of March 31, 1999, broadcast cash flow increased $5.4 million or 12.2% to
$49.5 million from $44.1 million in the three months ended March 31, 1998.

EBITDA, before noncash compensation expense, LMA fees and merger, nonrecurring
and systems development expense. As a result of the factors described above,
EBITDA, before noncash compensation expense, LMA fees and merger, nonrecurring
and systems development, increased $30.9 million or 246.5% to $43.5 million in
the three months ended March 31, 1999 from $12.6 million in the three months
ended March 31, 1998. The EBITDA, before noncash compensation expense, LMA fees
and merger, nonrecurring and systems development, margin increased to 30.6% in
1999 from 19.6% in 1998.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Net Revenue. Net revenue increased $342.0 million or 194.9% to $517.4 million in
the year ended December 31, 1998 from $175.4 million in the year ended December
31, 1997. This increase was attributable to the acquisitions of radio stations
and revenue generated from joint sales agreements ("JSAs") and LMAs entered into
during the year ended December 31, 1998. On a same station basis, for stations
owned or operated as of

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December 31, 1998, net revenue increased $66.8 million or 11.7% to $637.7
million from $570.9 million in the year ended December 31, 1997. The increase
was primarily attributable to growth in the sale of time to local and national
advertisers.

Station Operating Expenses. Station operating expenses increased $182.5 million
or 149.4% to $304.6 million in the year ended December 31, 1998 from $122.1
million in the year ended December 31, 1997. On a same station basis, for
stations owned or operated as of December 31, 1998, operating expenses increased
$16.8 million or 4.8% to $351.4 million from $368.2 million in the year ended
December 31, 1997. As a percent of revenue, historical operating expenses have
declined from 69.6% in 1997 to 58.9% in 1998 as a result of

(i) cost savings measures implemented by Capstar in connection with its
acquisitions and

(ii) the spreading of fixed costs over a larger revenue base.

Corporate Expenses. Corporate expenses increased $9.5 million or 66.5% to $23.7
million in the year ended December 31, 1998 from $14.2 million in the same
period during 1997 primarily as a result of higher salary expense for additional
staffing.

Other Operating Expenses. Depreciation and amortization increased $69.8 million
or 264.2% to $96.2 million in the year ended December 31, 1998 from $26.4
million in the same period in 1997 primarily due to radio station acquisitions
consummated in 1998. Noncash compensation expense related to certain options,
warrants and stockholder non-recourse notes increased $10.7 million or 101.0% to
$21.3 million in 1998 from $10.6 million in 1997 due to an increase in the fair
value of the Capstar class A common stock. In 1998, Capstar recorded merger,
nonrecurring and systems development expense of $12.9 million which consisted of

- - $8.1 million of investment banking, legal and other expense related to the
pending merger with Chancellor Media;

- - $2.1 million of expense, primarily legal, accounting and severance costs
associated with acquisitions and legal reorganization;

- - $1.4 million consisting primarily of startup costs associated with Capstar's
sales training initiative; and

- - $1.3 million of current state assessment, business process reengineering and
training expense incurred in connection with Capstar's development of the
Galaxy(TM) system.

In 1997, Capstar recorded merger, nonrecurring and systems development expense
of $4.7 million which consisted of investment banking, legal and transaction
fees related to the acquisition of GulfStar Communications, Inc.

Other Income (Expense). Interest expense increased $74.1 million or 157.7% to
$121.1 million in the year ended December 31, 1998 from $47.0 million in the
same period in 1997 primarily due to the interest expense associated with
indebtedness incurred in connection with Capstar's acquisitions. In 1998,
Capstar incurred a loss of $28.6 million on investments in two limited liability
companies comprised of

(i) write-downs of notes receivable from the limited liability companies
and

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(ii) certain performance obligations under the limited liability companies'
borrowing arrangements for which Capstar acts as guarantor.

In 1998, an extraordinary loss of $7.3 million on extinguishment of debt was
recorded relating to Capstar's refinancing of its previous credit facility with
a new credit facility in the second quarter of 1998 and Capstar Radio purchasing
all of its outstanding 13 1/4% Senior Subordinated Notes due 2003 (the "13 1/4%
Capstar Radio Notes"). In 1997, an extraordinary loss of $2.4 million was
recorded relating to the write-off of deferred financing fees associated with
the GulfStar Communications, Inc. credit facility which was refinanced during
the period.

Net Loss. As a result of the factors described above, net loss increased $51.0
million to a $96.7 million net loss in the year ended December 31, 1998 from a
$45.7 million net loss in the year ended December 31, 1997.

Broadcast Cash Flow. As a result of the factors described above, broadcast cash
flow increased $159.6 million or 299.4% to $212.9 million in the year ended
December 31, 1998 from $53.3 million in the year ended December 31, 1997. The
broadcast cash flow margin was 41.1% in the year ended December 31, 1998 as
compared to 30.4% in the same period in 1997. On a same station basis, for
stations owned or operated as of December 31, 1998, broadcast cash flow
increased $50.0 million or 22.8% to $269.6 million from $219.6 million in the
year ended December 31, 1997.

EBITDA, before noncash compensation expense, LMA fees and merger, nonrecurring
and systems development expense. As a result of the factors described above,
EBITDA, before noncash compensation expense, LMA fees and merger, nonrecurring
and systems development expense, increased $150.1 million or 384.1% to $189.2
million in the year ended December 31, 1998 from $39.1 million in the year ended
December 31, 1997. The EBITDA, before noncash compensation expense, LMA fees and
merger, nonrecurring and systems development expense, margin increased to 36.6%
in 1998 from 22.3% in 1997.

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 year ended
December 31, 1997. 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
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 primarily
attributable to the station operating expenses of the radio station acquisitions
and the JSAs and the LMAs entered into during the year ended December 31, 1997.
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 from $159.0
million in the year ended December 31, 1996. 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 Capstar in connection with its
acquisitions and (ii) the spreading of fixed costs over a larger revenue base.

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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. Noncash compensation expense
increased $4.4 million or 71.2% to $10.6 million in the year ended December 31,
1997 from approximately $6.2 million in the year ended December 31, 1996 due to
compensation charges in connection with warrants issued to R. Steven Hicks and
certain stock subscriptions. In 1997, Capstar recorded merger, nonrecurring and
systems development expense of $4.7 million which consisted of investment
banking, legal and transaction fees related to the acquisition of GulfStar
Communications, Inc.

Other Income (Expense). 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
Capstar's acquisitions.

Net Loss. As a result of the factors described above and preferred stock
dividends resulting from the 12% Senior Exchangeable Preferred Stock issued by
Capstar Broadcasting Partners, Inc. in June 1997, net loss increased $33.7
million in the year ended December 31, 1997 to a net loss of $45.7 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 the JSAs and the 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 flows increased $10.4 million or 18.8% to
$65.9 million from $55.5 million in year ended December 31, 1996.

EBITDA, before noncash compensation expense, LMA fees and merger, nonrecurring
and systems development expense. As a result of the factors described above,
EBITDA, before noncash compensation expense, LMA fees and merger, nonrecurring
and systems development expense, 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 noncash compensation expense, LMA fees and
merger, nonrecurring and systems development expense, margin decreased to 22.3%
in 1997 from 23.0% in 1996 as a result of higher corporate expenses as described
above.

Liquidity and Capital Resources

Capstar's acquisition strategy requires a great deal of capital. Capstar has
historically used the proceeds of bank debt, debt offerings, equity offerings
and cash flow from operations to fund the implementation of its acquisition
strategy. Capstar's business has generated sufficient cash flow from operations
to finance its existing operations and debt service

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requirements, and management anticipates that this will continue to be the case.
A brief summary of each of Capstar's outstanding debt or preferred equity
instruments follows.

In February 1997, Capstar Broadcasting Partners, Inc., a wholly-owned subsidiary
of Capstar ("Capstar Partners"), issued its 12 3/4% Senior Discount Notes due
2009 (the "12 3/4% Capstar Partners Notes") at a substantial discount from their
aggregate principal amount at maturity of $277.0 million. The 12 3/4% Capstar
Partners Notes pay no cash interest until August 1, 2002. Accordingly, the
carrying value will increase through accretion until August 1, 2002. As of May
15, 1999, the outstanding principal balance was $198.0 million. Beginning on
August 1, 2002, Capstar Partners will pay interest of approximately $17.7
million semi-annually on February 1 and August 1 of each year until maturity on
February 1, 2009.

In June 1997, Capstar Radio issued its 9 1/4% Senior Subordinated Notes due 2007
(the "9 1/4% Capstar Radio Notes".) As of May 15, 1999, the outstanding
principal balance was $199.3 million. Capstar Radio pays interest payments of
$9.25 million on the 9 1/4% Capstar Radio Notes semi-annually on January 1 and
July 1 of each year. The 9 1/4% Capstar Radio Notes mature on July 1, 2007.

In June 1997, Capstar Partners issued 1,000,000 shares of its 12% Senior
Exchangeable Preferred Stock (the "12% Capstar Partners Preferred Stock").
Capstar Partners is required to pay dividends on the 12% Capstar Partners
Preferred Stock semi-annually on January 1 and July 1 of each year at a rate of
$12.00 per share. Until July 1, 2002, dividends may be paid, at Capstar
Partners' option, either in cash or in additional shares of 12% Capstar Partners
Preferred Stock. Since issuance, Capstar Partners has paid the required dividend
in additional shares. Capstar Partners intends to continue to pay the dividend
in additional shares, rather than cash, through July 1, 2002. As of May 15,
1999, 1,196,236 shares of the 12% Capstar Partners Preferred Stock were issued
and outstanding with a liquidation preference equal to $100.00 per share or
approximately $119.6 million, excluding accrued dividends of $5.4 million.

In May 1998, Capstar borrowed $150.0 million from Chancellor Media. The loan
bears interest at a rate of 12% per annum (subject to increase in certain
circumstances), payable quarterly, of which 5/6 is payable in cash and 1/6 is,
at Capstar's option, either payable in cash or added to the principal amount of
the loan. The interest rate will increase by 2% per annum, retroactive to May
29, 1998, because Capstar did not satisfy the requirement that it complete
acquisitions under the Chancellor Exchange Agreement with an aggregate purchase
price of $100 million by May 29, 1999. Such increased interest will not be
required to be paid until August 2, 1999. In addition, Capstar may elect to
defer the 5/6 portion payable in cash, in which case the loan would bear
interest at a rate of 14% per annum. In 1998, Capstar did not elect to defer any
portion of the interest due, and Capstar paid approximately $10.6 million to
Chancellor Media. In the future, Capstar does not anticipate deferring any
portion of the interest payments. The loan matures in May 2018, provided that
Capstar may prepay all or part of the outstanding principal balance and, in
certain circumstances, Chancellor Media will have the right to require Capstar
to prepay part of the outstanding principal balance. One such circumstance was
the consummation of the Triathlon acquisition.

Capstar Communications, Inc. has outstanding its 10 3/4% Senior Subordinated
Notes due 2006 (the "10 3/4% CCI Notes") and its 11 3/8% Senior Subordinated
Notes due 2000 (the "11 3/8% CCI Notes"). Capstar Communications pays interest
of approximately

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$15.9 million on the 10 3/4% CCI Notes semi-annually on May 15 and November 15
of each year. The 10 3/4% CCI Notes mature on May 15, 2006. Capstar
Communications pays interest of approximately $32,000 on the 11 3/8% CCI Notes
semi-annually on April 1 and October 1 of each year. The 11 3/8% CCI Notes
mature on October 1, 2000. As of May 15, 1999, the outstanding principal
balances were $294.1 million and $566,000 on the 10 3/4% CCI Notes and 11 3/8%
CCI Notes, respectively.

Capstar Communications has outstanding its Series E Cumulative Exchangeable
Preferred Stock ("CCI Series E Preferred Stock"). Capstar Communications is
required to pay dividends on the CCI Series E Preferred Stock semi-annually on
January 15 and July 15 of each year at the rate per share of $12.625 per year.
Until January 15, 2002, Capstar Communications may pay dividends either in cash
or in additional shares of CCI Series E Preferred Stock. Since July 15, 1998,
Capstar Communications has paid the required dividend by issuing additional
shares. Capstar Communications intends to continue to pay the dividend in
additional shares, rather than cash, through January 15, 2002. As of May 15,
1999, 1,346,091 shares of the CCI Series E Preferred Stock were issued and
outstanding with a liquidation preference equal to $100.00 per share or
approximately $134.6 million, excluding accrued dividends of $5.7 million.

The merger will result in a change of control under Capstar's indebtedness and
preferred stock, and Capstar's subsidiaries will be obligated to offer to
purchase the notes and preferred stock from the holders thereof at an offer
price in cash equal to 101% of the aggregate principal amount or liquidation
preference, as applicable, thereof plus accrued and unpaid interest or
dividends, as applicable, if any, thereon. Capstar anticipates paying for the
change of control offers out of cash from operating activities and available
credit borrowings under the Capstar credit facility.

In addition to the debt and equity described above, Capstar is a party to the
Capstar credit facility under which Capstar Radio is the borrower. The Capstar
credit facility consists of a $500 million revolving loan, a $450 million A Term
Loan and a $400 million B Term Loan. Pursuant to the Capstar credit facility and
subject to bank availabilities and approvals, Capstar may request additional
term loans and revolving credit loans in an aggregate amount up to $550 million.
The interest rate under the Capstar credit facility is a floating rate. On May
15, 1999, Capstar had borrowings of approximately $1,126.0 million outstanding
under the Capstar credit facility comprised of $279.0 million in revolving
loans, $450.0 million under the A Term Loan and $397.0 million under the B Term
Loan, with a weighted average effective interest rate of 7.3% per annum. On May
15, 1999, $219.8 million was available for borrowing, subject to financial
covenants contained in the Capstar credit facility and the agreements that
govern the indebtedness of Capstar and its subsidiaries. Beginning August 31,
1999, the A Term Loan will require scheduled annual principal payments, payable
quarterly, of $45 million for the first year, $67.5 million in the second and
third years, $90 million for the fourth and fifth years, and two quarterly
payments of $45 million during the final year commencing August 31, 2004. The B
Term Loan requires scheduled annual principal payments, payable quarterly, of $4
million in years 1999 through 2003, $180 million in 2004 and $200 million in
2005. In April 1999, the Capstar credit facility was amended to, among other
things, permit the merger and related transactions to be consummated; increase
the leverage ratio required to be maintained by Capstar Radio during the period
from April 1, 1999 through September 30, 2000, permitting Capstar more financing
flexibility; increase the pricing of

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the Capstar credit facility beginning January 1, 2000; and permit an amendment
of the $150 million note payable to Chancellor Media.

In May 1998, Capstar purchased a $8.5 million letter of credit reimbursement
obligation owing from R. Steven Hicks to Bankers Trust Company. In April 1999,
the $8.5 million indebtedness of R. Steven Hicks was satisfied by the transfer
from R. Steven Hicks to Capstar of a license issued by the FCC to operate a new
FM broadcast station on Channel 290C2 located in Round Rock, Texas.

In June 1999, Capstar issued a note payable to CAG LAN International ASA for
$14.3 million in partial satisfaction of the purchase price in the LAN
acquisition. The note accrues interest at 7% per year. The note is due and
payable in full on the earlier to occur of the fifth day following the Capstar
merger or July 15, 1999.

In connection with the spin-off of SFX Entertainment, Inc., Capstar
Communications incurred an estimated federal income tax liability of
approximately $93.0 million. SFX Entertainment, Inc., indemnified Capstar
Communications for all of the estimated tax liability. These estimated federal
income taxes were paid prior to March 31, 1999.

Chancellor Media is providing services for eleven large market stations under
separate LMAs with Capstar for approximately $49.4 million per year. In
addition, Chancellor Media has agreed to acquire such stations in exchange for
radio stations to be identified by Capstar over a three-year period beginning in
May 1998, with corresponding decreases in the amount of the LMA fees as stations
are exchanged. From January 1, 1999 to March 31, 1999, Chancellor Media paid
Capstar approximately $12.4 million in LMA fees. For the remainder of 1999,
Capstar expects to receive approximately $37.0 in LMA fees from Chancellor
Media. During the pendency of the merger with Chancellor Media, Capstar does not
anticipate effecting any exchanges with Chancellor Media. Chancellor Media is
currently assessing whether the terms of the letter agreement will be modified
upon the consummation of the merger with Chancellor Media. See "Certain
Relationships and Related Transactions."

In addition to debt service and tax liabilities, Capstar's principal liquidity
requirements in 1999 will be to provide working capital for general corporate
purposes, including capital expenditures estimated at $42.0 million, to
consummate its pending acquisitions and, as appropriate opportunities arise, to
acquire additional radio stations or complementary broadcast-related businesses.
Capstar believes that, except as disclosed in the following sentence, the
disposition of certain assets, cash from operating activities, LMA fees from
Chancellor Media, together with available revolving credit borrowings under the
Capstar credit facility, should be sufficient to permit Capstar to meet its
obligations. In the future, Capstar may require additional financing, either in
the form of additional debt or equity securities. Capstar evaluates potential
acquisition opportunities on an on-going basis and has had, and continues to
have, preliminary discussions concerning the purchase of additional stations.
Capstar expects that in connection with the financing of future acquisitions, it
may consider disposing of stations in its current markets.

Capstar has guaranteed the Capstar credit facility and the outstanding bank
indebtedness of two limited liability companies in the amount of approximately
$27.2 million and $24.1 million in each of which entities Capstar holds a 30%
non-voting equity interest, and may in the future be required to repay such
indebtedness. Through May 15, 1999, Capstar has performed as guarantor on these
notes paying $4.1 million in principal and interest.

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Capstar is a holding company with no significant assets other than the capital
stock of its direct and indirect subsidiaries. Consequently, its sole source of
cash from which to service indebtedness is dividends distributed or other
payments made to it by its operating subsidiaries. The instruments governing
Capstar's indebtedness contain certain covenants that restrict or prohibit the
ability of subsidiaries to pay dividends and make other distributions. These
restrictions are not anticipated to have an impact on Capstar's ability to meet
its cash obligations.

Net cash (used in) or provided for operating activities was approximately $6.7
million, $(8.0) million, $(1.0) million and $(5.9) million for the years ended
December 31, 1997 and 1998 and for the three months ended March 31, 1998 and
1999, respectively. Changes in Capstar's net cash provided by operating
activities are primarily the result of 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 $487.0 million, $1,420.2 million,
$267.7 million and $24.5 million for the years ended December 31, 1997 and 1998
and for the three months ended March 31, 1998 and 1999, respectively. Net cash
provided by financing activities was $540.5 million, $1,375.3 million, $415.1
million and $25.9 million for the years ended December 31, 1997 and 1998 and for
the three months ended March 31, 1998 and 1999, respectively. These cash flows
primarily reflect borrowings, capital contributions and expenditures for
stations acquisitions and dispositions.

Non-Cash Compensation Charge

At the effective time of the merger, the outstanding warrants to purchase shares
of Capstar common stock that were granted to Messrs. R. Steven Hicks, William S.
Banowsky, Jr. and Paul D. Stone will become fully vested. Capstar will record a
noncash compensation charge as a result of these warrants becoming fully vested,
which charge will be based on the difference between the exercise price of the
warrants and the fair market value of the Capstar common stock underlying the
warrants at the effective time of the merger, less any compensation charges
previously recorded by Capstar for the warrants. Upon consummation of the Merger
a noncash compensation charge of approximately $13.7 million would be recorded
by Capstar based on the closing price of Capstar's common stock on May 15, 1999.

Recent Pronouncement

In June 1998, the Financial Accounting Standards Board issued SFAS no. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. This statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management does not believe the implementation of this accounting pronouncement
will have a material effect on Capstar's consolidated financial statements.

Year 2000 Issue

The Year 2000 issue concerns the inability of computer programs and embedded
computer chips to properly recognize and process date sensitive information when
the year changes to 2000, or "00." Systems that do not properly recognize such
information could generate

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erroneous data or cause a system to fail causing a disruption in the operations
of a company.

A company-wide inventory and assessment of Capstar's systems and operations
began in December 1996, and is continuing, to identify any software or hardware
systems, equipment with embedded chips or processors, and non-information
technology systems, such as telephone, voicemail and HVAC systems, which do not
properly recognize dates after December 31, 1999. Concurrently with its
company-wide assessment, Capstar is developing and is in the process of
implementing its Year 2000 compliance program. Capstar is utilizing both
internal and external resources to identify its mission critical systems and,
upon identification, to remediate or replace and test systems for Year 2000
compliance. In addition, as part of its acquisition and consolidation strategy,
Capstar assesses and, as necessary, remediates or replaces the systems of
acquired companies and stations with Year 2000 compliant systems.

Initially, Capstar has identified StarSystem(TM), its digital automation
systems, its advertising scheduling and billing systems and its accounting
systems as the mission critical systems to evaluate for Year 2000 compliance.
The list of Capstar mission critical systems may be expanded, however, upon
completion of its company-wide inventory and assessment. If remediations or
replacements are not made, are not completed on time, or are insufficient to
prevent systems failures or other disruptions, the Year 2000 issue could have a
material adverse impact on Capstar's results of operations and financial
condition.

Management has determined that the software underlying StarSystem(TM) is Year
2000 compliant. StarSystem's(TM) wide area computer network is, however,
dependent on the systems of Capstar's telecommunications services providers.
Capstar sent a questionnaire to each of its telecommunications services
providers asking it to update Capstar on the status of its Year 2000 compliance.
Based upon the telecommunications service providers responses to such
questionnaires, the providers appear to be Year 2000 compliant.

Management has been assured by its vendors that Capstar's digital automation
systems are Year 2000 compliant. Capstar has tested over 50% of these systems to
insure their Year 2000 compliance and expects to complete testing of all of
these systems by year end.

Capstar employs advertising scheduling and billing systems at each of its
stations. Capstar has received Year 2000 compliance certificates from the
vendors providing the software applications underlying Capstar's existing
advertising scheduling and billing systems, certifying that such applications
are Year 2000 compliant. Not all of the hardware underlying Capstar's existing
advertising scheduling and billing systems are Year 2000 compliant. As part of
Capstar's capital improvement program, Capstar is replacing its Year 2000
noncompliant advertising scheduling and billing systems. Management estimates
that such hardware replacements will be completed by the end of August 1999 at a
total cost of approximately $90,000.

Capstar utilizes purchased software programs for its financial applications and
office automation. Capstar has received Year 2000 compliance certificates from
the vendors providing these software packages, certifying that such packages are
Year 2000 compliant. Capstar is currently testing these systems to insure their
Year 2000 compliance.

Capstar has determined that some of its telephone systems are not Year 2000
compliant. As part of Capstar's Year 2000 compliance efforts and its capital
improvement program, management intends to remediate or replace such telephone
systems by the end of September 1999 at a current estimated cost of
approximately $150,000.

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In addition to identifying, assessing and remediating or replacing its mission
critical systems, Capstar is assessing its exposure from external sources to
Year 2000 failures. Capstar relies on third-party providers for key services
such as telecommunications and utilities. Interruption of these services could,
in management's view, have a material adverse impact on the operations of
Capstar. Capstar has begun sending questionnaires to each of these and other
significant third party providers asking them to update Capstar on the status of
their Year 2000 compliance. Until those questionnaires are returned and
reviewed, Capstar will be unable to fully assess the potential for disruption in
its programming and operations arising from this third party risk. If Capstar
does not receive reasonable assurances regarding Year 2000 compliance from any
provider of these services, Capstar will then develop contingency plans, to the
extent possible, to address its exposure.

Costs specifically associated with ensuring that Capstar's systems and the
systems of third parties on which Capstar is dependent are Year 2000 compliant
are currently expected to be approximately $1.0 million, of which approximately
$700,000 has been incurred to date. These cost estimates are subject to change
once Capstar has fully assessed its systems and responses are obtained from
third party vendors and service providers. Any change in cost may be material.
Funding of these costs is anticipated to come from cash flows generated by
business operations and/or borrowings under Capstar's credit facility.

Capstar is in the process of identifying the most reasonably likely worst case
scenarios that may affect its operations due to Year 2000 noncompliance of
Capstar's systems or the systems of third parties. Initially, Capstar believes
that the failure of its advertising scheduling and billing systems and the
temporary loss of power at some of its stations due to Year 2000 noncompliance
are the most reasonably likely worst case scenarios. Many of Capstar's stations
and transmitter sites currently have on-site generators in the event of power
outages. As part of Capstar's capital improvement program, management has begun
installation of generators at each of its remaining stations and transmitter
sites and expects to have approximately 98% coverage of its stations and
transmitter sites by year end. Capstar believes that the upgrade of the hardware
on its existing advertising scheduling and billing systems and the installation
of generators at substantially all of its stations will resolve possible
disruptions in the business operations of Capstar that would result from such
risks. Capstar may identify additional worst case scenarios once it has fully
assessed its mission critical systems and obtained responses from third party
vendors and service providers. Capstar expects to develop other contingency
plans to mitigate the possible disruption in business operations that may result
from Capstar's systems or the systems of third parties that are not Year 2000
compliant.

Based on the nature of Capstar's business and dispersed geographical locations,
Capstar believes that it may experience some disruption in its business due to
the impact of the Year 2000 issue. Management presently believes, however, that
Capstar is taking appropriate steps to assess and control its Year 2000 issues.
If Capstar does not complete all phases of its Year 2000 compliance program and
remediations or replacements are not made, are not completed on time, or are
insufficient to prevent systems failures or other disruptions, the Year 2000
issue could have a material adverse impact on Capstar's results of operations
and financial condition. Capstar does not currently have any contingency plans
in the event that it does not complete all phases of its Year 2000 compliance
program. Capstar is continually assessing the status of completion of its Year
2000 compliance program and, as necessary, will determine whether any such
contingency plans are necessary.

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WHERE YOU CAN FIND MORE INFORMATION ABOUT CAPSTAR

Capstar files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements and
other information Capstar files at the SEC's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call
1-800-SEC-0330 for further information on the public reference rooms. Capstar's
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at http://www.sec.gov.

Chancellor Media has filed a Registration Statement on Form S-4 to register with
the SEC the Chancellor Media common stock to be issued to Capstar stockholders
in the merger. This joint proxy statement/prospectus is part of that
Registration Statement and constitutes a prospectus of Chancellor Media in
addition to being a proxy statement of Chancellor Media for its special meeting
of stockholders. Capstar is also using this joint proxy statement/prospectus as
a proxy statement for its special meeting of stockholders. As allowed by the
SEC's rules, this joint proxy statement/prospectus does not contain all of the
information you can find in the Registration Statement or the exhibits to the
Registration Statement.

A copy of Capstar's most recent annual report on Form 10-K and its most recent
quarterly report on Form 10-Q, as filed with the SEC, will be furnished without
charge to stockholders upon request addressed to:

Jeff Whitmire
Capstar Broadcasting Corporation
600 Congress Avenue
Suite 1400
Austin, Texas 78701

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THE CHANCELLOR MEDIA ANNUAL MEETING

DATE, TIME, PLACE AND PURPOSE

An annual meeting of the holders of Chancellor Media common stock will be held
on July 13, 1999, at The Hotel Crescent Court, 400 Crescent Court, Dallas, Texas
75201, commencing at 10:00 a.m., local time, for the following purposes:

1. To consider and vote on a proposal to approve the issuance of shares of
Chancellor Media common stock in the merger contemplated by the merger
agreement, under the terms of which, among other things:

- Merger Sub will be merged with and into Capstar, with Capstar surviving the
merger as a wholly-owned subsidiary of Chancellor Media;

- Each share of Capstar class A common stock, class B common stock and class
C common stock issued and outstanding immediately prior to the merger will
be converted into a right to receive 0.4955 of a validly issued, fully paid
and nonassessable share of common stock of Chancellor Media; and

- Each Capstar stock option and warrant that is outstanding and unexercised
immediately prior to the effective time of the merger will be assumed by
Chancellor Media and will thereafter be an option or warrant to acquire
shares of common stock of Chancellor Media in such amount and at the
exercise price as set forth in the merger agreement.

2. To consider and vote on a proposal to approve the amendment and restatement
of Chancellor Media's amended and restated certificate of incorporation to:

- change its name to AMFM Inc.;

- increase its number of authorized shares of common stock from 200,000,000
to 750,000,000 shares;

- eliminate the 75,000,000 authorized shares of class A common stock of
Chancellor Media, none of which is outstanding;

- eliminate certain provisions relating to "going private transactions" with
Scott K. Ginsburg, Chancellor Media's former President and Chief Executive
Officer;

- increase the maximum number of directors comprising the Chancellor Media
Board of Directors from thirteen to fourteen; and

3. To elect three (3) Class II directors for terms expiring in 2002.

4. To consider and vote upon a proposal to adopt the Chancellor Media
Corporation 1999 Stock Option Plan that provides for 10,000,000 shares of
Chancellor Media common stock to be authorized for issuance thereunder.

5. To consider and transact any other business as may properly come before the
Chancellor Media special meeting or any adjournment or postponement of the
meeting.

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THE BOARD OF DIRECTORS OF CHANCELLOR MEDIA HAS DETERMINED THAT THE MERGER IS
FAIR TO, ADVISABLE AND IN THE BEST INTEREST OF CHANCELLOR MEDIA'S STOCKHOLDERS
AND RECOMMENDS THAT HOLDERS OF CHANCELLOR MEDIA COMMON STOCK VOTE "FOR" THE
APPROVAL OF THE ISSUANCE OF CHANCELLOR MEDIA COMMON STOCK IN THE MERGER, "FOR"
THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF CHANCELLOR MEDIA'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION, "FOR" THE ELECTION OF THE THREE NOMINATED
CLASS II DIRECTORS, AND "FOR" THE ADOPTION OF THE CHANCELLOR MEDIA CORPORATION
1999 STOCK OPTION PLAN.

RECORD DATE, VOTING RIGHTS AND QUORUM

Holders of record of shares of Chancellor Media common stock at the close of
business on May 19, 1999 (the "Chancellor Media Record Date") are entitled to
notice of and to vote at the Chancellor Media annual meeting. On the Chancellor
Media Record Date, there were 143,304,714 shares of Chancellor Media common
stock outstanding, with each share entitled to one vote on the matters to be
acted upon at the Chancellor Media annual meeting. The presence, in person or by
proxy, at the Chancellor Media annual meeting of the holders of a majority of
the shares of Chancellor Media common stock outstanding and entitled to vote at
the meeting is necessary to constitute a quorum at the meeting. The affirmative
vote of at least a majority of the votes cast by holders of shares of Chancellor
Media common stock is required to approve the issuance of shares of Chancellor
Media common stock in the merger and the adoption of the 1999 Chancellor Media
Corporation Stock Option Plan. The affirmative vote of at least a majority of
the outstanding shares of Chancellor Media common stock is required for the
amendment and restatement of Chancellor Media's certificate of incorporation.
Directors are elected by a plurality of the votes represented by the shares of
Chancellor Media common stock present at the meeting in person or by proxy.
Under the General Corporation Law of the State of Delaware ("DGCL"), shares
represented by proxies that reflect abstentions or broker non-votes will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum and will have the same effect as votes cast
against the proposal to approve the issuance of shares of common stock in the
merger, the amendment and restatement of Chancellor Media's certificate of
incorporation, and the adoption of the 1999 Chancellor Media Corporation Stock
Option Plan. Since directors are elected by a plurality of the votes of the
Chancellor Media common stock, only the number of votes "FOR" the election of
the director nominees affects the outcome of the proposal to elect four Class II
directors and, accordingly, abstentions or broker non-votes will have no effect
on the vote for the election of directors.

The issuance of shares of Chancellor Media common stock in the merger will not
be completed and the Chancellor Media charter amendments will not be effected
unless both are approved by the appropriate vote of Chancellor Media's
stockholders. The approval of the other annual meeting proposals described in
this joint proxy statement/prospectus is not a condition of the merger.

As of the Chancellor Media Record Date, the directors and executive officers of
Chancellor Media as a group, may be deemed to beneficially own, in the
aggregate, 31,481,145 shares of Chancellor Media common stock, including shares
of Chancellor Media common stock which may be purchased pursuant to certain
stock options exercisable within 60 days of the date of this joint proxy
statement/prospectus, which represent approximately 21.1% of the outstanding
shares of Chancellor Media common stock as of such date.

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VOTING AND REVOCATION OF PROXIES

If a holder of Chancellor Media common stock is entitled to vote at the
Chancellor Media annual meeting and his, hers or its shares are represented by a
properly executed proxy, the shares will be voted in accordance with the
instructions indicated on the proxy, unless the proxy has been revoked prior to
the voting. If no instructions are indicated on a properly executed proxy, the
shares will be voted "FOR" the approval of the Chancellor Media proposals
described in this joint proxy statement/prospectus and, in the discretion of the
proxy holder, for any other matter that may properly come before the meeting on
which the holder of Chancellor Media common stock would be entitled to vote or
any adjournment or postponement thereof. Such discretionary authority will not
be used to vote the proxy of a holder of Chancellor common stock for the
adjournment or postponement of the Chancellor Media annual meeting to permit
further solicitation of proxies if the stockholder votes against the approval of
any Chancellor Media proposal described in this joint proxy
statement/prospectus.

A stockholder who gives a proxy may revoke it at any time before it is exercised
by:

- - filing with The Bank of New York in its capacity as transfer agent for the
Chancellor Media common stock (the "Chancellor Transfer Agent"), at or before
the Chancellor Media annual meeting, a written notice of revocation bearing a
later date than the proxy;

- - duly executing a subsequent proxy relating to the same shares of Chancellor
Media common stock and delivering it to the Chancellor Transfer Agent at or
before the meeting; or

- - attending the Chancellor Media annual meeting and voting in person, although
attendance at the meeting will not in and of itself constitute a revocation of
a proxy. Any written notice revoking a proxy should be sent to The Bank of New
York, 101 Barclay Street, New York, New York 10286, Attn: Proxy Department.

Chancellor Media will bear the cost of soliciting proxies from its stockholders.
In addition to the use of the mails, proxies may be solicited by the directors,
officers and certain employees of Chancellor Media by personal interview,
telephone or telegram. These directors, officers and employees will not be
additionally compensated for such solicitation but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with the solicitation.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of Chancellor Media common stock, and Chancellor Media may
reimburse the custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses in connection with their solicitation efforts. In addition, Chancellor
Media has retained Innisfree M&A Incorporated to solicit proxies by and on
behalf of the Chancellor Media Board of Directors. Innisfree M&A Incorporated
will be paid customary fees for these services.

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THE CAPSTAR SPECIAL MEETING

DATE, TIME, PLACE AND PURPOSE

A special meeting of the holders of Capstar class A common stock and Capstar
class C common stock, will be held on July 13, 1999, at The Hotel Crescent
Court, 400 Crescent Court, Dallas, Texas 75201, commencing at 9:00 a.m., local
time. At the Capstar special meeting, the holders of shares of Capstar class A
and class C common stock will be asked:

1. To consider and vote upon the approval and adoption of the merger
agreement under the terms of which, among other things:

- Merger Sub will be merged with and into Capstar, with Capstar surviving
the merger as a wholly-owned Subsidiary of Chancellor Media;

- Each Capstar stock option and warrant that is outstanding and unexercised
immediately prior to the effective time of the merger will be assumed by
Chancellor Media and will thereafter be an option or warrant to acquire
shares of common stock of Chancellor Media in such amount and at the
exercise price as set forth in the merger agreement.

2. To consider and transact any other business as may properly come before
the meeting or any adjournment or postponement of the meeting.

THE BOARD OF DIRECTORS OF CAPSTAR, UPON THE RECOMMENDATION OF A SPECIAL
COMMITTEE CONSISTING OF ITS DISINTERESTED DIRECTOR (THE "CAPSTAR SPECIAL
COMMITTEE"), HAS DETERMINED THAT THE MERGER IS FAIR TO, ADVISABLE AND IN THE
BEST INTEREST OF CAPSTAR'S STOCKHOLDERS AND RECOMMENDS THAT HOLDERS OF CAPSTAR
CLASS A COMMON STOCK AND CLASS C COMMON STOCK VOTE "FOR" THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.

RECORD DATE, VOTING RIGHTS AND QUORUM

Holders of record of shares of Capstar class A common stock and class C common
stock at the close of business on May 19, 1999 (the "Capstar Record Date") are
entitled to notice of and to vote at the Capstar special meeting. On the Capstar
Record Date, there were 34,243,730 shares of Capstar class A common stock
outstanding and 67,538,121 shares of Capstar class C common stock outstanding,
with each share of class A common stock entitled to one vote and each share of
class C common stock entitled to ten votes on the matters to be acted upon at
the Capstar special meeting. The presence, in person or by proxy, at the Capstar
special meeting of the holders of a majority of the voting power of the shares
of Capstar class A common stock and class C common stock outstanding and
entitled to vote at the meeting is necessary to constitute a quorum at the
meeting. The affirmative vote of at least a majority of the voting power of the
shares of Capstar class A common stock and class C common stock, voting together
as a single class, outstanding and entitled to vote at the Capstar special
meeting is required to approve and adopt the merger agreement. Under the DGCL,
shares represented by proxies that reflect abstentions or broker non-votes will
be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum and will have the same effect as votes cast
against the proposal to approve and adopt the merger agreement.

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As of the Capstar Record Date, the directors and executive officers of Capstar
as a group may be deemed to control the vote, in the aggregate, of 1,923,659
shares of Capstar class A common stock and 67,077,588 shares of Capstar class C
common stock, which represent approximately 94.8% of the voting power of the
outstanding shares of Capstar class A common stock and class C common stock as
of such date. As a condition and inducement to Chancellor Media entering the
merger agreement, Thomas O. Hicks, R. Steven Hicks and Capstar Broadcasting
Partners, L.P., which collectively own a majority of the voting power of the
outstanding shares of the Capstar class A common stock and class C common stock,
have entered into a voting agreement, as amended, under which they have agreed
to vote the shares of Capstar class A common stock and class C common stock held
by them in favor of the merger. Accordingly, the approval and adoption of the
merger agreement by the Capstar stockholders is assured.

VOTING AND REVOCATION OF PROXIES

If a holder of Capstar common stock is entitled to vote at the Capstar special
meeting and his, hers or its shares are represented by a properly executed
proxy, the shares will be voted in accordance with the instructions indicated on
the proxy, unless the proxy has been revoked prior to the voting. If no
instructions are indicated on a properly executed proxy, the shares will be
voted "FOR" the approval and adoption of the merger agreement and, in the
discretion of the proxy holder, for any other matter that may properly come
before the meeting on which the holder of Capstar common stock would be entitled
to vote or any adjournment or postponement thereof. Such discretionary authority
will not be used to vote the proxy of a holder of Capstar class A common stock
or class C common stock for the adjournment or postponement of the Capstar
special meeting to permit further solicitation of proxies if the stockholder
votes against the approval and adoption of the merger agreement.

A stockholder who gives a proxy may revoke it at any time before it is exercised
by:

- - filing with Harris Trust & Savings Bank in its capacity as transfer agent for
the Capstar common stock (the "Capstar Transfer Agent"), at or before the
Capstar special meeting, a written notice of revocation bearing a later date
than the proxy:

- - duly executing a subsequent proxy relating to the same shares of Capstar
common stock and delivering it to the Capstar Transfer Agent at or before the
meeting; or

- - attending the meeting and voting in person, although attendance at the meeting
will not in and of itself constitute a revocation of a proxy.

Any written notice revoking a proxy should be sent to Harris Trust & Savings
Bank, 311 W. Monroe Street, 144th Floor, Chicago, Illinois 60606, Attn: Proxy
Department. Capstar will bear the cost of soliciting proxies from its
stockholders. In addition to the use of the mails, proxies may be solicited by
the directors, officers and certain employees of Capstar by personal interview,
telephone or telegram. These directors, officers and employees will not be
additionally compensated for such solicitation but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with the solicitation.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of Capstar class A common stock and class C common stock, and
Capstar may reimburse the custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses in connection with their solicitation efforts.

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THE MERGER

BACKGROUND OF THE MERGER

On October 14, 1997, a special meeting of the Board of Directors of Chancellor
Media was held via telephonic conference call. Among the topics discussed at
this meeting was the potential combination of Chancellor Media, Capstar, SFX,
then under contract for purchase by a Hicks Muse affiliate, and/or a third
party. At that time Mr. Thomas O. Hicks was the Chairman of each of Chancellor
Media and Capstar, his brother R. Steven Hicks was the President and Chief
Executive Officer of Capstar, two other directors of Chancellor Media at that
time were then also directors of Capstar and affiliates of Hicks Muse had a
substantial current interest in Capstar and a substantial prospective interest
in SFX. In light of these facts, the Board of Directors of Chancellor Media
deemed it appropriate to appoint a committee of independent directors of
Chancellor Media (the "First Chancellor Special Committee") to consider any
proposals which may be received involving a possible combination of Chancellor,
Capstar, SFX and such third party, and, if such proposals were received, to
conduct or supervise the conduct of any negotiations with respect to such a
transaction and to act on behalf of the Board of Directors with respect to such
transaction. The members of the First Chancellor Special Committee consisted of
Messrs. Jeffrey A. Marcus (Chairman), Thomas J. Hodson, Vernon E. Jordan, Jr.,
Perry J. Lewis, and John H. Massey. The First Chancellor Special Committee was
authorized to engage legal and financial advisors of its choice to assist in
carrying out its duties and responsibilities.

On October 16, 1997, the First Chancellor Special Committee met by means of
telephonic conference call and discussed the background and status of the
possible combination of Chancellor Media, Capstar, SFX and/or the other third
party and the retention of legal and financial advisors to the First Chancellor
Special Committee. After a discussion of potential legal and financial advisors
to the First Chancellor Special Committee, the First Chancellor Special
Committee unanimously selected Salomon Smith Barney Inc. (formerly Salomon
Brothers Inc.) ("Salomon") as financial advisors and its independent legal
counsel to the First Chancellor Special Committee.

On October 27, 1997, the First Chancellor Special Committee met by means of a
telephonic conference call. Representatives of Salomon were introduced at and
participated in the meeting. Mr. Marcus notified the First Chancellor Special
Committee that a possible transaction with the other third party was no longer
being pursued and that the First Chancellor Special Committee was still charged
to consider a possible combination of Chancellor Media, Capstar and/or SFX. Mr.
Marcus informed the First Chancellor Special Committee that he had been informed
that Goldman Sachs & Co. ("Goldman Sachs"), financial advisors to Hicks Muse,
would be submitting a proposal to the First Chancellor Special Committee.

On November 5, 1997, the First Chancellor Special Committee met by means of a
telephonic conference call. Mr. Marcus informed the First Chancellor Special
Committee that a proposal was expected to be received by the members of the
First Chancellor Special Committee on November 21, 1997. Mr. Marcus further
informed the First Chancellor Special Committee that two meetings would take
place prior to the receipt of the proposal on November 21. One meeting would be
between the management teams of Chancellor Media and Capstar to review financial
data and another meeting would be between Goldman Sachs, Salomon and the
management teams of both companies.
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On November 22, 1997, the First Chancellor Special Committee met at the offices
of Hicks Muse, following a Board of Directors meeting. Mr. Marcus reported to
the members of the First Chancellor Special Committee that the purpose of the
meeting was to discuss the Hicks Muse presentation regarding a proposed
combination of Chancellor Media, Capstar and/or SFX. Members of senior
management of Chancellor Media were invited to the meeting of the First
Chancellor Special Committee to share their thoughts on the Hicks Muse
presentation. After extensive discussions regarding the presentation, it was
decided that following further analysis by Salomon and Chancellor Media senior
management, a meeting would be called during the week of December 1, 1997.

On December 5, 1997, the First Chancellor Special Committee met at the offices
of Hicks Muse prior to a Board of Directors meeting. At that meeting, members of
Chancellor Media's senior management presented the case for and against the
proposed combination of Chancellor Media, Capstar and/or SFX. Mr. Scott K.
Ginsburg, then President and Chief Executive Officer of Chancellor Media, stated
that he would be supportive of a transaction that would not be dilutive, which
he believed resulted in a combined valuation of Capstar and SFX at $3.3 billion,
as compared to the Hicks Muse presentation which he valued at $3.9 billion. Mr.
Terence Kawaja of Salomon addressed the positive and negative aspects of the
proposed transaction. Following the Salomon Brothers presentation, an extensive
discussion took place regarding the proposed transaction and other possible
alternatives for Chancellor Media. Following such discussion, it was determined
that Mr. Marcus, with Mr. Ginsburg's active involvement, would have further
discussions with Hicks Muse. Such discussions would specifically

(a) attempt to place a higher value on the Chancellor Media common stock to
be issued in connection with any stock-for-stock acquisition of Capstar
and/or SFX, in light of the fact that the members of the First
Chancellor Special Committee and Salomon believed Chancellor Media's
stock price was depressed, and

(b) address the need for Hicks Muse to provide (or otherwise arrange for)
more equity funding to limit the increased leverage resulting from a
combination of Chancellor Media, SFX and/or Capstar.

On December 9, 1997, the First Chancellor Special Committee met by telephonic
conference call. Mr. Marcus reported that following further discussions among
Messrs. Thomas O. Hicks, Ginsburg and himself the difference in valuation was
now between Mr. Thomas O. Hicks at $3.6 billion and Mr. Ginsburg at $3.5
billion. Mr. Marcus further reported that Salomon had advised him that the upper
end for Chancellor Media was $3.546 billion. Mr. Marcus recommended a
transaction which valued Capstar and SFX at $3.529 billion and valued Chancellor
Media's common stock at $32.50 per share (as adjusted for the subsequent 2 for 1
stock split effected in January 1998), $0.25 above the stock's then current
price.

On December 10, 1997, the First Chancellor Special Committee met by telephonic
conference call. Mr. Marcus informed the First Chancellor Special Committee of
the status of his discussions with Mr. Thomas O. Hicks regarding
post-transaction governance of Chancellor Media and Hicks Muse transaction fees.

On December 11, 1997, the First Chancellor Special Committee met by telephonic
conference call. Mr. Marcus informed the First Chancellor Special Committee that
Hicks Muse believed that the proposed transaction with Chancellor Media
substantially

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undervalued Capstar and that it had decided to withdraw its proposal and pursue
other alternatives with respect to Capstar and SFX.

On February 24, 1998, the First Chancellor Special Committee met by telephonic
conference call. Mr. Marcus informed the First Chancellor Special Committee that
following the Hicks Muse's withdrawal of its proposal to combine Chancellor
Media, Capstar and/or SFX, discussions began regarding the acquisition by
Chancellor Media of certain SFX stations. Mr. Marcus noted that Mr. Ginsburg
negotiated the selection of the stations and the applicable purchase prices. Mr.
Marcus reported that after two and one-half months of negotiations the parties
had agreed to a transaction in which Chancellor Media would acquire certain SFX
stations valued at approximately $637.5 million and would loan Capstar
approximately $150 million in connection with such transaction (the "Capstar/SFX
Transaction"). Mr. Marcus noted that Salomon was prepared to provide the First
Chancellor Special Committee with a fairness opinion regarding the proposed
transaction.

On March 4, 1998, the First Chancellor Special Committee met by telephonic
conference call. Mr. Kawaja of Salomon made a presentation to the First
Chancellor Special Committee. After discussing the Capstar/SFX Transaction, the
First Chancellor Special Committee voted unanimously to recommend the
Capstar/SFX Transaction to the Board of Directors of Chancellor Media, subject
to its receipt of a fairness opinion from Salomon in the form previously
reviewed by the First Chancellor Special Committee. The Board of Directors
approved the Capstar/SFX Transaction at the Board of Directors meeting following
the First Chancellor Special Committee Meeting.

On May 29, 1998, an indirect subsidiary of Capstar acquired SFX. On May 29
Capstar completed its initial public offering of 31,000,000 shares of Capstar
class A common stock.

On June 1, 1998, Mr. Marcus became the President and Chief Executive Officer of
Chancellor Media. During the month of June 1998, Messrs. Thomas O. Hicks and
Marcus renewed discussions regarding a possible merger of Chancellor Media and
Capstar.

On July 6, 1998, a special meeting of the Board of Directors of Chancellor Media
was held via telephonic conference call. Among the topics discussed at this
meeting was the renewed potential merger of Chancellor Media with Capstar. The
Board of Directors of Chancellor Media deemed it appropriate to appoint a new
committee of independent directors (the "Second Chancellor Special Committee")
to consider the proposed acquisition. Accordingly, at the Board meeting,
Chancellor Media formed the Second Chancellor Special Committee, consisting of
Thomas J. Hodson, Vernon E. Jordan, Jr., J. Otis Winters, Perry J. Lewis and
John H. Massey, to consider and evaluate a possible transaction with Capstar and
to supervise the conduct of negotiations, to review, evaluate and make a
determination with respect to the transaction and to report its conclusions to
the full Board of Directors. The Second Chancellor Special Committee was
authorized to engage legal, financial and other advisors of its choice to assist
in carrying out its duties and responsibilities.

At a special meeting of the Board of Directors of Capstar held on July 8, 1998,
the Capstar Board of Directors created a one member special committee, the
Capstar Special Committee, comprised of R. Gerald Turner, the sole director who
was neither an employee of Capstar nor affiliated with Hicks Muse. The Capstar
Special Committee was formed to consider and evaluate any proposal that might be
received from Chancellor Media involving a possible merger of Chancellor Media
with Capstar, and if such a proposal were
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made, to supervise the conduct of negotiations, review, evaluate and make a
determination on the proposal and report its conclusions to the full Board of
Directors of Capstar. The Capstar Special Committee was authorized to retain
financial advisors and legal counsel of its choice to assist in carrying out its
duties.

On July 9, 1998, the Second Chancellor Special Committee met by means of
telephonic conference call and discussed the background and status of the
proposed acquisition of Capstar, including prior acquisition negotiations with
Capstar by Chancellor Media in 1997 and the engagement of independent counsel to
provide legal advice to the Second Chancellor Special Committee. Mr. Massey was
elected Chairman of the Second Chancellor Special Committee. The Second
Chancellor Special Committee considered and selected outside counsel from among
several law firms to be its legal advisor and discussed several independent
investment banking firms as potential candidates to be its financial advisor,
noting that Salomon had been engaged by Chancellor Media under an existing
letter agreement in connection with the proposed acquisition of Capstar in 1997.
The Second Chancellor Special Committee appointed Messrs. Massey, Hodson and
Lewis as a sub-committee to interview Salomon and request a written proposal for
the position of financial advisor to the Second Chancellor Special Committee
with respect to the acquisition of Capstar.

On July 10, 1998, the Capstar Special Committee considered and selected its
independent legal advisor. On July 13 and 15, 1998, respectively, the Capstar
Special Committee interviewed representatives of two investment banking firms
and subsequently met with its legal advisor to discuss these interviews. After
discussing the distinctions between and the qualifications and experience of
those firms, on July 15, 1998, the Capstar Special Committee selected Bear,
Stearns & Co. Inc. ("Bear Stearns") to serve as independent financial advisor to
the Capstar Special Committee.

On July 16, 1998, the Second Chancellor Special Committee met again by
telephonic conference call. Messrs. Massey, Hodson and Lewis reported the
results of their interview with representatives of Salomon by telephonic
conference calls occurring on July 13, 1998 and July 14, 1998. Counsel described
the terms of the engagement letter with Salomon dated November 15, 1997. The
Second Chancellor Special Committee discussed the exceptional performance by
Salomon in connection with its 1997 engagement, its experience in the
broadcasting industry, its familiarity with Capstar due to its earlier
engagement and its independence to act as a financial advisor to the Second
Chancellor Special Committee. The Second Chancellor Special Committee also
discussed in detail the new fee proposal by Salomon and continuing obligations
of Chancellor Media under the 1997 engagement letter. The Second Chancellor
Special Committee determined to discuss these issues at its next meeting and
directed counsel to review the recent or current engagements of Salomon by
Chancellor Media, Capstar, Hicks Muse and their respective affiliates to
ascertain the existence of any potential conflicts.

On July 21, 1998, the Capstar Special Committee met with its legal and financial
advisors by telephone conference to discuss the financial advisor's preparation
to evaluate any proposal for a business combination that might be received from
Chancellor Media.

On July 29, 1998, the Second Chancellor Special Committee met again by
telephonic conference call. The sub-committee of Messrs. Massey, Hodson and
Lewis reported on their review of the independence of Salomon to act as
financial advisor to the Second Chancellor Special Committee and their continued
discussions with representatives of

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Salomon regarding the proposed engagement letter. Counsel for the Second
Chancellor Special Committee reviewed past and pending transactions between
Salomon and Chancellor Media and its affiliates. The Chairman of the Second
Chancellor Special Committee then reviewed the recommendations of the
sub-committee, reached during their telephone conference call on July 24, 1998,
that the Second Chancellor Special Committee engage co-financial advisors in
connection with the Capstar transaction, namely, Salomon, due in part to their
performance as financial advisor to the First Chancellor Special Committee
during the acquisition negotiations in 1997 and in view of the extensive
background information and knowledge gained during this engagement, and
Wasserstein Perella & Co., Inc., ("Wasserstein Perella") due in part to its
performance in connection with its engagement as financial advisor to the
special committee in connection with Chancellor Media's proposed acquisition of
LIN. After discussing the distinctions among and the qualifications, experience
and independence of various investment banking firms and considering the
recommendations of the sub-committee, the Second Chancellor Special Committee
selected Salomon and Wasserstein Perella to serve as independent co-financial
advisors to the Second Chancellor Special Committee with respect to the proposed
acquisition of Capstar. Furthermore, if the Second Chancellor Special Committee
later determined that an acquisition of Capstar would be in the best interest of
Chancellor Media and its stockholders, Salomon and Wasserstein Perella would
each issue an opinion as to whether the exchange ratio used in the acquisition
would be fair, from a financial point of view, to the stockholders of Chancellor
Media not affiliated with Hicks Muse.

On July 30, 1998, the Capstar Special Committee and its legal and financial
advisors attended a meeting in Dallas, Texas at which representatives of
management for Chancellor Media and Capstar gave detailed presentations about
their respective businesses, operations and historical and projected financial
statements.

On August 3, 1998, the Board of Directors of Chancellor Media met by telephonic
conference call. During the meeting, the Board of Directors received a report
from the Second Chancellor Special Committee as to the status of their
activities with respect to Capstar. The Board also granted authority to the
Second Chancellor Special Committee to retain an accounting firm of its choice
to assist in the analysis of the Capstar transaction.

On August 19, 1998, the Second Chancellor Special Committee met by telephonic
conference call to receive a report from Mr. Marcus regarding the status of the
proposed acquisition of Capstar and an analysis of the proposed financial terms
of the acquisition. Mr. Marcus reported to the Second Chancellor Special
Committee that the proposed acquisition appeared to meet the criteria
established by Chancellor Media for acquisitions and that representatives of
Chancellor Media and its co-financial advisors, Goldman Sachs & Co. and Morgan
Stanley & Co. Incorporated ("Morgan Stanley"), had completed a business model
for the proposed acquisition on terms acceptable to Chancellor Media. Mr. Marcus
advised that the proposed acquisition must be accretive to Chancellor Media and
discussed anticipated synergies between Chancellor Media and Capstar and a range
of acceptable exchange ratios for the proposed acquisition. Representatives of
Chancellor Media and its co-financial advisors discussed in detail the proposed
acquisition, the anticipated synergies, the range of acceptable exchange ratios
and the business model developed by Chancellor Media and its financial advisors.
The Second Chancellor Special Committee discussed in detail, and made inquiries
regarding, results of operations and financial projections, asset values,
financial ratios, growth prospects and markets of Chancellor Media and Capstar.
The Chairman also reported to the Second Chancellor

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Special Committee that the sub-committee had deemed it advisable, due to a
number of accounting issues that had arisen during discussions among the
financial advisors, to engage PricewaterhouseCoopers LLP to identify accounting
differences and inter-company related transactions between Chancellor Media and
Capstar and to recommend the most preferable accounting treatment for the
combined entity in the future. The Chairman also reviewed the terms of an
engagement letter with PricewaterhouseCoopers LLP dated August 3, 1998, and
after full discussion, the engagement of PricewaterhouseCoopers LLP as an
accounting advisor to the Second Chancellor Special Committee, on the terms set
forth in the engagement letter, was approved. Representatives of
PricewaterhouseCoopers LLP then reported to the Second Chancellor Special
Committee on accounting issues in connection with the proposed acquisition. The
Second Chancellor Special Committee and its advisors then discussed the proposed
time schedule and the process for negotiating the financial terms of the
proposed acquisition. After a full discussion, the Second Chancellor Special
Committee authorized Mr. Marcus to commence preliminary discussions with
representatives of Capstar consistent with the general proposal submitted to the
Second Chancellor Special Committee at the meeting with the express
understanding that the Second Chancellor Special Committee had taken no action
to approve the financial terms outlined at the meeting. Upon such authorization,
Mr. Marcus subsequently made a preliminary proposal on behalf of Chancellor
Media to Capstar for a stock-for-stock merger between the companies at an
exchange ratio of 0.44 of a share of Chancellor Media common stock for each
outstanding share of Capstar common stock.

On August 20, 1998, the Capstar Special Committee met by telephone conference to
consult with its legal and financial advisors on the details of Chancellor
Media's proposal. It was decided at this meeting that Bear Stearns would meet
with members of Capstar's management to further discuss Capstar's projections
and develop an approach to various valuation issues. The governance of a
proposed combined entity was also discussed.

On August 21, 1998, the Second Chancellor Special Committee met by means of
telephonic conference call and received a preliminary financial analysis of the
proposed Capstar transaction from Wasserstein Perella and Salomon. Wasserstein
Perella reviewed various exchange ratios for the proposed acquisition and an
analysis of the historic market data and discussed the discounted cash flow
analysis and the comparable Chancellor Media acquisition analysis. Salomon then
reviewed similar conclusions and reported its analysis, discussing, among other
things, discounted cash flow analysis and growth comparisons for large and small
radio stations. Each of the co-financial advisors advised that, based upon the
information reviewed to date, they could recommend an exchange ratio in the
range of 0.44 to 0.46 of a share of Chancellor Media common stock for each share
of Capstar common stock. The Second Chancellor Special Committee discussed these
reports in detail and inquired about operational and financial synergies
expected to result from the proposed acquisition. Wasserstein Perella and
Salomon indicated that they needed additional information from management of
Chancellor Media and Capstar to complete their review of anticipated operational
synergies and to justify any exchange ratio greater than 0.46.

Also on August 21, 1998, the Capstar Special Committee met by telephone
conference to discuss the status of negotiations and the merits of the
Chancellor Media proposal. Bear Stearns reported that it had substantially
completed its analysis of the valuation of Chancellor Media and Capstar. Bear
Stearns then reported the results of its review of the two companies' operations
and advised the Capstar Special Committee that an exchange

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ratio of 0.44 did not appear to be fair to the Capstar public stockholders.
Legal counsel for the Capstar Special Committee also reported on its comments to
the draft merger agreement.

On August 23, 1998, the Capstar Special Committee met telephonically with its
legal and financial advisors to discuss the status of negotiations and further
evaluate the terms of the proposed merger. Bear Stearns presented a valuation
analysis, based on Capstar's internal projections. The Capstar Special Committee
was presented with the following:

- - detailed written materials describing various aspects of Bear Stearns'
analysis;

- - a relative contribution analysis;

- - an analysis of the resulting ownership of the parties in a stock-for-stock
merger;

- - a 1999E after-tax cash flow accretion/dilution analysis;

- - an analysis of implied purchase price multiples at various exchange rates;

- - a comparable transaction analysis;

- - a discounted cash flow analysis; and

- - an exchange ratio analysis.

Bear Stearns summarized its conversations with Capstar management in which
management reviewed and explained in detail Capstar's results of operations and
projections for 1997 and 1998. Bear Stearns reported that Capstar management
expected to exceed published analysts expectations.

Throughout the day on August 24, 1998, Bear Stearns had numerous negotiating
conversations with Mr. Marcus. During these calls, Mr. Marcus proposed a 0.48
exchange ratio with the possibility of a 0.49 exchange ratio. Bear Stearns gave
a counter offer of 0.50. Mr. Marcus suggested that the exchange ratio could vary
between 0.48 and 0.50 depending on Capstar's performance in the second half of
1998. Mr. Marcus explained that Chancellor Media had some concerns about the
realization of Capstar's internal projections.

The Capstar Special Committee again met by telephone conference with its legal
and financial advisors on August 24, 1998. Bear Stearns reported on the status
of the day's negotiations with Mr. Marcus and presented the Capstar Special
Committee with a detailed valuation analysis using various methodologies in
order to evaluate the effect of various proposed exchange ratios. At this
meeting, the Capstar Special Committee's legal counsel reported that the current
draft of the merger agreement incorporated most of the Capstar Special
Committee's previous comments.

Later on August 24, 1998, the Second Chancellor Special Committee met with Mr.
Marcus by means of telephonic conference call to receive a status report on the
negotiations with Capstar and the additional diligence completed by the
co-financial advisors regarding anticipated operational synergies. Mr. Marcus
reviewed his discussions with the Capstar Special Committee, noting that, after
receiving initial proposals from management representatives of Capstar for
higher exchange ratios, representatives of Chancellor Media had reviewed the
anticipated synergies and financial projections of Capstar and deemed an
exchange ratio of 0.4925 to be acceptable. Legal counsel for Chancellor Media
then reported to the Second Chancellor Special Committee on several of the
proposed merger terms, including fees payable to Hicks Muse, the principal
stockholder of Capstar, and compensation to management of Capstar following
consumma-

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tion of the merger. Mr. Marcus also discussed a proposed voting agreement
requested by the Second Chancellor Special Committee pursuant to which Hicks
Muse, Mr. Thomas O. Hicks and Mr. R. Steven Hicks would agree to vote their
shares of Capstar common stock in favor of the proposed merger. Representatives
of Goldman Sachs and Morgan Stanley, co-financial advisors to Chancellor Media,
who were invited to attend the meeting of the Second Chancellor Special
Committee, discussed their respective financial analyses and views regarding the
fairness of the proposed transaction to Chancellor Media and its stockholders.
Representatives of Salomon and Wasserstein Perella then indicated that they
needed additional information regarding anticipated synergies to complete their
review and analysis of the proposed exchange ratio. The representatives then
reviewed the negotiations to date with respect to the exchange ratio. Based upon
the report, the Second Chancellor Special Committee concluded that it was
concerned with several legal issues raised in the meeting and that it needed
more information regarding potential synergies to consider an exchange ratio in
excess of 0.48.

Also on August 24, 1998, following the meeting of the Second Chancellor Special
Committee, the Board of Directors of Chancellor Media held a meeting to discuss,
among other things, the proposed acquisition of Capstar. The Board received a
status report on the Capstar transaction and, after full discussion, authorized
Mr. Marcus to negotiate certain Capstar management issues, including existing
options, the terms and provisions of the Capstar stay bonus plan and the
employment agreement of Mr. R. Steven Hicks.

On August 25, 1998, the Second Chancellor Special Committee met by means of
telephonic conference call and received a supplemental report from Salomon and
Wasserstein Perella with respect to operational synergies expected to result
from the proposed acquisition of Capstar. Each advisor summarized the results of
its on-site visits with representatives of Chancellor Media and Capstar
regarding anticipated financial and operational synergies. The reports included
a discussion of synergies relating to revenue enhancement and personnel
reduction relating to television and outdoor operations of Chancellor Media
following the acquisition. Based upon the additional diligence conducted by the
co-financial advisors, each advised that they were able to support an exchange
ratio of up to 0.48 of a share of Chancellor Media common stock for each
outstanding share of Capstar common stock. Wasserstein Perella then advised that
the financial projections of Capstar management for Capstar exceeded those of
financial analysts and that the higher projections were the basis of the Capstar
management's belief that an exchange ratio of 0.4925 was appropriate and fair to
Capstar and its stockholders. In view of this disparity regarding Capstar
projections, Wasserstein Perella recommended that the Second Chancellor Special
Committee consider recommending to Chancellor Media a proposed exchange ratio
for each share of Capstar common stock ranging between 0.48 and 0.505 of a share
of Chancellor Media common stock depending upon the amount of pro forma
broadcast cash flow earned by Capstar in 1998. The co-financial advisors
explained that the higher exchange ratio could be justified if the Capstar
projections on broadcast cash flow for 1998 were actually met. The co-financial
advisors recommended a proposal that if Capstar's 1998 pro forma broadcast cash
flow was less than or equal to $245.5 million, the exchange ratio would be 0.48,
and if Capstar's 1998 pro forma broadcast cash flow was greater than or equal to
$270.5 million, the exchange ratio would be 0.505. The advisors concluded that
if the additional cash flow is realized as estimated by Capstar, they could
opine that the 0.505 exchange ratio was fair, from a financial point of view, to
the stockholders of Chancellor Media not affiliated with Hicks Muse. After full
discussion, the

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Second Chancellor Special Committee decided to recommend the proposal to Mr.
Marcus for submission to representatives of Capstar.

On August 25, 1998, Mr. Marcus, on behalf of the Second Chancellor Special
Committee proposed a structured exchange ratio that would depend upon Capstar's
financial performance during the 1998 fiscal year (the "Structured Exchange
Ratio"). If Capstar reported broadcast cash flow at or below published analysts'
projections the Structured Exchange Ratio would be 0.48. If Capstar's broadcast
cash flow met or exceeded its internal projections, then the Structured Exchange
Ratio might be as high as 0.505.

Later in the day on August 25, 1998, the Capstar Special Committee met at the
offices of Hicks Muse in Dallas. At this meeting the Capstar Special Committee
consulted with its financial and legal advisors regarding possible ranges for
the Structured Exchange Ratio. R. Steven Hicks and Paul Stone, Capstar's Chief
Financial Officer, joined the Capstar Special Committee meeting to report on
management projections for 1998 and their confidence level with respect to the
Structured Exchange Ratio. The Capstar Special Committee then excused Messrs. R.
Steven Hicks and Stone and conferred with its financial and legal advisors
regarding the management interview.

After discussing the interview, the Capstar Special Committee and its advisors
had a conference call with Mr. Marcus of Chancellor Media and discussed the
specific terms of Chancellor Media's proposed Structured Exchange Ratio.

On August 26, 1998, the Capstar Special Committee held a meeting at the offices
of Bear Stearns in Dallas to discuss the Structured Exchange Ratio. Bear Stearns
reviewed in detail the effects of the Structured Exchange Ratio at 0.48, 0.4925
and 0.505. The meeting was recessed to wait for a formal proposal containing the
agreed language describing the Structured Exchange Ratio.

Also on August 26, 1998, the Second Chancellor Special Committee met by means of
telephonic conference call. The purpose of the meeting was to review and
evaluate the financial terms and structure of the proposed acquisition by
Chancellor Media of Capstar as finally negotiated by representatives of
Chancellor Media and Capstar and to determine whether or not the acquisition
appeared to be in the best interests of Chancellor Media and its stockholders
not affiliated with Hicks Muse. Wasserstein Perella summarized its due diligence
review and analysis performed since its engagement on July 29, 1998. Salomon
Smith Barney reviewed the preliminary terms contained in its report describing
the transaction, the proposed exchange ratios and requisite stockholder
approval. The co-financial advisors discussed the proposed Structured Exchange
Ratio submitted at the August 25, 1998 meeting and discussed the financial and
operational synergies expected to arise if the proposed transaction were
consummated and the difference between the Capstar 1998 cash flow projections
estimated by Capstar and by financial analysts. Each of the co-financial
advisors reviewed market statistics, historical exchange ratios, comparisons of
management and financial analyst projections, year-to-date comparisons of
revenues, broadcast cash flow and margins of Chancellor Media and Capstar and
research coverage of Capstar. The financial advisors discussed the implied
exchange ratios, implied public and private market valuations and pro forma
analyses contained in the report submitted to the meeting. Each advisor reported
that the transaction had been approved by their respective fairness committees
and that each of the firms was prepared to render an opinion that, as previously
discussed, an exchange ratio between 0.48 and 0.505, depending upon the amount
of 1998 broadcast cash flow earned by Capstar, was fair, from a financial

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point of view, to the stockholders of Chancellor Media not affiliated with Hicks
Muse. Counsel for the Second Chancellor Special Committee then reviewed the
structure of the proposed acquisition and the terms, provisions and conditions
contained in the merger agreement and voting agreement, copies of which had been
distributed in advance of the meeting. After detailed discussion of these and
other matters, the Second Chancellor Special Committee adopted resolutions
approving and recommending to the Board of Directors of Chancellor Media the
acquisition of Capstar, on the terms forth in the merger agreement submitted to
the meeting.

On August 26, 1998, the Board of Directors of Chancellor Media met by means of
telephonic conference call. The purpose of the meeting was to receive the Second
Chancellor Special Committee's final report on the proposed acquisition of
Capstar. The Chairman of the Second Chancellor Special Committee reported the
unanimous recommendation by the Second Chancellor Special Committee that the
Board of Directors approve the proposed Capstar acquisition. Salomon Smith
Barney presented the report on the conclusions of the financial advisors of the
Second Chancellor Special Committee. In addition, representatives of Morgan
Stanley, co-financial advisor to Chancellor Media, were present on the
telephonic conference and indicated to the Chancellor Media Board that Morgan
Stanley was prepared to deliver a fairness opinion that the Board members
believed would support the fairness of the exchange ratio from a financial point
of view. Goldman Sachs, Chancellor Media's other co-financial advisor, did not
render an oral or written opinion because Chancellor Media did not request one.
Counsel for the Second Chancellor Special Committee discussed selected key terms
of the transaction. After discussion of these and other matters, the Board of
Directors approved the acquisition of Capstar on the terms submitted to and
discussed by the Board of Directors.

In the evening of August 26, 1998, the Capstar Special Committee reconvened at
the offices of Hicks Muse to consider the formal proposal of Chancellor Media.
The Capstar Special Committee, together with its legal counsel, reviewed the
proposal and final changes to the merger agreement. Bear Stearns reported that
it had completed its procedures for evaluating the fairness of the transaction
and orally advised the Capstar Special Committee that the Structured Exchange
Ratio was fair to the public stockholders of Capstar from a financial point of
view. Bear Stearns stated that it was prepared to promptly deliver a written
opinion to that effect.

Later in the evening of August 26, 1998, the Board of Directors of Capstar held
a special meeting at the offices of Hicks Muse, at which all directors were
present in person or by telephone conference. At the meeting, Capstar's legal
counsel reviewed with the Board the terms of the merger agreement; the Capstar
Special Committee reported its analysis of the proposed merger and recommended
that the Board approve the merger agreement; and representatives of Credit
Suisse First Boston and BT Wolfensohn, financial advisors to the Board, reviewed
with the Board the financial analyses performed by Credit Suisse First Boston
and BT Wolfensohn in connection with their respective evaluations of the
exchange ratio in the merger and each of Credit Suisse First Boston and BT
Wolfensohn rendered an oral opinion to the Board, subsequently confirmed by
delivery of a written opinion, to the effect that, as of the date of the opinion
and based upon and subject to the matters stated in its opinion, the exchange
ratio in the merger was fair to the holders of Capstar common stock from a
financial point of view. After discussion of these and other related matters,
the Board of Directors unanimously approved the merger agreement and declared it
advisable and in the best interests of Capstar and its stockholders.

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During February and March of 1999, representatives of Chancellor Media and
Capstar had a number of discussions regarding the final calculation of the
exchange ratio. On March 19, 1999, management of Chancellor Media and Capstar
agreed that the exchange ratio would be 0.4955.

On March 14, 1999, the Board of Directors of Chancellor Media met at the offices
of Hicks Muse. At that meeting the Board of Directors approved a number of
items, including the termination of the LIN merger transaction and the executive
management realignment. The members of the Chancellor Media Board of Directors
who also comprise the Second Chancellor Special Committee also approved a motion
to amend the Chancellor Media/Capstar merger agreement to eliminate the mutual
closing requirement that a majority of the disinterested stockholders of each of
Chancellor and Capstar approve the merger. Such motion was made after an
extensive discussion in which it was concluded that such change, which ensured
approval of the merger by Capstar stockholders, was in the best interest of
Chancellor Media and its stockholders. In connection with that change, it was
also agreed that the voting agreement between Chancellor Media and the principal
stockholders of Capstar would also be amended to provide that such stockholders
vote in favor of the adoption of the merger agreement rather than in proportion
to the disinterested stockholders vote. Approval of such modification was made
subject to Capstar agreeing to such elimination and receiving a new or updated
fairness opinion from one of its financial advisors taking these changes into
consideration.

On March 23, 1999, the Capstar Special Committee met with its legal and
financial advisors regarding a proposal to amend the merger agreement to remove
the mutual closing requirement that a majority of the disinterested stockholders
of each of Chancellor Media and Capstar approve the merger. It was noted that
the proposal was made to provide the market with greater certainty of the
closing of the merger. After some discussion of the issues and overall timing of
the transaction, the meeting was adjourned and reconvened later that day. After
reconvening, the Capstar Special Committee further discussed the effects of the
amendment proposal and noted that removing the requirement of disinterested
stockholder approval would give Hicks Muse and its affiliates the ability to
ensure Capstar's approval of the merger. The Capstar Special Committee also
discussed with its legal and financial advisors the impact of the termination of
the merger agreement between Chancellor Media and LIN. Bear Stearns provided a
preliminary analysis of the impact from a financial perspective based upon
publicly available information. It was noted that the Capstar Special Committee
would have the opportunity to reaffirm its recommendation of the merger and
would receive an updated fairness opinion from Bear Stearns. This opinion would
take into account the most recent financial information on the two companies and
the termination of the LIN merger agreement. It was further noted that should
the disinterested stockholder voting approval no longer be a condition of the
merger, there would still be procedural steps to support the fairness of the
transaction. The Capstar Special Committee determined to discuss with the Board
of Directors of Capstar whether

(i) Chancellor Media would not change its voting requirement unless
Capstar did,

(ii) there should be an additional termination fee payable to Capstar if
the merger failed to close, and

(iii) the outside termination date of the merger agreement should be
changed.

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Later, on March 23, 1999, the Board of Directors of Capstar held a special
meeting by telephone conference, at which one director was not present. At the
meeting, the Board of Directors met with the Capstar Special Committee and
discussed the proposal to amend the merger agreement to eliminate the mutual
closing requirement that a majority of the disinterested stockholders of each of
Chancellor and Capstar approve the merger. After discussion of the positive and
negative aspects of this proposal, including that the Capstar Special Committee
still considered the merger to be in the best interest of Capstar and its
stockholders and that removal of the disinterested majority voting requirement
made consummation of the merger more certain, the Capstar Special Committee
recommended that the Board of Directors approve the proposed amendment, and the
members of the Board of Directors present at the meeting unanimously approved
the proposed amendment.

During March 1999, Chancellor Media and Capstar decided that in light of the
termination of the LIN merger, it would seek to have the fairness opinions
rendered to their respective special committees updated to reflect such
termination. Both companies decided that in order to limit expenses, they would
each seek an update from a single investment banking firm, Bear Stearns in the
case of Capstar and Wasserstein Perella in the case of Chancellor Media.
Wasserstein Perella was selected over Salomon Smith Barney in part because of
the recent engagement of Salomon Smith Barney by one of Chancellor Media's major
competitors.

On April 13, 1999, the Capstar Special Committee met at the offices of the
President of Southern Methodist University in Dallas to consult with its legal
and financial advisors. At the meeting, the Capstar Special Committee discussed
the most recent draft of the amended and restated merger agreement, which
provided for among other things

(1) a fixed exchange ratio of 0.4955,

(2) the removal of the mutual closing requirement that a majority of the
disinterested stockholders of each of Chancellor Media and Capstar
approve the merger and

(3) the restructuring of the transaction as a merger of Capstar with a
subsidiary of Chancellor Media, with Capstar surviving as a
wholly-owned subsidiary of Chancellor Media.

Bear Stearns reported that it had completed its procedures for evaluating the
fairness of the transaction, subject to completion and final review of the
amended and restated merger agreement, and presented its detailed analysis of
the transaction. This analysis included an update on the year-end results of
Capstar and the calculations supporting the determination of a fixed exchange
ratio of 0.4955. Bear Stearns orally advised the Capstar Special Committee that
the exchange ratio of 0.4955 was fair to the public stockholders of Capstar from
a financial point of view. Bear Stearns then stated that it was prepared to
promptly deliver a written opinion to that effect. After a discussion of these
and other matters, the Capstar Special Committee determined that, subject to its
review of the final amended and restated merger agreement, the Capstar Special
Committee would recommend that the full Capstar Board of Directors approve the
amended and restated merger agreement and submit the agreement to the Capstar
stockholders for approval and adoption.

On April 29, 1999, the Board of Directors of Chancellor Media held a special
meeting by telephonic conference, at which one director was not present. At the
special meeting, Chancellor Media's General Counsel reviewed with the Board the
material provisions of the proposed amended and restated merger agreement
relating to the Capstar merger, and

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together with Chancellor Media's outside legal counsel answered the Board
members' questions relating to the proposed amendment. After discussion of these
matters, the Board of Directors unanimously approved the amended and restated
merger agreement, subject to the receipt of the fairness opinion to be received
later in the meeting. The Board then considered the proposed retention of
Wasserstein Perella, financial advisor to the Second Chancellor Special
Committee with respect to the original merger agreement, to render a new
fairness opinion with respect to the Capstar merger. The retention of
Wasserstein Perella was considered in light of the fact that the prior opinion
of Wasserstein Perella rendered to the Second Chancellor Special Committee in
August 1998 took into account, in some respects, the completion of Chancellor
Media's proposed acquisition of LIN, which had subsequently been terminated.
After a discussion, the Board unanimously approved the retention of Wasserstein
Perella, with the two Hicks Muse affiliated directors present at the meeting
abstaining. Following this approval, representatives of Wasserstein Perella
joined the telephonic conference and made a formal presentation of its analysis
of the Capstar merger after considering the termination of the LIN transaction
and the fixed exchange ratio of 0.4955. After addressing various questions
raised by members of the Board, representatives of Wasserstein Perella informed
the Board orally of its opinion, to be subsequently confirmed in writing, that
the exchange ratio in the amended and restated merger agreement was fair, from a
financial point of view, to Chancellor Media.

On April 29, 1999, the Capstar Special Committee met with its legal and
financial advisors regarding the final amended and restated merger agreement. At
the meeting, legal counsel to the Capstar Special Committee reviewed the
amendments and restatements proposed to be made to the merger agreement,
including the extension of the outside termination date to September 30, 1999
and the elimination of the Capstar Special Committee's right to terminate the
merger agreement under certain circumstances. Bear Stearns confirmed that it had
delivered its written fairness opinion with respect to the proposed exchange
ratio, and that Bear Stearns continued to believe that the proposed exchange
ratio is fair from a financial point of view to the public stockholders of
Capstar. The Capstar Special Committee determined that it would recommend that
the exchange ratio is fair and that the proposed merger is advisable and in the
best interests of Capstar's public stockholders, and that the full Board of
Directors of Capstar approve the amended and restated merger agreement and
submit the related agreement to Capstar's stockholders for their approval and
adoption.

On April 29, 1999, the Board of Directors of Capstar held a special meeting at
the offices of Hicks Muse, at which all directors were present in person or by
telephone conference. At the meeting, the Capstar Special Committee reported its
analysis of the proposed amendment and restatement of the merger agreement and
recommended that the Board approve the amended and restated merger agreement and
submit the agreement to the Capstar stockholders for their approval and
adoption. After a brief discussion, the Board of Directors unanimously approved
the amended and restated merger agreement and declared it advisable and in the
best interests of Capstar and its stockholders.

In May 1999, Chancellor Media advised the Capstar Special Committee that
Chancellor Media was considering strategic alternatives with respect to its
outdoor advertising business which could involve a sale of that business to a
third party. During late May, Bear Stearns as financial advisor to the Capstar
Special Committee received several updates as to the possible timing and
consideration for a transaction, and was asked to prepare for the possibility of
being requested to update its fairness opinion if there were such a transaction.

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On May 28, 1999, the Capstar Special Committee and its advisors were informed of
a sale transaction being negotiated between Chancellor Media and Lamar,
including its principal financial terms. The Capstar Special Committee informed
Chancellor Media that it would review the terms of the proposed sale transaction
with its advisors. On June 1, 1999 Chancellor Media announced its agreement with
Lamar, and the Capstar Special Committee met with its financial and legal
advisors to discuss the proposed Outdoor Group Disposition. At the meeting, the
Capstar Special Committee asked Bear Stearns to review the proposed Outdoor
Group Disposition with a view towards updating its opinion as to the financial
fairness of the Chancellor Media merger. The Capstar Special Committee also
asked its legal advisors to review the agreements between Chancellor Media and
Lamar.

The Capstar Special Committee reconvened on Thursday, June 3, 1999 to meet with
its financial and legal advisors regarding their analysis of the Outdoor Group
Disposition and Chancellor Media. At the meeting, Bear Stearns reviewed the
principal terms of the Outdoor Group Disposition and the effects of the proposed
transaction on its valuation analyses of Chancellor Media, including the
valuation and structure of Chancellor Media after the consummation of the
transaction and the stated use of the proceeds of the Outdoor Group Disposition.
After reviewing its analysis, Bear Stearns reported that it had completed its
procedures for evaluating the fairness of the transaction in light of the new
disposition by Chancellor Media, and delivered its oral opinion that as of such
date the exchange ratio of 0.4955 continued to be fair to the public
stockholders of Capstar from a financial point of view. Bear Stearns stated that
it was prepared to promptly deliver a written opinion to that effect.

RECOMMENDATION OF THE CHANCELLOR MEDIA BOARD OF DIRECTORS; CHANCELLOR MEDIA'S
REASONS FOR THE MERGER

THE BOARD OF DIRECTORS OF CHANCELLOR MEDIA BELIEVES THAT THE MERGER IS FAIR TO,
ADVISABLE AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF CHANCELLOR MEDIA AND
HAS APPROVED, ADOPTED AND DECLARED ADVISABLE THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE AMENDMENT AND
RESTATEMENT OF THE CHANCELLOR MEDIA CERTIFICATE OF INCORPORATION AND THE
ISSUANCE OF CHANCELLOR MEDIA COMMON STOCK TO CAPSTAR STOCKHOLDERS, AND
RECOMMENDS THAT THE STOCKHOLDERS OF CHANCELLOR MEDIA VOTE IN FAVOR OF THE
APPROVAL OF THE ISSUANCE OF SHARES OF CHANCELLOR MEDIA COMMON STOCK IN THE
MERGER AND THE AMENDMENT AND RESTATEMENT OF CHANCELLOR MEDIA'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION RELATED THERETO.

In approving the merger agreement and the related transactions, the Board of
Directors of Chancellor Media took into account a number of factors, including
the following:

- - the judgment, advice and analysis of Chancellor Media's management and
financial advisors;

- - the presentation of Wasserstein Perella to the Board of Directors of
Chancellor Media on April 29, 1999, including its oral and written opinion to
the effect that the exchange ratio in the amended and restated merger
agreement was fair, from a financial point of view, to Chancellor Media;

- - the presentation of Salomon and Wasserstein Perella to the Second Chancellor
Special Committee at the meeting held on August 26, 1998, including each of
Salomon and Wasserstein Perellas's oral and written opinions to the effect
that the exchange ratio to be used in the merger under the terms of the
original merger agreement was fair, from a

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financial point of view, to the stockholders of Chancellor Media not
affiliated with Hicks Muse;

- - the prices paid in comparable transactions involving other radio station
assets;

- - the historical financial condition, results of operations and cash flows of
Capstar;

- - the terms and conditions of the merger agreement, including the exchange
ratio;

- - the combined company will have a larger national presence in a greater number
of markets, which should enhance Chancellor Media's competitive position with
other national media companies;

- - the merger provides a potential for financial and operational synergies that
may result from combining the two companies;

- - the probability that the pending transactions of Capstar and Chancellor Media
would be completed in a timely manner; and

- - the combined company will have increased management strengths.

In view of the number of factors considered by the Board of Directors of
Chancellor Media, the Board did not assign relative weights to the factors
considered by it in reaching its conclusions. Rather, it viewed its conclusions
and recommendations as being based on the totality of the information being
presented to and considered by it. In addition, it may be the case that
individual directors of Chancellor Media assigned different weights to the
various factors considered by them in voting to approve the merger.

OPINIONS OF FINANCIAL ADVISORS TO THE CHANCELLOR MEDIA BOARD OF DIRECTORS AND
SECOND CHANCELLOR SPECIAL COMMITTEE

Opinions of Financial Advisors to the Second Chancellor Special Committee

Salomon Smith Barney and Wasserstein Perella have acted as the financial
advisors to the Second Special Committee of the Board of Directors of Chancellor
Media in connection with the merger. On August 26, 1998, Salomon and Wasserstein
Perella delivered their oral opinions to the Second Chancellor Special
Committee, subsequently confirmed in writing on August 27, 1998, to the effect
that as of such date, based upon and subject to the factors and assumptions set
forth in such opinions, the exchange ratio set forth in the Agreement and Plan
of Merger among Chancellor Media, Capstar and CBC Acquisition Company, Inc.,
dated as of August 26, 1998 was fair, from a financial point of view, to the
holders of Chancellor Media common stock who are not affiliated with Hicks Muse.
The exchange ratio in the August 26, 1998 merger agreement provided for holders
of Chancellor Media common stock to get one share of Chancellor Media common
stock, as it exists after the merger, for each of their shares of Chancellor
Media common stock, as it existed before the merger, and the holders of Capstar
common stock to get between 0.4800 shares and 0.5050 shares of Chancellor Media
common stock, as it exists after the merger, for each of their shares of Capstar
common stock before the merger.

Salomon and Wasserstein Perella's analyses were based on financial data provided
to Salomon and Wasserstein Perella by the management of Chancellor Media that
included on a pro forma basis the impact of Chancellor Media's proposed
acquisition of LIN and assumed that the proposed transaction would be
consummated. Subsequent to the issuance by Salomon and Wasserstein Perella of
their fairness opinions with respect to the original

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<PAGE> 121

merger, Chancellor Media and LIN terminated their proposed transaction.
Additionally, on April 29, 1999, Chancellor Media and Capstar executed the
amended and restated merger agreement which provides for each outstanding share
of each class of Capstar common stock to be converted into 0.4955 of a share of
Chancellor Media common stock. The Board of Directors of Chancellor Media
determined that, in order to limit expenses, it would seek a supplemental
opinion reflecting these events from a single investment banking firm. Salomon
did not revise its opinion to reflect these events, but Wasserstein Perella
delivered its supplemental opinion dated as of April 29, 1999 to the Board of
Directors of Chancellor Media. See "Supplemental Opinion of Financial Advisor to
Chancellor Media."

The full text of each of the Salomon and Wasserstein Perella fairness opinions
relating to the original merger agreement, which sets forth the assumptions
made, general procedures followed, matters considered and limitations on the
review undertaken by each of Salomon and Wasserstein Perella, is attached hereto
as Annexes II and III-A to this document. Stockholders are urged to read each of
the Salomon and Wasserstein Perella fairness opinions carefully and in their
entirety. Each of the Salomon and Wasserstein Perella opinions is directed only
to the fairness, from a financial point of view, of the exchange ratio set forth
in the original merger agreement to the holders of Chancellor Media common stock
who are not affiliates of Hicks Muse, does not address Chancellor Media's
underlying business decision to effect the merger or constitute a recommendation
to any stockholder as to how such stockholder should vote with respect to the
merger. Furthermore, Salomon and Wasserstein Perella's analyses were based on
financial data provided to Salomon and Wasserstein Perella by the management of
Chancellor Media that included on a pro forma basis the impact of Chancellor
Media's proposed acquisition of LIN and assumed that the proposed transaction
would be consummated. The Salomon and Wasserstein Perella fairness opinions also
do not constitute opinions or imply any conclusions of Salomon or Wasserstein
Perella as to the likely trading range for the Chancellor Media common stock or
the Capstar common stock following the announcement or consummation of the
merger, which may vary depending upon various factors discussed in each of the
Salomon and Wasserstein Perella fairness opinions. The summary of each of the
Salomon and Wasserstein Perella fairness opinions relating to the original
merger agreement set forth in this document is qualified in its entirety by
reference to the full text of each of the Salomon and Wasserstein Perella
fairness opinions.

Salomon and Wasserstein Perella have each consented to the inclusion of their
fairness opinions and to the inclusion of the summaries thereof in this
document. In giving such consents, each of Salomon and Wasserstein Perella does
not believe that it comes within the category of persons whose consent is
required under Section 7 of the Securities Act, or the rules and regulations of
the SEC thereunder, nor does it thereby believe that it is an expert as such
term is used in the Securities Act or the rules and regulations of the SEC
thereunder with respect to any part of the Registration Statement of which this
document is a part.

The fairness opinions and presentation of Salomon and Wasserstein Perella to the
Second Chancellor Special Committee relating to the original merger agreement,
in connection with which Salomon and Wasserstein Perella were requested to
evaluate, among other things, the fairness from a financial point of view of the
exchange ratio contemplated by the original merger agreement to the holders of
Chancellor Media common stock who are not affiliated with Hicks Muse, were only
one of many factors taken into consideration by

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the Special Committee in making its determination to approve the original merger
agreement. The terms of the original merger agreement were determined through
negotiations between Chancellor Media and Capstar, and were approved by the
Second Chancellor Special Committee. Although Salomon and Wasserstein Perella
provided advice to the Second Chancellor Special Committee during the course of
these negotiations, the decision to enter into the original merger agreement and
to accept the exchange ratio contemplated in the original merger agreement was
solely that of the Board of Directors of Chancellor Media.

The Salomon Opinion. In connection with rendering its fairness opinion, Salomon,
among other things:

- - reviewed the August 26, 1998 draft of the merger agreement, including the
exhibits thereto and certain documents referred to therein, in the form
provided to Salomon, and assumed that the final form of such agreement would
not vary in any respect that is material to Salomon's analysis;

- - reviewed certain publicly available business and financial information that
Salomon deemed relevant relating to Chancellor Media and Capstar and the
industries in which they operate;

- - reviewed certain internal non-public financial and operating data and other
information provided to Salomon by the managements of Chancellor Media and
Capstar relating to Chancellor Media's and Capstar's businesses, including
certain forecast and projection information as to the future financial results
of such businesses;

- - reviewed certain publicly available business and financial information with
respect to certain other companies that Salomon believed to be relevant or
comparable in certain respects to Chancellor Media and Capstar, and the
trading markets for such other companies' securities;

- - reviewed and analyzed certain publicly available and other information
concerning the trading of, and the trading market for, the Chancellor Media
common stock and the Capstar common stock;

- - reviewed the financial terms of certain business combinations and acquisition
transactions that Salomon deemed to be reasonably comparable to the merger and
otherwise relevant to Salomon's inquiry;

- - analyzed certain information concerning cost savings and combination benefits
expected to result from the merger that was provided to or reviewed for
Salomon by the managements of Chancellor Media and Capstar;

- - discussed with members of Chancellor Media's and Capstar's senior managements
and other officers and employees of Chancellor Media and Capstar the
foregoing, including the past and current business operations, financial
condition and prospects of Chancellor Media and Capstar, respectively, before
and after giving effect to the merger; and

- - considered such other information, financial studies, analyses, investigations
and financial, economic, market and trading criteria as Salomon deemed
relevant to its inquiry.

In its review and analysis and in arriving at its fairness opinion relating to
the original merger agreement, Salomon assumed and relied upon, without assuming
any responsibility

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for verification, the accuracy and completeness of all of the financial and
other information provided to, discussed with, or reviewed by or for Salomon, or
publicly available. With respect to Chancellor Media's and Capstar's financial
projections, as well as the information concerning operating cost savings and
combination benefits provided to or reviewed for Salomon by the managements of
Chancellor Media and Capstar, Salomon assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments on the part of the management of Chancellor Media or Capstar, as the
case may be, as to the future financial performance of Chancellor Media or
Capstar, as the case may be, and as to the cost savings and combination benefits
expected to result from the merger. Salomon expressed no view as to such
projections or information or the assumptions on which they are based. Salomon
did not assume any responsibility for making or obtaining any independent
evaluations or appraisals of any of the assets or liabilities of Chancellor
Media or Capstar, nor for conducting a physical inspection of the properties and
facilities of Chancellor Media or Capstar. Salomon's fairness opinion was
necessarily based upon market, economic and other conditions as they existed and
could be evaluated on August 26, 1998, and Salomon assumed no responsibility to
update or revise their fairness opinion based upon circumstances or events
occurring after August 26, 1998. Furthermore, Salomon's analyses were based on
financial data provided to Salomon by the management of Chancellor Media that
included on a pro forma basis the impact of Chancellor Media's proposed
acquisition of LIN and assumed that the proposed transaction would be
consummated.

For purposes of rendering its fairness opinion relating to the original merger
agreement, Salomon assumed, in all respects material to its analysis, that the
representations and warranties of each party contained in the original merger
agreement were true and correct, that each party would perform all of the
covenants and agreements required to be performed by it under the original
merger agreement, and that all conditions to the consummation of the merger
would be satisfied without waiver thereof. Salomon also assumed that all
material governmental, regulatory or other consents and approvals would be
obtained and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which either Chancellor Media or Capstar is a party,
as contemplated by the original merger agreement, no restrictions would be
imposed, or amendments, modifications or waivers made that would have any
material adverse effect on the contemplated benefits of the merger.

Salomon is an internationally recognized investment banking firm that regularly
engages in the valuation of companies and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, and corporate, estate and other
purposes. Chancellor Media retained Salomon as a financial advisor because of
its reputation, expertise in the valuation of companies and substantial
experience in transactions such as the merger.

In the past Salomon has rendered certain investment banking services to
Chancellor Media for which it has been paid fees. Pursuant to an engagement
letter dated July 28, 1998, Chancellor Media agreed to pay Salomon a fee equal
to

(i) $100,000 upon the execution of such engagement letter,

(ii) $1,500,000 upon Salomon notifying the Special Committee of its
readiness to render the fairness opinion and

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(iii) $1,400,000 upon the earlier of (a) the time at which the Special
Committee requests the Opinion and (b) the consummation of the
merger.

Additionally, Chancellor Media has agreed to reimburse Salomon for all
reasonable fees and disbursements of Salomon's legal counsel and all of
Salomon's reasonable travel and other out-of-pocket expenses and agreed to
indemnify Salomon and certain related persons against certain liabilities,
including liabilities under the federal securities laws, related to or arising
out of its engagement. In the ordinary course of business, Salomon or its
affiliates may actively trade the securities of Chancellor Media and Capstar for
their own account and for the accounts of their customers and, accordingly, at
any time may hold a long or short position in such securities.

Opinion of Wasserstein Perella. In arriving at the Wasserstein Perella fairness
opinion relating to the original merger agreement, Wasserstein Perella, among
other things:

- - reviewed a draft of the original merger agreement, and assumed that the final
form would not differ in any respect that is material to the fairness opinion;

- - reviewed selected publicly available business and financial information
relating to Chancellor Media and Capstar for recent years and interim periods
up to the date of the Wasserstein Perella fairness opinion;

- - reviewed selected internal financial and operating information, including
financial forecasts, analyses and projections prepared by or on behalf of
Chancellor Media and Capstar;

- - reviewed selected financial and stock market data relating to Chancellor Media
and Capstar, and selected other publicly traded companies in businesses
similar to that of Chancellor Media and Capstar or one or more of their
respective businesses or assets;

- - reviewed the financial terms of selected acquisitions and business combination
transactions in the radio broadcasting industry and other industries that
Wasserstein Perella believed to be reasonably comparable to the merger and
otherwise relevant to Wasserstein Perella's inquiry;

- - discussed with management of Chancellor Media and Capstar the foregoing
information and, among other things, Chancellor Media's and Capstar's
businesses, operations, assets, financial condition and future prospects; and

- - performed such other financial studies, analyses and investigations and
reviewed such other information as Wasserstein Perella considered appropriate
for its fairness opinion.

In rendering the Wasserstein Perella fairness opinion relating to the original
merger agreement, Wasserstein Perella assumed and relied upon, without assuming
any responsibility for independent verification, the accuracy and completeness
of all financial and other information provided to, discussed with or reviewed
by Wasserstein Perella, or that was publicly available. With respect to
financial projections, forecasts and analyses provided, Wasserstein Perella
assumed that they had been reasonably prepared in good faith and on bases
reflecting the best currently available judgments and estimates of the future
performance of Chancellor Media and Capstar. Wasserstein Perella expressed no
opinion as to, and assumes no responsibility for, the projections, forecasts or
analyses or the assumptions on which they are based. Wasserstein Perella has not
reviewed any of the books and records of Chancellor Media or Capstar, or assumed
any responsibility for conducting a physical inspection of the properties or
facilities of Chancellor Media or

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Capstar, or for making or obtaining an independent valuation or appraisal of the
assets or liabilities of Chancellor Media or Capstar, and no independent
valuation or appraisal was provided to Wasserstein Perella. Wasserstein Perella
assumed that the merger will qualify as a tax-free reorganization for United
States federal income tax purposes. Wasserstein Perella also assumed that
obtaining all regulatory and other approvals and third party consents required
for consummation of the merger will not have an adverse impact on Chancellor
Media or Capstar or on the anticipated benefits of the merger, and assumed that
the transactions described in the original merger agreement will be consummated
without waiver or modification of any of the terms or conditions contained
therein by any party thereto. The Wasserstein Perella fairness opinion was
prepared and delivered based upon economic and market conditions and other
circumstances as they existed and could be evaluated by Wasserstein Perella as
of the date of the opinion. Furthermore, Wasserstein Perella's analyses were
based on financial data provided to Wasserstein Perella by the management of
Chancellor Media that included on a pro forma basis the impact of Chancellor
Media's proposed acquisition of LIN and assumed that the proposed transaction
would be consummated.

Wasserstein Perella is an investment banking firm engaged, among other things,
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bidding, and secondary
distributions of listed and unlisted securities and private placements.
Wasserstein Perella was selected to render the Wasserstein Perella fairness
opinion because it is a nationally recognized investment banking firm and
because of its experience in the valuation of companies, including companies in
the television broadcasting industry. In the ordinary course of its business,
Wasserstein Perella may actively trade the debt and equity securities of
Chancellor Media and Capstar for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Wasserstein Perella advised Evergreen Media Corporation in its
merger with Chancellor Broadcasting Corporation, which transaction resulted in
the formation of Chancellor Media. Wasserstein Perella also advised Evergreen in
its joint acquisition with Chancellor Media of Viacom Radio Group. In addition,
Wasserstein Perella advised the predecessor of LIN and the independent directors
of the board of directors of LIN in its merger with an affiliate of Hicks Muse.
Wasserstein Perella acted as financial advisor to the Special Committee in
Chancellor Media's proposed acquisition of LIN.

Pursuant to the terms of an engagement letter dated July 27, 1998, Wasserstein
Perella agreed to act as financial advisor to the Second Chancellor Special
Committee. Chancellor Media agreed to pay and has paid Wasserstein Perella an
aggregate fee of $2,500,000 pursuant to the engagement letter. In addition to
any foregoing compensation, Chancellor Media has agreed to reimburse Wasserstein
Perella for its reasonable out-of-pocket expenses, including fees, disbursement
and other charges of its counsel. Chancellor Media has agreed to indemnify
Wasserstein Perella and its affiliates, their respective directors, officers,
agents and employees and controlling persons, and each of their respective
successors and assigns against certain liabilities and expenses, including
certain liabilities under the federal securities laws, relating to or arising
out of such engagement.

Presentation to the Board. In connection with rendering their fairness opinions
to the Second Chancellor Special Committee, Salomon and Wasserstein Perella each
performed a variety of financial analyses, the material portions of which are
summarized below. The summary of such analyses set forth below does not purport
to be a complete description of

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the analyses underlying each of the Salomon and Wasserstein Perella fairness
opinions or of the joint presentation of Salomon and Wasserstein Perella to the
Second Chancellor Special Committee. In addition, Salomon and Wasserstein
Perella each believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered therein, without
considering all such analyses and factors, could create an incomplete view of
the analyses and the process underlying each of their fairness opinions. While
the conclusions reached in connection with each analysis were considered
carefully by each of Salomon and Wasserstein Perella in arriving at each of
their fairness opinions, Salomon and Wasserstein Perella each did not consider
it practicable to, nor did either attempt to, assign relative weights to the
individual analyses and specific factors considered in reaching each of their
fairness opinions, but rather made various subjective judgments as to the
significance and relevance of each analysis and factor.

The preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstance and, therefore, is not necessarily susceptible to partial analysis
or summary description. In addition, the process of preparing a fairness opinion
necessarily requires a broad range of subjective judgments with respect to
appropriate comparable companies and transactions, appropriate multiples of
various selected financial data, appropriate discount rates and other financial
and other factors. Analyses and estimates of the values of companies do not
purport to be appraisals or necessarily reflect actual values or actual future
results. No public company utilized as a comparison is identical to Chancellor
Media or Capstar, and none of the other business combinations utilized as a
comparison is identical to the proposed merger. Accordingly, any analysis of
publicly traded comparable companies or comparable business combinations is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the public trading value
of the comparable companies or transactions. The range of valuation for any
particular analysis should not be taken to be the view of either Salomon or
Wasserstein Perella of the actual value of Chancellor Media or Capstar, and none
of Salomon, Wasserstein Perella nor any other related person assumes
responsibility for their accuracy.

The projections furnished to Salomon and Wasserstein Perella and used in
formulating their fairness opinions were provided, in connection with the review
of the merger, by the management of each of Chancellor Media and Capstar who do
not publicly disclose internal management projections of the type provided to
Salomon and Wasserstein Perella and, accordingly, such projections were not
prepared with a view toward public disclosure. The projections were based on
numerous variables and assumptions which are inherently uncertain, including,
without limitation, factors related to general economic and competitive
conditions. Accordingly, actual results could vary significantly from those set
forth in such projections.

THE FOLLOWING IS A SUMMARY OF THE MATERIAL FINANCIAL ANALYSES USED BY SALOMON
AND WASSERSTEIN PERELLA IN CONNECTION WITH PROVIDING THEIR FAIRNESS OPINIONS
RELATING TO THE ORIGINAL MERGER AGREEMENT TO THE SECOND CHANCELLOR SPECIAL
COMMITTEE. THE SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED IN
TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND THE FINANCIAL ANALYSES USED BY
SALOMON AND WASSERSTEIN PERELLA, THE TABLES MUST BE READ WITH THE TEXT OF EACH
SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSIS. When calculating firm value and equity

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value for Capstar, Salomon and Wasserstein Perella assumed total net debt and
preferred stock of $2.3 billion, option proceeds, assuming exercise of all
outstanding options, of $104.6 million and fully-diluted shares of 114.3
million, including in-the-money convertible preferred stock and excluding
payments under local market agreements.

Historical Exchange Ratio Analysis. Salomon and Wasserstein Perella reviewed the
ratio of the closing prices of Capstar common stock over Chancellor Media common
stock for each of the 10 days, 20 days, 30 days and 60 days prior to August 25,
1998 and the period from May 27, 1998 (the day following Capstar's initial
public offering) through August 25, 1998. The review indicated that the high,
low and mean exchange ratios derived from the market prices of the Chancellor
Media common stock and Capstar common stock were 0.509x, 0.446x and 0.472x for
such 10 day period, 0.523x, 0.446x and 0.483x for such 20 day period, 0.523x,
0.433x and 0.471x for such 30 day period, 0.523x, 0.409x and 0.459x for such 60
day period and 0.523x, 0.409x and 0.459x for such period from May 27, 1998 up to
August 25, 1998 as compared to the range of exchange ratios of 0.480x to 0.505x
contemplated in the merger. Salomon and Wasserstein Perella provided the
foregoing information to the Second Chancellor Special Committee to assist the
Second Chancellor Special Committee in comparing the historical exchange ratios
described above to the exchange ratios of 0.480x to 0.505x contemplated in the
original merger agreement.

<TABLE>
<CAPTION>
RANGE OF EXCHANGE
RATIOS CONTEMPLATED
IN THE ORIGINAL
HIGH LOW MEAN MERGER AGREEMENT
------ ------ ------ -------------------
<S> <C> <C> <C> <C>
10 days prior to August 25, 1998.......... 0.509x 0.446x 0.472x 0.480x-0.505x
20 days prior to August 25, 1998.......... 0.523x 0.446x 0.483x
30 days prior to August 25, 1998.......... 0.523x 0.433x 0.471x
60 days prior to August 25, 1998.......... 0.523x 0.409x 0.459x
May 27, 1998 (day following initial public
offering) to August 25, 1998............ 0.523x 0.409x 0.459x
</TABLE>

Comparable Public Company Trading and Operating Performance. Using publicly
available information, Salomon and Wasserstein Perella compared each of
Chancellor Media and Capstar to the following seven radio companies: CBS
Broadcasting Corporation, Citadel Communications Corporation, Clear Channel
Communications, Inc., Cox Radio, Inc., Cumulus Media Inc., Emmis Broadcasting
Corporation and Jacor Communications, Inc. based on various measures of
financial performance. Salomon and Wasserstein Perella noted that the firm
values as multiples of 1998, 1999 and 2000 estimated broadcast cash flow were
16.4x, 14.3x and 13.0x for Chancellor Media and 17.2x, 14.5x and 12.8x for
Capstar, compared with a median of 17.9x, 15.5x and 13.2x for the selected
group. Salomon and Wasserstein Perella also noted that the firm values as
multiples of 1998 and 1999 estimated operating cash flow were 16.0x and 14.0x
for Chancellor Media and 18.6x and 15.6x for Capstar, compared with a median of
19.9x and 16.6x for the selected group. Salomon and Wasserstein Perella further
noted that the market prices per share as multiples of 1998, 1999 and 2000
estimated after-tax cash flow were 24.5x, 17.4x and 14.8x for Chancellor Media
and 86.8x, 33.3x and 20.4x for Capstar, compared with a median of 27.4x, 21.4x
and 18.0x for the selected group. Salomon and Wasserstein Perella provided the
foregoing information to the Second Chancellor Special Committee for the Second
Chancellor Special Committee's use in evaluating the valuation of Chancellor
Media and Capstar relative to certain comparable public companies.

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<TABLE>
<CAPTION>
FIRM VALUES AS MULTIPLES OF
ESTIMATED BROADCAST CASH
FLOW
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Chancellor Media........................................... 16.4x 14.3x 13.0x
Capstar.................................................... 17.2x 14.5x 12.8x
Median for Selected Group.................................. 17.9x 15.5x 13.2x
</TABLE>

<TABLE>
<CAPTION>
FIRM VALUES AS
MULTIPLES OF
ESTIMATED
OPERATING CASH
FLOW
---------------
1998 1999
------ ------
<S> <C> <C>
Chancellor Media............................................ 16.0x 14.0x
Capstar..................................................... 18.6x 15.6x
Median for Selected Group................................... 19.9x 16.6x
</TABLE>

<TABLE>
<CAPTION>
MARKET PRICES PER SHARE
AS MULTIPLES OF ESTIMATED
AFTER-TAX CASH FLOW
---------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Chancellor Media............................................ 24.5x 17.4x 14.8x
Capstar..................................................... 86.8x 33.3x 20.4x
Median for Selected Group................................... 27.4x 21.4x 18.0x
</TABLE>

Implied Public Market Valuation of Capstar. Salomon and Wasserstein Perella
derived an implied public market valuation for Capstar based on projections from
Capstar's management and Wall Street consensus projections of 1998 and 1999
estimated broadcast cash flow for Capstar on a stand-alone basis.

Salomon and Wasserstein Perella applied a range of multiples of 16.0x to 18.0x
to 1998 estimated broadcast cash flow and 13.0x to 15.0x to 1999 estimated
broadcast cash flow of Capstar, resulting in a range of implied per share prices
for Capstar common stock of approximately $19 to $24, based on projections from
Capstar's management and approximately $16 to $20 based on Wall Street consensus
projections. This corresponded to an implied exchange ratio of 0.410x to 0.518x
based on Capstar's management projections and 0.345x to 0.431x based on Wall
Street consensus projections, in each case, at a current market price for
Chancellor Media common stock of $46.38 as of August 25, 1998. Salomon and
Wasserstein Perella compared these implied exchange ratios to the range of
exchange ratios of 0.480x to 0.505x contemplated in the original merger
agreement.

<TABLE>
<CAPTION>
IMPLIED EXCHANGE
RATIO (AT A CURRENT
MARKET PRICE FOR RANGE OF EXCHANGE
CHANCELLOR MEDIA RATIOS CONTEMPLATED
IMPLIED PER COMMON STOCK OF IN THE ORIGINAL
SHARE PRICE $46.38) MERGER AGREEMENT
------------- ------------------- -------------------
<S> <C> <C> <C>
Based on Management Projections.... $19.00-$24.00 0.410x-0.518x 0.480x-0.505x
Based on Wall Street Consensus
Projections...................... $16.00-$20.00 0.345x-0.431x
</TABLE>

Implied Private Market Valuation for Capstar. Salomon and Wasserstein Perella
derived an implied private market valuation for Capstar based on projections
from Capstar's management and Wall Street consensus projections of 1998 and 1999
estimated broadcast cash flow for Capstar on a stand-alone basis. Salomon and
Wasserstein Perella reviewed

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publicly available information regarding 34 selected merger transactions in the
radio industry during 1995, 1996, 1997 and 1998. The median of the transaction
values as multiples of current year broadcast cash flow in the selected
transactions were 12.1x in 1995, 12.5x in 1996, 14.9x in 1997 and 15.2x in 1998.
Salomon and Wasserstein Perella applied a range of multiples of 17.0x to 19.0x
to 1998 estimated broadcast cash flow and 14.0x to 16.0x to 1999 estimated
broadcast cash flow of Capstar, resulting in a range of implied per share prices
for Capstar common stock of approximately $21 to $26, based on projections from
Capstar's management and approximately $18 to $23, based on Wall Street
consensus projections. This corresponds to an implied exchange ratio of 0.453x
to 0.561x based on Capstar's management projections and 0.388x to 0.496x based
on Wall Street consensus projections at a current market price for Chancellor
Media common stock of $46.38 as of August 25, 1998. Salomon and Wasserstein
Perella compared these implied exchange ratios to the range of exchange ratios
of 0.480x to 0.505x exchange contemplated in the original merger agreement.

<TABLE>
<CAPTION>
IMPLIED EXCHANGE
RATIO (AT A CURRENT
MARKET PRICE FOR RANGE OF EXCHANGE
CHANCELLOR MEDIA RATIOS CONTEMPLATED
IMPLIED PER COMMON STOCK OF IN THE ORIGINAL
SHARE PRICE $46.38) MERGER AGREEMENT
------------- ------------------- -------------------
<S> <C> <C> <C>
Based on Management Projections.... $21.00-$26.00 0.453x-0.561x 0.480x-0.505x
Based on Wall Street Consensus
Projections...................... $18.00-$23.00 0.388x-0.496x
</TABLE>

Implied Discounted Cash Flow Valuation of Capstar. Using a discounted cash flow
methodology based on projections from Capstar's management and Wall Street
consensus projections, Salomon and Wasserstein Perella calculated a range of
firm values of Capstar as of January 1, 1999 based on

(i) the estimated unlevered free cash flows that Capstar could produce on a
stand-alone basis without giving effect to any operating or other
efficiencies arising from the merger over the five-year period from
fiscal year end 1999 through fiscal year end 2003 and

(ii) a range of 2003 terminal EBITDA multiples from 12.0x to 14.0x applied
to 2003 EBITDA.

Salomon and Wasserstein Perella discounted these cash flows by a range of
discount rates representing the weighted average cost of capital from 9.5% to
10.5%, resulting in a range of firm values as of January 1, 1999 from $4,525
million to $5,001 million, using projections provided by Capstar's management.
This corresponds to a range of implied per share equity values from
approximately $25 to $29 and implied exchange ratios based on a current price as
of August 25, 1998 of $46.38 for Chancellor Media common stock of 0.539x to
0.625x. Using the average of the latest available Wall Street consensus
projections, Salomon and Wasserstein Perella derived a range of firm values as
of January 1, 1999 from $4,013 million to $4,432 million. This corresponds to a
range of implied per share equity values from approximately $21 to $24, and
implied exchange ratios based on current market price of $46.38 for Chancellor
Media common stock of 0.453x to 0.518x. Salomon and Wasserstein Perella compared
these implied exchange ratios to the range of exchange ratios of 0.480x to
0.505x contemplated in the original merger agreement.

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<PAGE> 130

<TABLE>
<CAPTION>
IMPLIED EXCHANGE
IMPLIED PER RATIO (AT A CURRENT MARKET
SHARE EQUITY PRICE FOR CHANCELLOR MEDIA
VALUES COMMON STOCK OF $46.38)
------------- --------------------------
<S> <C> <C>
Based on Management Projections............... $25.00-$29.00 0.539x-0.625x
Based on Wall Street Consensus Projections.... $21.00-$24.00 0.453x-0.518x
</TABLE>

Pro Forma Analysis. Using Wall Street consensus projections and projections from
the managements of each of Chancellor Media and Capstar, Salomon and Wasserstein
Perella analyzed the potential pro forma impact of the original merger on the
combined company under three separate scenarios:

(i) assuming no synergies are realized in the merger;

(ii) assuming only operating synergies are realized in the merger; and

(iii) assuming both operating and financing synergies are realized in the
merger.

In the scenarios where the merger was projected to yield operating synergies,
such operating synergies included $48 million of projected increments in
broadcast cash flows for each year in 1999, 2000 and 2001, respectively. In the
scenario in which the merger was projected to yield financing synergies, the
analyses projected post-tax financing synergies of $32.4 million, $40.2 million
and $48.9 million for the years 1999, 2000 and 2001, respectively and the
analyses further assumed an increase in debt and preferred borrowings of $155
million by the combined company to fund refinancing.

Pro Forma After-Tax Cash Flow Analysis. Salomon and Wasserstein Perella's
analyses indicated that at the exchange ratio of 0.480x, using Wall Street
consensus projections and assuming no synergies, the original merger would
result in a pro forma estimated after-tax cash flow per share dilution of
11.2% in 1999, 7.0% in 2000 and 7.8% in 2001. Assuming only operating
synergies are realized in the merger, the original merger would result in a
pro forma estimated after-tax cash flow per share dilution of 6.6% in 1999,
3.1% in 2000 and 4.3% in 2001. Assuming both operating and financing synergies
are realized in the merger, the original merger would result in a pro forma
estimated after-tax cash flow per share dilution of 1.5% in 1999 and an
accretion of 2.3% in 2000 and 1.6% in 2001.

<TABLE>
<CAPTION>
BASED ON WALL STREET CONSENSUS PROJECTIONS
(EXCHANGE RATIO: 0.480X)
------------------------------------------------------
1999 % ACCRETION 2000 % ACCRETION 2001 % ACCRETION
(DILUTION) (DILUTION) (DILUTION)
---------------- ---------------- ----------------
<S> <C> <C> <C>
No Synergies.......................... (11.2)% (7.0)% (7.8)%
Operating Synergies Only.............. (6.6)% (3.1)% (4.3)%
Operating & Financing Synergies....... (1.5)% 2.3% 1.6%
</TABLE>

Salomon and Wasserstein Perella's analyses also indicated that at the exchange
ratio of 0.505x, using projections from the managements of each of Chancellor
Media and Capstar and assuming no synergies, the original merger would result
in a pro forma estimated after-tax cash flow per share dilution of 9.0% in
1999, 7.3% in 2000 and 9.5% in 2001. Assuming only operating synergies are
realized in the merger, the original merger would result in a pro forma
estimated after-tax cash flow per share dilution of 4.7% in 1999, 3.9% in 2000
and 6.5% in 2001. Assuming both operating and financing synergies are realized
in the merger, the original merger would result in a pro forma

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<PAGE> 131

estimated after-tax cash flow per share accretion of 0.1% in 1999 and 0.8% in
2000 and a dilution of 1.6% in 2001.

<TABLE>
<CAPTION>
BASED ON MANAGEMENT PROJECTIONS
(EXCHANGE RATIO: 0.505X)
------------------------------------------------------
1999 % ACCRETION 2000 % ACCRETION 2001 % ACCRETION
(DILUTION) (DILUTION) (DILUTION)
---------------- ---------------- ----------------
<S> <C> <C> <C>
No Synergies.......................... (9.0)% (7.3)% (9.5)%
Operating Synergies Only.............. (4.7)% (3.9)% (6.5)%
Operating & Financing Synergies....... 0.1% 0.8% (1.6)%
</TABLE>

Pro Forma Broadcast Cash Flow Analysis. Salomon and Wasserstein Perella's
analyses based on estimated broadcast cash flow for 1999, 2000 and 2001,
indicated that at the exchange ratio of 0.480x using Wall Street consensus
projections, assuming no synergies are realized in the merger and also
assuming that Chancellor Media's broadcast cash flow multiples would stay
constant after the merger, the original merger would result in an implied
share price dilution to Chancellor Media's common stock of 3.6% in 1999, 1.8%
in 2000 and 1.4% in 2001. Assuming only operating synergies are realized in
the merger, the original merger would result in an implied share price
accretion to Chancellor Media's common stock of 2.4% in 1999, 3.6% in 2000 and
3.6% in 2001. Assuming both operating and financing synergies are realized in
the merger, the original merger would result in an implied share price
accretion to Chancellor Media's common stock of 1.1% in 1999, 2.3% in 2000 and
2.2% in 2001.

<TABLE>
<CAPTION>
BASED ON WALL STREET CONSENSUS PROJECTIONS
(EXCHANGE RATIO: 0.480X)
------------------------------------------------------
1999 % ACCRETION 2000 % ACCRETION 2001 % ACCRETION
(DILUTION) (DILUTION) (DILUTION)
---------------- ---------------- ----------------
<S> <C> <C> <C>
No Synergies.......................... (3.6)% (1.8)% (1.4)%
Operating Synergies Only.............. 2.4% 3.6% 3.6%
Operating & Financing Synergies....... 1.1% 2.3% 2.2%
</TABLE>

Salomon and Wasserstein Perella's analyses based on estimated broadcast cash
flow for 1999, 2000 and 2001, indicated that at the exchange ratio of 0.505x
using projections from the managements of Chancellor Media and Capstar,
assuming no synergies are realized in the merger and also assuming that
Chancellor Media's broadcast cash flow multiples would stay constant after the
merger, the original merger would result in an implied share price dilution to
Chancellor Media's common stock of 2.4% in 1999, 3.1% in 2000 and 2.9% in
2001. Assuming only operating synergies are realized in the merger, the
original merger would result in an implied share price accretion to Chancellor
Media's common stock of 3.4% in 1999, 1.8% in 2000 and 1.4% in 2001. Assuming
both operating and financing synergies are realized in the merger, the
original merger would result in an implied share price accretion to Chancellor
Media's common stock of 2.1% in 1999 and 0.4% in 2000 and would not result in
any accretion or dilution in 2001.

<TABLE>
<CAPTION>
BASED ON MANAGEMENT PROJECTIONS
(EXCHANGE RATIO: 0.505X)
------------------------------------------------------
1999 % ACCRETION 2000 % ACCRETION 2001 % ACCRETION
(DILUTION) (DILUTION) (DILUTION)
---------------- ---------------- ----------------
<S> <C> <C> <C>
No Synergies.......................... (2.4)% (3.1)% (2.9)%
Operating Synergies Only.............. 3.4% 1.8% 1.4%
Operating & Financing Synergies....... 2.1% 0.4% 0.0%
</TABLE>

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<PAGE> 132

Supplemental Opinion of Financial Advisor to Chancellor Media Board of Directors

On April 29, 1999, the original merger agreement was amended and restated to
provide that in the merger, a wholly owned subsidiary of Chancellor Media,
created solely for the purpose of accomplishing the merger, would merge with and
into Capstar, with Capstar surviving the merger as a wholly owned subsidiary of
Chancellor Media with each share of each class of Capstar common stock
outstanding prior to the merger being converted into 0.4955 of a share of
Chancellor Media common stock. Pursuant to the merger agreement, as amended,
holders of Chancellor Media common stock would retain their shares of Chancellor
Media as they existed before the merger.

On April 29, 1999, Wasserstein Perella delivered its oral opinion to the Board
of Directors of Chancellor Media, subsequently confirmed in writing, to the
effect that as of such date, based upon and subject to the factors and
assumptions set forth in such opinion, the exchange ratio set forth in the
merger agreement was fair, from a financial point of view, to Chancellor Media.
The exchange ratio in the merger agreement provided for holders of Capstar
common stock to convert into 0.4955 shares of Chancellor Media common stock.
Wasserstein Perella subsequently confirmed its April 29, 1999 opinion by
delivery to the Board of Directors of Chancellor Media of a written opinion
dated the date of this joint proxy statement/prospectus that is substantially
identical to the April 29, 1999 opinion.

The full text of the Wasserstein Perella supplemental fairness opinion, dated
the date of this joint proxy statement/prospectus, which sets forth the
assumptions made, general procedures followed, matters considered and
limitations on the review undertaken by of Wasserstein Perella, is attached
hereto as Annex III-B to this document. Stockholders are urged to read the
Wasserstein Perella supplemental fairness opinion carefully and in its entirety.
The Wasserstein Perella supplemental opinions are directed only to the fairness,
from a financial point of view, of the exchange ratio to Chancellor Media, does
not address Chancellor Media's underlying business decision to effect the merger
or constitute a recommendation to any stockholder as to how such stockholder
should vote with respect to the merger. The Wasserstein Perella supplemental
fairness opinions also do not constitute an opinion or imply any conclusions of
Wasserstein Perella as to the likely trading range for the Chancellor Media
common stock or the Capstar common stock following the announcement or
consummation of the merger, which may vary depending upon various factors
discussed in the Wasserstein Perella fairness opinion. The summary of the
Wasserstein Perella supplemental fairness opinions set forth in this document is
qualified in its entirety by reference to the full text of the Wasserstein
Perella supplemental fairness opinions.

Wasserstein Perella has consented to the inclusion of its supplemental fairness
opinion and to the inclusion of the summary thereof in this document. In giving
such consent, Wasserstein Perella does not believe that it comes within the
category of persons whose consent is required under Section 7 of the Securities
Act, or the rules and regulations of the Commission thereunder, nor does it
thereby believe that it is an expert as such term is used in the Securities Act
or the rules and regulations of the Commission thereunder with respect to any
part of the Registration Statement of which this document is a part.

The supplemental fairness opinion and presentation of Wasserstein Perella to the
Board of Directors of Chancellor Media, in connection with which Wasserstein
Perella was requested to evaluate, among other things, the fairness from a
financial point of view of the exchange ratio to Chancellor Media, were only one
of many factors taken into

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<PAGE> 133

consideration by the Board of Directors of Chancellor Media in making its
determination to approve the merger agreement. The terms of the merger agreement
were determined through negotiations between Chancellor Media and Capstar, and
were approved by the Board of Directors of Chancellor Media. The decision to
enter into the merger agreement and to accept the exchange ratio contemplated in
the merger agreement was solely that of the Board of Directors of Chancellor
Media.

In arriving at the Wasserstein Perella supplemental fairness opinions,
Wasserstein Perella, among other things:

- - reviewed the merger agreement, and assumed that the final form would not
differ in any respect that is material to the supplemental fairness opinions;

- - reviewed selected internal financial and operating information, including
financial forecasts, analyses and projections prepared by or on behalf of
Chancellor Media and Capstar;

- - reviewed a copy of the Stock Purchase Agreement, dated as of June 1, 1999,
between CMCLA and Lamar and related agreements regarding the proposed sale by
Chancellor to Lamar of Chancellor's outdoor advertising business, and assumed
that the transactions contemplated in the Stock Purchase Agreement would be
consummated as described in the agreement;

- - performed such other financial studies, analyses and investigations and
reviewed such other information as Wasserstein Perella considered appropriate
for its supplemental fairness opinions.

In rendering the Wasserstein Perella supplemental fairness opinions, Wasserstein
Perella assumed and relied upon, without assuming any responsibility for
independent verification, the accuracy and completeness of all financial and
other information provided to, discussed with or reviewed by Wasserstein
Perella, or that was publicly available. With respect to financial projections,
forecasts and analyses provided, Wasserstein Perella assumed that they have been
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the future performance of Chancellor Media
and Capstar. Wasserstein Perella expressed no opinion as to, and assumes no
responsibility for, the projections, forecasts or analyses or the assumptions on
which they are based.

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<PAGE> 134

Wasserstein Perella has not reviewed any of the books and records of Chancellor
Media or Capstar, or assumed any responsibility for conducting a physical
inspection of the properties or facilities of Chancellor Media or Capstar, or
for making or obtaining an independent valuation or appraisal of the assets or
liabilities of Chancellor Media or Capstar, and no independent valuation or
appraisal was provided to Wasserstein Perella. Wasserstein Perella assumed that
the merger will qualify as a tax-free reorganization for United States federal
income tax purposes. Wasserstein Perella also assumed that obtaining all
regulatory and other approvals and third party consents required for
consummation of the merger will not have an adverse impact on Chancellor Media
or Capstar or on the anticipated benefits of the merger, and assumed that the
transactions described in the merger agreement will be consummated without
waiver or modification of any of the terms or conditions contained therein by
any party thereto. The Wasserstein Perella supplemental fairness opinion was
prepared and delivered based upon economic and market conditions and other
circumstances as they existed and could be evaluated by Wasserstein Perella as
of the date of the supplemental opinions.

Wasserstein Perella advised Evergreen Media Corporation in its merger with
Chancellor Broadcasting Corporation, which transaction resulted in the formation
of Chancellor Media. Wasserstein Perella also advised Evergreen in its joint
acquisition with Chancellor Broadcasting of Viacom Radio Group. In addition,
Wasserstein Perella advised the predecessor of LIN and the independent directors
of the board of directors of LIN in its merger with an affiliate of Hicks Muse.
Wasserstein Perella acted as financial advisor to the special committee of the
Chancellor Media Board of Directors in Chancellor Media's proposed acquisition
of LIN and in connection with the merger agreement.

Pursuant to the terms of an engagement letter dated April 29, 1999, Wasserstein
Perella agreed to act as financial advisor to the Board of Directors of
Chancellor Media. Chancellor Media agreed to pay Wasserstein Perella an
aggregate fee of $1 million upon the earlier to occur of

(i) the date on which Wasserstein Perella advises the Board of Directors of
Chancellor Media that it is prepared to render the opinion, it being
understood that Wasserstein Perella will thereafter deliver its oral
presentation as to fairness and the written opinion upon the request of
the Board of Directors,

(ii) the date on which Wasserstein Perella advises the Board of Directors
that, having completed the performance of its undertakings thereunder,
Wasserstein Perella is unable to render the opinion with respect to
fairness, and

(iii) the consummation of any transaction contemplated by the proposal
regarding the merger.
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<PAGE> 135

In addition to any foregoing compensation, Chancellor Media has agreed to
reimburse Wasserstein Perella for its reasonable out-of-pocket expenses,
including fees, disbursement and other charges of its counsel. Chancellor Media
has agreed to indemnify Wasserstein Perella and its affiliates, their respective
directors, officers, agents and employees and controlling persons, and each of
their respective successors and assigns against certain liabilities and
expenses, including certain liabilities under the federal securities laws,
relating to or arising out of such engagement.

In connection with rendering its supplemental fairness opinions to the Board of
Directors of Chancellor Media Wasserstein Perella performed a variety of
financial analyses, the material portions of which are summarized below. The
summary of such analyses set forth below does not purport to be a complete
description of the analyses underlying the Wasserstein Perella fairness opinion
or of the presentation of Wasserstein Perella to the Board of Directors of
Chancellor Media. In addition, Wasserstein Perella believes that its analyses
must be considered as a whole and that selecting portions of such analyses and
the factors considered therein, without considering all such analyses and
factors, could create an incomplete view of the analyses and the process
underlying its supplemental fairness opinions. While the conclusions reached in
connection with its analysis were considered carefully by Wasserstein Perella in
arriving at its supplemental fairness opinions, Wasserstein Perella did not
consider it practicable to, nor did it attempt to, assign relative weights to
the individual analyses and specific factors considered in reaching its fairness
opinion, but rather made various subjective judgments as to the significance and
relevance of each analysis and factor.

The preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstance and, therefore, is not necessarily susceptible to partial analysis
or summary description. In addition, the process of preparing a fairness opinion
necessarily requires a broad range of subjective judgments with respect to
appropriate comparable companies and transactions, appropriate multiples of
various selected financial data, appropriate discount rates and other financial
and other factors. Analyses and estimates of the values of companies do not
purport to be appraisals or necessarily reflect actual values or actual future
results. No public company utilized as a comparison is identical to Chancellor
Media or Capstar, and none of the other business combinations utilized as a
comparison is identical to the proposed merger. Accordingly, any analysis of
publicly traded comparable companies or comparable business combinations is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the public trading value
of the comparable companies or transactions. The range of valuation for any
particular analysis should not be taken to be the view of Wasserstein Perella of
the actual value of Chancellor Media or Capstar, and Wasserstein Perella or any
other related person does not assume responsibility for their accuracy.

The projections furnished to Wasserstein Perella and used in formulating their
fairness opinions were provided, in connection with the review of the merger, by
the management of each of Chancellor Media and Capstar who do not publicly
disclose internal management projections of the type provided to Wasserstein
Perella and, accordingly, such projections were not prepared with a view toward
public disclosure. The projections were based on numerous variables and
assumptions which are inherently uncertain, including,

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<PAGE> 136

without limitation, factors related to general economic and competitive
conditions. Accordingly, actual results could vary significantly from those set
forth in such projections.

THE FOLLOWING IS A SUMMARY OF THE MATERIAL FINANCIAL ANALYSES USED BY
WASSERSTEIN PERELLA IN CONNECTION WITH PROVIDING ITS SUPPLEMENTAL FAIRNESS
OPINION TO THE BOARD OF DIRECTORS OF CHANCELLOR MEDIA AT ITS MEETING HELD ON
APRIL 29, 1999 AND SUBSEQUENT CONFIRMATION BY DELIVERY TO THE BOARD OF DIRECTORS
OF CHANCELLOR MEDIA OF A WRITTEN OPINION DATED THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE SUMMARY OF FINANCIAL ANALYSES INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND THE FINANCIAL ANALYSES
USED BY WASSERSTEIN PERELLA, THE TABLES MUST BE READ WITH THE TEXT OF EACH
SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSIS. When calculating firm value and equity value for Capstar,
Wasserstein Perella assumed total net debt and preferred stock of $2.1 billion,
option proceeds, assuming exercise of all outstanding options, of $107.4 million
and fully-diluted shares of 114.7 million, including in-the-money convertible
preferred stock and excluding payments under local market agreements.

Historical Exchange Ratio Analysis. Wasserstein Perella reviewed the ratio of
the closing prices of Capstar common stock over Chancellor Media common stock
for each of the 10 days, 20 days, 30 days, 60 days, 90 days and 180 days prior
to April 23, 1999 and the period from May 27, 1998 (the day following Capstar's
initial public offering) through April 23, 1999. The review indicated that the
high, low and mean exchange ratios derived from the market prices of the
Chancellor Media common stock and Capstar common stock were 0.4894x, 0.4719x and
0.4822x for such 10 day period, 0.4894x, 0.4719x and 0.4828x for such 20 day
period, 0.4894x, 0.4423x, 0.4767x for such 30 day period, 0.4894x, 0.4420x and
0.4654x for such 60 day period and 0.4894x, 0.4373x and 0.4654x for such 90 day
period, 0.5751x, 0.4236x and 0.4681x for such 180 day period and 0.5751x,
0.4093x and 0.4650x for such period from May 27, 1998 up to April 23, 1999 as
compared to the exchange ratio of 0.4955 contemplated in the merger. Wasserstein
Perella provided the foregoing information to the Board of Directors of
Chancellor Media to assist in comparing the historical exchange ratios described
above to the exchange ratio of 0.4955x contemplated in the merger.

<TABLE>
<CAPTION>
EXCHANGE RATIO
CONTEMPLATED IN
HIGH LOW MEAN THE MERGER
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
10 days prior to April 23, 1999......... 0.4894x 0.4719x 0.4922x 0.4955x
20 days prior to April 23, 1999......... 0.4894x 0.4719x 0.4828x
30 days prior to April 23, 1999......... 0.4894x 0.4423x 0.4767x
60 days prior to April 23, 1999......... 0.4894x 0.4420x 0.4654x
90 days prior to April 23, 1999......... 0.4894x 0.4373x 0.4654x
180 days prior to April 23, 1999........ 0.5751x 0.4236x 0.4681x
May 27, 1998 (day following initial
public offering) to April 23, 1999.... 0.5751x 0.4093x 0.4650x
</TABLE>

Precedent Merger and Acquisition Transactions. Wasserstein Perella reviewed and
analyzed selected merger and acquisition transactions involving other companies
in the radio broadcasting industry that it deemed relevant. Among other factors,
Wasserstein Perella indicated that while there have been a number of recent
radio broadcasting transactions, acquisition values paid in specific
transactions have historically been affected by several factors including the
transaction structure, the target's operating performance

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<PAGE> 137

and geographic mix of assets, the existence of a controlling/major shareholder,
the strategic rationale for the transaction and the existence and implied
valuation of non-radio broadcasting assets in the target.

Wasserstein Perella reviewed and analyzed selected transactions involving
companies in the radio broadcasting industry since July 1995 that it deemed
relevant. The transactions reviewed included the following, which are listed by
seller/acquiror: Jacor Communications, Inc./Clear Channel Communications;
Triathlon Broadcasting Company/Capstar Broadcasting Partners, Inc.; Capstar
Broadcasting -- SFX Broadcasting Inc./Chancellor Media; SFX Broadcasting/Capstar
Broadcasting Partners, Inc.; American Radio Systems Corporation/CBS Corporation;
SFX Broadcasting Inc./Capstar Broadcasting Partners, Inc. (Hicks Muse);
Patterson Broadcasting Inc./Capstar Broadcasting Partners, Inc.; Paxson
Communications Corporation/Clear Channel Communication Inc.; Viacom
Inc./Evergreen Media -- Chancellor Broadcasting; Chancellor Media/Evergreen
Media; Benchmark Communications/Capstar; Colfax Communications/Chancellor
Broadcasting; EZ Communications Inc./American Radio Systems Corporation;
Infinity Broadcasting Corporation/ Westinghouse Electric Corporation; Granum
Holdings L.P. (KKR)/Infinity Broadcasting Corporation; Citicasters Inc./Jacor
Communications, Inc.; Shamrock Broadcasting Inc./ Chancellor Broadcasting; and
Pyramid Communications Inc./Evergreen Media. Wasserstein Perella's analysis of
the selected acquisition transactions yielded an implied value range of
$26.57-$33.07 per share of Capstar. A merger and acquisition transaction
analysis, using a multiple of estimated 1999 broadcast cash flow of 17.0x-19.0x,
yielded an implied value range of $28.18-$33.07 per share of Capstar. A merger
and acquisition transaction analysis, using a multiple of estimated 2000
broadcast cash flow of 14.0x-16.0x, yielded an implied value range of
$26.57-$32.29 per share of Capstar. Because the market conditions and
circumstances surrounding each of the transactions analyzed were specific to
each transaction, and because of the inherent differences between the
businesses, operations and market conditions of Capstar and Chancellor Media and
the acquired businesses analyzed, Wasserstein Perella believed it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis and, accordingly, also made qualitative judgments concerning
differences between the characteristics of these transactions and the Merger
that would affect the acquisition values of Capstar and such acquired companies.

Comparable Public Company Trading and Operating Performance. Using publicly
available information, Wasserstein Perella compared each of Chancellor Media and
Capstar to the following nine radio companies: Citadel Communications
Corporation, Clear Channel Communications, Inc., Cox Radio, Inc., Cumulus Media
Inc., Emmis Broadcasting Corporation, Heftel Broadcasting Corporation, Infinity
Broadcasting Corporation, and Jacor Communications, Inc. and Saga Communications
based on various measures of financial performance. Wasserstein Perella's
analysis of the financial performance of these comparable public companies
yielded an implied value range of $32.29-$38.00 per share of Capstar.
Wasserstein Perella noted that the enterprise values as multiples of 1999 and
2000 estimated broadcast cash flow were 16.4x and 13.8x for Chancellor Media and
16.4x and 14.1x for Capstar, compared with a median of 19.1x and 16.6x for the
selected group. Wasserstein Perella further noted that the market prices per
share as multiples of 1999 and 2000 estimated after-tax cash flow were 24.0x and
17.4x for Chancellor Media and 29.1x and 22.1x for Capstar, compared with a
median of 34.7 and 28.6x for the selected group. Wasserstein Perella provided
the foregoing information to the Board of Directors of

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<PAGE> 138

Chancellor Media for the Board of Director's use in evaluating the valuation of
Chancellor Media and Capstar relative to certain comparable public companies.

<TABLE>
<CAPTION>
FIRM VALUES AS
MULTIPLES OF ESTIMATED
BROADCAST CASH FLOW
----------------------
1999 2000
------- -------
<S> <C> <C>
Chancellor Media............................................ 16.4x 13.8x
Capstar..................................................... 16.4x 14.1x
Median for Selected Group................................... 19.1x 16.6x
</TABLE>

<TABLE>
<CAPTION>
MARKET PRICES PER
SHARE AS MULTIPLES OF
ESTIMATED AFTER-TAX
CASH FLOW
----------------------
1999 2000
------- -------
<S> <C> <C>
Chancellor Media............................................ 24.0x 17.4x
Capstar..................................................... 29.1x 22.1x
Median for Selected Group................................... 34.7x 28.6x
</TABLE>

Implied Discounted Cash Flow Valuation of Capstar. Using a discounted cash flow
methodology based on projections from Capstar's management, Wasserstein Perella
calculated a range of firm values of Capstar as of January 1, 1999 based on

(ii) a range of 2003 terminal broadcast cash flow multiples from 12.5x to
13.5x applied to 2003 broadcast cash flow.

Wasserstein Perella discounted these cash flows by a range of discount rates
representing the weighted average cost of capital from 9.5% to 10.5%, resulting
in a range of firm values as of January 1, 1999 from $4,991 million to $5,471
million, using projections provided by Capstar's management. This corresponds to
a range of implied per share equity values from $25.80 to $29.98 and a range of
implied firm values as a multiple of 1999 estimated broadcast cash flow for
Capstar of 16.0x to 17.7x.

<TABLE>
<CAPTION>
IMPLIED FIRM VALUES
AS A MULTIPLE OF
IMPLIED PER SHARE 1999E BROADCAST
EQUITY VALUES CASH FLOW
----------------- -------------------
<S> <C> <C>
Based on Management Projections.................. $25.80-$29.98 16.0x-17.7x
</TABLE>

Pro Forma Analysis. Using projections from the management of each of Chancellor
Media and Capstar, Wasserstein Perella analyzed the potential pro forma impact
of the merger on the combined company's projected after-tax cash flow per share
of Chancellor Media common stock under two scenarios:

(i) assuming no synergies are realized in the merger and

(ii) assuming both operating and financing synergies are realized in the
merger.

Wasserstein Perella's analysis indicated that at the exchange ratio of 0.4955x
and assuming no synergies, the merger would result in a pro forma estimated
after-tax cash flow per share dilution of 9.1% in 1999, 9.0% in 2000, 9.4% in
2001, 8.8% in 2002 and 7.9% in

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<PAGE> 139

2003. Assuming both operating and financing synergies are realized in the
merger, the merger would result in a pro forma estimated after-tax cash flow per
share accretion of 2.7% in 1999, 1.3% in 2000, 0.7% in 2001, 1.0% in 2002 and
1.3% in 2003.

<TABLE>
<CAPTION>
AFTER-TAX CASH FLOW
----------------------------------
OPERATING &
NO SYNERGIES FINANCING SYNERGIES
------------ -------------------
<S> <C> <C>
1999% Accretion (Dilution)............................ (9.1%) 2.7%
2000% Accretion (Dilution)............................ (9.0%) 1.3%
2001% Accretion (Dilution)............................ (9.4%) 0.7%
2002% Accretion (Dilution)............................ (8.8%) 1.0%
2003% Accretion (Dilution)............................ (7.9%) 1.3%
</TABLE>

Pro Forma Contribution Analysis. Wasserstein Perella also analyzed the projected
pro forma contribution by Chancellor Media and Capstar to the combined entity.
Utilizing this contribution analysis, the contribution of Capstar to the
combined entity based on total market equity value and adjusted enterprise
value, and assuming Chancellor Media's share price of $55.375 and Capstar's
share price based on an implied ratio of 0.4955x, was 24.5% and 25.4%,
respectively. The contribution of Capstar to the combined entity based on total
market equity value and adjusted enterprise value, and assuming Chancellor
Media's share price of $55.375 and Capstar's share price of $26.750, was 24.0%
and 25.1%, respectively. In addition, Wasserstein Perella compared the relative
contributions of Chancellor Media and Capstar to the combined entity based on
1999 and 2000 estimated revenue and broadcast cash flow. Based on 1999 estimated
financial data, Capstar's relative contributions were 28.2% and 25.0%,
respectively, and based on 2000 estimated financial data, Capstar's relative
contributions were 28.2% and 24.7%, respectively.

Opinion of Financial Advisor to the Chancellor Media Board of Directors

Under a letter agreement, dated August 19, 1998, Chancellor Media and Chancellor
Media Corporation of Los Angeles retained Morgan Stanley to act as financial
advisor to the Board of Directors of Chancellor Media in connection with the
merger of Chancellor Media and Capstar. On August 25, 1998, Morgan Stanley gave
the Board of Directors of Chancellor Media an oral opinion that, as of August
25, 1998, and based upon and subject to the various considerations and matters
described in its opinion, the exchange ratio in the merger agreement was fair,
from a financial point of view, to Chancellor Media. The exchange ratio provides
that Chancellor Media stockholders would get one share of Chancellor Media, as
it exists after the merger, for each of their shares of Chancellor Media, as it
existed before the merger, and the Capstar stockholders would get between .48
shares and .5050 shares of Chancellor Media, as it exists after the merger, for
each of their shares of Capstar before the merger. Morgan Stanley later
confirmed its oral opinion by delivering a written opinion, dated August 26,
1998.

On April 29, 1999, the merger agreement was amended and restated to provide that
in the merger,

(a) a wholly owned subsidiary of Chancellor Media, created solely for the
purpose of accomplishing the merger, would merge with and into Capstar,
with Capstar surviving the merger as a wholly owned subsidiary of
Chancellor Media and

(b) the exchange ratio, fixed in accordance with the formula set forth in
the August 26, 1998 merger agreement, would be accomplished by each
share of an

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<PAGE> 140

outstanding class of Capstar common stock outstanding prior to the
merger converting into .4955 shares of a similar class of Chancellor
Media common stock.

In the merger, as amended, holders of Chancellor Media common stock would retain
their shares of Chancellor Media as they existed before the merger.

THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY, DATED AUGUST 26, 1998,
IS ATTACHED AS ANNEX IV TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED BY REFERENCE. THE WRITTEN OPINION DESCRIBES MORGAN STANLEY'S
ASSUMPTIONS AND CONSIDERATIONS IN GIVING ITS OPINION AND THE LIMITATIONS ON ITS
REVIEW. HOLDERS OF CHANCELLOR MEDIA COMMON STOCK ARE URGED TO, AND SHOULD, READ
MORGAN STANLEY'S WRITTEN OPINION CAREFULLY AND COMPLETELY. MORGAN STANLEY'S
WRITTEN OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF CHANCELLOR MEDIA AND
ONLY ADDRESSES THE FAIRNESS OF THE EXCHANGE RATIO TO CHANCELLOR MEDIA FROM A
FINANCIAL POINT OF VIEW. IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER, NOR
DOES IT CONSTITUTE A RECOMMENDATION TO ANY CHANCELLOR MEDIA COMMON STOCKHOLDER
ON HOW TO VOTE AT THE CHANCELLOR MEDIA SPECIAL MEETING. THE FOLLOWING IS ONLY A
SUMMARY OF MORGAN STANLEY'S WRITTEN OPINION AND SHOULD NOT BE VIEWED AS A
SUBSTITUTE FOR THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION.

In arriving at its opinion, Morgan Stanley:

- - reviewed certain publicly available financial statements and other information
of Capstar and Chancellor Media;

- - reviewed certain internal financial statements and other financial and
operating data concerning Capstar and Chancellor Media prepared by the
managements of Capstar and Chancellor Media, respectively;

- - analyzed certain financial projections prepared by the management of Capstar
and its affiliates;

- - discussed the past and current operations and financial condition and the
prospects of Capstar with senior executives of Capstar;

- - discussed with senior managements of Chancellor Media and Capstar their
estimates of the synergies and cost savings expected to be derived from the
merger;

- - discussed the past and current operations and financial condition and the
prospects of Chancellor Media with senior executives of Chancellor Media, and
analyzed the pro forma impact of the merger on the surviving corporation's
after-tax cash flow per share, consolidated capitalization and financial
ratios;

- - reviewed the reported prices and trading activity for Capstar class A common
stock and Chancellor Media common stock;

- - compared the financial performance of Capstar and Chancellor Media and the
prices and trading activity of the Capstar class A common stock and the
Chancellor Media common stock with that of certain other comparable
publicly-traded companies and their securities;

- - reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;

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<PAGE> 141

- - participated in discussions and negotiations among representatives of Capstar
and Chancellor Media and their financial and legal advisors;

- - reviewed the draft merger agreement dated August 25, 1998, the merger
agreement and certain related documents; and

- - performed such other analyses as it deemed appropriate.

In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to the
financial projections, including the estimates of the synergies and cost savings
expected to be derived from the merger, Morgan Stanley assumed that they had
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Capstar and
Chancellor Media. Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities of Capstar or Chancellor Media, nor was
Morgan Stanley furnished with any such appraisals. The Morgan Stanley opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to Morgan Stanley as of, the date such opinion
was rendered.

The following is a brief summary of the material financial analyses performed by
Morgan Stanley in preparing its opinion. Certain of these summaries of financial
analyses include information presented in tabular format. In order to fully
understand the financial analysis used by Morgan Stanley, the tables must be
read together with the text of each summary. The tables alone do not constitute
a complete description of the financial analyses.

Historical Trading Ratio Analysis. Morgan Stanley analyzed the historical ratio
of the closing share prices of Chancellor Media common stock and Capstar class A
common stock over several time periods ending on August 12, 1998. The periods
analyzed were: (a) the period beginning on May 27, 1998 (the date of the initial
public offering of Capstar class A common stock); (b) the last thirty trading
days and (c) the last ten trading days. Morgan Stanley reviewed the average,
high and low exchange ratio implied for each time period. The ratios are set
forth below:

<TABLE>
<CAPTION>
IMPLIED EXCHANGE RATIO
-----------------------
TRADING DAYS AVERAGE HIGH LOW
- ------------ -------- ----- ----
<S> <C> <C> <C>
From May 27, 1998 to August 12, 1998.................. .46x .52x .41x
Last 30 trading days ending on August 12, 1998........ .47x .52x .44x
Last 10 trading days ending on August 12, 1998........ .49x .52x .46x
</TABLE>

Morgan Stanley observed that the lowest and highest exchange ratios contemplated
by the executed merger agreement were within the ranges set forth above.

Comparison of Growth Rates. Morgan Stanley also compared the performance of the
Chancellor Media common stock and Capstar class A common stock to the
performance of an index made up of comparable publicly traded companies engaged
in the radio broadcasting industry. Specifically, the index included CBS
Corporation, Clear Channel Communications Inc., Cox Radio Inc., Emmis
Communications Corp., Heftel Broadcasting Corp., Jacor Communications Inc. and
Saga Communications Inc. The comparison covered the period from May 27, 1998 to
August 26, 1998. Morgan Stanley observed that by the end of that period, the
price of Chancellor Media common stock increased approximately 7%, the price of
Capstar class A common stock increased

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<PAGE> 142

approximately 13% and the stock prices of the companies comprising the index
decreased approximately 1%.

Morgan Stanley then analyzed the projected growth rates of broadcast cash flow
and free cash flow for Chancellor Media and Capstar for the 1998-2001 fiscal
year time period. Free cash flow is after-tax cash flow minus capital
expenditures. The projected growth rates for Chancellor Media and Capstar, as of
August 25, 1998, are set forth below:

<TABLE>
<CAPTION>
COMPOUNDED ANNUAL GROWTH
RATE OF BROADCAST CASH FLOW 1998-2001
-------------------------------------
<S> <C>
Chancellor Media........................... 14%
Capstar.................................... 15%
</TABLE>

<TABLE>
<CAPTION>
COMPOUNDED ANNUAL GROWTH
RATE OF FREE CASH FLOW 1998-2001
--------------------------------
<S> <C>
Chancellor Media............................... 25%
Capstar........................................ 45%
</TABLE>

Morgan Stanley also compared Capstar's projected growth rates for the same time
period with the projected growth rates of broadcast cash flow and free cash flow
of the companies comprising the comparable company index. Morgan Stanley noted
that Capstar's projected free cash flow growth rate for the period exceeds the
projected growth rate for all seven companies in the comparable company index.
It noted that Capstar's projected broadcast cash flow growth rate for the period
exceeds the projected growth rate for five of the seven index companies.

Relative Contribution Analysis. Morgan Stanley also analyzed the projected pro
forma contribution of, among other things, net revenues and broadcast cash flow
by Chancellor Media and Capstar to the combined company. This analysis covered
various time periods between the fiscal years 1999 and 2001. In its analysis,
Morgan Stanley did not take into account, however, LMA fees due to Capstar from
Chancellor Media or the amount of any estimated net benefits or cost savings
from synergies expected from the merger. Morgan Stanley then calculated the
exchange ratio implied by these pro forma contributions. The following sets
forth Morgan Stanley's analysis of the range of Capstar's percentage
contribution of net revenues and broadcast cash flows to the combined company as
of the date of the Morgan Stanley opinion. Morgan Stanley based these numbers on
management projections of Chancellor Media and Capstar and on estimates of
selected securities research analysts. Also set forth below is the exchange
ratio implied by these contributions as of August 25, 1998.

<TABLE>
<CAPTION>
% CAPSTAR IMPLIED
CONTRIBUTION EXCHANGE RATIO
------------ ---------------
LOW HIGH LOW HIGH
--- ---- ----- -----
<S> <C> <C> <C> <C>
Net Revenues
Capstar Management Estimates...................... 27% 28% .59x .64x
Research Analyst Estimates........................ 26% 27% .54x .57x
Broadcast Cash Flow
Capstar Management Estimates...................... 25% 26% .47x .54x
Research Analyst Estimates........................ 23% 24% .40x .45x
</TABLE>

Morgan Stanley's analysis suggested that the high and low exchange ratios
described in the executed merger agreement generally fell within or below the
range of the implied

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<PAGE> 143

exchange ratios set forth above except for those implied by the research analyst
estimates for broadcast cash flow.

Precedent Transaction Multiples Analysis. Morgan Stanley reviewed and analyzed
public information relating to the following transactions in the radio
broadcasting industry that were publicly announced in 1997 or 1998. Morgan
Stanley concluded these transactions were comparable to the merger for purposes
of this analysis:

<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
- - Capstar Partners - Triathlon
- - Chancellor Media - radio stations of SFX
- - Jacor Communications, Inc. - radio stations of Nationwide
Communications Inc.
- - CBS Corporation - American Radio Systems Corporation
- - Capstar Partners - SFX
- - Sinclair Broadcast Group Inc. - television stations and radio stations
of Heritage Media Corporation
- - Clear Channel Communication Inc. - Paxson Communications Corporation
- - Bonneville International Corporation - radio stations of Evergreen Media
Corporation
- - Capstar Partners - Patterson Broadcasting Inc.
- - Capstar Partners - Gulfstar Communications, Inc.
- - Evergreen and Chancellor Media - radio stations from Gannett Co., Inc.
- - Evergreen - Chancellor Media
- - Chancellor Media and Evergreen - radio stations of Viacom
International, Inc.
- - Citadel Broadcasting Co. - Tele-Media Broadcasting Co.
- - Sinclair - Max Media Properties L.L.C.
</TABLE>

Morgan Stanley reviewed the prices paid in these transactions. This review
included analyzing the aggregate value of the transactions expressed as
multiples of public estimates of (a) projected broadcast cash flow, (b)
last-twelve month revenues and/or (c) assets of the acquired company. The
following sets forth the average, low and high multiples for these transactions:

<TABLE>
<CAPTION>
1997 1998
----------------------- -----------------------
AVERAGE LOW HIGH AVERAGE LOW HIGH
------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Projected Broadcast Cash Flow........ 16.6x 12.5x 31.5x 12.4x 10.6x 14.2x
</TABLE>

<TABLE>
<CAPTION>
1997-1998
---------------------
AVERAGE LOW HIGH
------- ---- ----
<S> <C> <C> <C>
Last Twelve Months (LTM) Revenues........................... 6.9x 3.8x 8.6x
</TABLE>

Morgan Stanley also analyzed potential Capstar acquisition multiples. As stated
above, the executed merger agreement contemplated an exchange ratio of between
.48 (low) and .5050 (high) for Capstar stockholders depending upon Capstar's
actual fiscal 1998 broadcast cash flow. To arrive at the low and high numbers
listed below, Morgan Stanley compared the amount being paid by Chancellor in the
merger, based on the exchange ratio, to estimates of fiscal year 1998 revenues
and fiscal year 1999 broadcast cash flow

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<PAGE> 144

prepared by Capstar management and selected securities research analysts
considered by Morgan Stanley as of the date of August 25, 1998.

<TABLE>
<CAPTION>
CAPSTAR ACQUISITION MULTIPLES
-----------------------------------
CAPSTAR
RESEARCH ANALYST MANAGEMENT
ESTIMATES ESTIMATES
---------------- ----------------
LOW(1) HIGH(2) LOW(1) HIGH(2)
------ ------- ------ -------
<S> <C> <C> <C> <C>
1998 Projected Revenues.......................... 6.8x 7.2x 6.5x 6.8x
1999 Projected Broadcast Cash Flow............... 13.4x 15.9x 12.8x 14.8x
</TABLE>

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

(1) Including synergies

(2) Excluding synergies

Morgan Stanley observed that the estimated acquisition multiple range based on
revenues for Capstar, both before and after giving effect to the synergies
gained from the merger, was within the range of the LTM revenue multiples
calculated by Morgan Stanley for the comparable transactions. In addition,
Morgan Stanley observed that the estimated acquisition multiple range based on
broadcast cash flow for Capstar, after giving effect to the synergies gained
from the merger, was generally within the range of the broadcast cash flow
multiples calculated by Morgan Stanley for the comparable transactions, except
for the multiple range based on management's estimates.

No transaction used in the precedent transaction analysis is identical to the
merger. Morgan Stanley based its analysis of the comparable transactions in part
on judgments and assumptions of industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond Chancellor Media's and Capstar's control. These included

(a) the impact of competition on the business of Chancellor Media, Capstar
and the broadcasting industry generally,

(b) broadcast industry growth and

(c) no material adverse change in the financial condition and prospects of
Chancellor Media, Capstar or the broadcast industry or in the financial
markets in general.

Also, mathematical analysis (such as determining the average or median) is not
in itself a meaningful method of using comparable transactions data.

Comparable Publicly Traded Company Analysis. As part of its analysis, Morgan
Stanley compared selected financial information of Capstar with similar publicly
available information of the comparable companies. Specifically, Morgan Stanley
examined each comparable company's multiple of (a) estimated fiscal 1998 and
projected fiscal 1999 broadcast cash flow and (b) estimated fiscal 1998 and
projected fiscal 1999 after tax cash flow, to the aggregate values of these
companies. The aggregate values used by Morgan Stanley in this analysis were
based on the August 24, 1998 closing prices of those

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<PAGE> 145

companies' publicly traded capital stock. The following table sets forth the
results of Morgan Stanley's analysis:

<TABLE>
<CAPTION>
TRADING MULTIPLE
----------------------
MEDIAN LOW HIGH
------ ----- -----
<S> <C> <C> <C>
Broadcast Cash Flow
Estimated 1998.................................... 16.9x 10.8x 28.5x
Projected 1999.................................... 14.1x 10.3x 23.0x
After Tax Cash Flow
Estimated 1998.................................... 26.7x 16.5x 40.7x
Projected 1999.................................... 22.9x 13.4x 31.7x
</TABLE>

Morgan Stanley then compared these multiple ranges with similar multiple ranges
for Capstar. Morgan Stanley based Capstar's multiple ranges on estimates
prepared by its management and selected securities research analysts considered
by Morgan Stanley as of August 25, 1998. The Capstar multiples are set forth
below:

<TABLE>
<CAPTION>
CAPSTAR ACQUISITION MULTIPLES
----------------------------------------
RESEARCH ANALYSTS CAPSTAR MANAGEMENT
ESTIMATES ESTIMATES
----------------- -------------------
LOW(1) HIGH(2) LOW(1) HIGH(2)
------ ------- ------- --------
<S> <C> <C> <C> <C>
Broadcast Cash Flow
Estimated 1998...................... 15.9x 19.5x 15.0x 18.0x
Projected 1999...................... 13.4x 15.9x 12.8x 14.8x
After Tax Cash Flow
Projected 1999...................... 18.4x 36.8x 16.0x 27.3x
</TABLE>

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

(1) Including synergies

(2) Excluding synergies

Morgan Stanley observed that the estimated multiple ranges for Capstar were
within or below the multiple ranges calculated by Morgan Stanley for the
comparable companies.

No company used in the publicly traded comparable company analysis is identical
to Capstar. Accordingly, analyzing these results necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies. It also involves other factors that could
affect the public trading value of companies to which they are being compared.
In its analysis, Morgan Stanley made judgments and assumptions of industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond Capstar's control. These include

(a) the impact of competition on the business of Capstar and the
broadcasting industry generally,

(b) broadcast industry growth and

(c) no material adverse change in the financial condition and prospects of
Capstar or the broadcast industry or in the financial markets in
general.

As stated above, mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using comparable transactions
data.

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<PAGE> 146

Pro Forma Merger Analysis. Morgan Stanley analyzed the pro forma impact of the
merger on Chancellor Media's projected after-tax cash flow per share of
Chancellor Media (i.e. the surviving public company) common stock for the 1999
fiscal year. This analysis took into account the estimated synergies from the
merger. The table below sets forth this pro forma impact, based on estimates of
selected securities research analysts and Capstar management considered by
Morgan Stanley as of August 25, 1998:

<TABLE>
<CAPTION>
PROJECTED 1999 AFTER TAX CASH FLOW ACCRETION PER SHARE
---------------------------------------------------------------
RESEARCH ANALYST ESTIMATES(1) CAPSTAR MANAGEMENT ESTIMATES(2)
----------------------------- -------------------------------
<S> <C> <C> <C>
$0.04 $0.07
</TABLE>

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

(1) Use of Research Analyst Estimates implies applicability of the low exchange
ratio in the merger (.48).

(2) Use of Capstar Management Estimates implies applicability of the high
exchange ratio in the merger (.5050).

From that, Morgan Stanley observed that the merger would be accretive to after
tax cash flow per share of Chancellor Media common stock under either scenario.

The preparation of a fairness opinion is a complex process. It is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley performed a variety of financial
analyses. Many but not all are summarized above. The summary set forth above is
not intended to be a complete description of Morgan Stanley's analyses. Morgan
Stanley considered the results of all of its analyses as a whole. It did not
give any particular weight to any analysis. In addition, Morgan Stanley believes
one should consider all such factors and analyses in order to have a complete
view of the process underlying the analyses.

In performing its analysis, Morgan Stanley assumed numerous things with respect
to industry performance, general business, regulatory and economic conditions
and other matters, many of which are beyond the control of Chancellor Media and
Capstar. Morgan Stanley's analyses are not necessarily indicative of actual
values. Actual values may be significantly more or less favorable than suggested
by these analyses. These analyses were prepared solely as part of Morgan
Stanley's analysis of the fairness of the exchange ratio from a financial point
of view to Chancellor Media. They were provided to the Chancellor Media Board of
Directors in connection with the delivery of Morgan Stanley's opinion. The
analyses are not meant to be appraisals and do not necessarily reflect the
prices at which businesses or companies, including Capstar, might actually be
sold. As described above, Morgan Stanley's opinion was one of many factors
considered by the Chancellor Media Board of Directors in determining to approve
the executed merger agreement and the transactions considered in the merger
agreement. Consequently, Morgan Stanley analyses should not be viewed as
determinative of the opinions of the Chancellor Media Board of Directors with
respect to the value of Chancellor Media and Capstar, or whether the Chancellor
Media Board of Directors would have been willing to agree to a different
exchange ratio.

Morgan Stanley is an internationally-recognized investment banking and financial
advisory firm. Morgan Stanley, as part of its investment banking business,
continuously engages in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In

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<PAGE> 147

the ordinary course of its trading, brokerage and financing activities, Morgan
Stanley or its affiliates may at any time hold long or short positions, and may
trade or otherwise effect transactions, for its own account or the accounts of
customers, in debt or equity securities or senior loans of Capstar, Chancellor
Media or any other company that may be involved in the transactions contemplated
by the executed merger agreement. In the past, Morgan Stanley and its affiliates
have provided financial advisory or financing services to Capstar Chancellor
Media and Hicks Muse and its affiliates, and have received customary fees for
the rendering of these services.

Under the letter agreement, Chancellor Media paid Morgan Stanley a fee of $2.5
million. This fee became due and payable upon the execution of the merger
agreement and its public announcement. In addition, Chancellor Media has agreed
to reimburse Morgan Stanley for its expenses, including reasonable out-of-pocket
fees and expenses of its counsel, and to indemnify Morgan Stanley for
liabilities and expenses arising out of the engagement and the transactions in
connection therewith, including liabilities under federal securities laws. Any
payment to be made to Morgan Stanley by Chancellor Media is to be made by and is
the obligation of CMCLA.

RECOMMENDATION OF THE CAPSTAR BOARD OF DIRECTORS; CAPSTAR'S REASONS FOR THE
MERGER

THE BOARD OF DIRECTORS OF CAPSTAR BELIEVES THAT THE MERGER IS FAIR TO, ADVISABLE
AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF CAPSTAR AND, ACTING UPON THE
RECOMMENDATION OF THE CAPSTAR SPECIAL COMMITTEE, THE FACTORS CONSIDERED BY THE
CAPSTAR SPECIAL COMMITTEE IN ARRIVING AT SUCH RECOMMENDATION AND DISCUSSIONS
WITH ITS FINANCIAL AND LEGAL ADVISORS, HAS APPROVED, ADOPTED AND DECLARED
ADVISABLE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS OF CAPSTAR VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.

The Capstar Special Committee met on numerous occasions between July 10, 1998
and the date of this joint proxy statement/prospectus to consider developments
relating to a business combination between Capstar and Chancellor Media. In
approving the merger agreement and subsequently, the amended and restated merger
agreement, and the related transactions, the Capstar Special Committee
considered a number of factors including the following:

- - the Capstar Special Committee's general knowledge of the business, operations,
properties, assets, financial condition, business strategy and prospects of
Capstar;

- - the analyses of its financial and legal advisors;

- - the fact that a possible Chancellor/Capstar transaction was disclosed in
Capstar's prospectus for its initial public offering in May 1998 and in other
public statements;

- - the advice of the Capstar Special Committee's financial advisors that based on
certain assumptions the exchange ratio of 0.4955 is accretive to Capstar;

- - the fact that Capstar's public stockholders would continue to own an equity
interest in the combined company following the merger and the potential
operating benefits that the companies expect to be available to the combined
company following the merger;

- - the fact that Capstar's public stockholders would become stockholders of a
much larger and more diversified company;

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<PAGE> 148

- - the reduction in fees with respect to the proposed financial advisory
arrangements with Hicks Muse following the merger;

- - the impact of the termination of Chancellor Media's merger agreement with LIN;

- - the fact that the approval of a majority of Capstar's disinterested
stockholders was removed as a condition to closing in the amended and restated
merger agreement;

- - the fact that Capstar had previously entered into the original merger
agreement with Chancellor; and

- - the terms and conditions of the amended and restated merger agreement, some of
which were negotiated as improvements, including the following:

(i) provisions regarding Capstar's ability to pursue alternative
acquisition proposals;

(ii) provisions allowing Capstar's Board and the Capstar Special
Committee to withdraw or modify their recommendations under
certain circumstances;

(iii) provisions requiring Capstar to reimburse Chancellor Media's expenses
or pay a termination fee if the merger agreement is terminated under
certain circumstances;

(iv) various conditions to closing;

(v) the fact that Hicks Muse has voting control over Capstar and any
alternative acquisition proposal would not be possible without the
approval of Hicks Muse; and

(vi) the likely tax treatment of the merger.

The discussion of the information and factors considered by the Capstar Special
Committee is not intended to be exhaustive. During its deliberations, the
Capstar Special Committee discussed the foregoing and other factors with Bear
Stearns and its legal counsel. Given the number of factors considered, the
Capstar Special Committee did not assign relative weights to the factors
considered nor did the Capstar Special Committee make any specific determination
that a particular factor was favorable or unfavorable. Rather, the Capstar
Special Committee conducted detailed discussions of such factors and ultimately
reached a decision that the merger was in the best interests of Capstar and its
public stockholders before delivering its recommendation in favor of the merger
to the Board of Directors of Capstar.

OPINIONS OF FINANCIAL ADVISORS TO THE CAPSTAR SPECIAL COMMITTEE AND
CAPSTAR BOARD OF DIRECTORS

Opinion of Financial Advisor to Capstar Special Committee

On August 26, 1998, Bear Stearns delivered to the Capstar Special Committee Bear
Stearns' opinion that, as of the date thereof, and subject to the assumptions
and qualifications set forth therein, the exchange ratio range of
0.4800 - 0.5050 (as set forth in the original merger agreement) was fair, from a
financial point of view, to the public class A common stockholders of Capstar.
Subsequent to the issuance of such opinion, Chancellor Media terminated its
proposed transaction with LIN and completed the acquisition of the outdoor
advertising business of Whiteco Industries, Inc. and both parties established
the exchange ratio and agreed to certain other changes that are reflected in the

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<PAGE> 149

merger agreement. As a result, the Capstar Special Committee requested that Bear
Stearns update its analysis of the proposed merger, and on April 13, 1999, Bear
Stearns delivered to the Capstar Special Committee Bear Stearns' opinion that,
as of the date thereof, and subject to the assumptions and qualifications set
forth therein, the exchange ratio was fair, from a financial point of view, to
the public class A common stockholders of Capstar. Following the April 13, 1999
opinion, Bear Stearns was, again, requested to update its analysis of the
proposed merger due to Chancellor Media's announcement on June 1, 1999 that it
was selling its outdoor advertising business to Lamar (the "Lamar transaction").
Accordingly, Bear Stearns updated its analysis of the proposed merger, and on
June 3, 1999, Bear Stearns delivered to the Capstar Special Committee Bear
Stearns' opinion (the "Opinion") that, as of the date thereof, and subject to
the assumptions and qualifications set forth therein, the exchange ratio was
fair, from a financial point of view, to the public class A common stockholders
of Capstar.

The full text of Bear Stearns' Opinion is set forth as Annex V to this joint
proxy statement/prospectus and describes the assumptions made, matters
considered and limits on the review undertaken. Capstar stockholders are urged
to read the Opinion in its entirety. The summary of Bear Stearns' Opinion set
forth in this joint proxy statement/ prospectus is qualified in its entirety by
reference to the full text of such Opinion.

Bear Stearns' Opinion is intended for the benefit and use of the Capstar Special
Committee, and does not constitute a recommendation of the merger or a
recommendation to any stockholder of Capstar as to how any such stockholder
should vote on the merger or any issue relating thereto. In rendering its
Opinion, Bear Stearns is not expressing any opinion as to what the value of
Capstar or Chancellor Media common stock actually will be at the time of the
merger or at any time prior to or, in the case of Chancellor Media, subsequent
to the consummation of the merger. In addition, the Bear Stearns' Opinion does
not address Capstar's underlying business decision to effect the merger.
Finally, the Opinion does not imply any conclusion as to the business decision
to effect the Lamar transaction or the value of the Lamar common stock to be
received upon completion of the Lamar transaction. It should be understood that,
although subsequent developments may effect the conclusions reached in the
Opinion, Bear Stearns does not have any obligation to, nor does it intend to
update, revise or reaffirm its Opinion.

The form and amount of consideration to be received by Capstar pursuant to the
merger agreement were determined by arm's-length negotiations between the
Capstar Special Committee and Chancellor Media and were not based on any
recommendation by Bear Stearns, although Bear Stearns provided advice to the
Capstar Special Committee from time to time with respect thereto. Except as
otherwise noted herein, no limitations were imposed by Capstar or the Capstar
Special Committee or Hicks Muse on Bear Stearns with respect to the
investigations made or the procedures followed by Bear Stearns in rendering the
Opinion.

In the course of Bear Stearns' analyses for rendering the Opinion, Bear Stearns:

- - reviewed a draft of the amended merger agreement;

- - reviewed the draft of the Schedule 14A Combined Proxy Statement in
substantially final form ("Proxy Statement" upon its completion);

- - reviewed Capstar's initial public offering prospectus dated May 26, 1998, its
Annual Report on Form 10-K for the period ended December 31, 1998, and its
Quarterly Report on Form 10-Q for the period ended March 31, 1999;

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<PAGE> 150

- - reviewed Chancellor Media's prospectus dated January 27, 1998 (relating to the
issuance of 19,000,000 shares of Chancellor Media common stock), its Annual
Report on Form 10-K for the fiscal year ended December 31, 1998, and its
Quarterly Report on Form 10-Q for the period ended March 31, 1999;

- - reviewed Triathlon's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;

- - reviewed the Stock Purchase Agreement dated June 1, 1999, by and between Lamar
and Chancellor Media;

- - reviewed Lamar's Form 10-K dated December 31, 1998, and its Form 10-Q dated
March 31, 1999;

- - reviewed certain operating and financial information of Capstar and Chancellor
Media, including updated projections, provided to Bear Stearns by management
of Capstar and Chancellor Media relating to their respective businesses and
prospects;

- - met with certain members of senior management of Capstar and Chancellor Media
to discuss their respective operations, historical financial statements and
future prospects;

- - reviewed the historical prices and trading volumes of the common shares of
Capstar and Chancellor Media;

- - reviewed publicly available financial data and stock market performance data
of companies which Bear Stearns deemed generally comparable to Capstar and
Chancellor Media;

- - reviewed the terms of recent acquisitions of companies which Bear Stearns
deemed generally comparable to Capstar; and

- - conducted such other studies, analyses, inquiries and investigations as Bear
Stearns deemed appropriate.

In the course of its review Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to Bear Stearns by Capstar and Chancellor Media. With
respect to Capstar's and Chancellor Media's updated projected financial results
(reflecting the Lamar transaction and including updated projected cost and
interest savings and revenue and operating synergies resulting from the merger),
Bear Stearns assumed that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the management of
Capstar and Chancellor Media as to the expected future performance of Capstar
and Chancellor Media, respectively. Bear Stearns did not assume any
responsibility for the independent verification of the information or the
updated projections (reflecting the Lamar transaction and including updated
projected cost and interest savings and revenue and operating synergies
resulting from the merger), provided to it, and Bear Stearns further relied upon
the assurances of the management of Capstar and Chancellor Media that they are
unaware of any facts that would make the information or updated projections
(reflecting the Lamar transaction and including updated projected cost and
interest savings and revenue and operating synergies resulting from the merger),
provided to Bear Stearns incomplete or misleading. In arriving at its Opinion,
Bear Stearns did not perform or obtain any independent appraisal of the assets
and liabilities of Capstar, Chancellor Media or Lamar, nor was Bear Stearns
provided with any appraisals. Bear Stearns assumed, with permission from the
Capstar Special Committee, that the fair market value of the Lamar common stock
to be received by Chancellor Media in the Lamar transaction will be equal to the
market value as of May 28, 1999. Bear Stearns also

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assumed that the merger will constitute a tax-free "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. The
Bear Stearns Opinion is necessarily based on economic, market, and other
conditions, and the information made available to Bear Stearns, as of the date
thereof.

In connection with preparing and rendering its Opinion, Bear Stearns performed a
variety of valuation, financial and comparative analyses. The summary of such
analyses, as set forth below, does not purport to be a complete description of
the analyses underlying the Opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to summary description. Bear
Stearns believes that its analyses must be considered as a whole, and that
selecting portions of its analyses and the factors considered by it, without
considering all such factors and analyses, could create an incomplete view of
the processes underlying the Opinion. Moreover, the estimates contained in such
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or necessarily reflect
the prices at which businesses or securities actually may be sold. Accordingly,
such estimates are inherently subject to substantial uncertainties.

In connection with its engagement, Bear Stearns was not authorized to solicit,
and did not solicit, third party indications of interest with respect to the
acquisition of all or a part of Capstar, nor did Bear Stearns review with the
Capstar Special Committee or Capstar any potential transactions in lieu of the
merger.

The following is a summary of the material valuation, financial and comparative
analyses presented by Bear Stearns to the Capstar Special Committee on June 3,
1999 in connection with the Opinion, which was rendered to the Capstar Special
Committee on such date.

Relative Contribution Analysis. Bear Stearns reviewed with the Capstar Special
Committee the relative contribution of each of Capstar and Chancellor Media to
certain income statement categories of the pro forma combined company, including
calendar 1998 pro forma and updated 1999 estimated and 2000 estimated net
revenues, broadcast cash flow ("BCF") and EBITDA. The relative contribution of
these income statement categories was then compared to the relative enterprise
value (market equity value plus debt plus preferred stock plus minority interest
less cash) percentages implied by the exchange ratio of 0.4955. Bear Stearns
observed that Capstar's share of the combined enterprise value would be 28.8% at
the 0.4955 exchange ratio (based on the closing stock prices of Capstar and
Chancellor Media common stocks on June 2, 1999). Additionally, Bear Stearns also
reviewed the relative contribution of each of Capstar and Chancellor Media to
the combined company's EBITDA less debt service and preferred dividends
("Adjusted EBITDA") and after-tax cash flow ("ATCF"). Bear Stearns then compared
these contribution percentages to the relative equity ownership percentage
implied by the 0.4955 exchange ratio. Bear Stearns observed that Capstar's share
of the combined equity value would be 24.5% at the 0.4955 exchange ratio.

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<TABLE>
<CAPTION>
CHANCELLOR
CAPSTAR MEDIA
------- ----------
<S> <C> <C>
NET REVENUES
1998PF.................................................... 33.4% 66.6%
1999E..................................................... 33.1% 66.9%
2000E..................................................... 32.8% 67.2%
BCF
1998PF.................................................... 31.7% 68.3%
1999E..................................................... 31.6% 68.4%
2000E..................................................... 31.2% 68.8%
EBITDA
1998PF.................................................... 31.6% 68.4%
1999E..................................................... 31.7% 68.3%
2000E..................................................... 31.2% 68.8%
ADJUSTED EBITDA
1999E..................................................... 24.7% 75.3%
2000E..................................................... 25.6% 74.4%
ATCF
1999E..................................................... 20.9% 79.1%
2000E..................................................... 20.0% 80.0%
</TABLE>

Bear Stearns further noted that the contribution percentages of net revenues,
BCF, EBITDA and Adjusted EBITDA, did not accurately reflect the value of the
Lamar equity that Chancellor will hold as a result of the Lamar transaction. As
a result, Bear Stearns analyzed Chancellor's share of the combined enterprise
value implied by Chancellor's contribution of BCF and the value of the Lamar
common stock to be received by Chancellor upon completion of the Lamar
transaction. Bear Stearns then compared Chancellor's implied share of the
combined enterprise value to Chancellor's current enterprise value.

<TABLE>
<CAPTION>
1998PF 1999E 2000E
--------- --------- ---------
<S> <C> <C> <C>
Chancellor's BCF Contribution..................... 68.3% 68.4% 68.8%
Total Combined Company Enterprise Value........... $17,790.6 $17,790.6 $17,790.6
Implied Chancellor's Share of Combined Enterprise
Value........................................... 12,154.2 12,165.6 12,243.3
Plus: Value of 29.8% of Lamar Equity.............. 892.9 892.9 892.9
Share of Combined Company Enterprise Value that
Chancellor Should Receive....................... 13,047.1 13,058.4 13,136.2
On a Percentage Basis........................... 73.3% 73.4% 73.8%
Chancellor's Current Enterprise Value............. 12,666.7 $12,666.7 12,666.7
Shortfall......................................... $ (380.4) $ (391.8) $ (469.5)
</TABLE>

Bear Stearns also conducted this analysis based on Chancellor's relative
contribution of Adjusted EBITDA and the value of the Lamar common stock to be
received upon completion of the Lamar transaction, and made similar
observations.

Has/Gets Analysis. Bear Stearns performed a has/gets analysis on Capstar's
updated projected ATCF per share for the fiscal years 1999 and 2000. Bear
Stearns combined the updated projected operating results of Capstar (provided by
Capstar management) with the corresponding updated projected operating results
of Chancellor Media (provided by Chancellor Media management), with and without
the updated projected cost and interest savings and revenue and operating
synergies, to arrive at the combined company projected

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ATCF. Bear Stearns divided the combined company ATCF by the pro forma fully
diluted shares outstanding to arrive at a combined company ATCF per share. Bear
Stearns multiplied the combined company ATCF per share by the exchange ratio,
which represents the pro forma ATCF per share to Capstar stockholders. Bear
Stearns then compared the pro forma combined company ATCF per share to Capstar
stockholders to Capstar's projected stand-alone ATCF per share (provided by
Capstar management) to determine the pro forma impact on Capstar's ATCF per
share. This analysis suggested that the merger should result in accretion at the
0.4955 exchange ratio, with and without the updated projected cost and interest
savings and revenue and operating synergies, to Capstar's updated projected ATCF
per share in the fiscal years ending December 31, 1999 and 2000.

Analysis of Certain Publicly Traded Companies. Bear Stearns compared certain
operating and financial information for Capstar and Chancellor Media to certain
publicly available operating, financial, trading and valuation information of
six selected radio broadcasting companies (collectively, the "Comparable Radio
Broadcasting Companies"). These companies included:

- - Citadel Communications Corporation,

- - Clear Channel Communications, Inc.,

- - Cox Radio Inc.,

- - Cumulus Media Inc.,

- - Emmis Communications Corporation, and

- - Saga Communications, Inc.

Although Bear Stearns used these companies for comparison purposes, none of such
companies is identical to Capstar. Bear Stearns' analysis indicated that the
Comparable Radio Broadcasting Companies' enterprise value to 1998 pro forma and
1999 and 2000 estimated BCF yielded harmonic means (excluding any multiples that
were greater than twice or less than half the median) of 18.4x, 14.9x and 13.1x,
respectively. Bear Stearns compared the Comparable Radio Broadcasting Companies'
1998 pro forma and 1999 and 2000 estimated BCF multiples. Bear Stearns noted
that Capstar's BCF multiples were in line with the harmonic mean BCF multiples
of the Comparable Radio Broadcasting Companies. Bear Stearns' analysis also
indicated that the Comparable Radio Broadcasting Companies' price to 1999 and
2000 estimated ATCF per share yielded harmonic means (excluding any multiples
that were greater than twice or less than half the median) of 21.7x and 18.7x,
respectively. Bear Stearns compared the Comparable Radio Broadcasting Companies'
price to 1999 and 2000 estimated ATCF per share multiples to Capstar's 1999 and
2000 estimated ATCF per share multiples. Bear Stearns noted that Capstar's 1999
and 2000 estimated ATCF per share multiples were higher than the harmonic means
of the Comparable Radio Broadcasting Companies 1999 and 2000 estimated ATCF per
share multiples.

Analysis of Selected Precedent M&A Transactions. Bear Stearns reviewed and
analyzed the publicly available financial terms of 11 selected recent merger and
acquisition transactions in the Radio Broadcasting industry ("Precedent Radio
Broadcasting Transactions") and compared the financial terms of such
transactions to those of the merger for purposes of

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this analysis. These 11 transactions and the dates that the transactions were
announced were as follows:

- - Clear Channel's acquisition of Jacor Communications (October 1998);

- - Chancellor Media's acquisition of Primedia Broadcasting (July 1998);

- - Capstar's acquisition of Triathlon (July 1998);

- - Jacor Communications' acquisition of Nationwide Communications (October 1997);

- - CBS's acquisition of American Radio (September 1997);

- - Capstar's acquisition of SFX (August 1997);

- - Clear Channel's acquisition of Paxson Communications (June 1997);

- - Evergreen Media's acquisition of Chancellor Media (February 1997);

- - Chancellor Media's acquisition of Viacom Radio Station Group (February 1997);

- - American Radio's acquisition of EZ Communications (August 1996); and

- - Westinghouse's acquisition of Infinity Broadcasting (June 1996).

Bear Stearns reviewed the prices paid in the Precedent Radio Broadcasting
Transactions and analyzed various operating and financial information and
imputed valuation multiples and ratios. Bear Stearns noted that none of the
Precedent Radio Broadcasting Transactions was identical to the merger and that,
accordingly, any analysis of the Precedent Radio Broadcasting Transactions
necessarily involved complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that would
necessarily affect the acquisition value of Capstar versus the acquisition
values of the companies to which Capstar was being compared. Bear Stearns'
analysis of the Precedent Radio Broadcasting Transactions indicated that the
multiples of enterprise value to current fiscal year and next fiscal year
estimated BCF yielded harmonic means (excluding any multiples that were greater
than twice or less than half the median) of 15.0x and 12.6x, respectively. Bear
Stearns then compared these multiples to Capstar's implied 1999 and 2000
estimated BCF transaction multiples based on the exchange ratio, excluding the
updated projected cost and interest savings and revenue and operating synergies.
Bear Stearns noted that Capstar's 1999 and 2000 estimated BCF transaction
multiple implied by the exchange ratio were higher than the harmonic means of
the Precedent Radio Broadcasting Transactions' current fiscal year and next
fiscal year estimated BCF multiples.

Discounted Cash Flow Analysis. Bear Stearns performed a discounted cash flow
("DCF") analysis of Capstar and Chancellor Media based on fiscal 1999 through
fiscal 2003 updated projections provided by Capstar and Chancellor Media
management, respectively. Bear Stearns used discount rates of 9% to 13% for
Capstar and 8% to 12% for Chancellor Media, based on a radio broadcasting
industry weighted average cost of capital. Bear Stearns noted that it used a
lower discount rate range for Chancellor Media due to its lower weighted average
cost of capital. In performing its analysis, Bear Stearns used terminal BCF
multiples of 10.0x to 13.0x for both Capstar and Chancellor Media. Bear Stearns
added the present values of the discounted free cash flows to the present values
of the terminal values to arrive at a range of enterprise values of Capstar and
Chancellor Media. Bear Stearns then deducted long-term debt and added cash (and,
in the case of

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Chancellor Media, added the value of the ownership of the Lamar equity) to the
enterprise values of Capstar and Chancellor Media to arrive at a range of equity
values for Capstar and Chancellor Media. This analysis implied an equity value
per share range of $12.91 to $28.34 for Capstar and $34.15 to $56.72 for
Chancellor Media. Based on such equity value per share ranges, Bear Stearns
derived an implied exchange ratio range of 0.3781 to 0.4996.

Historical Stock Price Analysis. Bear Stearns reviewed the historical stock
prices of Capstar and Chancellor Media over the period from May 26, 1998 (the
date of Capstar's initial public offering) to June 2, 1999. Bear Stearns then
compared the exchange ratio to the average historical trading ratio since
Capstar's initial public offering of 0.4670, the average historical trading
ratio for the most recent 10 days of 0.4849, the average historical trading
ratio for the most recent 30 days of 0.4827, the average historical trading
ratio for the most recent 60 days of 0.4780, the average historical trading
ratio for the 10 days before the merger announcement of 0.4745, the average
historical trading ratio for the 30 days before the merger announcement of
0.4723 and the average historical trading ratio for the 60 days before the
merger announcement of 0.4602. Bear Stearns noted that the exchange ratio was
above that of all periods measured.

Other Analyses. Bear Stearns conducted such other analyses as it deemed
necessary, including reviewing historical and updated projected financial and
operating data for both Capstar and Chancellor Media and selected investment
research reports on each of Capstar, Chancellor Media and Lamar, including
reviewing available information regarding the individual and institutional
holdings of Capstar common stock and Chancellor Media common stock.

Pursuant to the terms of its engagement letter, Bear Stearns has earned a
$1,700,000 fee and Capstar has agreed to pay Bear Stearns an additional
$1,200,000 fee upon consummation of the merger. Capstar also has agreed to
reimburse Bear Stearns for its reasonable out-of-pocket expenses, and to
indemnify Bear Stearns and certain related persons against certain liabilities,
including liabilities under the federal securities laws, relating to or arising
out of its engagement.

Bear Stearns may actively trade the equity securities of Capstar and/or
Chancellor Media for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.

Bear Stearns is an internationally recognized investment banking firm and was
selected as financial advisor to the Capstar Special Committee in connection
with the merger and asked to provide advice to the Capstar Special Committee in
the merger negotiations and render its opinion in connection with the merger
based on Bear Stearns' qualifications, expertise and reputation in providing
advice to companies in merger transactions. As part of its investment banking
business, Bear Stearns is engaged regularly in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bidding, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.

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OPINIONS OF FINANCIAL ADVISORS TO THE CAPSTAR BOARD OF DIRECTORS

Opinion of Credit Suisse First Boston

Credit Suisse First Boston Corporation ("Credit Suisse First Boston") has acted
as co-financial advisor to Capstar in connection with the merger. Credit Suisse
First Boston was selected by Capstar based on Credit Suisse First Boston's
experience, expertise and familiarity with Capstar and its business. Credit
Suisse First Boston is an internationally recognized investment banking firm and
is regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.

In connection with Credit Suisse First Boston's engagement, the Board of
Directors of Capstar requested that Credit Suisse First Boston evaluate the
fairness, from a financial point of view, of the exchange ratio in the merger.
On August 26, 1998, Credit Suisse First Boston rendered to the Capstar Board a
written opinion dated August 26, 1998 to the effect that, as of that date and
based upon and subject to the matters stated in the opinion, the exchange ratio
was fair, from a financial point of view, to the holders of Capstar common
stock.

THE FULL TEXT OF CREDIT SUISSE FIRST BOSTON'S WRITTEN OPINION DATED AUGUST 26,
1998 TO THE CAPSTAR BOARD, WHICH DESCRIBES THE PROCEDURES FOLLOWED, ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED
AS ANNEX VI TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE. CREDIT SUISSE FIRST BOSTON'S OPINION IS ADDRESSED TO THE CAPSTAR
BOARD AND RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
EXCHANGE RATIO IN THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED
MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER AS TO ANY MATTER RELATING TO THE MERGER. THE SUMMARY OF CREDIT
SUISSE FIRST BOSTON'S OPINION INCLUDED IN THIS JOINT PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.

In arriving at its opinion, Credit Suisse First Boston reviewed the original
merger agreement and publicly available business and financial information
relating to Capstar and Chancellor Media. Credit Suisse First Boston also
reviewed other information relating to Capstar and Chancellor Media, including
financial forecasts, provided to or discussed with Credit Suisse First Boston by
Capstar and Chancellor Media, and met with the managements of Capstar and
Chancellor Media to discuss the businesses and prospects of Capstar and
Chancellor Media. Credit Suisse First Boston also considered financial and stock
market data of Capstar and Chancellor Media and compared those data with similar
data for other publicly held companies in businesses similar to Capstar and
Chancellor Media and considered, to the extent publicly available, the financial
terms of other business combinations and other transactions recently proposed or
effected. Credit Suisse First Boston also considered other information,
financial studies, analyses and investigations and financial, economic and
market criteria which Credit Suisse First Boston deemed relevant.

In connection with its review, Credit Suisse First Boston did not assume any
responsibility for independent verification of any of the information provided
to or otherwise reviewed by Credit Suisse First Boston and relied on the
information being complete and accurate in all material respects. With respect
to financial forecasts, Credit Suisse First Boston was

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advised, and assumed, that the forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Capstar and Chancellor Media as to the future financial
performance of Capstar and Chancellor Media and the strategic benefits and
potential synergies, including the amount, timing and achievability thereof,
anticipated to result from the merger. Credit Suisse First Boston was informed,
and assumed, that the per share economic value of the Capstar class A common
stock, class B common stock and class C common stock is equivalent.

Credit Suisse First Boston was not requested to, and did not, make an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of Capstar or Chancellor Media, nor was Credit Suisse First Boston
furnished with any evaluations or appraisals. Credit Suisse First Boston's
opinion was necessarily based upon information available to, and financial,
economic, market and other conditions as they existed and could be evaluated by,
Credit Suisse First Boston on the date of its opinion. Credit Suisse First
Boston did not express any opinion as to the actual value of the Capstar common
stock when issued pursuant to the merger or the prices at which the Capstar
common stock will trade or otherwise be transferable subsequent to the merger.
No other limitations were imposed on Credit Suisse First Boston with respect to
the investigations made or procedures followed by Credit Suisse First Boston in
rendering its opinion.

In preparing its opinion to the Capstar Board, Credit Suisse First Boston
performed a variety of financial and comparative analyses, including those
described below. The summary of Credit Suisse First Boston's analyses described
below is not a complete description of the analyses underlying Credit Suisse
First Boston's opinion. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
the particular circumstances and, therefore, a fairness opinion is not readily
susceptible to summary description. In arriving at its opinion, Credit Suisse
First Boston made qualitative judgments as to the significance and relevance of
each analysis and factor considered by it. Accordingly, Credit Suisse First
Boston believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or information presented in
tabular format, without considering all analyses and factors or the narrative
description of the analyses, could create a misleading or incomplete view of the
processes underlying its analyses and opinion.

In its analyses, Credit Suisse First Boston considered industry performance,
regulatory, general business, economic, market and financial conditions and
other matters existing as of the date of its opinion, many of which are beyond
the control of Capstar and Chancellor Media. No company, transaction or business
used in Credit Suisse First Boston's analyses as a comparison is identical to
Capstar or Chancellor Media or the proposed merger, nor is an evaluation of the
results of those analyses entirely mathematical; rather the analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed. The estimates contained in Credit Suisse First Boston's analyses
and the ranges of valuations resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by the analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually

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may be sold. Accordingly, Credit Suisse First Boston's analyses and estimates
are inherently subject to substantial uncertainty.

Credit Suisse First Boston's opinion and financial analyses were only one of
many factors considered by the Capstar Board in its evaluation of the proposed
merger and should not be viewed as determinative of the views of the Capstar
Board or management of Capstar with respect to the exchange ratio or the
proposed merger.

The following is a summary of the material analyses underlying Credit Suisse
First Boston's opinion to the Capstar Board in connection with the merger. THE
FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION PRESENTED IN TABULAR
FORMAT. IN ORDER TO FULLY UNDERSTAND CREDIT SUISSE FIRST BOSTON'S FINANCIAL
ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE
TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES.
CONSIDERING THE DATA SET FORTH IN THE TABLES BELOW WITHOUT CONSIDERING THE FULL
NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE METHODOLOGIES AND
ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING OR INCOMPLETE
VIEW OF CREDIT SUISSE FIRST BOSTON'S FINANCIAL ANALYSES.

Discounted Cash Flow Analysis

Capstar

Credit Suisse First Boston estimated the present value of the unlevered
after-tax free cash flows that Capstar could produce on a stand-alone basis for
the period 1999 through 2008 based on two scenarios:

(1) a management case based on estimates of the management of Capstar and

(2) an adjusted management case discussed with and reviewed by the management of
Capstar which assumed, among other things, slower revenue growth and lower
operating margins than the management case.

Ranges of estimated terminal values were calculated using terminal multiples of
estimated 2008 broadcast cash flow of 10.0x to 11.0x. The free cash flow streams
and estimated terminal values were then discounted to present value using
discount rates of 10.5% to 11.5%. This analysis indicated an equity reference
range for Capstar of approximately $19.39 to $25.79 per share.

Chancellor Media

Credit Suisse First Boston estimated the present value of the unlevered
after-tax free cash flows that the radio broadcasting, television broadcasting
and outdoor media businesses of Chancellor Media could produce on a stand-alone
basis for the period 1999 through 2008 based on two scenarios:

(1) a management case based on estimates of the management of Chancellor Media
for calendar years 1999 to 2003 and extrapolations of those estimates for
calendar years 2004 to 2008; and

(2) an adjusted management case discussed with and reviewed by the management of
Capstar which assumed, among other things, slower revenue growth and lower
operating margins than the management case.

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Ranges of estimated terminal values were calculated using terminal multiples of
estimated 2008 broadcast cash flow of 10.0x to 11.0x for Chancellor Media's
radio broadcasting businesses and 9.0x to 10.0x for Chancellor Media's
television broadcasting and outdoor media businesses. The free cash flow streams
and estimated terminal values were then discounted to present value using
discount rates of 10.5% to 11.5%. This analysis indicated an equity reference
range of Chancellor Media of approximately $42.87 to $50.68 per share.

Selected Company Analysis

Capstar

Credit Suisse First Boston compared financial, operating and stock market data
of Capstar to corresponding data of the following selected publicly traded
companies in the radio broadcasting industry:

- - Clear Channel Communications, Inc.

- - CBS Corporation

- - Cox Radio, Inc.

- - Emmis Communications Corporation

- - Heftel Broadcasting Corporation

- - Jacor Communications, Inc.

- - Saga Communications, Inc.

Credit Suisse First Boston calculated enterprise values, which are calculated as
equity market value plus debt less cash, for the selected radio broadcasting
companies as multiples of estimated calendar year 1998 and 1999 estimated
broadcast cash flow and earnings before interest depreciation and amortization
and taxes, commonly referred to as EBITDA. Estimated financial data for the
selected companies were based on estimates of selected investment banking firms
and estimated financial data for Capstar were based on estimates of the
management of Capstar. Applying a range of selected multiples of estimated
calendar year 1998 and 1999 broadcast cash flow and EBITDA of these selected
companies to corresponding financial data of Capstar indicated an equity
reference range for Capstar of approximately $18.48 to $23.05 per share.

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Chancellor Media

Credit Suisse First Boston compared financial, operating and stock market data
of Chancellor Media to corresponding data of the following selected publicly
traded companies in the radio broadcasting, television broadcasting and outdoor
media industries:

Radio Broadcasting Companies

- - Clear Channel Communications, Inc.

- - CBS Corporation

- - Cox Radio, Inc.

- - Emmis Communications Corporation

- - Heftel Broadcasting Corporation

- - Jacor Communications, Inc.

- - Saga Communications, Inc.

- - Hearst-Argyle Television, Inc.

Television Broadcasting Companies

- - Clear Channel Communications, Inc.

- - Granite Broadcasting Organization

- - Gray Communications Systems, Inc.

- - Sinclair Broadcast Group, Inc.

- - Young Broadcasting, Inc.
Outdoor Advertising Companies

- - Lamar

- - Outdoor Systems, Inc.

- - The Ackerley Group, Inc.

Credit Suisse First Boston calculated enterprise values for the selected
companies as multiples of estimated calendar year 1998 and 1999 broadcast cash
flow and EBITDA. Estimated financial data for the selected companies were based
on estimates of selected investment banking firms and estimated financial data
for Chancellor Media were based on estimates of the management of Chancellor
Media. Applying a range of selected multiples of estimated calendar year 1998
and 1999 broadcast cash flow and EBITDA of these selected companies to
corresponding financial data of Chancellor Media indicated an equity reference
range for Chancellor Media of approximately $37.49 to $43.41 per share.

Selected Transactions Analysis

Capstar

Credit Suisse First Boston analyzed, among other things, the implied purchase
price and transaction multiples paid or proposed to be paid in the following
selected merger and acquisition transactions in the radio broadcasting industry:

<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
Capstar Triathlon
Jacor Communications, Inc. Nationwide Radio Assets
CBS Corporation American Radio Systems Corporation
Capstar SFX Broadcasting, Inc.
Clear Channel Communications, Inc. Paxson Communications Corp.
Capstar Patterson Broadcasting, Inc.
Evergreen Media Corporation Chancellor Media
Evergreen Media Corporation Viacom, Inc.
</TABLE>

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<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
Capstar Benchmark Communications
SFX Secret Communications Limited Partnership
Jacor Communications, Inc. Regent Communications, Inc.
Capstar Commodore Media, Inc.
Chancellor Media Colfax Communications
American Radio Systems Corporation EZ Communications, Inc.
Capstar Osborn Entertainment Enterprises
Corporation
Cox Radio, Inc. New City Communications
Clear Channel Communications, Inc. Heftel Broadcasting Corporation
Heftel Broadcasting Corporation and Clear Tichenor Media System, Inc.
Channel Communications, Inc.
Westinghouse Electronic Corporation Infinity Media Corporation
Chancellor Media OmniAmerica Group
Clear Channel Communications, Inc. Radio Equity Partners
SFX Multi-Market Radio, Inc.
Capstar Henry Broadcasting
Infinity Media Corporation Granum Holdings, L.P.
Jacor Communications, Inc. Citicasters Inc.
SFX Prism Radio Partners
SFX Noble Broadcast Group, Inc.
Jacor Communications, Inc. Noble Broadcast Group, Inc.
</TABLE>

Credit Suisse First Boston calculated enterprise values for the selected
transactions as multiples of current year broadcast cash flow and EBITDA.
Estimated financial data for the selected transactions were based on estimates
of selected investment banking firms and estimated financial data for Capstar
were based on estimates of the management of Capstar. Applying a range of
selected multiples of current year broadcast cash flow and EBITDA of these
selected transactions to corresponding financial data of Capstar indicated an
equity reference range for Capstar of approximately $19.39 to $24.88 per share.

Chancellor Media

<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
Selected Radio Transactions:
- ------------------------------------------------------------------------------------
Capstar Triathlon
Jacor Communications, Inc. Nationwide Radio Assets
CBS Corporation American Radio Systems Corporation
Capstar SFX
</TABLE>

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<PAGE> 162

<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
Clear Channel Communications, Inc. Paxson Communications Corp. (Florida
Radio)
Capstar Patterson Broadcasting, Inc.
Evergreen Media Corporation Chancellor Media
Evergreen Media Corporation Viacom, Inc.
Capstar Benchmark Communications
SFX Secret Communications Limited Partnership
Jacor Communications, Inc. Regent Communications, Inc.
Capstar Commodore Media, Inc.
Chancellor Media Colfax Communications
American Radio System EZ Communications, Inc.
Capstar Osborn Entertainment Enterprises
Corporation
Cox Radio New City Communications
Clear Channel Communications, Inc. Heftel Broadcasting Corporation
Heftel Broadcasting Corporation and Clear Tichenor Media System, Inc.
Channel Communications, Inc.
Westinghouse Electronic Corporation Infinity Media Corporation
Chancellor Media OmniAmerica Group
Clear Channel Communications, Inc. Radio Equity Partners
SFX Multi-Market Radio, Inc.
Capstar Henry Broadcasting
Infinity Media Corporation Granum Holdings, L.P.
Jacor Communications, Inc. Citicasters Inc.
SFX Prism Radio Partners
Jacor Communications, Inc. Noble Broadcast Group, Inc.
Selected Television Transactions:
- ------------------------------------------------------------------------------------
Chancellor Media LIN
Hearst-Argyle Television Incorporated Pulitzer Publishing Company
Sinclair Broadcast Group Incorporated Max Media Properties, LLC
Sinclair Broadcast Group Incorporated Sullivan Broadcast Holdings, Inc.
Hicks Muse LIN
Sinclair Broadcast Group Incorporated Heritage Media Corp.
The Hearst Corporation Argyle Television, Inc.
Hicks Muse Jupiter Television, Inc.
Meredith Corp. First Media Television L.P.
A.H. Belo Corporation The Providence Journal Company
Raycom Media, Inc. AFLAC Incorporated
</TABLE>

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<PAGE> 163

<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
Tribune Company Renaissance Communications Corp.
Fox Television, Inc. New World Television, Inc.
Media General Inc. Park Acquisitions, Inc.
Selected Outdoor Media Transactions:
- ------------------------------------------------------------------------------------
Chancellor Media Whiteco Industries, Inc.
The Lamar Corporation Outdoor Systems, Inc.
Chancellor Media Martin Media, L.P.
Clear Channel Communications, Inc. More Group PLC
Clear Channel Communications, Inc. Universal Outdoor Holdings, Inc.
Clear Channel Communications, Inc. Eller Media Company
</TABLE>

Credit Suisse First Boston calculated enterprise values for the selected
transactions as multiples of current year broadcast cash flow and EBITDA.
Estimated financial data for the selected transactions were based on estimates
of selected investment banking firms and estimated financial data of Capstar
were based on estimates of the management of Capstar. Applying a range of
selected multiples of current year broadcast cash flow and EBITDA of these
selected transactions to corresponding financial data of Chancellor Media
indicated an equity reference range for Chancellor Media of approximately $42.33
to $52.03 per share.

Aggregate Reference Ranges

On the basis of the valuation methodologies employed in the Discounted Cash Flow
Analysis, the Selected Companies Analysis and the Selected Transactions Analysis
described above, Credit Suisse First Boston derived an aggregate equity
reference range for Capstar of approximately $18.94 to $24.88 per share and an
aggregate equity reference range for Chancellor Media of approximately $42.87 to
$50.68 per share. These aggregate reference ranges implied an exchange ratio of
0.44x to 0.49x, as compared to the minimum exchange ratio in the merger of
0.48x.

Exchange Ratio Analyses

Credit Suisse First Boston also conducted the following relative analyses and
compared the exchange ratio in the merger with the exchange ratios implied by
these analyses:

Historical Stock Trading Exchange Ratio Analysis

Credit Suisse First Boston compared the average daily closing share
prices for Chancellor Media common stock and Capstar common stock on August
21, 1998 and during the one-week, one-month, two-month and the three-month
periods preceding August 21, 1998 and the period since the initial public
offering of Capstar on May 21, 1998. This analysis indicated implied an
exchange ratio range of 0.46x to 0.48x, as compared to the minimum exchange
ratio in the merger of 0.48x.

Relative Contribution Exchange Ratio Analysis

Credit Suisse First Boston compared the relative contributions of
Chancellor Media and Capstar to the estimated calendar year 1998, 1999 and
2000 net revenues,

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<PAGE> 164

broadcast cash flow, EBITDA and after-tax cash flows of the combined
company. This analysis indicated an implied exchange ratio range of 0.28x
to 0.58x, as compared to the minimum exchange ratio in the merger of 0.48x.

Pro Forma Merger Analysis

Credit Suisse First Boston analyzed the potential pro forma effect of the merger
on the estimated after-tax cash flow per share of Chancellor Media common stock
for fiscal years 1998 and 1999 based on estimates of the management of
Chancellor Media, excluding possible synergies that may result from the merger
other than interest expense savings from the refinancing of Capstar debt. Based
on the maximum exchange ratio in the merger of 0.505x, this analysis indicated
that the proposed merger would be dilutive to Chancellor Media's after-tax cash
flow per share in 1998 and 1999. The actual results achieved by the combined
company may vary from projected results and the variations may be material.

Miscellaneous

Pursuant to the terms of Credit Suisse First Boston's engagement, Capstar has
agreed to pay Credit Suisse First Boston upon completion of the merger an
aggregate financial advisory fee of $2.4 million. Capstar has also agreed to
reimburse Credit Suisse First Boston for all reasonable out-of-pocket expenses
incurred by Credit Suisse First Boston in performing its services, including the
fees and expenses of legal counsel and any other advisor retained by Credit
Suisse First Boston, and to indemnify Credit Suisse First Boston and related
parties against liabilities, including liabilities under the federal securities
laws, arising out of Credit Suisse First Boston's engagement. Credit Suisse
First Boston and its affiliates have in the past provided financial services to
Capstar unrelated to the proposed merger, for which services Credit Suisse First
Boston and its affiliates have received compensation.

In the ordinary course of business, Credit Suisse First Boston and its
affiliates may actively trade the debt and equity securities of both Capstar and
Chancellor Media for their own accounts and for the accounts of customers and,
accordingly, may at any time hold long or short positions in securities.

Opinion of BT Wolfensohn

BT Wolfensohn has acted as co-financial advisor to Capstar in connection with
the merger. At the August 26, 1998 meeting of the Capstar Board of Directors, BT
Wolfensohn delivered its oral opinion, subsequently confirmed in writing as of
August 26, 1998, to the Capstar Board of Directors to the effect that, as of the
date of such opinion, based upon and subject to the assumptions made, matters
considered and limits of the review undertaken by BT Wolfensohn, the exchange
ratio was fair, from a financial point of view, to Capstar stockholders.

THE FULL TEXT OF THE BT WOLFENSOHN WRITTEN OPINION, DATED AUGUST 26, 1998, WHICH
SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS ON THE REVIEW UNDERTAKEN BY BT WOLFENSOHN IN CONNECTION WITH THE OPINION,
IS ATTACHED AS ANNEX VII TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. CAPSTAR STOCKHOLDERS ARE URGED TO READ THE
OPINION IN ITS ENTIRETY. THE SUMMARY OF THE OPINION SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.

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<PAGE> 165

In connection with BT Wolfensohn's role as financial advisor to Capstar, and in
arriving at its opinion, BT Wolfensohn has, among other things:

- - reviewed certain publicly available financial and other information concerning
Capstar and Chancellor Media including, without limitation, analysts'
forecasts and certain internal analyses and other information furnished to it
by Capstar and Chancellor Media;

- - discussed with the members of the senior management of Capstar and Chancellor
Media the businesses and prospects of their respective companies and the joint
prospects of a combined company;

- - reviewed the reported prices and trading activity for the Chancellor Media
common stock and Capstar class A common stock;

- - compared certain financial and stock market information for Capstar and
Chancellor Media with similar information for certain other companies whose
securities are publicly traded;

- - reviewed the financial terms of certain recent business combinations which it
deemed comparable in whole or in part;

- - reviewed a summary of the financial terms of the original merger agreement;
and

- - performed such other studies and analyses and considered such other factors as
it deemed appropriate.

In preparing its opinion, BT Wolfensohn did not assume responsibility for the
independent verification of, and did not independently verify, any information,
whether publicly available or furnished to it, concerning Capstar or Chancellor
Media, including, without limitation, any financial information, forecasts or
projections, considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, BT Wolfensohn assumed and relied upon
the accuracy and completeness of all such information. BT Wolfensohn did not
conduct a physical inspection of any of the properties or assets, and did not
prepare or obtain any independent evaluation or appraisal of any of the assets
or liabilities of Capstar or Chancellor Media. With respect to the financial
forecasts and projections made available to BT Wolfensohn and used in its
analyses, including analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergy's expected by Capstar and
Chancellor Media to be achieved as a result of the merger, BT Wolfensohn has
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Capstar or
Chancellor Media, as the case may be, as to the matters covered thereby. In
rendering its opinion, BT Wolfensohn expressed no view as to the reasonableness
of such forecasts and projections, including analyses and forecasts of certain
cost savings, operating efficiencies, revenue effects and financial synergies
expected by Capstar and Chancellor Media to be achieved as a result of the
merger, or the assumptions on which they are based. The BT Wolfensohn opinion
was necessarily based upon economic, market and other conditions as in effect
on, and the information made available to BT Wolfensohn as of, the date of such
opinion and BT Wolfensohn undertook no obligation to update its opinion to
reflect any developments occurring after the date thereof. In connection with BT
Wolfensohn's engagement, BT Wolfensohn has not been authorized by Capstar or its
Board of Directors to solicit, nor has solicited, any third party indications of
interest for the acquisition of Capstar, nor has it reviewed with Capstar and
its Board of Directors any potential transactions in lieu of the merger.

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<PAGE> 166

For purposes of rendering its opinion, BT Wolfensohn has assumed that, in all
respects material to its analysis, the representations and warranties of Capstar
and Chancellor Media contained in the merger agreement are true and correct,
that Capstar and Chancellor Media will each perform all of the covenants and
agreements to be performed by it under the merger agreement and all conditions
to the obligation of each of Capstar and Chancellor Media to consummate the
merger will be satisfied without any waiver thereof. BT Wolfensohn has also
assumed that all material governmental, regulatory or other approvals and
consents required in connection with the consummation of the transactions
contemplated by the merger agreement will be obtained and that in connection
with obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either Capstar or Chancellor Media is a party or
subject or by which it is bound, no limitations, restrictions or conditions will
be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Capstar or Chancellor Media or materially reduce the
contemplated benefits of the merger to Capstar. In addition, BT Wolfensohn has
been advised by Capstar, and accordingly has assumed for purposes of its
opinion, that the merger will qualify as a tax-free reorganization for federal
income tax purposes, and that the merger will be accounted for as a purchase.

Set forth below is a brief summary of certain financial analyses performed by BT
Wolfensohn in connection with its opinion and reviewed with the Capstar Board of
Directors at its meeting on August 26, 1998.

Historical Stock Performance. BT Wolfensohn reviewed and analyzed recent and
historical market prices and trading volume for Capstar class A common stock and
Chancellor Media common stock and compared such market prices to certain stock
market and industry indices.

Analysis of Selected Publicly Traded Companies. BT Wolfensohn compared certain
financial information and commonly used valuation measurements relating to
Capstar and Chancellor Media with the following group of companies involved in
the radio, television and outdoor broadcasting industries:

<TABLE>
<CAPTION>
OUTDOOR
RADIO COMPANIES TELEVISION COMPANIES BROADCASTING COMPANIES
--------------- -------------------- ----------------------
<S> <C> <C>
CBS Corporation Granite Broadcasting Corp. Lamar
Clear Channel Communications, Sinclair Broadcast Group Inc. Outdoor Systems, Inc.
Inc. Young Broadcasting Inc. The Ackerley Group, Inc.
Jacor Communications, Inc. Gray Communications Systems, Inc.
Saga Communications, Inc. Hearst-Argyle Television, Inc.
Emmis Communications Corp.
Cox Radio, Inc.
Chancellor Media
</TABLE>

With respect to Capstar, BT Wolfensohn's analysis of selected publicly traded
companies was based on its review of the selected radio companies. With respect
to Chancellor Media, BT Wolfensohn's analysis of selected publicly traded
companies was based on its review of the selected radio, television and outdoor
companies. Financial information and valuation measurements reviewed by BT
Wolfensohn included, among other things:

- - common equity market valuation as of August 24, 1998;

- - operating performance;

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<PAGE> 167

- - ratios of common equity market value as adjusted for debt and cash
("Enterprise Value") to estimated 1998 and 1999 broadcast cash flow and
earnings before interest expense, income taxes and depreciation and
amortization;

- - ratios of common equity market prices per share ("Equity Value") to estimated
1998 and 1999 after-tax cash flow; and

- - capitalization ratio of net debt to trailing (March 31, 1997 to March 31,
1998) broadcast cash flow.

To estimate the trading multiples for the selected radio, television and outdoor
companies, BT Wolfensohn used BT Alex. Brown's financial estimates dated as of
August 6, 1998. The following tables set forth the trading multiples calculated
by BT Wolfensohn:

<TABLE>
<CAPTION>
ENTERPRISE VALUE TO
ESTIMATED BROADCAST CASH FLOW
-----------------------------
1998 1999
------------- -------------
<S> <C> <C>
Capstar.............................................. 15.9x 13.5x
Chancellor Media..................................... 16.6x 14.1x
Selected Radio Companies
Range.............................................. 11.2x - 25.0x 10.2x - 21.1x
Median............................................. 16.2x 13.8x
Selected Television Companies
Range.............................................. 9.9x - 13.0x 9.2x - 11.4x
Median............................................. 12.0x 11.1x
Selected Outdoor Companies
Range.............................................. 12.0x - 17.4x 10.7x - 15.5x
Median............................................. 14.9x 13.5x
</TABLE>

<TABLE>
<CAPTION>
ENTERPRISE VALUE TO ESTIMATED
EARNINGS BEFORE INTEREST
EXPENSE, INCOME TAXES AND
DEPRECIATION AND AMORTIZATION
-----------------------------
1998 1999
------------- -------------
<S> <C> <C>
Capstar.............................................. 17.0x 14.4x
Chancellor Media..................................... 17.7x 14.9x
Selected Radio Companies
Range.............................................. 13.4x - 26.2x 11.2x - 22.0x
Median............................................. 17.4x 14.6x
Selected Television Companies
Range.............................................. 10.4x - 13.6x 9.5x - 12.0x
Median............................................. 13.0x 11.7x
Selected Outdoor Companies
Range.............................................. 14.0x - 19.5x 12.5x - 17.3x
Median............................................. 18.7x 16.8x
</TABLE>

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<PAGE> 168

<TABLE>
<CAPTION>
EQUITY VALUE TO
ESTIMATED AFTER-TAX
CASH FLOW
----------------------------- NET DEBT TO TRAILING
1998 1999 BROADCAST CASH FLOW
------------- ------------- --------------------
<S> <C> <C> <C>
Capstar............................ 44.4x 22.9x 7.8x
Chancellor Media................... 21.5x 17.1x 5.8x
Selected Radio Companies
Range............................ 17.4x - 33.3x 14.1x - 26.6x 2.7x - 6.3x
Median........................... 22.5x 17.6x 4.4x
Selected Television Companies
Range............................ 7.5x - 17.5x 11.3x - 15.7x 2.7x - 8.8x
Median........................... 14.9x 12.8x 5.8x
Selected Outdoor Companies
Range............................ 12.5x - 30.1x 11.1x - 25.2x 3.2x - 4.4x
Median........................... 25.0x 20.9x 3.9x
</TABLE>

None of the companies utilized as a comparison is identical to Capstar or
Chancellor Media. Accordingly, BT Wolfensohn believes the analysis of publicly
traded comparable companies is not simply mathematical. Rather, it involves
complex considerations and qualitative judgments, reflected in BT Wolfensohn's
opinion, concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies.

Analysis of Selected Precedent Transactions. BT Wolfensohn reviewed the
financial terms, based on BT Alex. Brown research estimates, of several
proposed, pending or completed mergers and acquisition transactions since
January 1997 involving companies in the radio industry, in the television
industry and the outdoor broadcasting industry. The selected transactions
reviewed were:

<TABLE>
<CAPTION>
ACQUIROR TARGET DATE ANNOUNCED
- -------- ------ --------------
<S> <C> <C>
Radio Transactions
Capstar......................... Triathlon....................... July 1998
Jacor Communications, Inc. ..... Nationwide Radio Assets......... October 1997
CBS Corp. ...................... American Radio Systems.......... September 1997
Capstar......................... SFX............................. August 1997
Television Transactions
Hearst-Argyle Television,
Inc. ......................... KCRA-TV and KQCA-TV (Kelly
Broadcasting)................. August 1998
Chancellor Media................ LIN............................. July 1998
Hearst-Argyle Television,
Inc. ......................... Pulitzer........................ May 1998
Sinclair Broadcast Group
Inc. ......................... Sullivan Broadcast Holdings..... February 1998
Gray Communications Systems..... Busse Broadcasting
Corporation..................... January 1998
Freedom Communications Inc. .... WWMT and WLAJ................... January 1998
Sinclair Broadcast Group,
Inc. ......................... Max Media Property L.L.C. ...... December 1997
Granite Broadcasting Corp. ..... KOFY-TV......................... October 1997
Hicks Muse...................... LIN............................. August 1997
Hicks Muse...................... WOOD-TV......................... August 1997
Sinclair Broadcast Group,
Inc. ......................... Heritage Media Corp. ........... July 1997
EW Scripps Co. ................. Harte-Hanks Communications...... May 1997
Hearst Corp. ................... Argyle Television............... March 1997
Meredith Corp. ................. First Media Television.......... January 1997
Outdoor Transactions
Chancellor Media................ Martin Media.................... June 1998
</TABLE>

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<PAGE> 169

<TABLE>
<CAPTION>
ACQUIROR TARGET DATE ANNOUNCED
- -------- ------ --------------
<S> <C> <C>
Outdoor Systems, Inc. .......... Vendor SA & outdoor division of
Multimedia.................... June 1998
Clear Channel Communications,
Inc. ......................... More Group...................... May 1998
Outdoor Systems, Inc. .......... Gator Outdoor................... May 1998
Outdoor Systems, Inc. .......... Philadelphia Outdoor............ April 1998
Clear Channel Communications,
Inc. ......................... Universal Outdoor............... October 1997
Lamar........................... Outdoor Systems (3M
divestitures)................... August 1997
Outdoor Systems, Inc. .......... 3M Outdoor...................... May 1997
Clear Channel Communications,
Inc. ......................... Eller Media..................... February 1997
Lamar........................... Penn Advertising................ February 1997
</TABLE>

With respect to Capstar, BT Wolfensohn's analysis of selected precedent
transactions was based on its review of transactions involving the selected
radio companies. With respect to Chancellor Media, BT Wolfensohn's analysis of
selected precedent transactions was based on its review of transactions
involving the selected radio, television and outdoor companies.

The following tables set forth the trading multiples calculated by BT
Wolfensohn:

<TABLE>
<CAPTION>
ENTERPRISE VALUE TO
BROADCAST CASH FLOW
-----------------------------
TRAILING FORWARD
------------- -------------
<S> <C> <C>
Selected Radio Transactions
Range................................................ 14.2x - 19.4x 10.3x - 15.6x
Median............................................... 16.8x 13.9x
</TABLE>

<TABLE>
<CAPTION>
ENTERPRISE VALUE TO
----------------------------------------
TRAILING EARNINGS BEFORE
INTEREST EXPENSE, INCOME FORWARD
TAXES AND DEPRECIATION BROADCAST
AND AMORTIZATION CASH FLOW
------------------------ -------------
<S> <C> <C>
Selected Television Transactions
Range.......................................... 10.9x - 20.8x 9.4x - 15.5x
Median......................................... 15.0x 12.9x
</TABLE>

<TABLE>
<CAPTION>
ENTERPRISE VALUE TO
EARNINGS BEFORE INTEREST
EXPENSE, INCOME TAXES AND
DEPRECIATION AND AMORTIZATION
-----------------------------
TRAILING FORWARD
------------- -------------
<S> <C> <C>
Selected Outdoor Transactions
Range................................................ 8.3x - 14.2x 7.6x - 12.2x
Median............................................... 12.4x 10.5x
</TABLE>

Because the reasons for, and circumstances surrounding, each of the precedent
selected transactions analyzed were so diverse, and due to the inherent
differences between the operations and financial conditions of Chancellor Media
and Capstar and the companies involved in the selected transactions, BT
Wolfensohn believes that a comparable transaction analysis is not simply
mathematical. Rather, it involves complex considerations and qualitative
judgments, reflected in BT Wolfensohn's opinion, concerning differences between
the characteristics of these transactions and the merger that could affect the
value of the subject companies and businesses and Chancellor Media and Capstar.

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<PAGE> 170

Historical Exchange Ratio Analysis. BT Wolfensohn reviewed the historical ratio
of the daily per share market closing prices of Capstar class A common stock
divided by the corresponding prices of Chancellor Media common stock since May
27, 1998, June 27, 1998, thirty days prior to August 26, 1998, and seven days
prior to August 26, 1998. The following table illustrates BT Wolfensohn's
review:

<TABLE>
<CAPTION>
EXCHANGE RATIO
--------------------------------------------------
HISTORICAL IMPLIED IMPLIED
PERIOD AVERAGE MINIMUM PREMIUM MAXIMUM PREMIUM
- ------ ---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Since May 27, 1998................... 0.459x .480x 4.8% 0.505x 10.3%
Since June 27, 1998.................. 0.471x .480x 1.9% 0.505x 7.2%
1 Month prior to August 26, 1998..... 0.482x .480x (0.4)% 0.505x 4.8%
1 Week prior to August 26, 1998...... 0.467x .480x 2.8% 0.505x 8.1%
</TABLE>

Contribution Analysis. BT Wolfensohn analyzed the relative contributions of
Capstar and Chancellor Media to the pro forma income statement of the combined
company, based on managements' projections for their respective companies. This
analysis showed that on a pro forma combined basis (excluding (i) the effect of
any synergies that may be realized as a result of the merger, and (ii)
non-recurring expenses relating to the merger) the relative contributions of
Capstar and Chancellor Media would be as follows:

<TABLE>
<CAPTION>
CHANCELLOR
CAPSTAR MEDIA
------- ----------
<S> <C> <C>
Net Revenues
1998...................................................... 27.2% 72.8%
1999...................................................... 27.0% 73.0%
2000...................................................... 26.8% 73.2%
Broadcast Cash Flow
1998...................................................... 26.0% 74.0%
1999...................................................... 25.9% 74.1%
2000...................................................... 25.1% 74.9%
Earnings before interest expense, income taxes and
depreciation and amortization
1998...................................................... 25.9% 74.1%
1999...................................................... 25.7% 74.3%
2000...................................................... 24.9% 75.1%
Estimated after-tax cash flow
1998...................................................... 13.4% 86.6%
1999...................................................... 17.5% 82.5%
2000...................................................... 18.2% 81.8%
</TABLE>

Discounted Cash Flow Analysis. BT Wolfensohn performed a discounted cash flow
analysis for both Capstar and Chancellor Media. BT Wolfensohn calculated the
discounted cash flow values for each of Capstar and Chancellor Media as the sum
of the net present values of

(i) the estimated future cash flow that the Capstar and Chancellor Media,
as the case may be, will generate for the years 1999 through 2002, plus

(ii) the value of Capstar or Chancellor Media at the end of such period.
The estimated future cash flows were based on Capstar's and Chancellor
Media's respective management projections for the years 1999 through
2002.

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<PAGE> 171

The terminal values of Capstar and Chancellor Media were calculated based on
estimated 2002 broadcast cash flow and a range of multiples of 11.5x, 12.0x, and
12.5x in the case of Capstar and 11.0x, 11.5x and 12.0x in the case of
Chancellor Media. BT Wolfensohn used discount rates ranging from 10.0% to 11.0%
in the case of Capstar and 9.5% to 10.5% in the case of Chancellor Media. BT
Wolfensohn used such discount rates for Capstar based on its judgment of the
estimated weighted average cost of capital of the selected radio companies, and
used such multiples based on its review of the trading characteristics of the
common stock of the selected radio companies. BT Wolfensohn used such discount
rates for Chancellor Media based on its judgment of the estimated weighted
average cost of capital of the selected radio, television and outdoor companies
and used such multiples based on its review of the trading characteristics of
the common stock of the selected radio, television, and outdoor companies. This
analysis indicated a range of values as follows:

<TABLE>
<CAPTION>
IMPLIED PER
SHARE EQUITY VALUES
-------------------
<S> <C>
Capstar..................................................... $20.98-$25.41
Chancellor Media............................................ $46.68-$54.37
</TABLE>

Pro Forma Financial Effects. BT Wolfensohn analyzed certain pro forma effects of
the merger. Based on such analysis, BT Wolfensohn computed the resulting
dilution/accretion to each of Chancellor Media's and Capstar's ATCF estimates
for the fiscal years ending 1999 and 2000, after taking into account potential
after-tax synergies identified by Chancellor Media management and financial
advisors' estimates of $65 million that Chancellor Media and Capstar could
achieve if the merger were consummated. Such analysis was based on Capstar and
Chancellor Media management projections and adjusted research estimates based on
the mean public estimates of Capstar operating results and the Capstar
management projected capital structure. BT Wolfensohn's analysis indicated the
following approximate pro forma financial effects on Capstar and Chancellor
Media's ATCF:

<TABLE>
<CAPTION>
EXCHANGE RATIO
------------------------
.4800X .4925X .5050X
------ ------ ------
<S> <C> <C> <C>
MANAGEMENT CASE
Chancellor Media
1999...................................................... 6.1% 5.5% 4.9%
2000...................................................... 4.9% 4.3% 3.7%
Capstar
1999...................................................... 42.7% 45.6% 48.5%
2000...................................................... 33.5% 36.2% 38.9%
ADJUSTED RESEARCH ESTIMATE CASE
Chancellor Media
1999...................................................... 1.6% 1.0% 0.5%
2000...................................................... 4.1% 3.5% 2.9%
Capstar
1999...................................................... 87.5% 91.3% 95.0%
2000...................................................... 43.9% 46.8% 49.7%
</TABLE>

The foregoing summary describes all analyses and factors that BT Wolfensohn
deemed material in its presentation to Capstar's Board of Directors, but is not
a comprehensive description of all analyses performed and factors considered by
BT Wolfensohn in

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<PAGE> 172

connection with preparing its opinion. The preparation of a fairness opinion is
a complex process involving the application of subjective business judgment in
determining the most appropriate and relevant methods of financial analysis and
the application of those methods to the particular circumstances and, therefore,
is not readily susceptible to summary description. BT Wolfensohn believes that
its analyses must be considered as a whole and that considering any portion of
such analyses and of the factors considered without considering all analyses and
factors could create a misleading view of the process underlying the opinion. In
arriving at its fairness determination, BT Wolfensohn did not assign specific
weights to any particular analyses.

In conducting its analyses and arriving at its opinions, BT Wolfensohn utilized
a variety of generally accepted valuation methods. The analyses were prepared
solely for the purpose of enabling BT Wolfensohn to provide its opinion to
Capstar's Board of Directors as to the fairness to Capstar of the exchange ratio
and does not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold, which are inherently subject to
uncertainty. In connection with its analyses, BT Wolfensohn made, and was
provided by Capstar and Chancellor Media management with, numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond Capstar's or Chancellor Media's
control. Analyses based on estimates or forecasts of future results are not
necessarily indicative of actual past or future values or results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of Capstar, Chancellor Media or their
respective advisors, neither Capstar nor BT Wolfensohn nor any other person
assumes responsibility if future results or actual values are materially
different from these forecasts or assumptions.

The terms of the merger were determined through negotiations between Capstar and
Chancellor Media and were approved by Capstar's Board of Directors. Although BT
Wolfensohn provided advice to Capstar during the course of these negotiations,
the decision to enter into the merger was solely that of Capstar's Board of
Directors. As described above, the opinion and presentation of BT Wolfensohn to
Capstar's Board of Directors were only one of a number of factors taken into
consideration by Capstar's Board of Directors in making its determination to
approve the merger. BT Wolfensohn's opinion was provided to Capstar's Board of
Directors to assist it in connection with its consideration of the merger and
does not constitute a recommendation to any holder of Capstar common stock as to
how to vote with respect to the merger.

Capstar selected BT Wolfensohn as financial advisor in connection with the
merger based on BT Wolfensohn's qualifications, expertise, reputation and
experience in mergers and acquisitions. BT Wolfensohn is engaged in the merger
and acquisition and client advisory business of Bankers Trust and, for legal and
regulatory purposes, is a division of BT Alex. Brown Incorporated, a registered
broker dealer and member of the New York Stock Exchange. Capstar retained BT
Wolfensohn pursuant to a letter agreement dated July 20, 1998. As compensation
for BT Wolfensohn's services in connection with the merger, Capstar has paid BT
Wolfensohn a cash fee of $400,000 and has agreed to pay an additional cash fee
of $2,000,000 if the merger is consummated. Regardless of whether the merger is
consummated, Capstar has agreed to reimburse BT Wolfensohn for all reasonable
fees and disbursements of BT Wolfensohn's counsel and all of BT Wolfensohn's
reasonable travel and other out-of-pocket expenses incurred in connection with
the merger

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or otherwise arising out of the retention of BT Wolfensohn under the letter
agreement. Capstar has also agreed to indemnify BT Wolfensohn and certain
related persons to the full extent lawful against certain liabilities, including
certain liabilities under the federal securities laws, arising out of its
engagement or the merger.

BT Wolfensohn is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. BT Alex. Brown has an investment banking relationship with
the majority shareholder of Capstar and with certain other affiliates of such
majority shareholder including, but not limited to, Chancellor Media and, in
connection therewith, has provided, provides and may provide certain investment
banking and financial advisory services to Chancellor Media. In the ordinary
course of business, Bankers Trust or its affiliates may actively trade in the
securities and other instruments and obligations of Capstar and Chancellor Media
for their own accounts and for the accounts of their customers. Accordingly,
Bankers Trust or its affiliates may at any time hold a long or short position in
such securities, instruments and obligations.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Some of the officers and directors of Chancellor Media have interests concerning
the merger separate from their interests as officers and directors of Chancellor
Media.

- - Each of Thomas O. Hicks, R. Steven Hicks, Lawrence D. Stuart, Jr. and Michael
J. Levitt are members of the Board of Directors of each of Chancellor Media
and Capstar, with Mr. Thomas O. Hicks serving as the Chairman of each company
and Mr. R. Steven Hicks serving as President and Chief Executive Officer of
Capstar and Vice Chairman of Chancellor Media and Chief Executive Officer of
AMFM New Media Group.

- - Mr. D. Geoffrey Armstrong, Executive Vice President and Chief Financial
Officer of Chancellor Media, is also a director of Capstar, and William S.
Banowsky, Jr., Executive Vice President and General Counsel of Chancellor
Media, is also Executive Vice President and General Counsel of Capstar.

- - Additionally, each of Thomas O. Hicks, Michael J. Levitt and Lawrence D.
Stuart, Jr. serve as officers, directors and partners of various entities
affiliated with Hicks Muse, which currently controls through various
affiliated entities approximately 17.9% of the outstanding Chancellor Media
common stock and approximately 94.6% of the voting power of the outstanding
shares of Capstar common stock (66.1% of the economic interest of the
outstanding Capstar common stock). None of Messrs. Thomas Hicks, Levitt or
Stuart served on the Special Committee of Capstar or Chancellor Media, and
each of them abstained from the vote on the merger by the Chancellor Media
Board of Directors.

Finally, certain affiliates of Hicks Muse will receive, in addition to the
shares of Chancellor Media common stock received in the merger in exchange for
shares of Capstar common stock, payments in satisfaction of certain contractual
arrangements with Capstar. These contractual arrangements include:

- - monitoring and oversight agreements, among each of Capstar and Capstar
Partners, and Hicks, Muse & Co. Partners, L.P. ("Hicks Muse Partners"), an
affiliate of Hicks Muse,

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pursuant to which Capstar and Capstar Partners have each agreed to pay to
Hicks Muse Partners an annual fee for monitoring and oversight services, and

- - a financial advisory agreement, among each of Capstar and Capstar Partners and
certain of their affiliates and Hicks Muse Partners, pursuant to which Hicks
Muse Partners receives a financial advisory fee from Capstar and Capstar
Partners for each transaction in which Capstar and Capstar Partners or its
subsidiaries is involved.

Under the terms of the merger agreement, at the effective time of the merger:

- - the monitoring and oversight agreement and financial advisory agreements with
Capstar Partners will each be terminated with no further obligation of either
party;

- - the monitoring and oversight agreement with Capstar will terminate and Capstar
will deliver to Hicks Muse Partners at the closing a one-time cash payment of
$14.2 million; and

- - the financial advisory agreement with Capstar will be terminated and Hicks
Muse Partners will receive a fee from Capstar, payable in cash at the closing,
of $17.5 million in satisfaction of its services performed under the financial
advisory agreement in connection with the merger.

The approximate pro rata share of the fee income to be received by affiliates of
Hicks Muse at the effective time of the merger and attributed to each of Messrs.
Thomas O. Hicks, Stuart and Levitt is as follows:

PRO RATA SHARE OF HICKS MUSE FEE INCOME

<TABLE>
<CAPTION>
NAME APPROXIMATE AMOUNT
---- ------------------
(IN THOUSANDS)
<S> <C>
Thomas O. Hicks............................................. $8,777
Lawrence D. Stuart, Jr...................................... 1,714
Michael J. Levitt........................................... 3,255
</TABLE>

Additionally, some of Capstar's officers and directors have the following
interests in the merger that are different from their interests as officers and
directors:

- - effective March 15, 1999, D. Geoffrey Armstrong who serves as a Capstar
director and who began serving on March 15, 1999 as Executive Vice President
and Chief Financial Officer of Chancellor Media, resigned from his position as
Capstar's Chief Operating Officer and became entitled to receive a bonus in
the amount of $600,000, and the outstanding Capstar options and warrants held
by Mr. Armstrong fully vested and became exercisable;

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- - Messrs. R. Steven Hicks, Armstrong and Banowsky have entered into employment
agreements with Chancellor Media, and Mr. Armstrong received a one-time
$400,000 signing bonus from Chancellor Media; and

APPRAISAL AND DISSENTERS' RIGHTS

Chancellor Media Stockholders: If you hold shares of Chancellor Media common
stock, Chancellor Media 7% convertible preferred stock or Chancellor Media $3.00
convertible exchangeable preferred stock, under the DGCL, you do not have a
right to an appraisal of your shares of Chancellor Media common stock as a
result of the merger.

Capstar Stockholders: If you hold shares of Capstar class A common stock, under
the DGCL, you do not have a right to an appraisal of your shares of Capstar
class A common stock as a result of the merger.

If you hold shares of Capstar class B common stock or class C common stock, you
will have appraisal rights if various conditions are satisfied. If you follow
the appropriate procedures under the DGCL, you will be entitled, instead of
receiving shares of Chancellor Media common stock, to have a judge determine the
fair value in cash of your shares. The obligation of each party to complete the
merger is subject to the condition that holders of no more than 10% of the
outstanding shares of Capstar class B common stock and class C common stock
demand appraisal rights under the DGCL. As a result of those persons who entered
into the Voting Agreement described elsewhere in this joint proxy statement/
prospectus agreeing to vote in favor of the approval and adoption of the merger
agreement, such persons have effectively waived their rights to demand appraisal
rights under the DGCL.

THE FOLLOWING SUMMARY OF APPRAISAL RIGHTS OF HOLDERS OF CAPSTAR CLASS B COMMON
STOCK AND CLASS C COMMON STOCK IS QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF
SECTION 262 OF THE DGCL, WHICH IS ATTACHED TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AS ANNEX VIII. ALL REFERENCES IN SECTION 262 AND IN THIS
SUMMARY TO A "STOCKHOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF CAPSTAR
CLASS B COMMON STOCK AND CLASS C COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE
ASSERTED. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES OF CAPSTAR CLASS B
COMMON STOCK OR CLASS C COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER
PERSON, FOR EXAMPLE, A NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO
FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT
APPRAISAL RIGHTS.

Under Section 262, where a merger is to be submitted for approval at a meeting
of stockholders, the corporation, not less than 20 days prior to the meeting,
must notify each of its stockholders entitled to appraisal rights that such
appraisal rights are available and include in the notice a copy of Section 262.
THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL CONSTITUTE NOTICE TO THE HOLDERS OF
SHARES OF CAPSTAR CLASS B COMMON STOCK AND CLASS C COMMON STOCK, AND THE
APPLICABLE STATUTORY PROVISIONS ARE ATTACHED TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AS ANNEX VIII. Any holder of shares of Capstar class B
common stock or class C common stock who wishes to exercise appraisal rights or
who wishes to preserve the holder's right to do so should review the following
discussion and Annex VIII carefully because failure to timely and properly
comply with the procedures specified will result in the loss of appraisal rights
under the DGCL.

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A holder of shares of Capstar class B common stock or class C common stock
wishing to exercise appraisal rights must deliver to Capstar, before the vote on
the merger at the Capstar stockholders meeting, a written demand for appraisal
and a holder of Capstar class C common stock must not vote in favor of the
merger. A vote against the merger, in person or by proxy, will not in and of
itself constitute a written demand for appraisal satisfying the requirements of
Section 262. In addition, a holder of shares of Capstar class B common stock or
class C common stock wishing to exercise appraisal rights must hold of record
the shares on the date the written demand for appraisal is made and must
continue to hold the shares until the effective time of the merger. If any
holder of shares of Capstar class B common stock or class C common stock fails
to comply with any of these conditions and the merger becomes effective, the
holder of shares of Capstar class B common stock or class C common stock will be
entitled to receive the merger consideration, as defined in the merger
agreement, receivable with respect to the shares in the absence of a valid
assertion of appraisal rights in accordance with the merger agreement.

Only a holder of record of shares of Capstar class B common stock or class C
common stock is entitled to assert appraisal rights for the shares of Capstar
class B common stock or class C common stock registered in that holder's name. A
demand for appraisal should be executed by or on behalf of the holder of record,
fully and correctly, as the holder of record's name appears on the holder of
record's stock certificates, and must state that the stockholder intends thereby
to demand appraisal of his, hers or its shares in connection with the merger. If
the shares of Capstar class B common stock or class C common stock are owned of
record in a fiduciary capacity, for example, by a trustee, guardian or
custodian, execution of the demand should be made in that capacity, and if the
shares of Capstar class B common stock or class C common stock are owned of
record by more than one person, as in a joint tenancy and tenancy in common, the
demand should be executed by or on behalf of all joint owners. An authorized
agent, including two or more joint owners, may execute a demand for appraisal on
behalf of a holder of record; however, the agent must identify the record owner
or owners and expressly disclose the fact that, in executing the demand, the
agent is agent for the owner or owners. A record holder who holds shares of
Capstar class B common stock or class C common stock as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares of
Capstar class B common stock or class C common stock held for one or more
beneficial owners while not exercising the rights with respect to the shares of
Capstar class B common stock or class C common stock held for other beneficial
owners. Stockholders who hold their shares of Capstar class B common stock or
class C common stock in nominee forms and who wish to exercise appraisal rights
are urged to consult with their nominees to determine the appropriate procedures
for making a demand for appraisal by a nominee.

All written demands for appraisal pursuant to Section 262 should be sent or
delivered to Capstar at 600 Congress Avenue, Suite 1400, Austin, Texas 78701,
Attention: General Counsel.

Within 10 days after the effective time of the merger, the surviving corporation
must notify each holder of shares of Capstar class B common stock and class C
common stock who has complied with Section 262 and, in the case of a holder of
Capstar class C common stock, who has not voted in favor of or consented to the
merger as of the date that the merger has become effective. Within 120 days
after the effective time, but not thereafter,

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the surviving corporation or any holder of shares of Capstar class B common
stock or class C common stock who is entitled to appraisal rights under Section
262 may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the holder's shares of Capstar class B common
stock and class C common stock. Notwithstanding the foregoing, at any time
within 60 days after the effective time, any stockholder has the right to
withdraw his demand for appraisal and to accept the terms offered in respect of
the merger. The surviving corporation will be under no obligation to and has no
present intention to file such a petition. Accordingly, it is the obligation of
the holders of shares of Capstar class B common stock and class C common stock
to initiate all necessary action to perfect their appraisal rights within the
time prescribed in Section 262.

Within 120 days after the effective time, any holder of shares of Capstar class
B common stock or class C common stock who has complied with the requirements
for exercise of appraisal rights will be entitled, upon written request, to
receive from the surviving corporation a statement setting forth the aggregate
number of shares of Capstar class B common stock and class C common stock with
respect to which demands for appraisal have been received and the aggregate
number of holders of those shares. The statement must be mailed to the
stockholders within ten days after a written request therefor has been received
by the surviving corporation or within ten days after the expiration of the
period for delivery of demands for appraisal, whichever is later. If a petition
for an appraisal is timely filed by a holder of shares of Capstar class B common
stock or class C common stock and a copy thereof is served upon Capstar, Capstar
will then be obligated within 20 days to file with the Delaware Register in
Chancery a duly verified list containing the names and addresses of all holders
of shares of Capstar class B common stock and class C common stock who have
demanded an appraisal of their shares and with whom agreements as to the value
of their shares have not been reached. After notice to such stockholders as
required by the Court, the Delaware Court of Chancery is empowered to conduct a
hearing on the petition to determine those holders of shares of Capstar class B
common stock and class C common stock who have complied with Section 262 and who
have become entitled to appraisal rights thereunder.

The Delaware Court of Chancery may require the holders of shares of Capstar
class B common stock and class C common stock who demanded payment for their
shares to submit their stock certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceeding; and if any
stockholder fails to comply with such direction, the Court of Chancery may
dismiss the proceedings as to the stockholder. After determining the holders of
shares of Capstar class B common stock and class C common stock entitled to
appraisal, the Delaware Court of Chancery will appraise the "fair value" of
their shares of Capstar class B common stock and class C common stock, exclusive
of any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value.

Holders of shares of Capstar class B common stock and class C common stock
considering seeking appraisal should be aware that the fair value of their
shares of Capstar class B common stock and class C common stock as determined by
Section 262 could be more than, the same as or less than the consideration they
would receive pursuant to the merger if they did not seek appraisal of their
shares of Capstar class B common stock and class C common stock, and that
investment banking opinions as to fairness from a financial point

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of view are not necessarily opinions as to fair value under Section 262. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings. In addition, Delaware courts have decided that the statutory
appraisal remedy, depending on factual circumstances, may or may not be a
dissenter's exclusive remedy. The Court of Chancery will also determine the
amount of interest, if any, to be paid upon the amounts to be received by
persons whose shares of Capstar class B common stock or class C common stock
have been appraised. The costs of the action may be determined by the Court and
taxed upon the parties as the Court deems equitable. The Court may also order
that all or a portion of the expenses incurred by any stockholder in connection
with an appraisal, including, without limitation, reasonable attorneys' fees and
the fees and expenses of experts utilized in the appraisal proceeding, be
charged pro rata against the value of all the shares of Capstar class B common
stock and class C common stock entitled to be appraised.

Any holder of shares of Capstar class B common stock or class C common stock who
has duly demanded an appraisal in compliance with Section 262 will not, after
the effective time, be entitled to vote the shares of Capstar class B common
stock or class C common stock subject to the demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares of
Capstar class B common stock or class C common stock, except dividends or other
distributions payable to holders of record of shares of Capstar class B common
stock and class C common stock as of a date prior to the effective time.

If any stockholder who demands appraisal of his, hers or its shares of Capstar
class B common stock or class C common stock under Section 262 fails to perfect,
or effectively withdraws or loses, his, hers or its right to appraisal, as
provided in the DGCL, the shares of Capstar class B common stock or class C
common stock of the stockholder will be converted into the right to receive the
merger consideration in accordance with the terms of the merger agreement. A
stockholder will fail to perfect, or effectively lose or withdraw, his, hers or
its right to appraisal if no petition for appraisal is filed by the holder
within 120 days after the effective time, or if the stockholder delivers to
Capstar or the surviving corporation a written withdrawal of his, hers or its
demand for appraisal and an acceptance of the merger, except that any attempt to
withdraw made more than 60 days after the effective time will require the
written approval of the surviving corporation and, once a petition for appraisal
is filed, the appraisal proceeding may not be dismissed as to any holder absent
court approval. It is not necessary that each holder of shares of Capstar class
B common stock or class C common stock properly demanding appraisal file a
petition for appraisal in the Delaware Court of Chancery. Rather, a single valid
petition suffices for the petitioning and non-petitioning holders of shares of
Capstar class B common stock and class C common stock who have properly demanded
appraisal.

FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF THE RIGHTS, IN WHICH EVENT A
STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE MERGER CONSIDERATION IN ACCORDANCE
WITH THE MERGER AGREEMENT FOR EACH SHARE OF CAPSTAR CLASS B COMMON STOCK AND
CLASS C COMMON STOCK OWNED BY SUCH STOCKHOLDER.

ACCOUNTING TREATMENT

The merger will be accounted for as a purchase of Capstar by Chancellor Media,
for financial accounting purposes in accordance with generally accepted
accounting principles.
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After the effective time, the results of operations of Chancellor Media and
Capstar will be included in the consolidated financial statements of the
Chancellor Media. The cost of Capstar to Chancellor Media shall be based upon:

- - the value of Chancellor Media common stock issued in exchange for Capstar
common stock;

- - the value of stock options and warrants assumed by Chancellor Media in the
merger; and

- - direct costs of the merger.

The aggregate cost of Capstar, as so determined, will be allocated to the assets
acquired and liabilities assumed by Chancellor Media based upon their respective
fair values.

FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following is a discussion of the material federal income tax consequences of
the merger to the holders of Capstar common stock and to Capstar and Chancellor
Media and is based on the opinions of Weil, Gotshal & Manges LLP, counsel to
Chancellor Media, and Vinson & Elkins L.L.P., counsel to Capstar. The opinions
are based upon current provisions of the United States Internal Revenue Code of
1986, as amended (the "Code"), existing regulations promulgated under the Code
and current administrative rulings and court decisions, all of which are subject
to change. No attempt has been made to comment on all federal income tax
consequences of the merger that may be relevant to particular holders, including
holders that are subject to special tax rules, for example, dealers in
securities, foreign persons, mutual funds, insurance companies, tax-exempt
entities and holders who do not hold their shares as capital assets. HOLDERS OF
CAPSTAR COMMON STOCK ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PERSONAL
CIRCUMSTANCES AND THE CONSEQUENCES UNDER APPLICABLE STATE, LOCAL AND FOREIGN TAX
LAWS.

Chancellor Media has received from its counsel, Weil, Gotshal & Manges LLP, an
opinion to the effect that the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and that Chancellor Media, Merger Sub and Capstar will not recognize any gain or
loss as a result of the merger. Capstar has received from its counsel, Vinson &
Elkins L.L.P., an opinion to the effect that the merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and that no gain or loss will be recognized by a holder of
Capstar common stock upon receipt of Chancellor Media common stock in exchange
for shares of Capstar common stock in connection with the merger, except with
respect to cash received by such holder in lieu of fractional shares or cash
received by holders of Capstar class B common stock or class C common stock who
properly exercise their appraisal rights. In rendering their opinions, counsel
to each of Chancellor Media and Capstar have relied upon particular factual
representations made by Chancellor Media, Capstar and certain stockholders of
Capstar.

Assuming the merger is treated as a reorganization within the meaning of Section
368(a) of the Code, no gain or loss will be recognized for federal income tax
purposes by Chancellor Media, Merger Sub or Capstar as a result of the merger.
Except as described below with respect to cash received in lieu of fractional
shares, a holder of Capstar common stock will not recognize gain or loss on the
exchange of shares of Capstar common stock for Chancellor Media common stock
pursuant to the merger. The aggregate

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tax basis of the Chancellor Media common stock received by a holder, including
any fractional share deemed received, will be the same as the aggregate tax
basis of the Capstar common stock surrendered therefor. The holding period of
the Chancellor Media common stock, including any fractional share deemed
received, will include the holding period of the Capstar common stock
surrendered therefor, provided that the shares of Capstar common stock are held
as capital assets at the effective time.

Cash In Lieu of a Fractional Share. Cash received by a holder of Capstar common
stock in lieu of a fractional share of Chancellor Media common stock will be
treated as received in exchange for such fractional share interest, and gain or
loss will be recognized for federal income tax purposes, measured by the
difference between the amount of cash received and the portion of the basis of
the Capstar common stock allocable to the fractional share interest. The gain or
loss will be capital gain or loss provided that the shares of Capstar common
stock were held as capital assets and will be long term capital gain or loss if
the Capstar common stock had been held for more than one year at the effective
time.

Appraisal Rights. Cash received by a holder of Capstar class B common stock or
class C common stock in satisfaction of appraisal rights will result in the
recognition of gain or loss for federal income tax purposes, measured by the
difference between the amount of cash received and the basis of the Capstar
class B common stock or class C common stock surrendered. The gain or loss will
be capital gain or loss provided that the shares of Capstar class B common stock
or class C common stock were held as capital assets and will be long-term
capital gain or loss if the Capstar class B common stock or class C common stock
had been held for more than one year at the effective time.

Backup Withholding. Under the Code, a holder of Capstar common stock may be
subject, under certain circumstances, to backup withholding at a rate of 31%
with respect to the amount of cash, if any, received in lieu of fractional share
interests or upon the exercise of appraisal rights pursuant to the merger unless
the holder provides proof of an applicable exemption or a correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules. Any amounts withheld under the backup withholding
rules are not an additional tax and may be refunded or credited against the
holder's federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.

CERTAIN REGULATORY MATTERS

FCC Regulation

Introduction. The ownership, operation and sale of radio broadcast stations,
including those licensed to subsidiaries of Chancellor Media and Capstar, are
subject to the jurisdiction of the FCC under authority granted it pursuant to
the Communications Act of 1934, as amended (the "Communications Act"). Matters
subject to FCC oversight include, but are not limited to:

- - the assignment of frequency bands for broadcast radio;

- - the approval of a radio station's frequency, location and operating power;

- - the issuance, renewal, revocation or modification of a radio station's FCC
license;

- - the approval of changes in the ownership or control of a radio station's
licensee;

- - the regulation of equipment used by radio stations; and

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- - and the adoption and implementation of regulations and policies concerning the
ownership and operation of radio stations.

The FCC has the power to impose penalties, including fines or license
revocations, upon a licensee of a radio station for violations of the FCC's
rules and regulations.

The following is a brief summary of certain provisions of the Communications Act
and FCC rules 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 broadcast
stations.

Ownership. Under the foreign ownership restrictions of the Communications Act, a
broadcast license may not be held by a foreign national, a foreign government, a
foreign corporation, or any representative thereof. No more than 20% of the
capital stock of a corporation that holds a broadcast license may be owned or
voted by foreign interests. And absent a prior grant of special authority by the
FCC, no more than 25% of the capital stock of a company that directly or
indirectly controls a broadcast licensee may be owned or voted by foreign
interests.

The Communications Act and the FCC rules also limit the number of commercial
radio stations an entity may own in a single market. These rules preclude
Chancellor Media and Capstar from acquiring certain stations they might
otherwise seek to acquire, and from selling stations in a market to a buyer that
has reached its ownership limit in the market. The local ownership limits are as
follows:

- - in markets with 45 or more commercial radio stations, ownership is limited to
eight commercial stations, no more than five of which can be either AM or FM;

- - in markets with 30 to 44 commercial radio stations, ownership is limited to
seven commercial stations, no more than four of which can be either AM or FM;

- - in markets with 15 to 29 commercial radio stations, ownership is limited to
six commercial stations, no more than four of which can be either AM or FM;
and

- - in markets with 14 or fewer commercial radio stations, ownership is limited to
five commercial stations or no more than 50% of the market's total, whichever
is lower, and no more than three of which can be either AM or FM.

Under the FCC's ownership attribution rules, interests held by officers,
directors and certain voting stockholders of a broadcast company in broadcast
stations not owned by that company must be counted as if they were owned by the
company for purposes of applying the FCC's multiple ownership rules. Thus,
because Chancellor Media and Capstar have common directors (Thomas O. Hicks, R.
Steven Hicks, Lawrence D. Stuart, Jr., and Michael J. Levitt) and a common
attributable stockholder (Thomas O. Hicks), in markets where both companies own
radio stations (e.g., Dallas) those stations are currently deemed to be commonly
owned for purposes of applying the local radio ownership limits. Similarly,
because Capstar and LIN have a common attributable stockholder (Thomas O. Hicks)
and a common director (Thomas O. Hicks), and because Capstar operates radio
stations in certain markets where LIN operates television stations, those
operations require an FCC waiver of the rule that normally prohibits the same
owner from owning a television station and a radio station in the same market
(the "one-to-a-market" rule). To date, all required one-to-a-market waivers in
regard to LIN and Capstar overlap have been obtained. The FCC is considering
changes to its one-to-a-market rule and waiver policy and to its

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ownership attribution rules. It is possible, but not at all certain, that
revised regulations could require Capstar to divest its interests in some
stations in order to comply with a more restrictive limit on radio-television
cross-ownership in the same market. In general, there can be no assurance that
the FCC's existing rules or any newly adopted rules will not have a negative
effect on the future acquisition strategy, business, financial condition and
results of operations of Chancellor Media and Capstar.

License Assignments and Transfers. The Communications Act prohibits the
assignment or transfer of control of an FCC license without the prior consent of
the FCC. Because the merger will result in the transfer of control of Capstar,
the prior approval of the FCC must be obtained before the merger may be
consummated. Applications for FCC approval of a pro forma transfer of control
were granted by the FCC on May 12, 1999.

In reviewing applications for license transfers, the FCC considers whether the
proposed transfer will serve the public interest, including whether the proposed
transferee has the requisite legal and financial qualifications to operate the
licensed entities and whether the transaction would violate the FCC's multiple
ownership rules. Recently the FCC has also issued public notices in connection
with particular transactions expressing concern that the proposed acquisition of
radio stations would give the acquiring party an excessive share of the radio
advertising revenues in a given market or would otherwise result in excessive
concentration of ownership. It is not clear how the FCC will proceed in this
area or how any policy it may adopt will interact with the review of similar
issues by the U.S. Department of Justice (the "DOJ") and the FTC (see
"-- Federal Antitrust Laws").

Upon grant of FCC approval, the transaction may be consummated by the parties.
Any "person who is aggrieved or whose interests are adversely affected", as such
terms are defined in Section 402(b) of the Communications Act, may appeal the
FCC's approval of the transfer to the U.S. Court of Appeals for the District of
Columbia Circuit. In addition, under certain circumstances, the FCC may
reconsider its approval at the request of a third party or on its own motion. If
the parties decide to consummate the transaction before the deadlines for
reconsideration or appeal have passed or before any reconsideration or appeal
proceedings have been completed, they assume the risk that the FCC's approval
could be reversed or modified by the FCC or a reviewing court.

License Term; Renewal. Radio broadcast licenses are granted for maximum terms of
eight years and may be renewed on application to the FCC. The FCC will
ordinarily renew broadcast licenses for the maximum eight-year term, but may
grant renewals for shorter terms in particular circumstances, such as those
involving serious violations of FCC rules by the licensee.

In determining whether to renew a broadcast license, the FCC mainly considers
whether the renewal applicant has complied with the FCC's various rules
governing ownership, programming, technical operation, and FCC reporting. 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:

- - the station has served the public interest, convenience and necessity;

- - the licensee has committed serious violations of the Communications Act or the
FCC rules; or

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- - the licensee has committed other violations that, taken together, constitute a
pattern of abuse.

Interested parties, including members of the public, may file petitions to deny
license renewals, raising such issues. The FCC must grant a renewal application
if it finds that the licensee has served the public interest, has not committed
any serious violation of FCC requirements, and has not committed a pattern of
violations that would constitute abuse. If the licensee fails to meet that
standard and does not show mitigating factors warranting a lesser sanction, the
FCC has authority to deny the renewal application. Only after a license renewal
application is denied will the FCC accept and consider applications from other
parties for the vacated frequency.

Historically, the vast majority of FCC licenses have routinely been renewed.
Neither Chancellor Media nor Capstar has any 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 any licenses could have a material adverse
effect on Chancellor Media or Capstar, as the case might be.

Programming and Operation. The Communications Act requires broadcasters to serve
the "public interest." The FCC has gradually 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 station's community
of license. A licensee continues to be required, however, to present programming
that is responsive to community problems, needs and interests 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 the licensee's renewal application, but such complaints may be filed
and considered 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
and technical operations, including limits on human exposure to radio frequency
radiation. The broadcast of obscene and indecent material and the advertisement
of contests and lotteries are regulated by FCC rules, as well as by state and
other federal laws. In addition, the FCC traditionally has required licensees to
develop and implement programs and procedures designed to promote equal
employment opportunities. In 1998 the U.S. Court of Appeals for the District of
Columbia Circuit invalidated the FCC's equal employment rules, and the FCC has a
proposal under consideration to adopt new equal employment rules that would
comply with the court's decision.

Time Brokerage Agreements. Over the past several years, a number of radio
stations, including certain of Chancellor Media's and Capstar's stations, have
entered into what commonly are referred to as "Time Brokerage Agreements," or
"TBAs" (certain types of these agreements also are known as "Local Marketing
Agreements," or "LMAs"). These agreements may take various forms.
Separately-owned and licensed stations may agree to function cooperatively in
terms of programming, advertising sales, and other matters, subject to the
licensee of each station maintaining independent control over the programming
and other operations of its own station and compliance with the requirements of
antitrust laws. One typical form of TBA is a programming agreement between two
separately-owned radio stations that serve 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

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licensee), and sells advertising time during those program segments. Such
agreements do not violate the Communications Act as long as the licensee of the
station that is being substantially programmed by another entity maintains
complete responsibility for, and control over, operations of its broadcast
station and otherwise ensures compliance with applicable FCC rules and policies.
The FCC's multiple ownership rules specifically permit radio station TBAs, but
provide that a licensee or a radio station that provides the programming for
more than 15% of the weekly broadcast time on another station in the same market
will be considered to have an attributable ownership interest in that station
for purposes of the FCC's multiple ownership rules. As a result, a broadcast
station may not enter into a TBA that allows it to program more than 15% of the
broadcast time, on a weekly basis, of another local station that it could not
own under the FCC's local multiple ownership rules. As of May 31, 1999,
Chancellor Media is programming 13 stations and Capstar is programming ten
stations under TBAs.

Joint Sales Agreements. Capstar has cooperative arrangements known as JSAs with
certain other radio stations. 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. Unlike a TBA, 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. 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 a pending rulemaking proceeding the FCC is considering
whether to change that policy and make JSAs attributable ownership interests,
particularly when JSAs contain provisions for the supply of programming services
and/or other elements typically associated with TBAs. If JSAs become
attributable interests as a result of changes in the FCC rules, Capstar may be
required to terminate JSAs it has with radio stations which it could not own
under the FCC's multiple ownership rules.

Recent Developments, Proposed Legislation and Regulation. Congress and the FCC
currently have under consideration, and may in the future adopt, new laws,
regulations and policies regarding a wide variety of matters that could affect,
directly or indirectly, the operation and ownership of Chancellor Media's and
Capstar's broadcast properties. In addition to the changes and proposed changes
noted above, these matters include, for example:

- - spectrum use fees;

- - political advertising rates;

- - restrictions on the advertising of certain products like hard liquor, beer and
wine;

- - changes to broadcast technical requirements;

- - proposals to allow telephone companies to deliver audio and video programming
to the home through existing phone lines;

- - proposals to limit the tax deductibility of advertising expenses by
advertisers; and

- - proposals to auction to the highest bidder the right to use the radio
broadcast spectrum, instead of granting FCC licenses and subsequent license
renewals.

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Other matters that could affect Chancellor Media's and Capstar's broadcast
properties include technological innovations and developments generally
affecting competition in the mass communications industry.

The FCC has taken initial steps to authorize the use of a new technology,
digital audio radio services ("DARS"), to deliver audio programming by
satellite. The FCC is also considering various proposals for terrestrial DARS.
DARS may provide a medium for the delivery of multiple new audio programming
formats to local and national audiences. It is not known at this time whether
this technology also may be used in the future by existing radio broadcast
stations either on existing or alternate broadcasting frequencies.

The FCC currently is also considering authorizing the use of In-Band
On-Channel(TM) ("IBOC") technology for FM radio stations. IBOC technology would
permit an FM station to transmit radio programming in both analog and digital
formats, or in digital only formats, using the bandwidth that the radio station
is currently licensed to use. It is unclear what regulations the FCC will adopt
regarding IBOC technology and what effect such regulations would have on
Chancellor Media's and Capstar's business or the operations of their radio
stations.

The FCC is considering a proposal to authorize the operation of low power radio
and "microradio" within the existing FM band. Low power radio and microradio
would operate at power levels below that of full power FM radio stations, such
as those owned by Chancellor Media and Capstar. The FCC has proposed that low
power radio and microradio stations not be subject to the same level of
regulation regarding interference to which full power radio stations are
subject. It is not possible to predict the outcome of this FCC proceeding or
what effect, including interference effect, that low power radio and microradio
would have on the operations of Chancellor Media's and Capstar's radio stations
or on their ability to engage in digital transmission of its radio programming.

The foregoing does not purport to be a complete summary of all the provisions of
the Communications Act or the regulations and policies of the FCC. Proposals for
additional or revised regulations and requirements are pending before and are
being considered by Congress and federal regulatory agencies from time to time.
It is not possible at this time to predict the outcome of any of the pending FCC
rulemaking proceedings referenced above, the outcome of any reconsideration or
appellate proceedings concerning any changes in FCC rules or policies noted
above, the possible outcome of any proposed or pending Congressional
legislation, or the impact of any of those changes on Chancellor Media's and
Capstar's broadcast operations.

Federal Antitrust Laws

General. The U.S. Federal Trade Commission (the "FTC") and the Antitrust
Division of the DOJ, evaluate certain proposed broadcast station acquisitions
under the antitrust laws. These agencies (particularly the DOJ) recently have
been increasingly active in their review of radio station acquisitions where an
operator proposes to acquire new stations in its existing markets. The DOJ has
stated 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 these benchmarks.

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At any time prior to or after the consummation of the merger, the DOJ or the FTC
could take action under the federal antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the merger or
seeking the divestiture of substantial assets of Chancellor Media or Capstar. In
addition, state antitrust authorities and private parties in certain
circumstances may bring legal action under the antitrust laws seeking to enjoin
the merger or seeking divestiture of assets of Chancellor Media or Capstar.
There can be no assurances that a challenge to the merger on antitrust grounds
will not be made or, if a challenge is made, what the outcome of the challenge
will be.

HSR Act. 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. Chancellor Media and Capstar,
as well as affiliates of Hicks Muse and Capstar, have filed all appropriate
Notification and Report Forms with the Antitrust Division of the DOJ and the FTC
with respect to the merger. The waiting periods for this transaction will expire
before July 13, 1999.

Consent Decrees. Capstar is subject to the following consent decrees and letter
agreements with the DOJ:

- - as a result of the acquisition of GulfStar Communications, Inc. in 1997,
Capstar is subject to a letter agreement which requires Capstar to notify the
DOJ at least 30 days prior to the consummation of an acquisition in the
northwest Arkansas area until March 4, 2007;

- - as a result of the acquisition of KRNA-FM in Cedar Rapids, Iowa, Capstar is
subject to a letter agreement with the DOJ which requires, until June 1, 2008,
Capstar to notify the DOJ at least 30 days prior to the consummation of an
acquisition of a radio station license to Johnson or Linn counties in Iowa;

- - Capstar Communications, Inc. has entered into a consent decree with the DOJ
and Chancellor Media with respect to the Long Island, New York area under
which Capstar Communications, Inc. has agreed not to acquire WALK-FM;

- - in connection with the acquisition of SFX Broadcasting, Inc. in 1998, Capstar
and Capstar Communications, Inc. executed a consent decree with the DOJ that,
among other things, requires Capstar 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
Capstar or Chancellor Media do not own stations in these areas at the time of
the proposed acquisitions; and

- - in connection with the acquisition of Triathlon, Capstar has entered into two
consent decrees as follows:

(1) with respect to the Wichita, Kansas market, among other things, Capstar
has agreed to give the DOJ notice of any acquisition in the Wichita,
Kansas market at least 30 days prior to the consummation thereof for a
period of up to ten years unless Capstar or Chancellor Media do not own
stations in such area at the time of the proposed acquisition; and

(2) with respect to the Spokane, Washington and Colorado Springs, Colorado
areas, Capstar, among other things, has agreed to give the DOJ notice of
any acquisition in the Colorado Springs, Colorado and Spokane, Washington
areas at least 30 days

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prior to the consummation thereof for a period of up to ten years unless
Capstar or Chancellor Media do not own stations in these areas at the time
of the proposed acquisition.

TBAs and JSAs. As part of its increased scrutiny of radio station acquisitions,
the DOJ has stated publicly that it believes that TBAs, 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.

RESTRICTION ON RESALES OF CHANCELLOR MEDIA COMMON STOCK BY AFFILIATES OF CAPSTAR

The shares of Chancellor Media common stock issuable in connection with the
merger have been registered under the Securities Act. These shares will be
freely transferable under the Securities Act, except for shares issued to any
person who may be deemed to be an affiliate, as that term is defined under the
Securities Act for purposes of Rule 145 thereunder (an "Affiliate"), of Capstar
at the time the merger agreement is submitted to the stockholders of Capstar for
approval. Affiliates may not sell their shares of Chancellor Media common stock
acquired in connection with the merger except in connection with:

- - an effective registration statement under the Securities Act covering the
resale of such shares;

- - the conditions contemplated by paragraph (d) of Rule 145; or

- - any other applicable exemption from the registration requirements of the
Securities Act.

Under the terms of the merger agreement, Capstar is required to deliver to
Chancellor Media prior to the closing date of the merger a letter identifying
all persons who, at the time the merger agreement was submitted to the
stockholders of Capstar for approval, may be deemed to be Affiliates. Also,
Capstar is required to use its best efforts to secure a written agreement from
all such persons of their acknowledgement that they may be deemed to be
Affiliates and that they will not sell or otherwise transfer shares of
Chancellor Media common stock received in the merger in violation of the
provisions of Rule 145 and the Securities Act.

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THE MERGER AGREEMENT

The following is a brief summary of the material provisions of the amended and
restated merger agreement, which is attached as Annex I to this joint proxy
statement/prospectus and incorporated in this joint proxy statement/prospectus
by reference. Such summary is qualified in its entirety by reference to the
merger agreement. All stockholders are urged to read the merger agreement in its
entirety.

GENERAL

The merger agreement provides that, following the requisite approval of the
matters described in this joint proxy statement/prospectus by the stockholders
of Chancellor Media, the approval and adoption of the merger agreement by the
stockholders of Capstar and the satisfaction or waiver of the other conditions
to the merger:

- - Merger Sub will merge with and into Capstar; and

- - Merger Sub will cease to exist and Capstar will continue as the surviving
corporation and a wholly-owned subsidiary of Chancellor Media following the
merger. As a result of the merger, as of the effective time, Capstar will
succeed to and assume all rights and obligations of Merger Sub, in accordance
with the DGCL.

EFFECTIVE TIME

The merger agreement provides that, subject to the requisite approvals of the
stockholders of Chancellor Media and Capstar, and subject to the satisfaction or
waiver of certain other conditions, the merger will become effective upon the
filing of an appropriate certificate of merger, in accordance with the relevant
provisions of the DGCL, with the Secretary of State of the State of Delaware.

CONVERSION OF SHARES

At the effective time of the merger:

- - each share of Capstar class A common stock, class B common stock and class C
common stock issued and outstanding immediately prior to the effective time,
other than shares of Capstar class A common stock, class B common stock and
class C common stock held as treasury shares by Capstar and dissenting shares,
will be reclassified, changed and converted into the right to receive 0.4955
of a share of Chancellor Media common stock, provided however, that in the
event of certain changes like stock dividends or stock splits in Chancellor
Media common stock and/or Capstar common stock prior to the effective time of
the merger in accordance with the merger agreement, the number of shares to be
received by holders of Capstar common stock will be adjusted so as to maintain
the relative proportionate interests of the holders of Capstar common stock
and Chancellor Media common stock;

- - each share of Capstar common stock which is held as a treasury share by
Capstar at the effective time will be cancelled and retired and cease to
exist; and

- - each share of Chancellor Media common stock, 7% convertible preferred stock
and $3.00 convertible exchangeable preferred stock issued and outstanding
immediately prior to the effective time, will remain outstanding and
unaffected by the merger.

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TREATMENT OF STOCK OPTIONS AND WARRANTS

At the effective time of the merger, subject to certain conditions and
limitations, each Capstar stock option and warrant that is outstanding and
unexercised will be assumed by Chancellor Media, and will thereafter be an
option or warrant, as applicable, to acquire, on the same terms and conditions
as were applicable under such option or warrant immediately prior to the
effective time, the number of shares of Chancellor Media common stock equal to
the product of:

- - the number of shares of Capstar common stock subject to the original option or
warrant and

- - 0.4955 of a share of Chancellor Media common stock.

The exercise price per share of Chancellor Media common stock under the new
option or warrant will be equal to the quotient of the exercise price per share
of Capstar common stock under the original option or warrant divided by 0.4955.

In accordance with the terms of the Capstar stock option plan under which the
Capstar stock options were issued and the terms of the warrants, fractional
shares resulting from these adjustments will be eliminated.

At the effective time, Chancellor Media will assume the Capstar stock option
plan, with such changes thereto as may be necessary to reflect the consummation
of the merger, and will use its reasonable best efforts to register under the
Securities Act the issuance of shares of Chancellor Media common stock upon
exercise of the Capstar stock options and warrants.

EXCHANGE PROCEDURES

Promptly after the effective time of the merger, a form of letter of transmittal
and instructions for its use will be mailed to each record holder of
certificates that, immediately prior to the effective time, represented shares
of Capstar common stock which have been converted into Chancellor Media common
stock. After receipt of such transmittal form, each holder of such certificates
should surrender the certificates to Chancellor Media's transfer agent and
registrar (the "Paying Agent"), together with such letter of transmittal duly
executed and completed in accordance with the instructions accompanying the
letter of transmittal. Upon surrender of such certificates to and acceptance
thereof by the Paying Agent, each such holder will be entitled to receive:

- - certificates of Chancellor Media common stock, evidencing the whole number of
shares of Chancellor Media common stock to which such holder is entitled;

- - any unpaid dividends or distributions with respect to the shares represented
by any of the certificates; and

- - cash in lieu of fractional shares.

If any shares of Chancellor Media common stock are to be issued in a name other
than that in which the certificate(s) representing Capstar common stock
surrendered in exchange therefor is registered, the certificates so surrendered
must be properly endorsed or otherwise be in proper form for transfer and the
person requesting such exchange must pay to the Paying Agent any applicable
stock transfer taxes or must establish to the satisfaction of the Paying Agent
that such taxes have been paid or are not applicable. No interest will be paid
on the merger consideration.

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After the effective time of the merger, no holder of a certificate which,
immediately prior to the effective time, represented shares of Capstar common
stock will be entitled to receive any dividend or other distribution from
Chancellor Media until the holder surrenders the certificate for a certificate
representing shares of Chancellor Media common stock. Upon such surrender, there
will be paid to the holder the amount of any dividends or other distributions
which after the effective time became payable with respect to the number of
whole shares of Chancellor Media common stock into which such shares of Capstar
common stock are converted. No interest will be paid on such dividends or other
distributions.

No fractional shares of Chancellor Media common stock will be issued in the
merger. A holder of Capstar common stock who would otherwise be entitled to
receive fractional shares of Chancellor Media common stock as a result of the
merger shall receive, in lieu of fractional shares, cash in an amount equal to
the price per share of Chancellor Media common stock, as determined in
accordance with the procedures described below, multiplied by the fraction the
holder would otherwise be entitled to. Chancellor Media shall satisfy the
payment for the fractional shares by

(1) instructing the Paying Agent to aggregate the fractional shares and
sell such aggregated fractional shares at the then prevailing market
price on The Nasdaq Stock Market, or on the New York Stock Exchange if
Chancellor Media common stock is then listed thereon, or

(2) delivering to the Paying Agent cash, without interest, in an amount
equal to the aggregate amount of all such fractional shares multiplied
by the closing price per share of Chancellor Media common stock on The
Nasdaq Stock Market, or on the New York Stock Exchange if Chancellor
Media common stock is then listed thereon, on the trading day
immediately prior to the effective time.

Any portion of the merger consideration or any dividends or distributions with
respect to shares of Chancellor Media common stock that has not been distributed
to the holders of the certificates representing shares of Capstar common stock
within 120 days after the effective time will be delivered to Chancellor Media.
Any such holders who have not surrendered their certificates under the relevant
provisions of the merger agreement by that time may look only to Chancellor
Media as a general creditor thereof for payment of their claims for any merger
consideration and any dividends or distributions with respect to shares of
Chancellor Media common stock or to which they are entitled.

Neither Chancellor Media, the surviving corporation nor the Paying Agent will be
liable in respect of any cash, shares, dividends or distributions payable out of
the Paying Agent's payment fund or any dividends or distributions with respect
to shares of Chancellor Media common stock delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
certificate or certificates representing shares of Capstar common stock are not
surrendered prior to five years after the effective time, or immediately prior
to an earlier date on which any merger consideration in respect of the
certificate would otherwise escheat to or become the property of any
governmental agency or regulatory authority, any cash, shares, dividends or
distributions payable in respect of the certificate or certificates will become
the property of Chancellor Media.

CAPSTAR STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES REPRESENTING CAPSTAR
COMMON STOCK TO CHANCELLOR MEDIA. CERTIFICATES FOR SHARES OF CAPSTAR COMMON
STOCK WILL BE EXCHANGED FOR CERTIFICATES OF SHARES OF CHANCELLOR MEDIA COMMON
STOCK FOLLOWING
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CONSUMMATION OF THE MERGER IN ACCORDANCE WITH INSTRUCTIONS WHICH CHANCELLOR
MEDIA OR THE PAYING AGENT WILL SEND TO HOLDERS OF CAPSTAR COMMON STOCK AFTER THE
MERGER.

Shares of Capstar class B common stock and class C common stock outstanding
immediately prior to the effective time and held by a holder who has not voted
in favor of the merger or consented to the merger, who properly demands in
writing appraisal of such shares of Capstar class B common stock or class C
common stock in accordance with Section 262 of the DGCL, and who has not
withdrawn the demand or otherwise forfeited appraisal rights, will not be
converted into or represent the right to receive the merger consideration
therefor. Such stockholders will be entitled to receive payment of the appraised
value of the shares of Capstar class B common stock and class C common stock
held by them in accordance with the provisions of Section 262, except that all
dissenting shares held by stockholders who fail to perfect or who effectively
withdraw or lose their rights to appraisal of the securities under Section 262
will then be deemed to have been converted into, as of the effective time, the
right to receive without any interest on the shares, the applicable merger
consideration, upon surrender as provided by the merger agreement, of the
certificate or certificates that formerly represented the securities. See "The
Merger -- Appraisal and Dissenters' Rights."

DIRECTORS AND OFFICERS

The merger agreement provides that the Board of Directors of Chancellor Media
immediately after the effective time will consist of the directors of Chancellor
Media immediately prior to the effective time, with the addition of R. Gerald
Turner as a Class II director.

The merger agreement also provides that the directors of Capstar immediately
after the effective time will be the same as the directors of Chancellor Media
immediately after the effective time, except that the directors will not be
classified as to term. The officers of Chancellor Media from and after the
effective time will be the officers of Chancellor Media immediately prior to the
effective time. The merger agreement further provides that the officers of
Capstar from and after the effective time will be the officers of Chancellor
Media immediately prior to the effective time.

Each director of Capstar will hold office from the effective time until his or
her respective successor is duly elected or appointed and qualified in the
manner provided in Capstar's certificate of incorporation and bylaws, or as
otherwise provided by applicable law.

Each officer will hold office from the effective time until his respective
successor is duly elected or appointed and qualified in the manner provided in
the certificate of incorporation or bylaws of Chancellor Media or Capstar, as
applicable, or as otherwise provided by applicable law.

CERTIFICATE OF INCORPORATION AND BYLAWS

The merger agreement provides that:

- - subject to the approval of the Chancellor Media stockholders, the amended and
restated certificate of incorporation of Chancellor Media will be the
certificate of incorporation of Chancellor Media following the effective time
of the merger;

- - the certificate of incorporation of Merger Sub in effect immediately prior to
the effective time of merger shall be the certificate of incorporation of the
surviving corporation until

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thereafter amended in accordance with its terms and as provided by the DGCL,
except that the name of the surviving corporation will be "Capstar
Broadcasting Corporation"; and

- - the bylaws of Merger Sub in effect immediately prior to the effective time of
merger will be the bylaws of the surviving corporation until thereafter
amended in accordance within the terms and as provided by applicable law.

REPRESENTATIONS AND WARRANTIES

- - The merger agreement contains various customary representations and warranties
of Capstar relating to, among other things:

(1) its organization, standing and similar corporate matters;

(2) its capital structure;

(3) authorization, execution, delivery, performance and enforceability of
the merger agreement and the absence of conflicts with its and its
subsidiaries' organizational and selected other documents;

(4) documents filed by it and its subsidiaries with the SEC and the
accuracy of information contained in those documents;

(5) the absence of material changes or events, except as otherwise provided
in the merger agreement;

(6) the absence of extraordinary payments or change in benefits, except as
otherwise provided in the merger agreement;

(7) voting requirements;

(8) the inapplicability of Delaware and other state antitakeover statutes
to the merger;

(9) the compliance in all material respects with the terms of the FCC
licenses issued to Capstar and its respective subsidiaries and the
timely filing with the FCC of all applications, reports and other
disclosures with the FCC required to be made by Capstar and its
subsidiaries;

(10) broker relationships in connection with the merger;

(11) the qualification of Capstar and its subsidiaries under the
Communications Act to be transferors of control of the Capstar FCC
licenses;

(12) overall compliance with all applicable laws;

(13) the absence of undisclosed liabilities;

(14) the absence of any pending or threatened litigation against it or any
of its subsidiaries that would have a material adverse effect on
Capstar and its subsidiaries, taken as a whole, or prevent or
significantly delay the consummation of the transactions contemplated
by the merger agreement;

(15) the absence of transactions, agreements, arrangements or
understandings between Capstar or its subsidiaries and their
affiliates that would require disclosure with the SEC;

(16) labor matters;
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(17) employee arrangements and benefit plans;

(18) tax matters;

(19) intellectual property;

(20) environmental matters;

(21) material agreements;

(22) tangible property; and

(23) the opinions of its financial advisors.

- - The merger agreement contains various representations and warranties of
Chancellor Media relating to, among other things:

(1) its organization, standing and similar corporate matters;

(2) its capital structure;

(3) authorization, execution, delivery, performance and enforceability of
the merger agreement and the absence of conflicts with its and its
subsidiaries' organizational and selected other documents;

(4) documents filed by it and its subsidiaries with the SEC and the
accuracy of the information contained in those documents;

(5) the absence of material changes or events, except as otherwise provided
in the merger agreement;

(6) the absence of extraordinary payments or change in benefits, except as
otherwise provided in the merger agreement;

(7) broker relationships in connection with the merger;

(8) the opinion of its financial advisors;

(9) the absence of undisclosed liabilities;

(10) the absence of any pending or threatened litigation against it or any
of its subsidiaries that would have a material adverse effect on
Chancellor Media and its subsidiaries, taken as a whole, or prevent or
significantly delay the consummation of the transactions contemplated
by the merger agreement;

(11) the absence of transactions, agreements, arrangements or
understandings between Chancellor Media or its subsidiaries and their
affiliates that would require disclosure with the SEC;

(12) voting requirements;

(13) the qualification of Chancellor Media and its subsidiaries under the
Communications Act to be the transferees of control of the Capstar FCC
licenses;

(14) employee arrangements and benefit plans;

(15) tax matters;

(16) intellectual property;

(17) environmental matters;

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(18) overall compliance with all applicable laws;

(19) the compliance in all material respects with the terms of the FCC
licenses issued to Chancellor Media and its respective subsidiaries
and the timely filing with the FCC of all applications, reports and
other disclosures with the FCC required to be made by Chancellor Media
and its subsidiaries;

(20) the inapplicability of Delaware and other state antitakeover statutes
to the merger; and

(21) the due authorization, valid issuance, full payment and
nonassessability of the shares of Chancellor Media common stock to be
issued to Capstar stockholders in the merger or upon exercise of
Capstar stock options and warrants assumed by Chancellor Media in the
merger.

CERTAIN COVENANTS

The merger agreement contains various customary covenants, including covenants
of Capstar that during the period from the date of the merger agreement until
the effective time of the merger, except as permitted by or contemplated in the
merger agreement, Capstar, and each of its subsidiaries, will, among other
things, conduct its operations in the ordinary course of business and use its
reasonable best efforts to preserve intact its business organizations and
goodwill in all material respects and keep available the services of its
respective officers and employees as a group.

Further, Capstar has agreed that, among other things and subject to certain
conditions and exceptions, it will not (and will cause its subsidiaries not to),
without the prior consent of Chancellor Media (not to be unreasonably withheld):

(1) declare, set aside or pay any dividends on or make other distributions
in respect of its or its subsidiaries' outstanding capital stock, other
than as provided in the merger agreement;

(2) split combine or reclassify any of its outstanding capital stock or
issue or authorize the issuance of any securities in lieu of or in
substitution for its outstanding capital stock;

(3) purchase, redeem or otherwise acquire any shares of its outstanding
capital stock or any rights, warrants or options to acquire any such
shares, other than as provided in the merger agreement;

(4) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other equity securities or any securities
convertible into, or any rights, warrants or options to acquire any
shares, equity securities or convertible securities, other than as
provided in the merger agreement;

(5) amend its certificate of incorporation, bylaws or other comparable
charter or organizational documents, other than as provided in the
merger agreement;

(6) acquire any business or any corporation, partnership, joint venture,
association or other business organization;

(7) sell, mortgage or otherwise encumber or subject to any lien or
encumbrance or otherwise dispose of any of its properties or assets
that are material to it and its subsidiaries, taken as a whole, other
than as provided in the merger agreement;

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(8) other than working capital borrowings in the ordinary course of
business and consistent with past practices or borrowings used for the
purpose of any radio station or other acquisition permitted by the
terms of the merger agreement, incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person, other than
as provided in the merger agreement, or make any material loans or
advances to any other person, other than to Capstar or any of its
direct or indirect wholly-owned subsidiaries and other than routine
advances to employees consistent with past practices;

(9) make any tax election or settle or compromise any tax liability that
could reasonably be expected to be material to Capstar and its
subsidiaries, taken as a whole, or change its tax or accounting
methods, policies, practice or procedures, except as required by GAAP;

(10) pay, discharge, settle or satisfy any material claims, liabilities or
obligations, other than the payment, discharge or satisfaction of
certain liabilities as provided in the merger agreement;

(11) make any material commitments or agreements for capital expenditures
or capital additions or betterments except as materially consistent
with the budget for capital expenditures as of the date of the merger
agreement, in the ordinary course of business consistent with past
practices and in accordance with the terms of the merger agreement;

(12) except as may be required by law, other than in the ordinary course of
business and consistent with past practice:

(A) make any representation or promise to any employee or former
director, officer or employee of Capstar or any of its subsidiaries
which is inconsistent with the terms of any Capstar employee benefit
plan;

(B) make any change to, or amend in any way, the contracts, salaries,
wages, or other compensation of any director, employee or any agent
or consultant of Capstar or any of its subsidiaries other than
routine changes or amendments that are required under existing
contracts;

(C) adopt, enter into, amend, alter or terminate, partially or
completely, any Capstar employee benefit plan or any election made
pursuant to the provisions of any Capstar employee benefit plan to
accelerate any payments, obligations or vesting schedules
thereunder; or

(D) approve any general or company-wide pay increases for employees;

(13) except in the ordinary course of business, modify amend or terminate
any material agreement, permit, concession, franchise, license or
similar instrument to which Capstar or any of its subsidiaries is a
party or waive, release or assign any material rights or claims
thereunder; or

(14) authorize any of, or commit or agree to take any of the foregoing
actions.

Also, Capstar has agreed to use its reasonable best efforts to obtain the
consent of the requisite parties to the Capstar stockholders agreements to
terminate, or waive their rights under, those agreements at the effective time
of the merger. To the extent that a termination or waiver of rights under any of
the stockholders agreements are not effected

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prior to closing, Chancellor Media has agreed to assume the obligations of the
surviving corporation thereunder with respect to the shares of Chancellor Media
common stock issued in the merger or otherwise subject to such agreements. In
addition, Chancellor Media has agreed to use its reasonable best efforts to
enter into a joinder to the Chancellor Media stockholders agreement (or
otherwise enter into a new agreement with such holders and the existing parties
to the Chancellor Media stockholders agreement) with certain stockholders of
Capstar who will hold more than 1% of the Chancellor Media common stock
following the merger relating to registration rights afforded to certain
existing Chancellor Media stockholders.

CONDITIONS TO THE MERGER

The respective obligations of each of the parties to the merger agreement to
effect the merger are subject to the satisfaction or waiver of certain
conditions, including that:

(1) the Capstar stockholders approval and the Chancellor Media stockholders
approval shall have been obtained in accordance with the requirements
of the DGCL and The Nasdaq Stock Market, as applicable;

(2) the FCC shall have issued an order, which order has not been reversed,
stayed, enjoined, set aside or suspended and with respect to which no
timely request for stay, petition for reconsideration or appeal has
been filed, approving the transfer of control of Capstar's FCC licenses
without any material conditions or restrictions (see "The
Merger -- Certain Regulatory Matters" above);

(3) all required consents, approvals, permits and authorizations to the
consummation of the transactions contemplated by the merger agreement
by Capstar and Chancellor Media shall have been obtained from any
governmental entity, other than the FCC, whose consent, approval,
permission or authorization is required by reason of a change in law
after the date of the merger agreement, except as provided in the
merger agreement;

(4) any applicable waiting period under the HSR Act shall have been
terminated or shall have otherwise expired;

(5) there shall be in effect no temporary restraining order, preliminary or
permanent injunction or other order of any court or other legal
restraint or prohibition preventing the consummation of the merger;

(6) the shares of Chancellor Media common stock issuable in connection with
the merger shall have been approved for inclusion on The Nasdaq Stock
Market (or the New York Stock Exchange, if the Chancellor Media common
stock is then listed thereon);

(7) the registration statement shall have been declared effective by the
SEC and shall not be the subject of a stop order or proceeding seeking
a stop order;

(8) holders of not more than 10% of the outstanding shares of Capstar class
B common stock and class C common stock shall have properly demanded
appraisal rights for their shares under the DGCL; and

(9) Capstar shall have received all necessary consents under its senior
secured credit facilities in order to consummate the transactions
contemplated by the merger agreement or a firm commitment of senior
secured financing from a nationally

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recognized commercial bank or syndicate of banks in amounts sufficient
to refinance all of the outstanding indebtedness under its senior
secured credit facilities at the closing.

The obligations of Capstar to effect the merger are further subject to
satisfaction of the following conditions:

(1) the representations and warranties of Chancellor Media and Merger Sub
shall have been true and correct on the date that the merger agreement
was entered into and shall be true and correct at and as of the closing
date, except as otherwise provided in the merger agreement and Capstar
shall have received a certificate signed on behalf of Chancellor Media
by a senior executive officer of each of Chancellor Media and Merger
Sub to such effect;

(2) each of Chancellor Media and Merger Sub shall have performed, in all
material respects, all obligations required to be performed by them at
or prior to the closing date and Capstar shall have received a
certificate signed on behalf of Chancellor Media by a senior executive
officer of each of Chancellor Media and Merger Sub to such effect; and

(3) Capstar shall have received an opinion from Vinson & Elkins L.L.P. on
the closing date to the effect that, among other things and subject to
certain conditions, the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of
the Code.

The obligations of Chancellor Media and Merger Sub to effect the merger are
further subject to satisfaction of the following conditions:

(1) the representations and warranties of Capstar shall have been true and
correct on the date that the merger agreement was entered into and
shall be true and correct at and as of the closing date, except as
provided in the merger agreement and Chancellor Media shall have
received a certificate signed on behalf of Capstar by a senior
executive officer to such effect;

(2) each of Capstar shall have performed, in all material respects, all
obligations required to be performed by it at or prior to the closing
date and Chancellor Media shall have received a certificate signed on
behalf of Capstar by a senior executive officer to such effect;

(3) Chancellor Media shall have received an opinion from Weil, Gotshal &
Manges LLP on the closing date to the effect that, among other things
and subject to certain conditions, the merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code;

(4) Capstar and its subsidiaries shall have received any necessary consents
required as a result of the merger and the transactions contemplated by
the merger agreement with respect to each material agreement, as
provided by the merger agreement; and

(5) Capstar and certain of its subsidiaries and Hicks Muse Partners shall
have terminated each of the monitoring and oversight agreements and the
financial advisory agreements, as provided by the merger agreement.

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ADDITIONAL AGREEMENTS

Each of Capstar and Chancellor Media has also agreed, among other things, and
subject to certain conditions and exceptions:

- - as soon as practicable following the date of the merger agreement, that
Chancellor Media and Capstar will prepare and file with the SEC the
registration statement, including this Proxy Statement/Prospectus, and to use
its best efforts to have the registration statement declared effective under
the Securities Act as promptly as practicable after such filing;

- - to take all action necessary to convene a meeting of its stockholders to
submit the matters described in this joint proxy statement/prospectus for
approval and to use its best efforts to hold such stockholders' meeting as
soon as practicable after the date of the merger agreement;

- - to make, and cause its respective subsidiaries and its other affiliates to
make, all necessary filings as soon as practicable, including, without
limitation, those required under the HSR Act, the Securities Act, the Exchange
Act, and the Communications Act, including filing an application with the FCC
for the transfer of control of Capstar's FCC licenses, in order to facilitate
prompt consummation of the merger and the other transactions contemplated by
the merger agreement;

- - with respect to Capstar, to use its commercially reasonable efforts to obtain
the consent of the lenders under its senior secured credit facility in order
to consummate the merger and the transactions contemplated by the merger
agreement and, in the event that consents are unobtainable, to cooperate with
the other party in obtaining refinancing of the senior secured credit
facility;

- - to cause it and its respective subsidiaries to afford to the other parties to
the merger agreement and to their respective officers, employees, counsel,
financial advisors and other representatives reasonable access, during the
period prior to the effective time to all of its properties, books, contracts,
commitments, personnel and records, and shall furnish such information
concerning its business, properties, financial condition, operations and
personnel as such parties may reasonably request, except as provided in the
merger agreement;

- - not to, and to cause its subsidiaries and representatives not to, use or
disclose any nonpublic information obtained from Chancellor Media or Capstar
to any other person, in whole or in part, except as provided for in the merger
agreement and the confidentiality agreement; and

- - to consult with each other before issuing, and will provide opportunity to
review and comment upon, any press release or other public statements with
respect to the merger agreement or any of the transactions contemplated by the
merger agreement.

Except as provided in the merger agreement, Capstar has also further agreed not
to, and not to authorize or permit its subsidiaries to, permit any of its or its
subsidiaries' respective officers, directors, partners, employees, agents,
counsel, accountants, financial advisors or any other representatives and
affiliates (collectively, "Representatives") to, directly or indirectly,
solicit, initiate or encourage or take any other action to facilitate the
submission

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of any Acquisition Proposal (as defined below) or enter into or participate in
any discussions or negotiations regarding any Acquisition Proposal. Capstar has
also agreed to:

- - immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any persons conducted
heretofore by it or its Representatives with respect to the foregoing;

- - not release any third party from, or waive any provision of, any standstill
agreement to which it is a party or any confidentiality agreement between it
and another person who has made, or may reasonably be considered likely to
make, an Acquisition Proposal, except as provided in the merger agreement; and

- - notify Chancellor Media of any such inquiries, offers or proposals.

Capstar has also agreed that neither the board of directors of Capstar nor any
committee of the board of directors shall, except as provided in the merger
agreement as described below,

(1) withdraw or modify, or propose to do so, in a manner adverse to
Chancellor Media, the approval or recommendation of its board of
directors or committee of the board of directors of the Capstar
stockholder proposals;

(2) approve or recommend, or propose to do so, any Acquisition Proposal; or

(3) cause Capstar to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to
any Acquisition Proposal;

provided, however, that in the event that the Capstar Special Committee or the
full Board of Directors of Capstar determines in good faith, following
consultation with and after considering the advice of outside counsel, that in
order to comply with its fiduciary duties to stockholders under applicable law
it is necessary for the Capstar Special Committee or the full Board of Directors
of Capstar to withdraw or modify its approval or recommendation of the merger
agreement and the merger, in a manner materially adverse to Chancellor Media,
then the Capstar Special Committee or the full Board of Directors of Capstar
shall be entitled to

(A) withdraw or modify such recommendation without breaching the terms of
the merger agreement or

(B) terminate the merger agreement and pay to Chancellor Media a $50.0
million termination fee.

"Acquisition Proposal" is defined in the merger agreement to include any written
proposal or offer from any person, other than Chancellor Media or any of its
subsidiaries, for a tender or exchange offer, merger, consolidation, other
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Capstar or any significant subsidiary of Capstar, or any
proposal to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of Capstar or a significant subsidiary of
Capstar.

Chancellor Media has also agreed that the Chancellor Special Committee and the
Board of Directors of Chancellor Media will recommend to its stockholders that
they vote in favor of each of the Chancellor Media stockholder proposals
relating to the merger; provided, however, that in the event that the Chancellor
Special Committee or the full Board of Directors of Chancellor Media determines
in good faith, following consultation

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with and after considering the advice of outside counsel, that in order to
comply with its fiduciary duties to stockholders under applicable law it is
necessary for the Chancellor Special Committee or the full Board of Chancellor
Media to withdraw or modify its approval or recommendation of the transactions
contemplated by the merger agreement or the merger, in a manner materially
adverse to Capstar, then the Chancellor Special Committee or the full Board of
Directors of Chancellor Media shall be entitled to

(A) withdraw or modify such recommendation without breaching the terms of
the merger agreement or

(B) terminate the merger agreement and pay to Capstar a $50.0 million
termination fee.

Chancellor Media has also further agreed to use its best efforts to cause the
shares of Chancellor Media common stock to be issued in the merger and upon
exercise of the assumed stock options and warrants to be approved for inclusion
on The Nasdaq Stock Market (or the New York Stock Exchange, if the Chancellor
Media common stock is then listed thereon).

Capstar has also further agreed to, among other things, and subject to selected
exceptions and conditions, deliver to Chancellor Media a letter identifying all
persons who may be, at the time the merger is submitted for approval to its
stockholders, "affiliates" of Capstar for purposes of Rule 145 under the
Securities Act, and to use its best efforts to cause each such person to deliver
to Chancellor Media on or prior to the closing date a written agreement in the
form attached to the merger agreement.

INDEMNIFICATION AND INSURANCE

The certificate of incorporation of the surviving corporation will contain the
provisions with respect to indemnification contained in the certificate of
incorporation of Capstar, as in effect as of the date of the merger agreement,
and none of such provisions will be amended, repealed or otherwise modified for
a period of six years after the effective time of the merger in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the effective time were directors or officers of Capstar or any of its
respective subsidiaries in respect of actions or omissions occurring at or prior
to the effective time, unless such modification is required by law.

The second amended and restated certificate of incorporation of Chancellor Media
will contain the provisions with respect to indemnification contained in the
certificate of incorporation of Chancellor Media, as in effect as of the date of
the merger agreement, and none of such provisions will be amended, repealed or
otherwise modified for a period of six years after the effective time of the
merger in any manner that would adversely affect the rights thereunder of
individuals who at any time prior to the effective time were directors or
officers of Capstar, or any of its respective subsidiaries in respect of actions
or omissions occurring at or prior to the effective time, unless such
modification is required by law.

For a period of at least six years after the effective time, if commercially
available, Chancellor Media will maintain Capstar's current directors' and
officers' insurance and indemnification policies to the extent that such
policies provide coverage for events occurring prior to the effective time, for
all persons who were directors and executive officers of Capstar on the date of
the merger agreement, so long as the annual premium

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therefor would not be in excess of 250% of the last annual premium paid prior to
the date of the merger agreement; provided, however, that Chancellor Media or
its subsidiaries, may, in lieu of maintaining such existing directors' and
officers' insurance, cause coverage to be provided under any policy maintained
for the benefit of Chancellor Media and its subsidiaries so long as the terms of
the policy are not less advantageous to the beneficiaries than the existing
directors' and officers' insurance. In addition, immediately following the
effective time of the merger, Chancellor Media will enter into agreements with
its executive officers and members of its board of directors providing for
indemnification on substantially identical terms as the agreements of Capstar
with the current directors and executive officers of Capstar and use its
commercially reasonable efforts to obtain an additional directors and officers
insurance policy for Chancellor Media in an amount equal to at least $25.0
million to cover members of the board of directors of Chancellor Media for facts
and circumstances arising after the effective time of the merger.

TERMINATION

The merger agreement may be terminated at any time prior to the effective time:

- - by mutual written consent of Capstar and Chancellor Media;

- - by either Capstar or Chancellor Media if:

(1) any required approval of the stockholders of Capstar or Chancellor
Media has not been obtained after submission by the applicable board of
directors to such stockholders of any matter requiring such approval;

(2) the merger has not been consummated on or before September 30, 1999,
other than as the result of the willful and material breach of the
merger agreement by the party seeking to terminate the merger
agreement;

(3) any governmental entity shall have issued an order, decree or ruling or
take any other action permanently enjoining, restraining or otherwise
prohibiting the merger and such action has become final and
non-appealable;

(4) the other party has breached the requirements of the merger agreement
regarding any representation, warranty, covenant or other agreement
giving rise to a failure of any representation and warranty or
condition precedent to the merger agreement that has not been, and
cannot be, cured within 30 days of written notice to the breaching
party, unless the party seeking to terminate is in material breach
under the merger agreement itself; or

(5) if its board of directors or the special committee of the board of
directors has determined in good faith, after consultation with and
after considering the advice of its outside counsel, that in order to
comply with the board's or special committee thereof's fiduciary duties
under applicable law it is necessary to withdraw or modify, in a manner
materially adverse to the other party, its approval or recommendation
of the merger agreement or the merger and the transactions contemplated
by the merger agreement; or

- - by Chancellor Media if Capstar has breached any agreements relating to an
Acquisition Proposal, unless Chancellor Media is then in material breach of
the merger agreement.

In the event of a termination of the merger agreement by Capstar or Chancellor
Media, as a result of the other party's failure to obtain stockholders approval
or a material breach of

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the merger agreement, or by Chancellor Media in the event that Capstar has
breached any agreements relating to an Acquisition Proposal, then the other
party shall reimburse such nonbreaching party for all substantiated
out-of-pocket costs and expenses incurred in connection with the merger
agreement and the transactions contemplated thereby. In addition, in the event
that a party commits a willful and material breach of any of the provisions of
the merger agreement, the other party may seek damages or any other appropriate
remedy at law or in equity.

In the event of a termination by Capstar or Chancellor Media as a result of a
withdrawal or modification by its board of directors or the special committee of
the board of directors of its recommendation of the merger and the merger
agreement in a manner materially adverse to the other party, the party electing
to terminate the agreement must pay to the nonterminating party an amount of
$50.0 million in cash.

AMENDMENT AND MODIFICATION

Subject to the applicable provisions of the DGCL, at any time prior to the
effective time of the merger, the parties may modify or amend the merger
agreement by written agreement; provided, however, that after the approval of
the stockholders of Capstar has been obtained, no amendment may reduce the
merger consideration or adversely affect the rights of the Capstar stockholders
without their approval.

FEES AND EXPENSES

The merger agreement provides that, regardless of whether the merger is
consummated, each of Capstar and Chancellor Media will pay its own costs and
expenses incurred by it in connection with the merger agreement and the
consummation of the transactions contemplated by the merger agreement, except as
provided by the merger agreement in certain events of termination of the merger
agreement. See "-- Termination." However, the expenses arising from the various
filings required under the merger agreement will be borne equally by Chancellor
Media and Capstar.

THE VOTING AGREEMENT

As a condition and inducement to Chancellor Media to enter into the merger
agreement, Thomas O. Hicks, R. Steven Hicks and Capstar Broadcasting Partners,
L.P., which collectively hold a majority of the voting power of the Capstar
class A common stock and class C common stock, have entered into a voting
agreement (as amended, the "Voting Agreement") with Chancellor Media. Under the
Voting Agreement, as amended, Thomas O. Hicks, R. Steven Hicks and Capstar
Broadcasting Partners, L.P. have agreed, among other things:

- - to vote all shares of Capstar class A common stock and Capstar class C common
stock held by them in favor of the merger;

- - to vote all shares of Capstar class A common stock and Capstar class C common
stock held by them against

(1) any merger, other than the merger contemplated by the merger agreement,
takeover proposal or acquisition proposal; and

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(2) any amendment to Capstar's certificate of incorporation or bylaws or
other proposal or transaction involving Capstar or any of its
subsidiaries which would impede, frustrate, prevent or nullify the
merger, or change in any manner the voting rights of the Capstar common
stock; and

- - not to sell, transfer, pledge, assign or otherwise dispose of shares of
Capstar common stock or enter into any voting agreement, proxy or other voting
agreement with any other person with respect to the shares of Capstar common
stock held by them.

Accordingly, Messrs. Thomas O. Hicks, R. Steven Hicks and Capstar Broadcasting
Partners, L.P. control the vote of the Capstar stockholders. By entering into
the Voting Agreement and voting their shares in favor of the adoption and
approval of the merger agreement, Messrs. Thomas O. Hicks, R. Steven Hicks and
Capstar Broadcasting Partners, L.P. will have waived their appraisal rights
under the DGCL with respect to the class B common stock and class C common stock
held by them. The Voting Agreement terminates upon the earlier to occur of the
termination of the merger agreement in accordance with its terms or the
effective time of the merger.

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THE CHANCELLOR MEDIA PROPOSALS

THE MERGER PROPOSALS

Chancellor Media Proposal 1 -- Issuance of Shares of Chancellor Media Common
Stock in the Merger

At the Chancellor Media annual meeting, Chancellor Media's stockholders will be
asked to approve the issuance of 0.4955 of a share of Chancellor Media common
stock to Capstar stockholders for each shares of Capstar class A common stock,
class B common stock and class C common stock outstanding immediately prior to
the consummation of the merger. Based on the number of shares of Capstar class A
common stock, class B common stock and class C common stock outstanding on May
19, 1999, Chancellor Media currently expects to issue approximately 53.4 million
shares of Chancellor Media common stock to holders of Capstar common stock.

In addition, Chancellor Media has agreed in the merger agreement to assume
outstanding options and warrants to purchase shares of Capstar class A common
stock, class B common stock and class C common stock held by certain officers,
directors, employees and consultants of Capstar and its subsidiaries. After
adjusting the Capstar options and warrants for the exchange ratio in the merger,
Chancellor Media will assume options and warrants to purchase an additional 3.3
million shares of Chancellor Media common stock based on the number of such
Capstar options and warrants outstanding on May 19, 1999.

Approval of Chancellor Media Proposal No. 1 requires the affirmative vote of at
least a majority of the votes cast by holders of shares of Chancellor Media
common stock at the Chancellor Media annual meeting.

Chancellor Media Proposal No. 2 -- Amending and Restating Chancellor Media's
Amended and Restated Certificate of Incorporation

In order to issue the number of shares of Chancellor Media common stock to
Capstar stockholders required by the merger agreement, Chancellor Media must
amend its amended and restated certificate of incorporation to increase its
authorized shares of Chancellor Media common stock. Currently, Chancellor
Media's amended and restated certificate of incorporation authorizes the
issuance of up to 200,000,000 shares of common stock. The second amended and
restated certificate of incorporation would increase the number of authorized
shares of Chancellor Media common stock to 750,000,000. This would permit
Chancellor Media to issue shares of Chancellor Media common stock to the
stockholders of Capstar in the merger, as well as a sufficient number of shares
to be reserved for issuance upon exercise of the Capstar options and warrants
assumed by Chancellor Media in the merger.

In addition, Chancellor Media is seeking stockholder approval of a new employee
stock option plan that would increase the need for authorized shares of
Chancellor Media common stock to be reserved for issuance pursuant to options
granted under the new stock option plan. Finally, the increase of authorized
shares of Chancellor Media common stock under the second amended and restated
certificate of incorporation will provide future flexibility should the Board of
Directors of Chancellor Media determine that a stock dividend, primary equity
offering(s), or acquisition or other transactions involving the use of
Chancellor Media common stock are in the best interests of Chancellor Media and
its stockholders. Shares of Chancellor Media common stock may be issued for
cash, property,

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services rendered or cancellation of indebtedness, or in any combination
thereof, and at such price or prices and on such terms as the Board of Directors
of Chancellor Media determines to be reasonable in its business judgment
consistent with Delaware law. Shares of Chancellor Media common stock may
generally be issued by the Board of Directors of Chancellor Media without
authorization from its stockholders, although requirements of The Nasdaq Stock
Market or any national securities exchange on which Chancellor Media's common
stock is then listed may require stockholder approval of the issuance of
Chancellor Media common stock in certain circumstances.

The second amended and restated certificate of incorporation of Chancellor Media
would also change some additional provisions of its amended and restated
certificate of incorporation currently in effect. The substantive changes are as
follows:

- - changing Chancellor Media's name to AMFM Inc.;

- - the elimination of 75,000,000 authorized shares of class A common stock of
Chancellor Media, none of which is currently outstanding;

- - the elimination of certain provisions relating to "going private transactions"
with Scott K. Ginsburg, Chancellor Media's former President and Chief
Executive Officer;

- - the increase of the maximum number of directors comprising the Chancellor
Media Board of Directors from thirteen to fourteen; and

- - the addition of an article that confers authority in the Board of Directors of
Chancellor Media to exercise all power lawfully vested in the Board of
Directors under Delaware law, including the power to adopt, amend and repeal
the bylaws of Chancellor Media.

The additional changes in the second amended and restated certificate of
incorporation are being made because:

- - the AMFM Inc. name will underscore Chancellor Media's core assets of radio
broadcast stations;

- - Chancellor Media no longer needs a class A common stock, which remains from
its charter prior to its merger with Chancellor Broadcasting Company in
September 1997, since all common stockholders now hold the same class of
common stock;

- - the historical provisions relating to "going private transactions" are no
longer necessary since Chancellor Media now has only one class of common
stock;

- - following the election of directors at the Chancellor Media annual meeting and
the addition of R. Gerald Turner, currently a director of Capstar, to the
Chancellor Media Board of Directors following the merger, Chancellor Media's
Board of Directors will have twelve directors, and the increase in the maximum
number of directors permitted under the second amended and restated
certificate of incorporation provides flexibility for Chancellor Media to add
additional directors if the Board of Directors determines that any such
addition would be beneficial to Chancellor Media and its stockholders; and

- - the provision permitting the Board of Directors to adopt, amend and repeal the
bylaws of Chancellor Media permits greater flexibility in corporate governance
matters and is standard for most Delaware corporations, including Capstar; the
fact that this power is conferred upon the Board of Directors does not divest
the stockholders of this power nor limit their power to adopt, amend or repeal
bylaws in accordance with Delaware law.

Approval of the Chancellor Media Proposal No. 2 requires the affirmative vote of
at least a majority of the outstanding shares of Chancellor Media common stock
at the Chancellor Media annual meeting.

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THE BOARD OF DIRECTORS OF CHANCELLOR MEDIA HAS DETERMINED THAT THE MERGER IS
FAIR TO, ADVISABLE AND IN THE BEST INTEREST OF CHANCELLOR MEDIA'S STOCKHOLDERS
AND RECOMMENDS THAT CHANCELLOR MEDIA STOCKHOLDERS VOTE IN FAVOR OF BOTH
CHANCELLOR MEDIA PROPOSAL 1, THE APPROVAL OF THE ISSUANCE OF SHARES OF
CHANCELLOR MEDIA COMMON STOCK IN THE MERGER, AND CHANCELLOR MEDIA PROPOSAL 2,
AMENDING AND RESTATING CHANCELLOR MEDIA'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION.

THE APPROVAL BY THE CHANCELLOR MEDIA STOCKHOLDERS OF BOTH CHANCELLOR MEDIA
PROPOSAL 1 AND CHANCELLOR MEDIA PROPOSAL 2 IS REQUIRED FOR CHANCELLOR MEDIA TO
COMPLETE THE MERGER WITH CAPSTAR. IF EITHER CHANCELLOR MEDIA PROPOSAL 1 OR
CHANCELLOR MEDIA PROPOSAL 2 FAIL TO OBTAIN THE REQUISITE VOTE OF CHANCELLOR
MEDIA STOCKHOLDERS NECESSARY FOR APPROVAL, THE MERGER WILL NOT BE COMPLETED.

OTHER CHANCELLOR MEDIA ANNUAL MEETING PROPOSALS

Chancellor Media Proposal 3 -- Election of Three Class II Directors

The amended and restated certificate of incorporation and bylaws of Chancellor
Media currently provide for the election of a maximum of thirteen directors to
constitute the Board of Directors of Chancellor Media. Under the terms of
Chancellor Media's amended and restated certificate of incorporation, the Board
of Directors has been divided into three classes of directors, each of which is
elected to serve a term of three years. The Board of Directors has currently
fixed the size of the Board of Directors at twelve. Of these members, four are
designated as Class I directors, four are designated as Class II directors and
four are designated as Class III directors. The term of office of the Class I
directors expires at the 2001 annual meeting of Chancellor Media's stockholders,
the term of office of the Class II directors expires at the Chancellor Media
annual meeting for which this joint proxy statement/prospectus relates, and the
term of office of the Class III directors expires at the 2000 annual meeting of
Chancellor Media's stockholders. At each annual meeting, directors elected to
succeed those directors whose terms expire shall be elected for a term of office
to expire at the third annual meeting of Chancellor Media's stockholders after
their election.

Action will be taken at the Chancellor Media annual meeting for the election of
three Class II directors, each of whom will serve for a three-year term expiring
in 2002. The Board of Directors has nominated the persons named below to stand
for election as Class II directors at the Chancellor Media annual meeting. Each
of the persons nominated presently serves as a Class II director of Chancellor
Media. Jeffrey A. Marcus, currently a Class II director of Chancellor Media, is
not standing for reelection. Also listed below are each of the Class I and Class
III directors whose terms will continue after the meeting. It is intended that
the attorneys-in-fact named in the enclosed proxy card will vote "FOR" the
election of the Class II director nominees listed below, unless instructions to
the contrary are given therein. These nominees have indicated that they are able
and willing to serve as directors. However, if some unexpected occurrence should
require the substitution of some other person or persons for any one or more of
the nominees listed below, it is intended that the attorneys-in-fact will vote
"FOR" such substitute nominees as the Board of Directors may designate. All
directors elected at the Chancellor Media annual meeting will hold office for
their respective terms and until their respective successors are duly elected
and qualified.

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If both Chancellor Media Proposal 1 and Chancellor Media Proposal 2 are adopted
by the stockholders at the Chancellor Media annual meeting and Chancellor Media
consummates the merger described herein, and if the Chancellor Media
stockholders elect the three Class II directors nominees listed below, each of
the Class I directors, Class II directors and Class III directors listed below
will continue to serve as directors of Chancellor Media following the merger in
their same respective class. In addition, pursuant to the terms of the merger
agreement, R. Gerald Turner, currently a director of Capstar, will be appointed
to the Board of Directors of Chancellor Media as a Class II director immediately
after the effective time of the merger, with a term expiring at the 2002 annual
meeting of Chancellor Media's stockholders. For biographical information of R.
Gerald Turner, see "Directors and Management Following the Merger -- Directors
and Management of Capstar."

Class II Director Nominees -- Terms Expire 2002

James E. de Castro (age 46)

Mr. de Castro was elected Vice Chairman of Chancellor Media and President and
Chief Executive Officer of the AMFM Radio Group in March 1999. Prior thereto,
Mr. de Castro served as Chief Operating Officer of Chancellor Media from
September 22, 1997 to August 19, 1998, and from August 19, 1998 to March 15,
1999, Mr. de Castro served as President of the Chancellor Radio Group. From
September 5, 1997 to September 22, 1997, Mr. de Castro served as Co-Chief
Operating Officer of Chancellor Media. Mr. de Castro was elected Co-Chief
Operating Officer and a director of Chancellor Media in September 1997. Mr. de
Castro was previously President of Evergreen Media Corporation since 1993 and
Chief Operating Officer and a director of Evergreen Media Corporation since
1989. From 1987 to 1988, Mr. de Castro held various positions with H&G
Communications, Inc. and predecessor entities. From 1981 to 1989, Mr. de Castro
was general manager of radio stations WLUP-FM and WLUP-AM (now known as WMVP-AM)
in Chicago, and from 1989 to 1992, Mr. de Castro was general manager of radio
station KKBT-FM in Los Angeles.

Robert L. Crandall (age 63)

Mr. Crandall became a director of Chancellor Media on May 18, 1999. Mr. Crandall
served as Chairman of the Board, President and Chief Executive Officer of AMR
Corp., the parent company of American Airlines, from 1985 to May 1998, when he
retired. Mr. Crandall is also a director of American Express Company, Anixter
International, Inc., Celestica, Inc., Halliburton Company and MediaOne Group,
Inc.

Lawrence D. Stuart, Jr. (age 54)

Mr. Stuart became a director of Chancellor Media in September 1997. Mr. Stuart
previously served as a director of Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company since January 1997. Since October 1995,
Mr. Stuart has served as a Managing Director and Principal of Hicks Muse, a
private investment firm located in Dallas, St. Louis, New York, Mexico City and
London specializing in strategic investments, leveraged acquisitions and
recapitalizations. Prior to joining Hicks Muse, from 1990 to 1995 he served as
the managing partner of the Dallas office of the law firm Weil, Gotshal & Manges
LLP. Mr. Stuart also serves as a director of Capstar, Home Interiors & Gifts,
Inc. and Arena Brands, Inc.

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Class III Directors -- Terms Expire 2000

Thomas O. Hicks (age 53)

Mr. Thomas O. Hicks was elected Chairman of the Board of Chancellor Media in
September 1997 and elected Chief Executive Officer in March 1999. He had been
Chairman of the Board of Chancellor Broadcasting Company and Chancellor Radio
Broadcasting Company prior to that time, since April 1996. Mr. Thomas O. Hicks
is Chairman of the Board and Chief Executive Officer of Hicks Muse. From 1984 to
May 1989, Mr. Thomas O. Hicks was Co-Chairman of the Board and Co-Chief
Executive Officer of Hicks & Haas Incorporated, a Dallas based private
investment firm. Mr. Thomas O. Hicks serves as a director of Capstar, LIN
Holdings Corp., LIN Television Corporation, Sybron International Corporation,
Inc., Cooperative Computing, Inc., International Home Foods, Regal Cinemas,
Inc., Triton Energy Limited, D.A.C. Vision Inc., Olympus Real Estate Corporation
and Viasystems Group, Inc. Mr. Thomas O. Hicks is the brother of Mr. R. Steven
Hicks.

Thomas J. Hodson (age 55)

Mr. Hodson became a director of Chancellor Media in September 1997. Mr. Hodson
had previously served as a director of Evergreen Media Corporation since 1992.
Mr. Hodson is President of TJH Capital, Inc., a private investment company. He
was the President and a director of Columbia Falls Aluminum Company from January
1994 to March 1998 and was a Vice President of Stephens, Inc. from 1986 through
1993.

John H. Massey (age 59)

Mr. Massey became a director of Chancellor Media in September 1997. Prior to
that time, Mr. Massey served as a director of Chancellor Broadcasting Company
and Chancellor Radio Broadcasting Company. Until August 2, 1996, Mr. Massey
served as the Chairman of the Board and Chief Executive Officer of Life Partners
Group, Inc., an insurance holding company, having assumed those offices in
October 1994. Prior to joining Life Partners, he served, since 1992, as the
Chairman of the Board of, and currently serves as a director of, FSW Holdings,
Inc. Since 1986, Mr. Massey has served as a director of Gulf-California
Broadcast Company. From 1986 to 1992, he also was President of Gulf-California
Broadcast Company. From 1976 to 1986, Mr. Massey was President of Gulf Broadcast
Company. Mr. Massey currently serves as a director of Central Texas Bankshare
Holdings, Inc., Colorado Investment Holdings, Inc., Hill Bancshares Holdings,
Inc., Bank of The Southwest of Dallas, Texas, Columbus State Bank, Columbine JDS
Systems, Inc., The Paragon Group, Inc., the Brazos Fund Group Inc. and STC
Broadcasting, Inc.

J. Otis Winters (age 66)

Mr. Winters became a director of Chancellor Media on May 19, 1998, Mr. Winters
currently serves as the non-executive Chairman for The PWS Group (formerly Pate,
Winters & Stone, Inc.). Mr. Winters was Co-founder, President and director of
Avanti Energy Corporation. Mr. Winters also served as Executive Vice President
and a member of the board of directors of the First National Bank and Trust
Company of Tulsa. Mr. Winters was Executive Vice President and a member of the
board of directors of The Williams Companies, where he served as Chairman of two
major subsidiaries and was responsible for the corporate administrative
department. Mr. Winters also serves as a

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director and Chairman of the audit and compensation committee of AMX
Corporation, director and Chairman of the audit committee for Arena Brands,
Inc., director and Chairman of the finance and audit committees for Dynegy, Inc.
(formerly NGC Corporation), and director and Chairman of the executive committee
for Walden Residential Properties, Inc.

Class I Directors -- Terms Expire 2001

Vernon E. Jordan, Jr. (age 63)

Mr. Jordan became a director of Chancellor Media on October 14, 1997. Mr. Jordan
currently serves as a senior partner in the Washington, D.C. office of the law
firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. Mr. Jordan serves as a
director of American Express Company, Bankers Trust Company, Bankers Trust
Corporation, Dow Jones & Company, Inc., the Ford Foundation, Howard University,
J.C. Penney Company, Inc., Revlon Group, Revlon, Inc., Ryder System, Inc., Sara
Lee Corporation, Union Carbide Corporation, Xerox Corporation, LBJ Foundation,
National Academy Foundation and the Roy Wilkins Foundation.

Michael J. Levitt (age 40)

Michael J. Levitt became a director of Chancellor Media on May 19, 1998. Mr.
Levitt is a partner 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 serves as a
director of Capstar, Regal Cinemas, Inc., STC Broadcasting, Inc. and
International Home Foods, Inc.

Perry J. Lewis (age 61)

Mr. Lewis became a director of Chancellor Media in September 1997. Mr. Lewis had
previously served as a director of Evergreen Media Corporation since Evergreen
Media Corporation acquired Broadcasting Partners, Inc. ("BPI") in 1995. Mr.
Lewis was the Chairman of BPI from its inception in 1988 until its merger with
Evergreen, and was Chief Executive Officer of BPI from 1993 to 1995. Mr. Lewis
is a founder of Morgan, Lewis, Githens & Ahn, an investment banking and
leveraged buyout firm which was established in 1982. Mr. Lewis serves as
director of Aon Corporation, ITI Technologies, Inc., Gradall Industries, Inc.
and Stuart Entertainment, Inc.

R. Steven Hicks (age 49)

Mr. R. Steven Hicks became a director of Chancellor Media and was elected Vice
Chairman of Chancellor Media and President and Chief Executive Officer of the
AMFM New Media Group in March 1999 and has served as President, Chief Executive
Officer and a director of Capstar since June 1997. Mr. R. Steven Hicks has also
served as Chairman of the Board of Capstar from June to September 1997. Mr. R.
Steven Hicks founded Capstar Broadcasting in October 1996. Prior to joining
Capstar, Mr. R. Steven Hicks acted as Chairman of the Board and Chief Executive
Officer of GulfStar Communications, Inc. from July 1987 to January 1997 and as
President and Chief Executive Officer of SFX from November 1993 to May 1996. Mr.
R. Steven Hicks is a

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31-year veteran of the radio broadcasting industry, including 18 years as a
station owner. Mr. R. Steven Hicks is the brother of Mr. Thomas O. Hicks.

Meetings and Committees of the Chancellor Media Board of Directors

The Board of Directors currently consists of twelve directors, nine of whom are
not officers or employees of the Company. The total number of meetings of the
Board of Directors held during the year ended December 31, 1998 was fifteen. The
Board of Directors voted by unanimous written consent four times during the year
ended December 31, 1998. During the year ended December 31, 1998, no director of
Chancellor Media attended less than 75% of the total number of meetings of the
Board of Directors and all committees on which such director served.

The Executive Committee currently consists of Messrs. Thomas O. Hicks, R. Steven
Hicks and de Castro. Mr. Thomas O. Hicks serves as Chairman of the Executive
Committee. One meeting was held by the Executive Committee during the year ended
December 31, 1998, and the Executive Committee acted by unanimous written
consent five times during the year ended December 31, 1998. The principal
functions of the Executive Committee are to oversee Chancellor Media's
day-to-day operations, approval of certain transactions, establishment of record
dates and declaration of dividends on Chancellor Media's securities, pricing of
and setting terms for the sale of certain securities of Chancellor Media, and
making appropriate recommendations to the Board of Directors.

The Board of Directors of Chancellor Media has a standing Compensation
Committee, an Audit Committee, an Executive Committee, a Nominating Committee
and an Independent Compensation Committee. Additionally, from time to time, the
Board of Directors establishes special committees for specific purposes, such as
reviewing specific transactions and pricing securities in public or private
issuances.

The Audit Committee currently consists of Messrs. Crandall, Hodson, Massey and
Winters. Mr. Hodson serves as Chairman of the Audit Committee. Three meetings
were held by the Audit Committee during the year ended December 31, 1998. The
principal functions performed by the Audit Committee are the nomination of the
independent public accountants of Chancellor Media, the review of the proposed
scope of the independent audit and the results thereof, the review with
management personnel of the public accountants' observations on financial
policy, controls and personnel and consultation with the Chief Financial Officer
of Chancellor Media concerning the audit.

The Nominating Committee currently consists of Messrs. Thomas O. Hicks, Jordan,
Winters and Massey. Mr. Thomas O. Hicks serves as Chairman of the Nominating
Committee. One meeting was held by the Nominating Committee during the year
ended December 31, 1998. The principal function of the Nominating Committee is
to make recommendations to the Board of Directors with respect to the nomination
of directors.

The Compensation Committee currently consists of Messrs. Thomas O. Hicks,
Jordan, Hodson, Lewis and Winters. Mr. Thomas O. Hicks serves as Chairman of the
Compensation Committee. Six meetings were held by the Compensation Committee
during the year ended December 31, 1998. The principal functions of the
Compensation Committee are to review the compensation arrangements of Chancellor
Media's executive officers and to submit recommendations to the Board of
Directors with respect to such arrangements. See "Report of the Compensation
Committee on Executive Compensation."

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The Independent Compensation Committee currently consists of Messrs. Jordan,
Lewis, Hodson and Winters. Six meetings were held by the Independent
Compensation Committee during the year ended December 31, 1998. The principal
function of the Independent Compensation Committee is to review and administer
the granting of certain stock options to executive officers and other key
employees of Chancellor Media.

THE BOARD OF DIRECTORS OF CHANCELLOR MEDIA RECOMMENDS A VOTE FOR THE ELECTION OF
THE INDIVIDUALS NOMINATED FOR ELECTION AS CLASS II DIRECTORS.

Chancellor Media Proposal 4 -- Adoption of the Chancellor Media Corporation 1999
Stock Option Plan

Background

Chancellor Media, by means of the Chancellor Media Corporation 1999 Stock Option
Plan, in substantially the form attached to this joint proxy
statement/prospectus as Annex X, desires to afford certain key employees
employed by, and certain persons performing services for Chancellor Media and
any direct or indirect subsidiary or parent corporation thereof now existing or
hereafter formed or acquired (such corporations sometimes referred to herein as
"Related Entities") who are responsible for the growth of Chancellor Media an
opportunity to acquire a proprietary interest in Chancellor Media, and thus to
create in such persons an increased interest in and a greater concern for the
welfare of Chancellor Media and the Related Entities.

Shares Available

The aggregate number of shares of Chancellor Media common stock available for
grants of options under the 1999 Plan during its term will be 10,000,000 shares,
of which seven million (7,000,000) shares shall be limited to grants of Value
Options and three million (3,000,000) shares shall be available for grants of
stock options generally (collectively, the "Options").

Administration

The 1999 Plan shall be administered by the Compensation Committee of the Board
of Directors of Chancellor Media or by any other committee appointed by the
Board of Directors of Chancellor Media to administer this 1999 Plan (the
"Committee"); provided, that the entire Board of Directors of Chancellor Media
may act as the Committee if it chooses to do so; and provided, further, that

- - for purposes of determining any option that qualifies for the
performance-based compensation exemption to Section 162(m) of the Code
applicable to key employees who constitute "covered employees" within the
meaning of Section 162(m) of the Code, "Committee" shall mean the members of
the Compensation Committee of the Board of Directors of Chancellor Media who
qualify as "outside directors" within the meaning of Section 162(m) of the
Code, and

- - for so long as Chancellor Media is subject to the reporting requirements of
the Exchange Act, the Committee shall be composed solely of two or more
"Non-Employee Directors" as defined in Rule 16b-3, as amended ("Rule 16-b3")
promulgated thereunder.

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The Committee is authorized, subject to the provisions of the 1999 Plan, to
establish such rules as it deems necessary for the proper administration of the
1999 Plan and to make such determinations and interpretations and to take such
action in connection with the 1999 Plan and any Options granted as it deems
necessary or advisable. Thus, among the Committee's powers are the authority to
determine eligibility for participation in the 1999 Plan and the form, amount
and other terms and conditions of Options. The Committee also has the power to
modify or waive restrictions on Options, to amend Options and to grant
extensions and accelerations of Options.

Eligibility for Participation

Certain key employees and independent contractors rendering services to
Chancellor Media or any of its Related Entities will be eligible to receive
Options under the 1999 Plan. The selection of optionees is within the discretion
of the Committee.

Maximum Individual Awards

The maximum aggregate number of shares of Chancellor Media common stock
underlying all Options under the 1999 Plan that may be granted to any single
optionee during the term of the 1999 Plan is 2,000,000 shares (subject to
adjustment).

Stock Options

Under the 1999 Plan, the Committee may grant two basic types of Options:

- - incentive stock options which qualify under Section 422 of the Code
("Incentive Options" or "ISOs") and

- - options which do not qualify under such Section ("Non-Qualified Options").

In addition, the terms applicable to at least seven million shares of Chancellor
Media common stock available for stock option grants under the 1999 Plan will be
restricted in the manner in which such Value Options will become exercisable
depending, among other conditions, upon the value of the underlying shares of
such Options attaining a specified value.

The exercise price of each Option will be the fair market value of Chancellor
Media common stock on the date of grant or, if earlier, the date Chancellor
Media commits to make such grant. Value Options and, unless the Committee
determines a different vesting schedule, other Options will vest 20% on each
anniversary of the date of grant. The Committee may, in limited cases,
accelerate vesting of Options (including Value Options).

Value Options granted prior to June 1, 1999 shall become exercisable after the
date on which the average fair market value of Chancellor Media common stock,
calculated on a daily basis, equals or exceeds $100.00 per share for a period of
30 consecutive trading days during the period from (and including) the fifth
anniversary of the date of grant.

Value Options granted on or after June 1, 1999 shall become exercisable after
the date on which the average fair market value of Chancellor Media common
stock, calculated on a daily basis, equals or exceeds the greater of (x) $100.00
per share or (y) two-hundred percent (200%) of the exercise price (the
"Exercisability Value"), in each case for a period of 30 consecutive trading
days during the period from (and including) the date of grant through (and
including) the fifth anniversary of the date of grant.

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Options cannot be exercised after the tenth anniversary of the date of grant,
except in the event of an optionee's death or disability.

The Options may also be subject to such other terms and conditions as will be
determined by the Committee, including, without limitation, accelerating the
vesting

- - based on individual performance or

- - if certain performance goals are achieved. The Option exercise price may be
paid in cash or, in the sole discretion of the Committee, by the delivery of
shares of Chancellor Media common stock then owned by the optionee, by the
withholding of shares of Chancellor Media common stock for which a stock
option is exercisable, or by a combination of these methods. The Committee may
prescribe any other method of paying the exercise price that it determines to
be consistent with applicable law and the purpose of the 1999 Plan.

Change in Control

If there is a change in control of Chancellor Media, the Committee, in its sole
discretion, may take such actions as it deems appropriate with respect to
outstanding Options, including, without limitation, accelerating the vesting
date and/or payout of such awards. In addition, if a change in control occurs,
then the Committee may permit the vested portions of Value Options to become
exercisable on account of the change in control.

Termination of Employment or Service

In the event of termination of employment or services of an optionee, the
treatment of Options depends on whether such Options are Value Options.

Options Generally. If an optionee's employment or services is terminated for
cause, all Options will be immediately forfeited unless otherwise set forth in
the Option. If an optionee's employment or services is terminated due to death
or disability, unless otherwise set forth in the Option or determined by the
Committee, all non-vested portions of Options held by the optionee will be
immediately forfeited and all vested portions of such Options will remain
exercisable until the earlier of

- - the end of the one year period following the date of death or termination of
employment or services, or

- - the date the Option would otherwise expire, but in no event before 90 days
have elapsed since the date of death or termination of employment or services.
If an optionee's employment is terminated for any reason other than due to
cause, death or disability, unless otherwise provided for by the terms of the
grant, all non-vested portions of awards held by the optionee will immediately
be forfeited and all vested portions of Non-Qualified Options held by the
optionee will remain exercisable until the earlier of

(1) the end of the 90-day period following the date of the termination
of employment, or

(2) the date the Option would otherwise expire.

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Value Options. If any Value Option held by an optionee is exercisable at the
time the optionee's employment or service is terminated (other than for cause,
death or disability), the vested portion of such Value Option may be exercised
until the earlier of

- - the expiration of 90 days following such termination or

- - the end of the term of such Value Option, unless the Committee provides for a
shorter or longer period in the Option or otherwise. With respect to any Value
Option held by an optionee that is not exercisable at the time the optionee's
employment or service is terminated (other than for cause, death or
disability), the vested portion of such Value Option shall continue in full
force and effect and if it becomes exercisable on or before the fifth
anniversary of the date of grant, then the optionee may, until the 90th day
after the date on which such Value Option becomes exercisable, exercise all or
any part of the vested portion of such Value Option. Any Value Option that
does not become exercisable by the fifth anniversary of the date of grant of
such Value Option shall expire and be cancelled. Upon an optionee's death or
disability resulting in a termination of employment or services with
Chancellor Media or any Related Entity, the optionee, or his or her estate,
legal representative or beneficiary shall have a period of one year (or, if
the term of the Value Option expires prior to such one-year period, at least
90 days) following the later of

- - the date of such termination of employment or services, or

- - the date the Value Option first becomes exercisable, to exercise such Option.
The Committee may accelerate vesting of the non-vested portion of any Value
Option by reason of the optionee's termination of employment or services for
any reason other than for cause. The Committee may also permit an optionee to
retain the vested portion of any Value Option upon any termination of
employment or services for cause.

Except as specifically provided below, the Board of Directors of Chancellor
Media may amend, suspend, or terminate the 1999 Plan at any time with or without
prior notice, provided that such action does not reduce the amount of any
outstanding Option or change the terms and conditions of any outstanding Option
without the optionee's consent. No amendment of the 1999 Plan will, without the
approval of the stockholders of Chancellor Media, increase the total number of
shares which may be issued under the 1999 Plan, increase the maximum number of
shares with respect to all Options that may be granted to any individual under
the 1999 Plan, modify the requirements as to eligibility for Options under the
1999 Plan, or modify the provisions of the 1999 Plan relating to the number of
shares subject to grants of Value Options and the Exercisability Value of the
Options. In addition, the 1999 Plan may be amended without the approval of such
amendment by Chancellor Media's stockholders if such amendment is required under
the rules and regulations of the stock exchange or national market system on
which the Chancellor Media common stock is listed.

Chancellor Media or the applicable Related Entity, may require an optionee to
reimburse the corporation which employs such optionee for any taxes required by
any governmental regulatory authority to be withheld or otherwise deducted and
paid by such corporation or entity with respect to any Option, and the
corporation or entity which employs such optionee has the right to withhold the
amount of such taxes from any other sums due or to become due from such
corporation or entity to the optionee upon such terms and conditions as the
Committee shall prescribe, which may include withholding shares of Chancellor
Media common stock underlying any Option. The Committee may, in its sole
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discretion, allow an optionee to elect to defer the receipt of any compensation
attributable to an Option under guidelines and procedures to be established by
the Committee after taking into account the advice of Chancellor Media's tax
counsel.

The 1999 Plan contains provisions for equitable adjustment of Options in the
event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spin-off, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to stockholders of
Chancellor Media.

Certain Federal Income Tax Consequences

The statements in the following paragraphs of the principal federal income tax
consequences of Options under the 1999 Plan are based on statutory authority and
judicial and administrative interpretations, as of the date of this joint proxy
statement/prospectus, which are subject to change at any time (possibly with
retroactive effect). The law is technical and complex and the discussion below
represents only a general summary.

Options granted under the 1999 Plan will be either "incentive stock options"
under Section 422(b) of the Code or non-qualified stock options. Among other
requirements necessary to qualify as an incentive stock option, a stock option
must have an exercise price that is not less than the fair market value of the
underlying stock at the time of grant.

Incentive Stock Options. A deduction will not be allowed to Chancellor Media or
any Related Entity for federal income tax purposes with respect to the grant or
exercise of an Option qualifying as an incentive stock option or the
disposition, after the expiration of the applicable holding period (as specified
in Section 422 of the Code), of the shares of Chancellor Media common stock
acquired upon exercise of such Option. In the event of a disposition of such
shares prior to the expiration of the applicable holding period (a
"disqualifying disposition"), a federal income tax deduction will be allowed to
Chancellor Media in an amount equal to the ordinary income included in gross
income by the optionee, provided that such amount constitutes an ordinary and
necessary business expense to Chancellor Media and is reasonable and the
limitations of Sections 162(m) and 280G of the Code (discussed below) do not
apply.

An employee who exercises an Option qualifying as an incentive stock option by
delivering shares previously acquired pursuant to the exercise of an Option that
qualified as an incentive stock option is treated as making a disqualifying
disposition of such shares if the employee delivers such shares before the
expiration of the applicable holding period with respect to such shares. Upon
the exercise of an Option with previously acquired shares as to which no
disqualifying disposition occurs, it would appear that the employee would not
recognize gain or loss with respect to such previously acquired shares.

Non-Qualified Stock Options ("NQSO"). A NQSO is an option that does not qualify
as an "incentive stock option" under Section 422(b) of the Code. An individual
who receives a NQSO will not recognize any taxable income upon the grant of such
NQSO. Generally, upon exercise of a NQSO, an individual will be treated as
having received ordinary income in an amount equal to the excess of the fair
market value of the shares of stock at the time of exercise over the exercise
price.

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The ordinary income recognized with respect to the transfer of shares of
Chancellor Media common stock upon exercise of a NQSO under the 1999 Plan will
be subject to both wage withholding and employment taxes. In addition to the
customary methods of satisfying the withholding tax liabilities that arise upon
the exercise of a NQSO, if an individual may satisfy the liability in whole or
in part by tendering other shares of Chancellor Media common stock owned by the
individual, such shares will be valued at their fair market value as of the date
the tax obligation arises.

A deduction for federal income tax purposes will be allowed to Chancellor Media
or a Related Entity in an amount equal to the ordinary income included in gross
income by the individual in connection with the exercise of such option,
provided that such amount constitutes an ordinary and necessary business expense
and is reasonable and the limitations of Sections 162(m) and 280G of the Code do
not apply.

Change in Control. Upon a "change in control" of Chancellor Media, the then
outstanding options under the Plan might become fully vested and exercisable. In
general, if the total amount of payments to optionees that are contingent upon a
"change of control" of Chancellor Media (as determined for purposes of Section
280G of the Code), including payments upon the exercise of options under the
1999 Plan that vest upon a "change of control," equals or exceeds three times
the recipient's "base amount" (generally, such recipient's average annual
compensation for the five years preceding the change in control), then, subject
to certain exceptions, the payments may be treated as "parachute payments" under
the Code, in which case a portion of such payments would be nondeductible to
Chancellor Media or Related Entity and the recipient would be subject to a 20%
excise tax on such portion of the payments.

Certain Limitations on Deductibility of Executive Compensation. With certain
exceptions, Section 162(m) of the Code denies a deduction to publicly held
corporations for compensation paid to certain executive officers in excess of $1
million per executive per taxable year (including any deduction with respect to
the exercise of an NQSO). One such exception applies to certain
performance-based compensation provided that such compensation has been approved
by stockholders in a separate vote and certain other requirements are met.
Chancellor Media believes that Options granted under the 1999 Plan should
qualify for the performance-based compensation exception to Section 162(m).

As a result of Section 16(b) of the Exchange Act, under certain circumstances,
the timing of income recognition may be deferred (generally for up to six months
following the exercise of an NQSO (i.e., the "Deferral Period")) for any
individual who is an officer or director of Chancellor Media or a beneficial
owner of more than ten percent (10%) of any class of equity securities of the
Company.

Regulation

The 1999 Plan is neither qualified under the provisions of Section 401(a) of the
Code, nor subject to any of the provisions of the Employee Retirement Income
Security Act of 1974, as amended.

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<PAGE> 217

New Plan Benefits

The following table sets forth the number of shares underlying the stock options
which were granted under the 1999 Plan on April 9, 1999 and May 18, 1999 to

- - the current executive officers of Chancellor Media,

- - the current executive officers of Chancellor Media as a group,

- - the current directors of Chancellor Media who are not executive officers as a
group, and

- - all employees, including current officers who are not executive officers, as a
group:

CHANCELLOR MEDIA CORPORATION 1999 STOCK OPTION PLAN

<TABLE>
<CAPTION>
SHARES SHARES
NAME AND POSITION (VALUE OPTIONS) (OTHER OPTIONS)
- ----------------- --------------- ---------------
<S> <C> <C>
Thomas O. Hicks (Chairman and Chief Executive
Officer).............................................. -- --
James E. de Castro (Vice Chairman, President and Chief
Executive Officer of AMFM Radio Group)................ 1,000,000 --
R. Steven Hicks (Vice Chairman, President and Chief
Executive Officer of AMFM New Media Group)............ 1,000,000 --
Kenneth J. O'Keefe (Executive Vice President and Chief
Operating Officer of AMFM Radio Group)................ 500,000 --
D. Geoffrey Armstrong (Executive Vice President and
Chief Financial Officer).............................. 500,000 --
James A. McLaughlin (President and Chief Operating
Officer of the Chancellor Outdoor Group).............. -- --
William S. Banowsky, Jr. (Executive Vice President and
General Counsel)...................................... 400,000 --
All current executive officers as a group............... 3,400,000 --
All current directors who are not executive officers as
a group............................................... -- --
All employees, including current officers who are not
executive officers, as a group........................ 1,820,000 1,074,850
</TABLE>

Potential Non-Cash Compensation Charge

Under the terms of the 1999 Plan, Chancellor Media has granted Value Options as
of the date hereof to purchase up to 5,220,000 shares of Chancellor Media common
stock to certain members of management. See "-- New Plan Benefits." Value
Options to purchase 3,400,000 and 1,820,000 shares of Chancellor Media common
stock were granted at exercise prices of $46.63 and $56.06 per share,
respectively and vest ratably 20% per year for a period of five years.
Approximately 585,000 of the Value Options with an exercise price of $56.06 per
share were granted to certain members of Capstar's management and are contingent
upon the consummation of the Capstar merger. The Value Options are exercisable
only upon (i) a "Change of Control" (as defined in the option agreements
relating to the Value Options), or (ii) the average fair market value of
Chancellor Media common stock, calculated on a daily basis, being equal to or
exceeding $100.00 per share for a period of 30 consecutive trading days during
the five-year period beginning on the date of grant. Upon the occurrence of one
or both of the exercisability triggering events, Chancellor Media will record a
non-cash compensation charge to the extent that the fair market value of the
Chancellor Media common stock exceeds the exercise price of the

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<PAGE> 218

Value Options. This non-cash charge, if incurred, will be recognized over the
vesting period of the Value Options.

Chancellor Media also has granted to date additional Options under the 1999 Plan
to purchase up to 1,074,850 shares of Chancellor Media common stock to certain
key employees. Options to purchase 1,009,850 and 65,000 shares of Chancellor
Media common stock were granted at exercise prices of $46.63 and $56.06 per
share, respectively, and vest one-half on each of the first two year
anniversaries subsequent to the date of grant. Chancellor Media will record a
non-cash compensation charge to the extent that the fair market value of the
Chancellor Media common stock on July 13, 1999 exceeds the exercise price of
these additional Options. This non-cash charge, if incurred, will be recognized
over the two year vesting period, beginning in the third quarter of 1999.

The grant of Value Options and other Options under the 1999 Plan is subject to
stockholder approval of the 1999 Plan of Chancellor Media's annual meeting of
stockholders to be held on July 13, 1999; provided, that Chancellor Media may be
obligated to grant other stock options or equity incentives on terms that are no
less favorable than the terms of the Value Options for 3,400,000 shares of
Chancellor Media common stock under employment agreements in the event that the
1999 Plan is not approved by Chancellor Media stockholders. The potential
non-cash compensation charges discussed above, if incurred, may significantly
decrease Chancellor Media's net income or increase its net loss in future
periods.

THE BOARD OF DIRECTORS OF CHANCELLOR MEDIA RECOMMENDS A VOTE FOR THE ADOPTION OF
THE CHANCELLOR MEDIA CORPORATION 1999 STOCK OPTION PLAN.

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<PAGE> 219

DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER

Immediately following the effective time of the merger, assuming the election of
the three Class II directors at the Chancellor Media annual meeting for which
this joint proxy statement/prospectus relates, the directors of Chancellor Media
will be as follows:

<TABLE>
<CAPTION>
CLASS I DIRECTORS CLASS II DIRECTORS CLASS III DIRECTORS
- --------------------- ----------------------- -------------------
<S> <C> <C>
Vernon E. Jordan, Jr. James E. de Castro Thomas O. Hicks
Perry J. Lewis Robert L. Crandall Thomas J. Hodson
Michael J. Levitt Lawrence D. Stuart, Jr. John H. Massey
R. Steven Hicks R. Gerald Turner J. Otis Winters
</TABLE>

Each Class I, Class II and Class III director of Chancellor Media will hold
office from the effective time of the merger until the 2001, 2002 and 2000
annual meetings of Chancellor Media, respectively, and in all cases, until his
successor is elected or appointed and qualified. The directors of Capstar
immediately following the effective time of the merger shall be the same as
Chancellor Media, except that the directors of Capstar will not be classified as
to term.

The initial senior executive officers of Chancellor Media at the effective time
of the merger shall be the officers of Chancellor Media immediately prior to the
effective time of the merger. The initial senior executive officers of Capstar
at the effective time of the merger will be the officers of Chancellor Media
immediately prior to the effective time.

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<PAGE> 220

DIRECTORS AND MANAGEMENT OF CHANCELLOR MEDIA

The directors and executive officers of Chancellor Media are:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas O. Hicks........................... 53 Chairman of the Board, Chief Executive
Officer and Director
James E. de Castro........................ 46 Vice Chairman -- President and Chief
Executive Officer of AMFM Radio Group
and Director
R. Steven Hicks........................... 49 Vice Chairman -- President and Chief
Executive Officer of AMFM New Media
Group and Director
D. Geoffrey Armstrong..................... 41 Executive Vice President and Chief
Financial Officer
Kenneth J. O'Keefe........................ 44 Executive Vice President and Chief
Operating Officer of AMFM Radio Group
James A. McLaughlin....................... 49 President and Chief Operating Officer
of Chancellor Outdoor Group
William S. Banowsky, Jr................... 37 Executive Vice President and General
Counsel
Robert L. Crandall........................ 63 Director
Thomas J. Hodson.......................... 55 Director
Vernon E. Jordan, Jr...................... 63 Director
Michael J. Levitt......................... 40 Director
Perry J. Lewis............................ 61 Director
Jeffrey A. Marcus......................... 52 Director
John H. Massey............................ 59 Director
Lawrence D. Stuart, Jr.................... 54 Director
J. Otis Winters........................... 66 Director
</TABLE>

For biographical information for Thomas O. Hicks, James E. de Castro, R. Steven
Hicks, Robert L. Crandall, Thomas J. Hodson, Vernon E. Jordan, Jr., Michael J.
Levitt, Perry J. Lewis, John H. Massey, Lawrence D. Stuart, Jr. and J. Otis
Winters see "Other Chancellor Media Annual Meeting Proposals -- Chancellor Media
Proposal 3 -- Election of Three Class II Directors."

D. Geoffrey Armstrong

Mr. Armstrong was elected Executive Vice President and Chief Financial Officer
of Chancellor Media in March 1999. Mr. Armstrong served as Executive Vice
President and Chief Operating Officer of Capstar from July 1998 to March 1999,
and has served as a director of Capstar since July 1998. Mr. Armstrong has also
served as a director of SFX Entertainment since September 1998. Mr. Armstrong
served as the Chief Operating Officer and an Executive Vice President of SFX
from November 1996 to May 1998 and served as a director of SFX from 1993 to
1998. Mr. Armstrong became the Chief Operating Officer of SFX in June 1996 and
served as the Chief Financial Officer and Treasurer of SFX from 1992 until March
1995. Prior thereto, Mr. Armstrong served as Executive Vice President and Chief
Financial Officer of Capstar, a predecessor of SFX

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<PAGE> 221

and unrelated to Capstar, since 1989. From 1988 to 1989, Mr. Armstrong was the
Chief Executive Officer of Sterling Communications Corporation.

Kenneth J. O'Keefe

Mr. O'Keefe was appointed Chief Operating Officer of the AMFM Radio Group in
March 1999 and has served as Executive Vice President of Chancellor Media since
September 1997. Mr. O'Keefe had been an Executive Vice President of Evergreen
Media Corporation since February of 1996 and served as a director of Evergreen
from May of 1996 to September 1997. Prior to joining Evergreen in 1996, Mr.
O'Keefe was a director, Chief Financial Officer and Executive Vice President of
Pyramid Communications, Inc. from March 1994 until Evergreen's acquisition of
Pyramid Communications, Inc. on January 17, 1996. Mr. O'Keefe served in various
capacities with Pyramid Communications, Inc. or predecessor entities during the
five-year period prior to his joining Evergreen in 1996.

James A. McLaughlin

Mr. McLaughlin was appointed Chief Operating Officer of the Chancellor Outdoor
Group in March 1999 and became the President of the Chancellor Outdoor Group in
August 1998. Mr. McLaughlin most recently served as Chief Executive Officer of
privately-held Triumph Outdoor Holdings, LLC. Prior to forming Triumph, Mr.
McLaughlin served as President and Chief Executive Officer of POA Acquisition
Corporation, the successor to Peterson Outdoor Advertising. Prior to joining
POA, Mr. McLaughlin was the Managing Partner of Turner Outdoor Advertising,
which was purchased from Ted Turner in 1983. Mr. McLaughlin began his outdoor
advertising career in 1974 with Creative Displays, holding various management
positions as the company grew to become the fourth largest advertising company
in the United States.

William S. Banowsky, Jr.

Mr. Banowsky was elected Executive Vice President and General Counsel of
Chancellor Media in March 1999 and has served as Executive Vice President and
General Counsel of Capstar since January 1997. Mr. Banowsky was an attorney with
Snell, Banowsky & Trent, P.C., Dallas, Texas, for six years before joining
Capstar. Prior to that time, he was an attorney for Johnson & Gibbs, P.C.,
Dallas, Texas, for four years.

Jeffrey A. Marcus

Mr. Marcus served as President and Chief Executive Officer of Chancellor Media
from June 1, 1998 to March 15, 1999. Mr. Marcus became a director of Chancellor
Media in September 1997. Prior to the merger with Chancellor Broadcasting
Company, Mr. Marcus served as a director of Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company. Prior to joining Chancellor Media on June
1, 1998, Mr. Marcus served as the Chairman and Chief Executive Officer of Marcus
Cable Properties, Inc. and Marcus Cable Company, L.L.C. (collectively "Marcus
Cable"), which was the ninth largest cable television multiple system operator
("MSO") in the United States prior to its combination with Charter
Communications, which Mr. Marcus formed in 1990. Mr. Marcus continues to serve
as Chairman of Marcus Cable and as a director of Marcus Cable Properties, Inc.
Until November 1988, Mr. Marcus served as Chairman and Chief Executive Officer
of WestMarc Communications, Inc., an MSO formed through the

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<PAGE> 222

merger in 1987 of Marcus Communications, Inc. and Western TeleCommunications,
Inc. Mr. Marcus also serves as a director of Brinker International, Inc. and a
director or trustee of several charitable and civic organizations.

There are no family relationships between any of the directors and executive
officers of the Company, except that Thomas O. Hicks is the brother of R. Steven
Hicks.

Compensation of Directors

Directors who are also officers of Chancellor Media and CMCLA receive no
additional compensation for their services as directors. Directors of Chancellor
Media and CMCLA who are not officers will receive

- - a fee of $36,000 per annum;

- - a $1,000 fee for attendance at board meetings or, if applicable, a $500 fee
for attendance at board meetings by telephone;

- - a fee of $24,000 per annum for service on the Special Committee or Negotiating
Committee ($36,000 for chairman of Special Committee); and

- - a $2,000 fee for attendance as chairman of a board committee ($1,000 for
attendance by telephone), a $1,000 fee for attendance at committee meetings
or, if applicable, a $500 fee for attendance at committee meetings by
telephone. Directors of Chancellor Media, Chancellor Mezzanine Holdings
Corporation and CMCLA are also reimbursed for travel expenses and other
out-of-pocket costs incurred in connection with such meetings. Additionally,
all non-employee directors of Chancellor Media, Chancellor Mezzanine Holdings
Corporation and CMCLA in office following Chancellor Media's annual
stockholders meeting are entitled to an award of options to purchase 25,000
shares of Chancellor Media common stock at an exercise price equal to the fair
market value of such shares on the date of grant.

COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation. The following table sets forth all compensation, including
bonuses, stock option awards and other payments, paid or accrued by Chancellor
Media for the three fiscal years ending December 31, 1998, to Chancellor Media's
five most highly compensated executive officers serving in such capacity at the
end of the last completed

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<PAGE> 223

fiscal year whose total annual salary and bonus exceeded $100,000 during the
fiscal year ended December 31, 1998, as well as Chancellor Media's former Chief
Executive Officer.

SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION -----------------------------------
----------------------------------------- SECURITIES
OTHER UNDERLYING
NAME AND ANNUAL RESTRICTED OPTIONS LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) STOCK AWARDS (#) PAYOUTS COMPENSATION
- ------------------ ---- -------- ---------- --------------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffrey A. Marcus......... 1998 $656,250(3) $2,333,333(3) -- -- 1,450,000 -- $ 1,001,885(4)
Former President and
Chief Executive Officer
Scott K. Ginsburg......... 1998 $372,222(5) $ -- -- -- 800,000 -- $37,781,091(6)
Former President and 1997 850,000 3,615,000 -- -- 500,000 -- 9,101(6)
Chief Executive Officer 1996 750,000 956,000 -- -- 375,000 -- 9,776(6)
James E. de Castro........ 1998 $900,000 $3,000,000 -- -- 960,000 -- $ 6,003,903(7)
Vice Chairman, President
and 1997 825,000 2,581,000 -- -- 425,000 -- 2,630(7)
Chief Executive
Officer -- 1996 750,000 704,000 -- -- 75,000 -- 2,455(7)
AMFM Radio Group and
Director
Matthew E. Devine......... 1998 $500,000 $2,000,000 -- -- 720,000 -- $ 5,112,825(8)
Senior Vice President and 1997 375,000 1,205,000 -- -- 262,500 -- --
Chief Financial Officer 1996 300,000 352,000 -- -- 37,500 -- --
Kenneth J. O'Keefe........ 1998 $500,000 $1,500,000 -- -- 100,000 -- $ --
Executive Vice 1997 320,000 1,205,000 -- -- -- -- --
President -- Operations 1996 210,000(9) 210,000 -- -- 300,000 -- --
James A. McLaughlin....... 1998 $181,944(10) $ 375,000 -- -- 360,000 -- $ 1,001,273(11)
President -- Chancellor
Outdoor Group
</TABLE>

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

(1) No information is set forth in this section regarding Thomas O. Hicks, who
served as interim Chief Executive Officer of Chancellor Media from April
14, 1998 through June 1, 1998. Mr. Hicks received fees in conjunction with
his service as Chairman of the Board of Chancellor Media, but received no
additional compensation in conjunction with his service as interim Chief
Executive Officer.

(2) The aggregate annual amount of perquisites and other personal benefits,
securities or property does not exceed $50,000 or 10% of the total of the
annual salary and bonus for the named officer.

(3) Represents compensation for the period beginning June 1, 1998, when Mr.
Marcus joined Chancellor Media.

(4) Represents a one-time execution bonus of $1,000,000 paid to Mr. Marcus in
connection with his employment agreement effective June 1, 1998 and
payments of $1,885 for a term life insurance policy for Mr. Marcus for
1998.

(5) Represents compensation for the period January 1, 1998 to the date of Mr.
Ginsburg's resignation effective April 14, 1998 and four weeks of accrued
and unpaid vacation.

(6) Other compensation for 1998 represents compensation related to Mr.
Ginsburg's resignation on April 14, 1998 of (a) a lump sum severance
payment of $20,000,000; (b) compensation expense of $16,000,000 related to
the grant of 800,000 options at an exercise price of $23.25 that are
exercisable one third at April 14, 1998, 1999 and 2000, respectively; and
(c) consulting fees of $1,770,833 earned by Mr. Ginsburg for the period
April 14, 1998 to December 31, 1998 and payments of $10,258 for term

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<PAGE> 224

life insurance policies for Mr. Ginsburg during 1998. Other compensation
for 1997 and 1996 represents payments for term life insurance policies for
Mr. Ginsburg.

(7) Other compensation for 1998 represents a one-time cash payment of
$5,000,000 and a one-time execution bonus of $1,000,000 paid to Mr. de
Castro in connection with Mr. de Castro's employment agreement effective
April 17, 1998 and payments of $3,903 for a term life insurance policy for
Mr. de Castro for 1998. Other compensation for 1997 and 1996 represents
payments for a term life insurance policy for Mr. de Castro.

(8) Other compensation for 1998 represents (i) a one-time cash payment of
$2,000,000 and a one-time execution bonus of $1,000,000 paid to Mr. Devine
in connection with Mr. Devine's employment agreement effective April 17,
1998; (ii) a lump sum severance payment of $2,000,000 and other payments of
$111,552 paid to Mr. Devine in connection with Mr. Devine's resignation and
(iii) payments of $1,273 for a term life insurance policy.

(9) Represents compensation for the period beginning March 1, 1996, when Mr.
O'Keefe joined Chancellor Media.

(10) Represents compensation for the period beginning August 18, 1998, when Mr.
McLaughlin joined Chancellor Media.

(11) Represents a one-time execution bonus of $1,000,000 paid to Mr. McLaughlin
in connection with his employment agreement effective August 18, 1998 and
payments of $1,273 for a term life insurance policy.

Option Grants in Last Fiscal Year. The following table sets forth information
regarding options to purchase Common Stock granted by Chancellor Media to its
Chief Executive Officer at the end of the 1998 fiscal year and the other
executive officers named in the Summary Compensation Table during the 1998
fiscal year.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL GRANT DATE VALUE
UNDERLYING OPTIONS MARKET PRICE --------------------------
OPTIONS GRANTED TO EXERCISE OR ON DATE OF GRANT DATE
GRANTED EMPLOYEES IN BASE PRICE GRANT EXPIRATION PRESENT VALUE
NAME (#)(1) FISCAL YEAR ($/SHARE) ($/SHARE) DATE $(2)
- ---- ---------- ------------ ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Marcus............ 1,250,000 16.9% $42.13 $42.13 4/29/08 $26,513,246
200,000 2.7% 41.50 41.50 10/1/08 4,179,180
Scott K. Ginsburg............ 800,000 10.8% 23.25 42.13 4/20/05 22,551,494
James E. de Castro........... 800,000 10.8% 42.13 42.13 5/18/08 16,968,477
160,000 2.2% 41.50 41.50 10/1/08 3,343,344
Matthew E. Devine............ 720,000 9.7% 42.13 42.13 5/18/08 15,271,630
Kenneth J. O'Keefe........... 100,000 1.4% 37.31 37.31 1/01/05 1,878,768
James A. McLaughlin.......... 300,000 4.1% 48.38 48.38 8/18/08 7,307,271
60,000 0.8% 48.38 48.38 8/18/08 1,461,454
</TABLE>

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

(1) Represents options to purchase shares of Chancellor Media common stock
granted under the Chancellor Media Corporation 1998 Stock Option Plan. The
options awarded to Mr. Marcus are exercisable in whole or part beginning on
April 29, 1998. The options awarded to Mr. Ginsburg are exercisable in whole
or part beginning on April 20, 1998. The options awarded to Mr. de Castro
are exercisable in whole or part beginning on April 17, 1998. The options
awarded to Mr. Devine are exercisable in

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<PAGE> 225

whole or part beginning on April 17, 1998. The options awarded to Mr.
O'Keefe are exercisable in whole or part beginning on January 1, 1998. The
300,000 share grant of options awarded to Mr. McLaughlin are exercisable in
whole or part beginning on August 18, 1998. The 60,000 share grant of
options awarded to Mr. McLaughlin are exercisable in whole or part beginning
on August 18, 1999. The options may expire earlier upon the occurrence of
certain merger or consolidation transactions involving Chancellor Media.
Chancellor Media is not required to issue and deliver any certificate for
shares of Chancellor Media common stock purchased upon exercise of the
option or any portion thereof prior to fulfillment of certain conditions,
including the completion of registration or qualification of such shares of
Chancellor Media common stock under federal or state securities laws and the
payment to Chancellor Media of all amounts required to be withheld upon
exercise of the options under any federal, state or local tax law. The
holder of an option has no rights or privileges of a stockholder in respect
of any shares of Chancellor Media common stock purchasable upon exercise of
the options unless and until certificates representing such shares shall
have been issued by Chancellor Media to such holder. Once exercisable, the
options are exercisable by the holder or, upon the death of such holder, by
his personal representatives or by any person empowered to do so under such
holder's will or under the applicable laws of descent and distribution. The
options are not transferable except by will or by the applicable laws of
descent and distribution.

(2) The present value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield of 0% for all years; expected volatility of
39.91%; risk-free interest rate of 4.80%, and expected life of seven years.

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

The following table sets forth information concerning option exercises in the
year ended December 31, 1998 by Chancellor Media's Chief Executive Officer at
the end of the 1998 fiscal year and the other executive officers named in the
Summary Compensation Table, and the value of each such executive officer's
unexercised options at December 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Marcus......... -- -- 861,742 657,500 $6,183,838 $4,232,575
Scott K. Ginsburg......... -- -- 1,141,667 533,333 32,714,050 13,133,325
James E. de Castro........ 150,000 $6,099,500 2,405,000 -- 59,994,675 --
Matthew E. Devine......... -- -- 1,470,000 -- 31,082,250 --
Kenneth J. O'Keefe........ -- -- 100,000 300,000 1,056,500 11,163,000
James A. McLaughlin....... -- -- 75,000 285,000 -- --
</TABLE>

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

(1) Based upon a per share price for the Chancellor Media common stock of
$47.875. This price represents the closing price for the Chancellor Media
common stock on The Nasdaq National Market System on December 31, 1998.

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<PAGE> 226

Employment Contracts, Termination of Employment and Change-in-Control
Arrangements

de Castro Employment Agreement

On October 1, 1998, Chancellor Media and CMCLA entered into an amended and
restated employment agreement with Mr. de Castro, effective as of April 17,
1998. The de Castro employment agreement, which has a term that extends through
April 17, 2003, provides for an initial annual base salary of $900,000 for the
first year of the employment agreement, to be subject to increase each year by a
percentage equal to the percentage change in the consumer price index during the
preceding year (provided that the base salary in any year cannot be less than
the base salary in the prior year). In addition, the de Castro employment
agreement provides for an annual bonus based upon a percentage of the amount by
which Chancellor Media exceeds an annual performance target which is defined in
the de Castro employment agreement. The de Castro employment agreement provides
that, on the effective date of the employment agreement and on each of the first
four anniversaries of the employment agreement on which Mr. de Castro remains
employed by Chancellor Media, Mr. de Castro shall be granted options to purchase
160,000 shares of Chancellor Media common stock. If Mr. de Castro's employment
is terminated without "cause," as defined in the de Castro employment agreement,
or if Mr. de Castro terminates his employment for "good reason," as defined in
the de Castro employment agreement, prior to the fifth annual anniversary of the
effective date of the de Castro employment agreement, Mr. de Castro will receive
on the termination date a number of options equal to 800,000 minus the number of
options previously granted to Mr. de Castro under the preceding sentence prior
to that date. The de Castro employment agreement provides

- - for a signing bonus in the gross amount of $1,000,000;

- - that Chancellor Media shall make a one-time cash payment to Mr. de Castro of
$5,000,000; and

- - that Chancellor Media shall grant to Mr. de Castro stock options to purchase
800,000 shares of Chancellor Media common stock at a price of $42.125.

All options granted pursuant to the de Castro employment agreement will be
exercisable for ten years from the date of grant of the option, notwithstanding
any termination of employment. The annual option grant shall be at a price per
share equal to the market price for the Chancellor Media common stock at the
close of trading on the day immediately preceding the date of the grant;
provided, however, that with respect to any options the grant of which is
accelerated because Mr. de Castro's employment is terminated as the result of a
"change of control," the exercise price of such options will be the lower of

- - the exercise price equal to the average last reported sale price of the
Chancellor Media common stock for the 30 trading days prior to the ten trading
days ending at the close of the trading day prior to the day of any
announcement of such "change of control," and

- - the exercise price equal to the market price of the Chancellor Media common
stock at the close of the trading day immediately preceding the date of grant.

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<PAGE> 227

The de Castro employment agreement provides that, in the event of termination of
Mr. de Castro's employment by Chancellor Media without "cause" or by Mr. de
Castro with "good reason," Chancellor Media shall make a one-time cash payment
to Mr. de Castro in a gross amount such that the net payments retained by Mr. de
Castro shall equal $5,000,000 less applicable employee withholding taxes.

The de Castro employment agreement further provides that, in the event of
termination of Mr. de Castro's employment by Mr. de Castro for other than "good
reason," in exchange for Mr. de Castro's agreement not to induce any employee of
any radio station owned by Chancellor Media to terminate employment or to become
employed by any other radio station, Chancellor Media shall continue to pay Mr.
de Castro his applicable base salary through the fifth anniversary of the
effective date of the de Castro employment agreement. In the event of
termination by Mr. de Castro of his employment for other than "good reason,"
Chancellor Media also has the right, in exchange for the payment at the end of
each calendar year through December 31, 2002, of an amount equal Mr. de Castro's
average bonus (the greater of average actual historical bonuses and $1,600,000
in the applicable year), and on the last day of the calendar year ended December
31, 2003, make a payment to Mr. de Castro equal to the product of Mr. de
Castro's average bonus (the greater of average actual historical bonuses or
$1,600,000 in the applicable year) multiplied by the fraction of the calendar
year which precedes the fifth anniversary of the effective date of the de Castro
employment agreement, to require that Mr. de Castro not be employed by or
perform activities on behalf of or have ownership interest in any broadcasting
or related businesses. The de Castro employment agreement further provides that
if Mr. de Castro's employment is terminated by reason of expiration or
non-renewal of the de Castro employment agreement, Chancellor Media shall make a
one-time cash payment to Mr. de Castro equal to two times the amount of his
annual base salary for the contract year in which such employment terminates.
The de Castro employment agreement provides that if Chancellor Media provides
employment related benefits in an aggregate amount greater than or on more
favorable terms as are granted to any other senior executives, except for
benefits and employment inducements provided to the Chief Executive Officer, Mr.
de Castro would be provided benefits in substantially comparable amount and/or
under substantially comparable terms, on an aggregate basis.

Chancellor Media, CMCLA and Mr. de Castro entered into an amendment to Mr. de
Castro's employment agreement effective March 15, 1999 that provides for the
following:

- - an increase in Mr. de Castro's base salary to $950,000;

- - an amendment to the bonus provisions contained in his agreement to provide
only for discretionary bonuses as determined by the Compensation Committee,
based upon the recommendation of the Chief Executive Officer;

- - the acceleration of the grant, subject to four year vesting in equal amounts
on each of April 17, 1999, 2000, 2001 and 2002, of options to acquire 640,000
shares of Chancellor Media common stock provided for in his employment
agreement with an exercise price of $46.63;

- - a grant of additional options to acquire 1,000,000 shares of Chancellor Media
common stock (or other stock options or equity incentives on mutually
satisfactory terms that are

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no less favorable than the terms of such additional options in the event the
1999 Plan is not approved by the stockholders) with

(A) an exercise price of $46.63 per share,

(B) 20% of the shares of Chancellor Media common stock issuable pursuant to
such options vesting annually over five years, and

(C) exercisability conditioned upon the average fair market value of the
Chancellor Media common stock, calculated on a daily basis, being equal
to or exceeding $100.00 per share for a period of 30 consecutive
trading days during the five-year period commencing on the date of
grant; provided that options will no longer be subject to such
exercisability threshold following a change in control;

- - accelerated vesting of all unvested options upon termination by Mr. de Castro
for "good reason" or by Chancellor Media without "cause"; and

- - an agreement by Chancellor Media to pay an additional amount to Mr. de Castro
to make Mr. de Castro whole with respect to any excise tax that may be imposed
by Section 4999 of the Code and any taxes imposed upon such additional
amounts.

R. Steven Hicks Employment Agreement

On April 29, 1999, Chancellor Media and CMCLA entered into an employment
agreement with Mr. R. Steven Hicks, effective as of March 15, 1999. The R.
Steven Hicks employment agreement provides for the following:

- - a five year term;

- - base salary of $950,000, subject to increase each year by a percentage equal
to the percentage change in the consumer price index during the preceding
year;

- - a discretionary bonus as determined by Chancellor Media's Compensation
Committee, based upon the recommendation of the Chief Executive Officer;

- - a grant of options to purchase 1,000,000 shares of Chancellor Media common
stock (or other stock options or equity incentives on mutually satisfactory
terms that are no less favorable than the terms of such additional options in
the event the 1999 Plan is not approved by the stockholders) with

(A) an exercise price of $46.63 per share,

(B) 20% of the shares of Chancellor Media common stock issuable pursuant to
such options vesting annually over five years, and

(C) exercisability conditioned upon the average fair market value of
Chancellor Media common stock, calculated on a daily basis, being equal
to or exceeding $100.00 per share for a period of 30 consecutive
trading days during the five-year period commencing on the date of
grant; provided that options will no longer be subject to such
exercisability threshold following a change in control;

- - accelerated vesting of all unvested options upon termination by Mr. R. Steven
Hicks for "good reason" or by Chancellor Media without "cause";

- - in the event of termination of Mr. R. Steven Hicks' employment by Chancellor
Media without "cause" or by Mr. R. Steven Hicks for "good reason," a one-time
cash payment

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in a gross amount such that the net payments retained by Mr. R. Steven Hicks
shall equal $5,000,000 less applicable employee withholding taxes will be paid
to Mr. R. Steven Hicks;

- - an agreement by Mr. R. Steven Hicks to not induce any employee of Chancellor
Media to terminate employment or to become employed by any other competitive
business (the "Hicks Non-Solicitation Agreement") for the original five-year
term of the employment agreement;

- - in the event of termination of Mr. R. Steven Hicks' employment by Mr. R.
Steven Hicks for other than "good reason," in exchange for the Hicks
Non-Solicitation Agreement, Chancellor Media will continue to pay Mr. R.
Steven Hicks his applicable base salary through the fifth anniversary of the
effective date of his employment agreement;

- - in the event of termination by Mr. R. Steven Hicks of his employment for other
than "good reason," Chancellor Media also has the right, in exchange for the
payment at the end of each calendar year through December 31, 2003, of an
amount equal to Mr. R. Steven Hicks' average bonus (the greater of average
actual historical bonuses and $1,600,000 in the applicable year), and on the
last day of the calendar year ended December 31, 2004, make a payment to Mr.
R. Steven Hicks equal to the product of Mr. R. Steven Hicks' average bonus
(the greater of average actual historical bonuses and $1,600,000 in the
applicable year) multiplied by the fraction of the calendar year which
precedes the fifth anniversary of the effective date of R. Steven Hicks'
employment agreement, to require that Mr. R. Steven Hicks not to be employed
by or perform activities on behalf of or have ownership interest in any
broadcasting or related businesses;

- - in the event of termination by reason of expiration or non-renewal of his
employment agreement, Chancellor Media will make a one-time cash payment to
Mr. R. Steven Hicks equal to two times the amount of his annual base salary
for the contract year in which such employment terminates;

- - if Chancellor Media provides employment related benefits in an aggregate
amount greater than or on more favorable terms as are granted to any other
senior executives, Mr. R. Steven Hicks would be provided benefits in
substantially comparable amount and/or under substantially comparable terms,
on an aggregate basis; and

- - an agreement by Chancellor Media to pay an additional amount to Mr. R. Steven
Hicks to make Mr. R. Steven Hicks whole with respect to any excise tax that
may be imposed by Section 4999 of the Code and any taxes imposed upon such
additional amounts.

Mr. R. Steven Hicks continues to serve as the President and Chief Executive
Officer of Capstar. As a result, his employment agreement provides that Mr. R.
Steven Hicks is obligated to use his good faith efforts to allocate his time
reasonably between Capstar and Chancellor Media. Additionally, Mr. R. Steven
Hicks' base salary of $950,000 consists of his base salary for his positions at
both Capstar and Chancellor Media. Capstar and Chancellor Media are obligated to
split the cost of Mr. R. Steven Hicks' base salary, with Chancellor Media being
obligated to pay $400,000, plus 50% of the remaining $550,000 in base salary.
Chancellor Media and Capstar are obligated to split evenly all other
compensation paid to Mr. R. Steven Hicks and Chancellor Media reimburses Capstar
for

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50% of the cost of any and all benefit plans of Capstar in which Mr. R. Steven
Hicks participates.

Armstrong Employment Agreement

On May 18, 1999, Chancellor Media and CMCLA entered into an employment agreement
with Mr. Armstrong, effective as of March 15, 1999. The Armstrong employment
agreement provides for the following:

- - a five year term;

- - base salary of $550,000, subject to increase each year by a percentage equal
to the percentage change in the consumer price index during the preceding
year;

- - a discretionary bonus as determined by Chancellor Media's Compensation
Committee, based upon the recommendation of the Chief Executive Officer;

- - a grant of options to purchase 500,000 shares of Chancellor Media common stock
(or other stock options or equity incentives on mutually satisfactory terms
that are no less favorable than the terms of such additional options in the
event the 1999 Plan is not approved by the stockholders) with

(A) an exercise price of $46.63 per share,

(B) 20% of the shares of Chancellor Media common stock issuable pursuant to
such options vesting annually over five years, and

- - accelerated vesting of all unvested options upon termination by Mr. Armstrong
for "good reason" or by Chancellor Media without "cause";

- - in the event of termination of Mr. Armstrong's employment by Chancellor Media
without "cause" or by Mr. Armstrong for "good reason," a one-time cash payment
will be paid to Mr. Armstrong equal to two times Mr. Armstrong's annual base
salary for the contract year in which such employment terminates;

- - Mr. Armstrong will be subject to, at Chancellor Media's option, a
non-solicitation provision pursuant to which Mr. Armstrong will not be
permitted to induce any employee of Chancellor Media to terminate employment
or to become employed by any competitive business for up to the original term
of his employment agreement in exchange for the continued payment of his base
salary (net of any other severance payments made to Mr. Armstrong);

- - an agreement by Mr. Armstrong not to be employed by or perform activities on
behalf of or have ownership interest in any broadcasting or related businesses
for the ninety-day period following termination of his employment;

- - if Chancellor Media provides employment related benefits in an aggregate
amount greater than or on more favorable terms as are granted to any other
executive vice

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presidents, Mr. Armstrong would be provided benefits in substantially
comparable amount and/or under substantially comparable terms, on an aggregate
basis; and

- - an agreement by Chancellor Media to pay an additional amount to Mr. Armstrong
to make Mr. Armstrong whole with respect to any excise tax that may be imposed
by Section 4999 of the Code and any taxes imposed upon such additional
amounts.

In connection with entering into the employment agreement, Chancellor Media also
paid to Mr. Armstrong a one-time signing bonus in the gross amount of $400,000.

Banowsky Employment Agreement

On April 29, 1999, Chancellor Media and CMCLA entered into an employment
agreement with Mr. Banowsky, effective as of March 15, 1999. The Banowsky
employment agreement provides for the following:

- - a five year term;

- - base salary of $400,000, subject to increase each year by a percentage equal
to the percentage change in the consumer price index during the preceding
year;

- - a discretionary bonus as determined by Chancellor Media's Compensation
Committee, based upon the recommendation of the Chief Executive Officer;

- - a grant of options to purchase 400,000 shares of Chancellor Media common stock
(or other stock options or equity incentives on mutually satisfactory terms
that are no less favorable than the terms of such additional options in the
event the 1999 Plan is not approved by the stockholders) with

(A) an exercise price of $46.63 per share,

(B) 20% of the shares of Chancellor Media common stock issuable pursuant to
such options vesting annually over five years, and

- - accelerated vesting of all unvested options upon termination by Mr. Banowsky
for "good reason" or by Chancellor Media without "cause";

- - in the event of termination of Mr. Banowsky's employment by Chancellor Media
without "cause" or by Mr. Banowsky for "good reason," a one-time cash payment
will be paid to Mr. Banowsky equal to two times Mr. Banowsky's annual base
salary for the contract year in which such employment terminates;

- - Mr. Banowsky will be subject to, at Chancellor Media's option, a
non-solicitation provision pursuant to which Mr. Banowsky will not be
permitted to induce any employee of Chancellor Media to terminate employment
or to become employed by any competitive business for up to the original term
of his employment agreement in exchange for the continued payment of his base
salary (net of any other severance payments made to Mr. Banowsky);

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- - an agreement by Mr. Banowsky not to be employed by or perform activities on
behalf of or have ownership interest in any broadcasting or related businesses
for the ninety-day period following termination of his employment;

- - if Chancellor Media provides employment related benefits in an aggregate
amount greater than or on more favorable terms as are granted to any other
executive vice presidents, Mr. Banowsky would be provided benefits in
substantially comparable amount and/or under substantially comparable terms,
on an aggregate basis; and

- - an agreement by Chancellor Media to pay an additional amount to Mr. Banowsky
to make Mr. Banowsky whole with respect to any excise tax that may be imposed
by Section 4999 of the Code and any taxes imposed upon such additional
amounts.

Mr. Banowsky continues to serve as the Executive Vice President and General
Counsel of Capstar. As a result, his employment agreement provides that Mr.
Banowsky is obligated to use his good faith efforts to allocate his time
reasonably between Capstar and Chancellor Media. Additionally, Mr. Banowsky's
base salary of $400,000 consists of his base salary for his positions at both
Capstar and Chancellor Media. Capstar and Chancellor Media are obligated to
split the cost of Mr. Banowsky's base salary, with Chancellor Media being
obligated to pay $75,000, plus 50% of the remaining $325,000 in base salary.
Chancellor Media and Capstar are obligated to split evenly all other
compensation paid to Mr. Banowsky and Chancellor Media reimburses Capstar for
50% of the cost of any and all benefit plans of Capstar in which Mr. Banowsky
participates.

McLaughlin Employment Agreement

On October 1, 1998, Chancellor Media and CMCLA entered into an amended and
restated employment agreement with Mr. McLaughlin, to be effective as of August
18, 1998, that has a term that extends through August 18, 2003 and provides for
an annual base salary of $500,000 for the first year of the employment
agreement, subject to increase each year by a percentage equal to the percentage
change in the consumer price index during the preceding year (provided that the
base salary in any year cannot be less than the base salary in the prior year).
The McLaughlin employment agreement provides for Mr. McLaughlin to receive an
annual bonus as determined by Chancellor Media's Compensation Committee, based
upon the recommendation of the Chief Executive Officer. The McLaughlin
employment agreement also provides that on the agreement date and on each of the
first four anniversaries of the employment agreement on which Mr. McLaughlin
remains employed by Chancellor Media, Mr. McLaughlin shall be granted options to
purchase 60,000 shares of Chancellor Media common stock. If Mr. McLaughlin's
employment is terminated without "cause," as defined in the McLaughlin
employment agreement, or if Mr. McLaughlin terminates his employment for "good
reason," as defined in the McLaughlin employment agreement, prior to the fifth
anniversary of the effective date of the McLaughlin employment agreement, Mr.
McLaughlin will receive on the termination date a number of options equal to
300,000 minus the number of options previously granted to Mr. McLaughlin under
the preceding sentence prior to that date. In addition, as an execution bonus,
Chancellor Media granted to Mr. McLaughlin options to purchase 300,000 shares of
Chancellor Media common stock at a price of $48.375 per share 25% of which
vested on the effective date of the employment agreement and 25% of which will
vest on each of the three anniversaries of the date of grant. Chancellor Media
also paid to Mr. McLaughlin a one-time execution

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bonus in the gross amount of $1,000,000. The McLaughlin employment agreement
provides that all options granted under the McLaughlin employment agreement will
be exercisable for ten years from the date of grant of the option,
notwithstanding any termination of employment. The annual option grant shall be
at a price per share equal to the market price for Chancellor Media common stock
at the close of trading on the day immediately preceding the date of the grant;
provided, however, that with respect to any options the grant of which is
accelerated because Mr. McLaughlin's employment is terminated as the result of a
"change of control," the exercise price of such options will be the lower of

- - the exercise price equal to the average last reported sale price of Chancellor
Media common stock for the 30 trading days prior to the ten trading days
ending at the close of the trading day prior to the day of any announcement of
such "change of control," and

- - the exercise price equal to the market price of Chancellor Media common stock
at the close of the trading day immediately preceding the date of grant.

The McLaughlin employment agreement provides that, in the event of termination
of Mr. McLaughlin's employment by Chancellor Media without "cause" or by Mr.
McLaughlin with "good reason," Chancellor Media shall make a one-time cash
payment to Mr. McLaughlin in a gross amount so that the net payments retained by
Mr. McLaughlin, after payment by the Company of any excise taxes imposed by
Section 4999 of the Code with respect to that payment, shall equal $1,000,000.

The McLaughlin employment agreement further provides that, in the event of
termination of Mr. McLaughlin's employment by Mr. McLaughlin for other than
"good reason," in exchange for Mr. McLaughlin's agreement not to induce any
employee of any media company owned by Chancellor Media to terminate employment
or to become employed by any other media company, Chancellor Media shall
continue to pay Mr. McLaughlin one-half of his applicable base salary through
the earlier of the fifth anniversary of the effective date of the employment
agreement or the second anniversary of the termination of employment. In the
event of termination of Mr. McLaughlin's employment other than for "good
reason," Chancellor Media also has the right, in exchange for the payment at the
end of each calendar year preceding the earlier of the fifth anniversary of the
effective date or the second anniversary of termination, an amount equal to
one-half of Mr. McLaughlin's average bonus, and on the last day of the calendar
year which includes the earlier of the fifth anniversary of the effective date
or the second anniversary of termination, an amount equal to the product of
one-half Mr. McLaughlin's average bonus multiplied by the fraction of such
calendar year which precedes the earlier of the fifth anniversary of the
effective date or the second anniversary of termination, to require that Mr.
McLaughlin not be employed by or perform activities on behalf of or have an
ownership interest in any media company serving the same market as any media
company owned by Chancellor Media.

Upon completion of the Outdoor Group Disposition, Mr. McLaughlin is not expected
to remain with Chancellor Media.

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O'Keefe Employment Agreement

In February of 1996, Chancellor Media and CMCLA entered into an employment
agreement with Mr. O'Keefe that has a term through February 28, 1999 and
provides for an annual base salary beginning at $300,000 in 1996 and increasing
incrementally to $350,000 in 1998. The O'Keefe employment agreement provides for
Mr. O'Keefe to receive an annual incentive bonus based upon a percentage of the
amount by which Chancellor Media exceeds various annual performance targets as
defined in the agreement. The agreement also provides that Mr. O'Keefe is
eligible for options to purchase Chancellor Media common stock. Under the
agreement, Mr. O'Keefe was awarded options to purchase 300,000 shares of
Chancellor Media common stock. The stock options vest and become exercisable
subject to Mr. O'Keefe's continued employment by Chancellor Media through
February 28, 1999. However, Mr. O'Keefe may be eligible to exercise the options
on a pro rata basis in the event he is terminated prior to February 28, 1999
upon selected events specified in his employment agreement, including Mr.
O'Keefe's death or disability, a change in control of Chancellor Media,
termination without cause and a material breach of the employment agreement by
Chancellor Media leading to the resignation of Mr. O'Keefe. The agreement
terminates upon the death of Mr. O'Keefe and may be terminated by Chancellor
Media upon the disability of Mr. O'Keefe or for or without "cause," as defined
in the agreement. During the term of the agreement, Mr. O'Keefe is prohibited
from engaging in certain activities competitive with the business of Chancellor
Media. However, with the approval of Chancellor Media, Mr. O'Keefe may engage in
activities not directly competitive with the business of Chancellor Media as
long as those activities do not materially interfere with Mr. O'Keefe's
employment obligations. On March 1, 1997, Evergreen Media Corporation and Mr.
O'Keefe amended the O'Keefe employment agreement in order to make selected
provisions of the O'Keefe employment agreement comparable to those contained in
Mr. de Castro's and Mr. Devine's former employment agreement.

On September 4, 1997, Chancellor Media and CMCLA amended its employment
agreement with Mr. O'Keefe. As a result of the O'Keefe amendment, the O'Keefe
employment agreement expired as of December 31, 1997, and the O'Keefe amendment
was effective on January 1, 1998. The O'Keefe amendment, which has a term
through December 31, 2000, provides for an initial annual base salary of
$500,000 for the first year of the employment agreement, to be increased each
year by $25,000. In addition, the O'Keefe amendment provides for an annual bonus
based upon the financial performance of Chancellor Media in relation to various
annual performance targets which are defined in the O'Keefe amendment. The
O'Keefe amendment provides that, on January 1, 1998 and 1999, since Mr. O'Keefe
remained employed by Chancellor Media on those dates, Mr. O'Keefe was granted
options to purchase 100,000 shares of Chancellor Media common stock.
Furthermore, with respect to the option to purchase 300,000 shares of Chancellor
Media common stock granted under the O'Keefe employment agreement, all options
became exercisable on February 28, 1999, since Mr. O'Keefe remained employed by
Chancellor Media on that date.

The O'Keefe amendment provides that all options described in the O'Keefe
amendment will be exercisable for seven years from the date of grant of the
option, and that all options granted under the O'Keefe amendment will be granted
at a price per share equal to the market price for Chancellor Media common stock
on the date of the grant. The O'Keefe amendment provides that, in the event of
termination of Mr. O'Keefe's employment by

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Chancellor Media without "cause," Chancellor Media shall pay Mr. O'Keefe his
base salary and a prorated annual bonus and provide health and life insurance
coverage until the earlier of the expiration of the term of the O'Keefe
amendment or the date on which Mr. O'Keefe becomes employed in a position
providing similar compensation.

On May 18, 1999, Chancellor Media and CMCLA entered into a new employment
agreement with Mr. O'Keefe that provides for the following:

- - a five year term;

- - an increase in Mr. O'Keefe's base salary to $550,000, subject to increases
each year by a percentage equal to the percentage change in the consumer price
index during the preceding year;

- - a discretionary bonus as determined by Chancellor Media's Compensation
Committee, based upon the recommendation of the Chief Executive Officer;

- - a grant of options to acquire 500,000 shares of Chancellor Media common stock
(or other stock options or equity incentives on mutually satisfactory terms
that are no less favorable than the terms of such additional options in the
event the 1999 Plan is not approved by the stockholders) with

(A) an exercise price of $46.63 per share,

(B) 20% of the shares of Chancellor Media common stock issuable pursuant to
such options vesting annually over five years, and

- - accelerated vesting of all unvested options upon termination by Mr. O'Keefe
for "good reason" or by Chancellor Media without "cause";

- - in the event of termination of Mr. O'Keefe's employment by Chancellor Media
without "cause" or by Mr. O'Keefe for "good reason," a one-time cash payment
will be paid to Mr. O'Keefe equal to two times Mr. O'Keefe's annual base
salary for the contract year in which such employment terminates;

- - Mr. O'Keefe will be subject to, at Chancellor Media's option, a
non-solicitation provision pursuant to which Mr. O'Keefe will not be permitted
to induce any employee of Chancellor Media to terminate employment or to
become employed by any competitive business for up to the original term of his
employment agreement in exchange for continued payment of his base salary (net
of any other severance payments made to Mr. O'Keefe);

- - an agreement by Mr. O'Keefe not to be employed by or perform activities on
behalf of or have ownership interest in any broadcasting or related businesses
for the ninety-day period following termination of his employment;

- - if Chancellor Media provides employment related benefits in an aggregate
amount greater than or on more favorable terms as are granted to any other
executive vice

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presidents, Mr. O'Keefe would be provided benefits in substantially comparable
amount and/or under substantially comparable terms, on an aggregate basis; and

- - an agreement by Chancellor Media to pay an additional amount to Mr. O'Keefe to
make Mr. O'Keefe whole with respect to any excise tax that may be imposed by
Section 4999 of the Code and any taxes imposed upon such additional amounts.

Marcus Employment Agreement

Prior to March 15, 1999, Mr. Marcus served as President and Chief Executive
Officer of Chancellor Media and CMCLA. Chancellor Media and CMCLA entered into
an amended and restated employment agreement as of October 1, 1998 with Jeffrey
A. Marcus, which was effective as of June 1, 1998. The Marcus employment
agreement, which had a term that extended through June 1, 2003, provided for an
initial annual base salary of $1,125,000 for the first year of the employment
agreement, subject to increase each year by a percentage equal to the percentage
change in the consumer price index during the preceding year (provided that the
base salary in any year cannot be less than the base salary in the prior year).
The Marcus employment agreement provided for a one-time execution bonus in the
gross amount of $1,000,000. In addition, the Marcus employment agreement
provided for an annual bonus in an amount to be determined by Chancellor Media's
Compensation Committee in its reasonable discretion; provided, however, the
annual bonus would in no event to be less than $2,000,000 nor greater than
$4,000,000. The Marcus employment agreement provides that, on the effective date
of the employment agreement and on each of the four anniversaries of the
employment agreement on which Mr. Marcus remained employed by Chancellor Media,
Mr. Marcus would be granted options to purchase 200,000 shares of Chancellor
Media common stock. If Mr. Marcus' employment was terminated without "cause," as
defined in the Marcus employment agreement, or if Mr. Marcus terminated his
employment for "good reason," as defined in the Marcus employment agreement,
prior to the fourth annual anniversary of the effective date of the Marcus
employment agreement, Mr. Marcus would receive on such termination date a number
of options equal to 1,000,000 minus the number of options previously granted to
Mr. Marcus under the preceding sentence prior to that date. The Marcus
employment agreement provided that all options granted under the Marcus
employment agreement would be exercisable for ten years from the date of grant
of the options, notwithstanding any termination of employment, at a price per
share equal to the market price for Chancellor Media common stock at the close
of trading on the day immediately preceding the date of the grant; provided,
however, that with respect to any options the grant of which is accelerated
because Mr. Marcus' employment was terminated as the result of a "change of
control," the exercise price of such options would be the lower of

- - the exercise price equal to the market price of Chancellor Media common stock
at the close of the trading day immediately preceding the date of grant.

Under the Marcus employment agreement, Mr. Marcus was also granted options to
purchase 1,250,000 shares of Chancellor Media common stock, one-half of which
would

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vest on the date of the grant and one-half of which would vest on the 18th month
anniversary of the date of the grant if and to the extent that a termination of
employment had not occurred, provided that in the event of a termination of
employment by Chancellor Media without "cause" or by Mr. Marcus for "good
reason," all such options would vest and become exercisable on the date of such
termination of employment. Each such option would be exercisable for ten years
from the date of grant of those options, notwithstanding any termination of
employment, at a price of $42.125 per share. The Marcus employment agreement
also provided that, in the event of termination of Mr. Marcus's employment by
Chancellor Media without "cause" or by Mr. Marcus with "good reason," Chancellor
Media would make a one-time cash payment to Mr. Marcus in a gross amount such
that the net payments retained by Mr. Marcus, after payment by Chancellor Media
of excise taxes imposed by Section 4999 of the Code with respect to that
payment, to the extent applicable, shall equal $6,250,000.

The Marcus employment agreement further provided that, in the event of
termination of Mr. Marcus's employment by Mr. Marcus for other than "good
reason," in exchange for Mr. Marcus's agreement not to induce any employee of
any radio station owned by Chancellor Media to terminate employment or to become
employed by any other radio station, Chancellor Media would continue to pay Mr.
Marcus his applicable base salary through the fifth anniversary of the effective
date. In the event of termination of Mr. Marcus' employment for other than "good
reason," Chancellor Media also had the right, in exchange for the payment at the
end of each calendar year until through December 31, 2003, of an amount equal to
Mr. Marcus' average bonus, and on the last day of the calendar year which
included the fifth anniversary of the Marcus employment agreement, make a
payment equal to the product of Mr. Marcus's average bonus multiplied by the
fraction of each calendar year which precedes the fifth anniversary of the
effective date of the Marcus employment agreement, to require that Mr. Marcus
not be employed by or perform activities on behalf of or have ownership interest
in any radio or television broadcasting station serving the same market as any
radio station owned by Chancellor Media, or in connection with any business
enterprise that is directly or indirectly engaged in any of the business
activities in which any business owned by Chancellor Media has significant
involvement, subject to certain exceptions. The Marcus employment agreement
further provided that if Mr. Marcus's employment was terminated by reason of
expiration or non-renewal of the Marcus employment agreement, Chancellor Media
would make a one-time cash payment to Mr. Marcus equal to two times the amount
of his annual base salary for the contract year in which employment terminated.
The Marcus employment agreement also provided that Mr. Marcus would be entitled
to receive personal security services, to be paid for by Chancellor Media, and
certain other customary benefits and perquisites.

In connection with Mr. Marcus' resignation as President and Chief Executive
Officer of Chancellor Media and CMCLA in March 1999, Mr. Marcus, his spouse, and
Chancellor Media and CMCLA entered into a termination agreement dated as of
March 15, 1999. Pursuant to that agreement, Mr. Marcus resigned as President and
Chief Executive Officer and from any other appointments or positions which he
may have held with Chancellor Media or any of its subsidiaries; provided,
however, that Mr. Marcus did not resign his

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positions as a director of each of Chancellor Media, Chancellor Mezzanine
Holdings Corporation and CMCLA. In addition, the agreement provides, among other
things, that

- - Mr. Marcus received a one-time cash severance payment of $6,250,000, a
pro-rated bonus for the fiscal year of Chancellor Media ended December 31,
1998 of $2,333,333, and all accrued and unpaid base salary earned up to and
including March 15, 1999, in each case net of applicable employee withholding
taxes,

- - Mr. Marcus was granted options to purchase 800,000 shares of Chancellor Media
common stock at an exercise price of $47.0625 per share, and

- - unvested options to acquire 625,000 shares of Chancellor Media common stock
granted to Mr. Marcus under his employment agreement automatically vested and
became immediately exercisable.

The agreement further provides for mutual releases and other provisions
typically found in an employment termination agreement.

McMillin Employment Agreement

Prior to March 15, 1999, Mr. McMillin served as Senior Vice President and Chief
Financial Officer of Chancellor Media and CMCLA. On October 1, 1998, Chancellor
Media and CMCLA entered into an employment agreement with Mr. McMillin, that had
a term that extended through October 1, 2003, and provided for an annual base
salary of $500,000 for the first year of the employment agreement, to be
increased each year by a percentage equal to the percentage change in the
consumer price index during the preceding year. The McMillin employment
agreement provided for Mr. McMillin to receive an annual bonus as determined by
Chancellor Media's Compensation Committee, based upon the recommendation of the
Chief Executive Officer. The McMillin employment agreement also provided that on
the agreement date and on each of the first four anniversaries of the employment
agreement on which Mr. McMillin remained employed by Chancellor Media, Mr.
McMillin would be granted options to purchase 40,000 shares of Chancellor Media
common stock. If Mr. McMillin's employment was terminated without "cause," as
defined in the McMillin employment agreement, or if Mr. McMillin terminated his
employment for "good reason," as defined in the McMillin employment agreement,
prior to the fifth anniversary of the effective date of the McMillin employment
agreement, Mr. McMillin would receive on the termination date a number of
options equal to 200,000 minus the number of options previously granted to Mr.
McMillin under to the preceding sentence prior to that date. In addition, as an
execution bonus, Chancellor Media granted to Mr. McMillin options to purchase
200,000 shares of Chancellor Media common stock at a price of $29.875 per share,
25% of which would vest on the effective date of the employment agreement and
25% of which would vest on each of the three anniversaries of the date of grant.
Chancellor Media also paid to Mr. McMillin a one-time execution bonus in the
gross amount of $1,000,000. The McMillin employment agreement provided that all
options granted under the McMillin employment agreement would be exercisable for
ten years from the date of grant of the option, notwithstanding any termination
of employment. The annual option grant would be at a price per share equal to
the market price for Chancellor Media common stock at the close of trading on
the day immediately preceding the date of the grant. The McMillin employment
agreement provided that, in the event of termination of Mr. McMillin's
employment by Chancellor Media without "cause" or by Mr. McMillin with "good

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reason," Chancellor Media would make a one-time cash payment to Mr. McMillin in
a gross amount so that the net payments retained by Mr. McMillin, after payment
by Chancellor Media of any excise taxes imposed by Section 4999 of the Code with
respect to that payment, would equal two times Mr. McMillin's base salary then
in effect.

The McMillin employment agreement further provided that, in the event of
termination of Mr. McMillin's employment by Mr. McMillin for other than "good
reason," in exchange for Mr. McMillin's agreement not to induce any employee of
any media company owned by Chancellor Media to terminate employment or to become
employed by any other media company, Chancellor Media would continue to pay Mr.
McMillin one-half of his applicable base salary through the earlier of the fifth
anniversary of the effective date thereof or the second anniversary of the
termination of employment. In the event of termination of Mr. McMillin's
employment other than for "good reason," Chancellor Media also had the right, in
exchange for the payment at the end of each calendar year preceding the earlier
of the fifth anniversary of the effective date or the second anniversary of
termination, of one-half of Mr. McMillin's average bonus, and on the last day of
the calendar year that included the earlier of the fifth anniversary of the
effective date or the second anniversary of termination, of an amount equal to
the product of one-half of Mr. McMillin's average bonus multiplied by the
fraction of each calendar year which preceded the earlier of the fifth
anniversary of the effective date or the second anniversary of termination, to
require that Mr. McMillin not be employed by or perform activities on behalf of
or have an ownership interest in any media company serving the same market as
any media company owned by Chancellor Media.

In January 1999, Mr. McMillin's employment agreement was amended by Chancellor
Media and CMCLA. The amended agreement changed Mr. McMillin's title and duties
to Senior Vice President and Chief Financial Officer, increased his annual
option grants to 50,000 shares of Chancellor Media common stock, and provided
for an additional option grant of 60,000 shares as of the effective date of the
amendment at an exercise price of $46.125 per share. In addition, as a result of
the increase in annual option grants, if Mr. McMillin's employment was
terminated without "cause" or if Mr. McMillin terminated his employment for
"good reason" prior to the fifth anniversary of the effective date of the
McMillin employment agreement, Mr. McMillin would receive on the termination
date a number of options equal to 240,000 minus the number of options previously
granted.

In connection with Mr. McMillin's resignation as Senior Vice President and Chief
Financial Officer of Chancellor Media and CMCLA in March 1999, Mr. McMillin, his
spouse, and Chancellor Media and CMCLA entered into a termination agreement
dated as of March 15, 1999. Pursuant to that agreement, Mr. McMillin resigned as
Senior Vice President and Chief Financial Officer and from any other
appointments or positions which he may have held with Chancellor Media or any of
its subsidiaries. In addition, the agreement provides, among other things, that

- - Mr. McMillin received a one-time cash severance payment of $1,000,000, a
pro-rated bonus for the fiscal year of Chancellor Media ended December 31,
1998 of $125,000, and all accrued and unpaid base salary earned up to and
including March 15, 1999, in each case net of applicable employee withholding
taxes,

- - Mr. McMillin was granted options to purchase 200,000 shares of Chancellor
Media common stock at an exercise price of $47.0625 per share, and

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- - unvested options to acquire 237,500 shares of Chancellor Media common stock
granted to Mr. McMillin under his employment agreement automatically vested
and became immediately exercisable.

The agreement further provides for mutual releases and other provisions
typically found in an employment termination agreement.

Neuman Employment Agreement

Prior to March 15, 1999, Mr. Neuman served as Senior Vice President -- Strategic
Development of Chancellor Media and CMCLA. On October 1, 1998, Chancellor Media
and CMCLA entered into an amended and restated employment agreement with Mr.
Neuman, which was effective as of July 1, 1998, that had a term that extended
through July 1, 2003, and provided for an annual base salary of $500,000 for the
first year of the employment agreement, to be increased each year by $25,000.
The Neuman employment agreement provided for Mr. Neuman to receive an annual
bonus as determined by Chancellor Media's Compensation Committee, based upon the
recommendation of the Chief Executive Officer; provided, however, that the bonus
would in no event be less than $500,000 nor greater than $1,500,000. The Neuman
employment agreement provided that on the agreement date and on each of the
first four anniversaries of the effective date of the employment agreement on
which Mr. Neuman remained employed by Chancellor Media, Mr. Neuman would be
granted options to purchase 100,000 shares of Chancellor Media common stock. If
Mr. Neuman's employment was terminated without "cause," as defined in the Neuman
employment agreement, or if Mr. Neuman terminated his employment for "good
reason," as defined in the Neuman employment agreement, prior to the fifth
anniversary of the effective date of the Neuman employment agreement, Mr. Neuman
would receive on the termination date a number of options equal to 500,000 minus
the number of options previously granted to Mr. Neuman under the preceding
sentence prior to that date. In addition, as an execution bonus, Chancellor
Media granted to Mr. Neuman options to purchase 300,000 shares of Chancellor
Media common stock at a price of $42.3125 per share. The Neuman employment
agreement provided that all options granted under the Neuman employment
agreement would be exercisable for ten years from the date of grant of the
option, notwithstanding any termination of employment. The annual option grant
would be at a price per share equal to the market price for Chancellor Media
common stock at the close of trading on the day immediately preceding the date
of the grant; provided, however, that with respect to any options the grant of
which was accelerated because Mr. Neuman's employment was terminated as the
result of a "change of control," the exercise price of such options would be the
lower of

- - the exercise price equal to the market price of Chancellor Media common stock
at the close of the trading day immediately preceding the date of grant.

The Neuman employment agreement provided that, in the event of termination of
Mr. Neuman's employment by Chancellor Media without "cause" or by Mr. Neuman
with "good reason," Chancellor Media would make a one-time cash payment to Mr.
Neuman in a gross amount so that the net payments retained by Mr. Neuman, after
payment by

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Chancellor Media of any excise taxes imposed by Section 4999 the Code with
respect to that payment, shall equal $2,000,000.

The Neuman employment agreement further provided that, in the event of
termination of Mr. Neuman's employment by Mr. Neuman for other than "good
reason," in exchange for Mr. Neuman's agreement not to induce any employee of
any media company owned by Chancellor Media to terminate employment or to become
employed by any other media company, Chancellor Media would continue to pay Mr.
Neuman his applicable base salary through the earlier of the fifth anniversary
of the effective date of the employment agreement or the second anniversary of
the termination of employment. In the event of termination of Mr. Neuman's
employment other than for "good reason," Chancellor Media also had the right, in
exchange for the payment at the end of each calendar year preceding the earlier
of the fifth anniversary of the effective date or the second anniversary of
termination, an amount equal to Mr. Neuman's average bonus, and on the last day
of the calendar year which included the earlier of the fifth anniversary of the
effective date or the second anniversary of termination, an amount equal to the
product of Mr. Neuman's average bonus multiplied by the fraction of such
calendar year which precedes the earlier of the fifth anniversary of the
effective date or the second anniversary of termination, to require that Mr.
Neuman not be employed by or perform activities on behalf of or have an
ownership interest in any media company serving the same market as any media
company owned by Chancellor Media. The Neuman employment agreement further
provided that if Mr. Neuman's employment was terminated by reason of expiration
or non-renewal of the Neuman employment agreement, Chancellor Media would make a
one-time cash payment to Mr. Neuman equal to two times the amount of his annual
base salary for the contract year in which his employment terminated. The Neuman
employment agreement provided that if Chancellor Media provided employment
related benefits in an aggregate amount greater than or on more favorable terms
as were granted to any other senior executives, except for benefits and
employment inducements provided to the Chief Executive Officer or Chief
Financial Officer of Chancellor Media, the President of the Chancellor Radio
Group, or the Vice Chairman of the public company resulting from the merger with
Capstar, Mr. Neuman would be provided benefits in a substantially comparable
amount and/or under substantially comparable terms, on an aggregate basis.

In connection with Mr. Neuman's resignation as Senior Vice
President -- Strategic Development of Chancellor Media and CMCLA in March 1999,
Mr. Neuman, his spouse, and Chancellor Media and CMCLA entered into a
termination agreement dated as of March 15, 1999. Pursuant to that agreement,
Mr. Neuman resigned as Senior Vice President -- Strategic Development and from
any other appointments or positions which he may have held with Chancellor Media
or any of its subsidiaries. In addition, the agreement provides, among other
things, that

- - Mr. Neuman received a one-time cash severance payment of $2,000,000, a
pro-rated bonus for the fiscal year of Chancellor Media ended December 31,
1998 of $750,000, and all accrued and unpaid base salary earned up to and
including March 15, 1999, in each case net of applicable employee withholding
taxes, and

- - Mr. Neuman was granted options to purchase 400,000 shares of Chancellor Media
common stock at an exercise price of $47.0625 per share.

The agreement further provides for mutual releases and other provisions
typically found in an employment termination agreement.

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Devine Employment Agreement

Prior to January 6, 1999, Matthew E. Devine served as Senior Vice President and
Chief Financial Officer of Chancellor Media and CMCLA. In May 1998, Chancellor
Media and CMCLA entered into a new employment agreement with Mr. Devine. The
Devine employment agreement, which had a term that extended through April 17,
2003, provided for an initial annual base salary of $500,000 for the first year
of the employment agreement, to be increased each year by $25,000. In addition,
the Devine employment agreement provided for an annual bonus based upon a
percentage of the amount by which Chancellor Media exceeded an annual
performance target which was defined in the Devine employment agreement. The
Devine employment agreement provided that, on the effective date of the
employment agreement and on each of the first four anniversaries of the
employment agreement on which Mr. Devine remained employed by Chancellor Media,
Mr. Devine would be granted options to purchase 120,000 shares of Chancellor
Media common stock. If Mr. Devine's employment was terminated without "cause,"
as defined in the Devine employment agreement, or if Mr. Devine terminated his
employment for "good reason," as defined in the Devine employment agreement,
prior to the fifth annual anniversary of the effective date of the Devine
employment agreement, Mr. Devine would receive on the termination date a number
of options equal to 600,000 minus the number of options previously granted to
Mr. Devine under the preceding sentence prior to that date. In addition, the
Devine employment agreement provided

- - for a signing bonus in the gross amount of $1,000,000;

- - that Chancellor Media would make a one-time cash payment to Mr. Devine of
$2,000,000 less applicable employee withholding taxes; and

- - that Chancellor Media would grant to Mr. Devine stock options to purchase
600,000 shares of Chancellor Media common stock at a price of $42.125 per
share.

The Devine employment agreement provided that all options granted pursuant to
the Devine employment agreement would be exercisable for ten years from the date
of grant of the option, notwithstanding any termination of employment. The
annual option grant was to be at a price per share equal to the market price for
Chancellor Media common stock at the close of trading on the day immediately
preceding the date of the grant. The Devine employment agreement provided that,
in the event of termination of Mr. Devine's employment by Chancellor Media
without "cause" or by Mr. Devine with "good reason," Chancellor Media was to
make a one-time cash payment to Mr. Devine in a gross amount so that the net
payments retained by Mr. Devine would equal $2,000,000 less applicable employee
withholding taxes.

The Devine employment agreement further provided that, in the event of
termination of Mr. Devine's employment by Mr. Devine for other than "good
reason," in exchange for Mr. Devine's agreement not to induce any employee of
any radio station owned by Chancellor Media to terminate employment or to become
employed by any other radio station, Chancellor Media would continue to pay Mr.
Devine his applicable base salary through the earlier of the fifth anniversary
of the effective date of the Devine employment agreement or the second
anniversary of the termination of employment. In the event of termination of Mr.
Devine's employment for other than "good reason," Chancellor Media also had the
right, in exchange for the payment at the end of each calendar year through the
year which includes the earlier of the fifth anniversary of the effective date
or the second anniversary of termination of an annual amount equal to the
product of
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Mr. Devine's average bonus multiplied by the fraction of each calendar year
which precedes the earlier of the fifth anniversary of the effective date or the
second anniversary of termination, to require that Mr. Devine not be employed by
or perform activities on behalf of or have an ownership interest in any radio
broadcasting station serving the same market as any radio station owned by
Chancellor Media. The Devine employment agreement further provided that if Mr.
Devine's employment was terminated by reason of expiration or non-renewal of the
Devine employment agreement, Chancellor Media would make a one-time cash payment
to Mr. Devine equal to two times the amount of his annual base salary for the
contract year in which such employment terminated. The Devine employment
agreement provided that if Chancellor Media provided employment related benefits
in an aggregate amount greater than or on more favorable terms as are granted to
any other senior executives, except for benefits and employment inducements
provided to the Chief Executive Officer or Chief Operating Officer, Mr. Devine
would be provided benefits in substantially comparable amount and/or
substantially comparable terms, on an aggregate basis.

In connection with Mr. Devine's resignation as Senior Vice President and Chief
Financial Officer, Mr. Devine, his spouse, and Chancellor Media and CMCLA
entered into a termination agreement dated as of January 6, 1999. Pursuant to
that agreement, Mr. Devine resigned as Senior Vice President and Chief Financial
Officer and from any other appointments or positions which he may have held with
Chancellor Media or any of its subsidiaries. In addition, the agreement provides
that

- - Mr. Devine shall receive a one-time cash payment of $2,000,000 net of
applicable employee withholding taxes; and

- - Mr. Devine shall be granted options to purchase 480,000 shares of Chancellor
Media common stock at an exercise price of $46.125.

The agreement further provides for non-solicitation covenants by Mr. Devine
through April 17, 2000, as well as other mutual releases and other provisions
typically found in an employment termination agreement, but does not provide for
a noncompetition agreement from Mr. Devine.

Ginsburg Employment Agreement

Prior to April 14, 1998, Scott K. Ginsburg served as the President and Chief
Executive Officer of Chancellor Media and CMCLA. On September 4, 1997,
Chancellor Media entered into a new employment agreement with Mr. Ginsburg,
which was effective as of the closing date of the merger with Chancellor
Broadcasting Company. The Ginsburg employment agreement, which had a term that
extended through September 5, 2002, provided for an initial annual base salary
of $1,000,000 for the first year of the employment agreement, to be increased
each year by a percentage equal to the percentage change in the consumer price
index during the preceding year. In addition, the Ginsburg employment agreement
provided for an annual bonus based upon the financial performance of Chancellor
Media in relation to certain annual performance targets which were defined in
the Ginsburg employment agreement. The Ginsburg employment agreement provided
that, on the closing date of the merger with Chancellor Broadcasting Company and
on each of the first four anniversaries of that closing on which Mr. Ginsburg
remained employed by Chancellor Media, Mr. Ginsburg would be granted options to
purchase 200,000 shares of Chancellor Media common stock. If Mr. Ginsburg's
employment was terminated without

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"cause," as defined in the Ginsburg employment agreement, or if Mr. Ginsburg
terminated his employment for "good reason," as defined in the Ginsburg
employment agreement, prior to the fifth annual anniversary of the consummation
of the merger with Chancellor Broadcasting Company, Mr. Ginsburg would receive
on the termination date a number of options equal to 1,000,000 minus the number
of options previously granted to Mr. Ginsburg pursuant to the preceding sentence
prior to that date. In addition, in recognition of Mr. Ginsburg's rights under
his prior employment agreement, Chancellor Media granted Mr. Ginsburg an option
to acquire an additional 300,000 shares of Chancellor Media common stock on the
closing date of the merger with Chancellor Broadcasting Company. The Ginsburg
employment agreement provided that all options granted pursuant to the Ginsburg
employment agreement would be exercisable for ten years from the date of grant
of the option, notwithstanding any termination of employment, at a price per
share equal to the market price for Chancellor Media common stock at the close
of trading on the day immediately preceding the date of the grant. The Ginsburg
employment agreement provided that, in the event of termination of Mr.
Ginsburg's employment by Chancellor Media without "cause" or by Mr. Ginsburg
with "good reason," Chancellor Media would make a one-time cash payment to Mr.
Ginsburg in a gross amount so that the net payments retained by Mr. Ginsburg
shall equal $20,000,000. The Ginsburg employment agreement further provided
that, in the event of termination of Mr. Ginsburg's employment by reason of
expiration or non-renewal of the Ginsburg employment agreement, Chancellor Media
would make a one-time cash payment to Mr. Ginsburg equal to two times the amount
of his annual base salary for the contract year in which his employment
terminates. The Ginsburg employment agreement provided that Mr. Ginsburg would
have registration rights with respect to all Chancellor Media common stock
acquired by Mr. Ginsburg at any time which rights were no less favorable to Mr.
Ginsburg as the registration rights held by Hicks Muse and its affiliates with
respect to the common stock of Chancellor Broadcasting Company immediately prior
to the consummation of the merger with Chancellor Broadcasting Company. Under
the Ginsburg employment agreement, Chancellor Media also agreed to make to Mr.
Ginsburg a ten-year unsecured loan in the amount of $3,500,000 bearing interest
at a fixed rate equal to the applicable federal long-term rate in effect on the
date on which the loan is made. The terms of the loan require Mr. Ginsburg to
repay principal of the loan in five equal annual installments, commencing on the
sixth anniversary of the date on which the loan is made. As of March 31, 1999,
Mr. Ginsburg has borrowed $3,500,000 under the loan and has accrued interest
payable to Chancellor Media of $267,524.

On April 14, 1998, Mr. Ginsburg resigned as President and Chief Executive
Officer of Chancellor Media, and on April 20, 1998, Mr. Ginsburg resigned as
director of Chancellor Media and CMCLA and from all appointments and positions
with their respective subsidiaries. On April 20, 1998, Chancellor Media and
CMCLA entered into a separation and consulting agreement with Mr. Ginsburg. The
Ginsburg separation and consulting agreement provides for

- - a lump sum severance payment of $20,000,000 net of applicable employee
withholding taxes, which is the same amount Mr. Ginsburg would have been
entitled to under the Ginsburg employment agreement based upon a termination
of his employment by him for "good reason" or by Chancellor Media "without
cause," and

- - a grant to Mr. Ginsburg of stock options to acquire 800,000 shares of
Chancellor Media common stock, which is the same number of stock options to
which Mr. Ginsburg

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would have been entitled based upon a termination of his employment by him for
"good reason" or by Chancellor Media "without cause," except that the Ginsburg
separation and consulting agreement provides that the exercise price for such
stock options is $23.25 per share and shall become exercisable one third at
April 14, 1998, 1999 and 2000, respectively.

Previously granted stock options were unaffected by the Ginsburg separation and
consulting agreement. The Ginsburg separation and consulting agreement also
provides that Chancellor Media shall retain Mr. Ginsburg as a consultant through
April 13, 2003, and Mr. Ginsburg will be compensated for such consulting
services in an amount equal to $2,500,000 for each full year of consulting
services. Mr. Ginsburg received $1,770,833 for such services between April 14,
1998 and December 31, 1998. The Ginsburg separation and consulting agreement
further provides for three-year non-solicitation and non-hire covenants by Mr.
Ginsburg, as well as other mutual releases and other provisions typically found
in an employment termination agreement, but does not provide for a
noncompetition agreement from Mr. Ginsburg.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee of Chancellor Media are Messrs. Thomas
O. Hicks, Hodson, Jordan, Winters and Lewis. Mr. Thomas O. Hicks serves as
Chairman of the Compensation Committee, and also serves as Chairman of the Board
and Chief Executive Officer of Chancellor Media, Chancellor Mezzanine Holdings
Corporation and CMCLA.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires Chancellor Media's directors and
executive officers, and persons who own more than 10% of Chancellor Media common
stock, to file with the SEC initial reports of beneficial ownership and reports
of changes in beneficial ownership of Chancellor Media common stock and other
equity securities of Chancellor Media. To Chancellor Media's knowledge, for the
fiscal year ended December 31, 1998, all Section 16(a) filing requirements
applicable to its executive officers, directors and holders of more than 10% of
Chancellor Media common stock were satisfied, except that (i) a Form 3 was not
timely filed for Michael J. Levitt in connection with his appointment to the
Board of Directors of Chancellor Media on May 19, 1998, (ii) a Form 3 was not
timely filed for James A. McLaughlin in connection with his becoming an
executive officer of Chancellor Media on August 18, 1998, (iii) a Form 3 was not
timely filed for J. Otis Winters in connection with his appointment to the Board
of Directors of Chancellor Media on May 19, 1998 and (iv) a Form 4 was not
timely filed for Steven Dinetz in connection with certain stock option exercises
and sales effected by Mr. Dinetz in March 1998.

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PERFORMANCE GRAPH

The following graph shows a comparison, since Chancellor Media's initial public
offering on May 10, 1993, of the cumulative stockholder return on (i) Chancellor
Media's common stock, (ii) an index including all securities listed on The
Nasdaq Stock Market and (iii) a self-determined peer group of companies,
measuring the changes in common stock prices from May 11, 1993 through December
31, 1998. The graph assumes an investment of $100 on December 31, 1993 and, as
required by the SEC, all values shown assume the reinvestment of all dividends,
if any, and in the case of the peer group, are weighed to reflect the market
capitalization of the component companies. The peer group consists of Clear
Channel Communications, Inc., Emmis Broadcasting Corporation, Heftel
Broadcasting Corporation, Infinity Broadcasting Corporation, Jacor
Communications, Inc., Lamar and Saga Communications, Inc.
[Performance Graph]

<TABLE>
<CAPTION>
12/31/93 12/30/94 12/29/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Chancellor Media
Corporation......... $100.0 $ 98.6 $180.3 $211.3 $630.6 $809.2
Nasdaq Stock Market
(U.S. & Foreign).... 100.0 97.0 136.2 166.8 203.9 281.9
Peer Group............ 100.0 117.2 198.1 318.8 669.7 870.8
</TABLE>

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REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

The Compensation Committee is responsible for reviewing the compensation paid to
Chancellor Media's executive officers and making recommendations to Chancellor
Media's Board of Directors with respect to such compensation. The Board of
Directors approves all compensation paid to executive officers, with the
exception of grants of stock options which are made by the Compensation
Committee or the Independent Compensation Committee discharging the functions of
the Stock Option Committee as provided in Chancellor Media's 1993 Stock Option
Plan for Executive Officers and Key Employees, the 1995 Stock Option Plan for
Executive Officers and Key Employees, the 1998 Chancellor Media Corporation
Stock Option Plan and, if adopted by the stockholders, the 1999 Plan.

Overall Compensation Objectives

Chancellor Media is a large national pure-play radio broadcasting and related
media company with operations in radio broadcasting and media representation.
Chancellor Media's overall strategy is to enhance stockholder value by focusing
on revenue and cash flow and the reduction of leverage through the successful
operation of its radio and media representation assets, as well as through the
development of Chancellor Media's Internet initiative as part of the AMFM New
Media Group. In furtherance of this strategy, Chancellor Media's compensation
strategies are designed to attract and to retain the best possible executive
talent. Chancellor Media enters into long-term employment agreements with its
executive officers. These agreements generally contain base salaries that
recognize individual performance and cash and equity-based incentives designed
to align the financial interests of executives with those of the stockholders,
and prohibit the officer from competing with Chancellor Media. The Compensation
Committee believes that the structure of these agreements should enable
Chancellor Media to retain its key officers for a period of time and focus the
efforts and energies of these officers on further enhancing the value of
Chancellor Media to its stockholders.

In 1998, Chancellor Media entered into new employment agreements with Messrs.
Marcus, de Castro, Devine and McLaughlin. Each agreement provides for a base
salary, annual cash incentive bonus and the award of options to purchase
Chancellor Media common stock. In entering these employment agreements, the
Compensation Committee and the Board of Directors considered such factors as
each executive's responsibilities in identifying and completing the acquisition
of strategic broadcast properties, Chancellor Media's strong operating
performance, and the increase in stockholder value to Chancellor Media's
stockholders during 1998. Each of these employment agreements was approved by
Chancellor Media's Compensation Committee and the Board of Directors.

Principal Components of Executive Compensation

The principal elements of compensation to Chancellor Media's executive officers
include a base salary and annual cash bonuses and, at appropriate intervals,
grants of stock options. Chancellor Media also provides to its executive
officers medical, pension and other fringe benefits generally available to
Chancellor Media employees. Base salary for Chancellor Media's executive
officers under their respective agreements was determined by evaluating the
responsibilities of the position held by, and the personal experience level of,
the specific individual. In determining levels of base salary, the Compensation
Committee also decided to set an appropriate level of base compensation to
motivate and retain Chancellor Media's

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<PAGE> 248

executive officers in light of Chancellor Media's relative position to its
competition in the radio broadcast industry and the performance standards
established for such individuals. Under the terms of their employment agreements
in effect for 1998, Chancellor Media's executive officers were each eligible
for, and received, an annual cash incentive bonus based on Chancellor Media's
performance during the year as measured by broadcast cash flow targets being met
or exceeded. Additionally, each of Chancellor Media's executive officers are
eligible for annual awards of stock options pursuant to the terms of their
employment agreements. The objective in setting the terms of stock option awards
was to incentivize the continued employment of those executive officers deemed
essential to Chancellor Media and its long-term objectives.

Compensation of the Chief Executive Officer

Jeffrey A. Marcus. Total compensation for Mr. Marcus, the President and Chief
Executive Officer of Chancellor Media after June 1, 1998, consisted of a base
salary of $640,000 plus a cash bonus of $1,000,000 paid under the terms of Mr.
Marcus' employment agreement with Chancellor Media. Additionally, in connection
with Mr. Marcus' resignation as President and Chief Executive Officer of the
Company in March 1999,

- - Mr. Marcus was granted options to purchase 800,000 shares of Chancellor Media
common stock at an exercise price of $47.0625 per share, and

- - unvested options to acquire 625,000 shares of Chancellor Media common stock
granted to Mr. Marcus under his employment agreement automatically vested and
became immediately exercisable.

Scott K. Ginsburg. Total compensation for Mr. Ginsburg, the President and Chief
Executive Officer of Chancellor Media through April 14, 1998, consisted of
$372,222 base salary paid under the terms of Mr. Ginsburg's employment
agreement. Additionally, in connection with Mr. Ginsburg's resignation as
President and Chief Executive Officer of Chancellor Media in April 1998,
Chancellor Media entered into a separation and consulting agreement with Mr.
Ginsburg which provided for,

- - a grant to Mr. Ginsburg of stock options to acquire 800,000 shares of
Chancellor Media common stock which is the same number of stock options to
which Mr. Ginsburg would have been entitled based upon a termination of his
employment by him for "good reason" or by Chancellor Media "without cause,"
except that the Ginsburg separation and consulting agreement provides that the
exercise price for such stock options is $23.25 per share and shall become
exercisable one third at April 14, 1998, 1999 and 2000, respectively.

The Ginsburg separation and consulting agreement also provides that Chancellor
Media shall retain Mr. Ginsburg as a consultant through April 13, 2003, Mr.
Ginsburg to be

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compensated for such consulting services in an amount equal to $2,500,000 for
each full year of consulting services. Mr. Ginsburg received $1,770,833 for such
services between April 14, 1998 and December 31, 1998.

Section 162(m) of the Code

Section 162(m) of the Code limits deductions for certain executive compensation
in excess of $1 million. Certain types of compensation in excess of $1 million
are deductible only if performance goals are specified in detail by a
compensation committee comprised solely of two or more outside directors,
payments are approved by a majority vote of the stockholders prior to payment of
such compensation and after the material terms of the compensation are disclosed
to the stockholders, and the compensation committee certifies that the
performance goals were in fact satisfied. During 1998, the Compensation
Committee considered the compensation arrangements of Chancellor Media's
executive officers in light of the requirements of Section 162(m).

While the Compensation Committee will continue to give due consideration to the
deductibility of compensation payments on future compensation arrangements with
Chancellor Media's executive officers, the Compensation Committee will make its
compensation decision based upon an overall determination of what it believes to
be in the best interests of Chancellor Media and its stockholders, and
deductibility will be only one among a number of factors used by the
Compensation Committee in making its compensation decisions. Accordingly,
Chancellor Media may enter into compensation arrangements in the future under
which payments are not deductible under Section 162(m).

COMPENSATION COMMITTEE MEMBERS

THOMAS O. HICKS
THOMAS J. HODSON
VERNON E. JORDAN, JR.
PERRY J. LEWIS
J. OTIS WINTERS

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DIRECTORS AND MANAGEMENT OF CAPSTAR

The following table provides information concerning the directors and executive
officers of Capstar:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
R. Steven Hicks...................... 49 Chief Executive Officer, President
and Director
William S. Banowsky, Jr.............. 37 Executive Vice President and General
Counsel
Paul D. Stone........................ 38 Executive Vice President and Chief
Financial Officer
John D. Cullen....................... 45 Chief Operating Officer
James T. Shea, Jr.................... 45 President of Atlantic Star
James P. Donahoe..................... 47 President of GulfStar and Pacific
Star
Mary K. Quass........................ 49 President of Central Star
Rick Peters.......................... 47 President of Southern Star
John King............................ 49 President of Sea Star
Thomas O. Hicks...................... 53 Chairman of the Board
Michael J. Levitt.................... 40 Director
Lawrence D. Stuart, Jr............... 54 Director
D. Geoffrey Armstrong................ 41 Director
R. Gerald Turner..................... 53 Director
</TABLE>

Executive officers of Capstar are appointed by the Board of Directors and serve
at the Board's discretion. For biographical information for R. Steven Hicks,
Thomas O. Hicks, Michael J. Levitt and Lawrence D. Stuart, Jr. see "Other
Chancellor Media Annual Meeting Proposals -- Chancellor Media Proposal
3 -- Election of Three Class II Directors." For biographical information for
William S. Banowsky, Jr. and D. Geoffrey Armstrong see "Directors and Management
of Chancellor Media." A brief biography of the other directors and executive
officers follows:

Paul D. Stone has served as Chief Financial Officer and Executive Vice President
since January 1997. Prior to joining Capstar, he was an Executive Vice President
and the Chief Financial Officer of GulfStar Communications, Inc. 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.

John D. Cullen has served as the Chief Operating Officer since February 1999.
Mr. Cullen previously served as the President of GulfStar from March 1996 to
February 1999 and as interim Chief Operating Officer from March 1998 to
September 1998. 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 T. Shea, Jr. has been employed by Capstar since October 1996 and was named
President of Atlantic Star in June 1997. Prior to joining Capstar, Mr. Shea
served as Chief Operating Officer of Commodore Media, Inc. from January 1995 to
October 1996. Mr. Shea joined Commodore Media as 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.

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<PAGE> 251

James P. Donahoe has been employed by Capstar since May 1998 and was named
President of GulfStar and Pacific Star in February 1999. From December 1996 to
May 1998, Mr. Donahoe 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 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 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.

John King has served as President of Sea Star since July 1998. From 1990 to July
1998, Mr. King was employed by SFX in various capacities, including regional
vice president for the Southeast Atlantic region, general manager of several SFX
stations in Nashville, Tennessee, vice president for programming in Jackson,
Mississippi, Greenville, South Carolina and Nashville, and program director in
Nashville. Mr. King began his career in the radio broadcasting industry as a
disc jockey in Beckley, West Virginia in 1971.

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, 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.

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EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation paid
to or earned in 1998, 1997, and 1996 by the Chief Executive Officer of Capstar
and the four other most highly compensated executive officers of Capstar for
services rendered during the fiscal year ended December 31, 1998 (the "Capstar
Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARD
------------------------
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........... 1998 561,730 1,500,000 2,196,406(1) -- --
Chief Executive Officer 1997 500,000 750,000 748,436(1) -- --
1996 191,667 -- 930,000(1) -- --
William S. Banowsky,
Jr. .................... 1998 287,122 600,000 150,000 -- --
Executive Vice
President, 1997 200,000 300,000 169,998 -- --
and General Counsel 1996 -- -- -- -- --
Paul D. Stone............. 1998 287,250 600,000 150,000 -- --
Executive Vice President 1997 200,000 300,000 169,998 -- --
and Chief Financial
Officer 1996 -- -- -- -- --
James T. Shea, Jr. ....... 1998 289,733 250,000 30,000 -- --
President of Atlantic
Star 1997 282,692 150,000 -- -- --
1996 262,500 -- 72,088 170,000 3,412,495(2)
John D. Cullen............ 1998 304,161 300,000 50,000 -- 41,661
Co-Chief Operating
Officer; 1997 204,575 70,000 50,000 -- --
Former President of 1996 112,500 35,000 -- -- --
GulfStar
</TABLE>

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

(1) Represents warrants in 1996 and 1998 and options and warrants in 1997. The
1998 amount includes 1,508,437 warrants which were granted prior to 1998 and
then amended in 1998. See "-- Warrants."

(2) Represents the amount paid in connection with Capstar's acquisition of
Commodore Media, Inc. in settlement of such executive officer's outstanding
options to purchase shares of common stock of Commodore Media, Inc.

The following table sets forth certain information concerning stock option
grants or amendments during the year ended December 31, 1998, to the Capstar
Named Executive Officers pursuant to the 1998 Capstar Broadcasting Corporation
Amended and Restated Stock Option Plan (the "Stock Option Plan").

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE TERM(1)
OPTIONS EMPLOYEES PER EXPIRATION -----------------------------------
NAME GRANTED(#) IN 1998 SHARE DATE 0%($) 5%($) 10%($)
---- ----------- ---------- -------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Steven Hicks............. 500,000(1) 9.42% $14.00 5-31-03 2,500,000 5,225,714 8,790,522
187,969(1) 3.54% 17.10 4-01-08 357,141 2,603,182 6,049,050
930,000(2) 17.53% 14.40 10-16-06 4,278,000 13,530,470 26,852,540
255,317(2) 4.81% 15.40 2-20-07 919,141 3,548,852 7,376,594
323,120(2) 6.09% 18.10 7-08-07 290,808 4,085,298 9,873,177
William S. Banowsky, Jr. ... 150,000(1) 2.83% 14.00 5-31-03 750,000 1,567,714 2,566,453
Paul D. Stone............... 150,000(1) 2.83% 14.00 5-31-03 750,000 1,567,714 2,566,453
James T. Shea, Jr. ......... 30,000 0.57% 19.00 6-15-04 -- 193,855 439,790
John D. Cullen.............. 50,000 0.94% 17.50 4-01-04 75,000 398,091 807,983
</TABLE>

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<PAGE> 253

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

(1) See "-- Warrants."

(2) These warrants were granted prior to 1998. In April 1998, Capstar amended
and restated these warrants by fixing the exercise price. See "-- Warrants."

The following table provides information about the number of shares issued upon
option exercises under the Stock Option Plan by the Capstar Named Executive
Officers during 1998, and the value realized by such Capstar Named Executive
Officers.

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

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
1998 AT DECEMBER 31, 1998(1)
SHARES ACQUIRED ON VALUE --------------------------- ---------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE($)
---- ------------------ ----------- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks........ -- -- 1,047,051(2) 1,149,355(2) 8,303,954 8,552,209
-- -- 52,418 117,580 573,589 1,249,638
William S. Banowsky,
Jr. ................. -- -- -- 150,000(2) -- 1,331,250
-- -- 52,418 117,580 573,589 1,249,638
Paul D. Stone.......... -- -- -- 150,000(2) -- 1,331,250
-- -- 52,418 117,580 573,589 1,249,638
James T. Shea, Jr. .... -- -- 48,059 54,029 618,760 425,623
John D. Cullen......... -- -- 12,497 87,502 119,659 627,832
</TABLE>

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

(1) Based upon the per share closing price of Capstar class A common stock on
December 31, 1998, of $22.875 per share.

(2) See "-- Warrants."

DIRECTORS COMPENSATION

Directors who are officers, employees or otherwise affiliates of Capstar 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 Capstar 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. During 1998, Mr.
Turner also served on the Capstar Special Committee for which he earned a
retainer of $25,000, plus up to $2,000 for attending each meeting. During 1998,
Mr. Turner received director's fees in the amount of $72,000.

EMPLOYMENT AGREEMENTS

R. Steven Hicks Employment Agreement. Capstar has entered into an employment
agreement with R. Steven Hicks pursuant to which Mr. R. Steven Hicks serves as
President and Chief Executive Officer. Mr. R. Steven Hicks' employment agreement
terminates on December 31, 2001, and will be automatically renewed for
successive one-year terms unless Mr. R. Steven Hicks or Capstar 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.
R. Steven Hicks' annual base salary for 1999 is $577,500 and is subject to
annual increases at least equal to five percent of the then

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<PAGE> 254

current base salary. He is also entitled to receive such annual performance
bonuses as the Board of Directors of Capstar may determine. Further, Mr. R.
Steven Hicks is eligible to receive stock options to purchase shares of Capstar
class A common stock. If Capstar terminates Mr. R. Steven Hicks' employment for
cause or Mr. R. Steven Hicks terminates his employment for other than good
reason, Capstar must pay Mr. R. Steven Hicks all accrued obligations and other
benefits earned prior to the date of termination. If Capstar terminates Mr. R.
Steven Hicks' employment agreement other than for cause or Mr. R. Steven Hicks
terminates his employment agreement for good reason, Mr. R. Steven Hicks'
employment agreement provides for

- - a lump sum payment of

(1) two times Mr. R. Steven Hicks' then current annual salary and

(2) any accrued obligations and other benefits earned prior to the date of
termination and

- - unless the Board of Directors of Capstar determines that Mr. R. Steven Hicks
has not satisfactorily performed his obligations and duties under the
agreement, the immediate vesting of all stock options between Capstar and Mr.
R. Steven Hicks and the right to exercise those options until the earlier of

(1) the expiration date of those options or

(2) the 90th day after Mr. R. Steven Hicks' termination.

Mr. R. Steven Hicks' employment agreement has been amended to provide that

- - at the effective time of the merger with Chancellor Media, each of Mr. R.
Steven Hicks' outstanding options or warrants will fully vest and become
exercisable and Mr. R. Steven Hicks will be entitled to receive a bonus in the
amount of $1,500,000 and

- - Mr. R. Steven Hicks is permitted to enter into an employment agreement with
Chancellor Media.

In addition, Mr. R. Steven Hicks' employment agreement with Capstar will
terminate immediately after the effective time of the merger.

William S. Banowsky, Jr. Employment Agreement. Capstar has entered into an
employment agreement with William S. Banowsky, Jr. pursuant to which Mr.
Banowsky serves as Executive Vice President 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 Capstar 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 1999 is $325,000,
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 of Capstar may determine. Further, Mr. Banowsky is eligible
to receive stock options to purchase shares of Capstar class A common stock. If
Capstar terminates Mr. Banowsky's employment for cause or Mr. Banowsky
terminates his employment for other than good reason, Capstar must pay Mr.
Banowsky all accrued obligations and other benefits earned prior to the date of
termination. If Capstar terminates Mr. Banowsky's

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<PAGE> 255

employment agreement other than for cause or Mr. Banowsky terminates his
employment agreement for good reason, Mr. Banowsky's employment agreement
provides for

- - a lump sum payment of

(1) two times Mr. Banowsky's then current annual salary and

(2) any accrued obligations and other benefits earned prior to the date of
termination and

- - unless the Board of Directors of Capstar determines that Mr. Banowsky has not
satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between Capstar and Mr. Banowsky and
the right to exercise those options until the earlier of

(1) the expiration date of those options or

(2) the 90th day after Mr. Banowsky's termination.

Mr. Banowsky's employment agreement has been amended to provide that

- - at the effective time of the merger with Chancellor Media, each of Mr.
Banowsky's outstanding options or warrants will fully vest and become
exercisable and Mr. Banowsky will be entitled to receive a bonus in the amount
of $600,000 and

- - Mr. Banowsky is permitted to enter into an employment agreement with
Chancellor Media.

In addition, Mr. Banowsky's employment agreement with Capstar will terminate
immediately after the effective time of the merger.

Paul D. Stone Employment Agreement. Capstar 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 Capstar 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 1999 is $325,000, 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 of Capstar may
determine. Further, Mr. Stone is eligible to receive stock options to purchase
shares of Capstar class A common stock. If Capstar terminates Mr. Stone's
employment for cause or Mr. Stone terminates his employment for other than good
reason, Capstar must pay Mr. Stone all accrued obligations and other benefits
earned prior to the date of termination. If Capstar 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 lump sum payment of

(1) two times Mr. Stone's then current annual salary and

(2) any accrued obligations and other benefits earned prior to the date of
termination and

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<PAGE> 256

- - unless the Board of Directors of Capstar determines that Mr. Stone has not
satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between Capstar and Mr. Stone and the
right to exercise those options until the earlier of

(1) the expiration date of those options or

(2) the 90th day after Mr. Stone's termination.

Mr. Stone's employment agreement has been amended to provide that, at the
effective time of the merger with Chancellor Media, each of Mr. Stone's
outstanding options or warrants will fully vest and become exercisable, Mr.
Stone will be entitled to receive a lump sum payment of $600,000, and Mr. Stone
will become entitled to receive severance compensation from Capstar equal to
$650,000 if Mr. Stone is not employed by Chancellor Media after the merger. In
addition, Mr. Stone's employment agreement with Capstar will terminate
immediately after the effective time of the merger.

James T. Shea, Jr. Employment Agreement. Capstar has entered into an employment
agreement with James T. Shea, Jr. pursuant to which Mr. Shea serves as the
President of the Atlantic Star division. Mr. Shea's employment agreement
terminates on April 30, 1999. Mr. Shea's annual base salary for 1999 is
$303,186, 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 Capstar 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 Capstar and a life
insurance policy with a death benefit of $650,000. If Capstar terminates Mr.
Shea's employment for cause, Capstar is obligated to pay Mr. Shea's then accrued
base salary, reimbursable expenses, and any other compensation then due and
owing. In addition, Capstar 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

- - the continuation of his annual base salary, as then in effect, for a 12-month
period commencing on the termination date,

- - a pro rata amount of his annual bonus,

- - any annual base salary and annual bonus then accrued but not yet paid,

- - the continuation of his welfare benefits for a 12-month period commencing on
the termination date,

- - the continuation of his life insurance policy,

- - any other compensation and benefits as may be provided in accordance with the
terms and provisions of any applicable plans and programs,

- - reimbursement for certain expenses incurred as of the termination date but not
yet paid as of the date of termination and

- - any other rights afforded to him under other written agreements between Mr.
Shea and Capstar.

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John D. Cullen Employment Agreement. Capstar has entered into an employment
agreement with John D. Cullen pursuant to which Mr. Cullen serves as Chief
Operating Officer. 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 1999 is $300,000 subject to
annual increases as determined by the Board of Directors of Capstar. Mr. Cullen
is also entitled to receive annual bonuses as established by the Board of
Directors of Capstar. If Capstar terminates Mr. Cullen's employment for cause or
Mr. Cullen resigns (and Capstar has not breached the employment agreement),
Capstar must pay Mr. Cullen all accrued obligations and other benefits earned
prior to the date of termination. If Capstar terminates Mr. Cullen's employment
without cause or Mr. Cullen terminates his employment due to a material breach
of the employment agreement by Capstar (which breach is not cured within 30 days
after receipt of notice of breach), then Capstar 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.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In 1998 the Board of Directors of Capstar appointed Messrs. Thomas O. Hicks,
Stuart and Turner to the Compensation Committee, of which Mr. Stuart acts as
chairman. Thomas O. Hicks, Mr. Levitt and Mr. Stuart are executive officers and
principals of Hicks Muse, which through its affiliates owns as of March 1, 1999
approximately 99.3% of the outstanding Capstar class C common stock. Hicks Muse
or an affiliate thereof is a party to the Capstar monitoring and oversight
agreement, the Capstar Partners monitoring and oversight agreement, the Capstar
financial advisory agreement, and three stockholders agreements. Messrs. Thomas
O. Hicks, Levitt and Stuart serve as directors of Chancellor Media. Mr. Turner
will become a director of Chancellor Media following the merger. Chancellor
Media is a party to the agreement relating to the Capstar/SFX Exchange and the
merger agreement among Capstar and Chancellor Media and owns and operates The
AMFM Radio Networks of which Capstar Broadcasting is a participant. In addition,
Capstar Broadcasting has retained Katz Media Group, Inc., a subsidiary of
Chancellor Media, as its media representative to sell spot advertising air time.
See "Certain Relationships and Related Transactions."

STOCK OPTION PLAN

The Stock Option Plan gives certain individuals and key employees of Capstar who
are responsible for the continued growth of Capstar an opportunity to acquire a
proprietary interest in Capstar, and thus to create in such persons an increased
interest in and a greater concern for the welfare of Capstar. The Stock Option
Plan provides for grant of options to acquire up to 4,700,000 shares of Class A
Common Stock. As of May 15, 1999, 518,510 shares of Capstar class A common stock
were available for grant under the Stock Option Plan.

The Stock Option Plan is administered by the Compensation Committee of Capstar'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 Code and granting stock options, "Compensation
Committee" as used in this summary description of the Stock Option Plan means a
sub-committee of the Compensation Committee members who qualify as both a
"Non-Employee Director"

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<PAGE> 258

within the meaning of Rule 16b-3(b)(3) under the Exchange Act 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 Capstar'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 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 Capstar 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 Capstar possessing more than 10% of the total
combined voting power of all classes of stock of Capstar may not be less than
110% of the fair market value of a share of Capstar 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
Capstar possessing more than 10% of the total combined voting power of all
classes of stock of Capstar is exercisable after the expiration of five years
from the date of grant.

In the event of a change of control or sale of Capstar, 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

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<PAGE> 259

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 other agreement 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 Capstar 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 Capstar together with a copy
of irrevocable instructions to a broker to deliver promptly to Capstar the
amount of sale or loan proceeds to pay the exercise price.

The Stock Option Plan has been amended to provide that, upon the consummation of
the merger with Chancellor Media, with respect to any outstanding options, if on
or before the second anniversary of the consummation of the merger, the
employment of an optionee is terminated (other than for cause, voluntary
resignation, death or disability) or an optionee resigns after a material
diminution of their duties, the optionee's options will vest in full and the
options may be exercised until the termination of the option.

WARRANTS

Under the terms of a stockholders agreement, Capstar has granted the following
five warrants to R. Steven Hicks:

- - Amended and Restated Warrant dated April 1, 1998, immediately exercisable to
purchase up to 744,000 shares of Capstar class C common stock and exercisable
to purchase up to an additional 186,000 shares on the earlier to occur of June
30, 2001 or immediately preceding a Sale of the Company, as defined below, if
R. Steven Hicks is then employed in any capacity with Capstar, for a per share
exercise price of $14.40. A "Sale of the Company" means a capital
reorganization in which

(1) the stockholders of Capstar receive cash consideration for each share
of Capstar common stock held by such stockholder that, when added to
any cash consideration attributable to any prior capital
reorganization, equals or exceeds the Qualifying Cash Consideration,
as defined below;

(2) a majority of directors of the purchaser or surviving entity in such
capital reorganization consists of persons who are not Continuing
Directors, as defined below; and

(3) such purchaser or surviving entity is not an affiliate of Hicks Muse;

- - Amended and Restated Warrant dated April 1, 1998, immediately exercisable to
purchase up to 204,254 shares of Capstar class C common stock and exercisable
to purchase up to an additional 51,063 shares on the earlier to occur of June
30, 2001 or immediately preceding a Sale of the Company if R. Steven Hicks is
then employed in any capacity with Capstar, for a per share exercise price of
$15.40;

- - Amended and Restated Warrant dated April 1, 1998, immediately exercisable to
purchase up to 98,797 shares of Capstar class C common stock and exercisable
to purchase up to an additional 224,323 shares on the earlier to occur of June
30, 2001 or

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<PAGE> 260

immediately preceding a Sale of the Company if R. Steven Hicks is then employed
in any capacity with Capstar, for a per share exercise price of $18.10;

- - Warrant dated April 1, 1998, exercisable to purchase up to 187,969 shares of
Capstar class C common stock on the earlier to occur of June 30, 2001 or
immediately preceding a Sale of the Company for a per share exercise price of
$17.10; and

- - Warrant dated April 1, 1998, exercisable to purchase up to 500,000 shares of
Capstar class C common stock for a per share exercise price of $14.00 if the
fair market value of the Capstar class A common stock, calculated on a daily
basis, equals or exceeds $60.00 per share for a period of 180 consecutive
trading days during the period commencing on April 1, 1998 and ending on 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 Capstar 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 Capstar 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 Capstar 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. Such warrants terminate upon either a Sale of the Company or a
capital reorganization in which:

- - the stockholders of Capstar receive only cash consideration for each share of
Capstar common stock held by such stockholder that is less than the Qualifying
Cash Consideration;

- - 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 Capstar immediately prior to the capital reorganization or
designees of Hicks Muse and its affiliates ("Continuing Directors"); and

- - such purchaser or surviving entity is not an affiliate of Hicks Muse.

"Qualifying Cash Consideration" means cash consideration for each share of
Capstar common stock received pursuant to a capital reorganization that equals
or exceeds the lesser of

- - $60.00 per share or

- - the greater of

(1) 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

(2) $19.00 per share compounded at an annual rate of 20% for the period
commencing on May 26, 1998 and ending on the last day of the calendar
month immediately preceding the consummation of such capital
reorganization.

William S. Banowsky, Jr., Paul D. Stone and D. Geoffrey Armstrong were also
granted warrants (together with the warrants granted to R. Steven Hicks, the
"Warrants"), in April 1998 for Messrs. Banowsky and Stone and in July 1998 for
Mr. Armstrong, to

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<PAGE> 261

purchase up to 150,000 shares, 150,000 shares and 200,000 shares, respectively,
of Capstar class A common stock at 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 R. Steven Hicks.

Each Warrant also contains provisions addressing the vesting and exercisability
of such Warrant under various events of termination of employment of the
grantee.

Effective March 15, 1999, Mr. Armstrong's Warrant fully vested and became
exercisable until the earlier to occur of May 31, 2003 or a Sale of the Company.
Capstar recorded a noncash compensation charge of approximately $1.5 million in
connection with the vesting of Mr. Armstrong's Warrant. Upon completion of the
merger of Capstar and Chancellor Media, each remaining Warrant will fully vest
and be exercisable until the earlier to occur of May 31, 2003 or a Sale of the
Company. At the effective time of the merger, Capstar will record a noncash
compensation charge as a result of the remaining Warrants becoming fully vested.
If the merger had been completed on May 15, 1999, a noncash compensation charge
of approximately $13.7 million would have been recorded by Capstar.

LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS

As described in "Comparative Rights of Holders of Chancellor Media Common Stock
and Capstar Common Stock -- Indemnification of Directors and Officers and
Limitation of Liability," Capstar's amended and restated certificate of
incorporation and amended and restated bylaws limit the personal liability of,
and provide indemnification for, the directors and, in the case of
indemnification, the officers of Capstar. In addition, Capstar has entered into
indemnification agreements with each of its directors and executive officers
under which Capstar 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 Capstar or another entity at Capstar's request (an "Indemnifiable
Event"), unless a reviewing party (either outside counsel or a committee
appointed by the Board of Directors of Capstar) 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 Capstar occurs and if the
person indemnified so requests, Capstar 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 Capstar's amended and restated certificate of incorporation or bylaws or
applicable law.

Capstar believes that these provisions and agreements assist Capstar in
attracting and retaining qualified individuals to serve as directors and
officers.

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<PAGE> 262

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF CHANCELLOR MEDIA

The following table sets forth certain information regarding the beneficial
ownership of the common stock of Chancellor Media as of May 19, 1999, by (i)
each person who is known by the Company to beneficially own more than 5% of any
class of Chancellor Media's common stock; (ii) the directors and certain
executive officers of Chancellor Media, individually; and (iii) the directors
and all executive officers of Chancellor Media as a group.

<TABLE>
<CAPTION>
NAME OF STOCKHOLDER SHARES PERCENT(1)
- ------------------- ---------- ----------
<S> <C> <C>
Hicks Muse Parties(2).................................. 25,657,371 17.9%
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Putnam Investments, Inc.(3)............................ 17,314,508 12.1%
One Post Office Square
Boston, Massachusetts 02109
Janus Capital Corporation(4)........................... 11,846,915 8.3%
100 Fillmore Street
Denver, Colorado 80206-4923
Thomas O. Hicks........................................ 25,657,371(5) 17.9%
James E. de Castro..................................... 2,465,000(6) 1.7%
R. Steven Hicks........................................ -- --
James A. McLaughlin.................................... 75,000(7) *
Kenneth J. O'Keefe..................................... 504,000(8) *
D. Geoffrey Armstrong.................................. -- --
William S. Banowsky, Jr. .............................. -- --
Robert L. Crandall..................................... 25,000(9) *
Thomas J. Hodson....................................... 75,833(10) *
Vernon E. Jordan, Jr. ................................. 45,833(11) *
Michael J. Levitt...................................... 33,333(12) *
Perry J. Lewis......................................... 179,058(13) *
Jeffrey A. Marcus...................................... 2,455,902(14) 1.7%
John H. Massey......................................... 86,857(15) *
Lawrence D. Stuart, Jr. ............................... 44,625(16) *
J. Otis Winters........................................ 33,333(17) *
All directors and executive officers as a group (16
persons)............................................. 31,481,145(18) 21.1%
</TABLE>

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

* Less than one percent (1%)

(1) Assumes that 143,304,714 shares of common stock of Chancellor Media were
issued and outstanding as of May 19, 1999.

(2) Consists of 1,278,969 shares owned of record by Mr. Thomas O. Hicks,
346,736 shares owned of record by Mr. Thomas O. Hicks as trustee for
certain trusts of which his children are beneficiaries and 20,816 shares
owned of record by Mr. Thomas O. Hicks as co-trustee of a trust for the
benefit of unrelated parties.

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<PAGE> 263

Also includes 24,010,850 shares owned by four limited partnerships of which
the ultimate general partners are entities controlled by Mr. Thomas O.
Hicks or Hicks Muse. Mr. Thomas O. Hicks is the controlling stockholder of
Hicks Muse and serves as Chairman of the Board, Chief Executive Officer and
Secretary of Hicks Muse. Accordingly, Mr. Thomas O. Hicks may be deemed to
be the beneficial owner of all or a portion of the stock owned of record by
such limited partnerships. John R. Muse, Charles W. Tate, Jack D. Furst,
Lawrence D. Stuart, Jr., Michael J. Levitt, David B. Deniger and Dan H.
Blanks are officers, directors and minority stockholders of Hicks Muse and
as such may be deemed to share with Mr. Thomas O. Hicks the power to vote
or dispose of shares held by such partnerships. Messrs. Thomas O. Hicks,
Muse, Tate, Furst, Stuart, Levitt, Deniger and Blanks disclaim the
existence of a group and each of them disclaims beneficial ownership of
shares not owned of record by him.

(3) Based solely upon information contained in such person's filing on February
4, 1999 of Schedule 13G under the Exchange Act.

(4) Includes (i) 5,906,880 shares owned by Janus Fund, an investment company
registered under the Investment Company Act of 1940, as amended, and (ii)
1,061,570 shares issuable upon the conversion of Chancellor Media
convertible preferred stock. Based solely upon information contained in
such person's filing on February 12, 1999 of Schedule 13G under the
Exchange Act.

(5) Consists of 1,278,969 shares owned of record by Mr. Thomas O. Hicks,
346,736 shares owned of record by Mr. Thomas O. Hicks as trustee for
certain trusts of which his children are beneficiaries and 20,816 shares
owned of record by Mr. Thomas O. Hicks as co-trustee of a trust for the
benefit of unrelated parties. Also includes 24,010,850 shares owned by four
limited partnerships of which the ultimate general partners are entities
controlled by Mr. Thomas O. Hicks and Hicks Muse. Mr. Thomas O. Hicks is
the controlling stockholder of Hicks Muse and serves as Chairman of the
Board, Chief Executive Officer and Secretary of Hicks Muse. Accordingly,
Mr. Thomas O. Hicks may be deemed to be the beneficial owner of all or a
portion of the stock owned of record by such limited partnerships. Mr.
Thomas O. Hicks disclaims beneficial ownership of shares not owned of
record by him.

(6) Consists of options that are exercisable within 60 days of the date hereof
to purchase 2,465,000 shares.

(7) Consists of options that are exercisable within 60 days of the date hereof
to purchase 75,000 shares.

(8) Includes options that are exercisable within 60 days of the date hereof to
purchase 500,000 shares.

(9) Consists of options to purchase 25,000 shares that will be granted to
non-employee directors at the 1999 annual meeting and will vest one-third
annually over three years.

(10) Consists of options that are exercisable within 60 days of the date hereof
to purchase 50,833 shares.

(11) Consists of (i) options that are exercisable within 60 days of the date
hereof to purchase 20,833 shares and (ii) options to purchase 25,000 shares
that will be

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<PAGE> 264

granted to non-employee directors at the 1999 annual meeting and will vest
one-third annually over three years.

(12) Includes (i) options that are exercisable within 60 days of the date hereof
to purchase 8,333 shares and (ii) options to purchase 25,000 shares that
will be granted to non-employee directors at the 1999 annual meeting and
will vest one-third annually over three years.

(13) Includes (i) options that are exercisable within 60 days of the date hereof
to purchase 50,833 shares and (ii) options to purchase 25,000 shares that
will be granted to non-employee directors at the 1999 annual meeting and
will vest one-third annually over three years.

(14) Includes options that are exercisable within 60 days of the date hereof to
purchase 2,286,742 shares.

(15) Consists of (i) options that are exercisable within 60 days of the date
hereof to purchase 45,075 shares, (ii) 16,782 shares held by Mr. Massey's
wife as her separate property and (iii) options to purchase 25,000 shares
that will be granted to non-employee directors at the 1999 annual meeting
and will vest one-third annually over three years.

(16) Includes (i) options that are exercisable within 60 days of the date hereof
to purchase 8,333 shares and (ii) options to purchase 25,000 shares that
will be granted to non-employee directors at the 1999 annual meeting and
will vest one-third annually over three years.

(17) Includes (i) options that are exercisable within 60 days of the date hereof
to purchase 8,333 shares and (ii) options to purchase 25,000 shares that
will be granted to non-employee directors at the 1999 annual meeting and
will vest one-third annually over three years.

(18) Includes options to purchase 5,519,315 shares. Does not include options
that are to be granted to the non-employee directors at the 1999 annual
meeting.

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<PAGE> 265

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF CAPSTAR

The following table sets forth certain information regarding (i) the beneficial
ownership of each class of the Capstar common stock as of May 19, 1999, by (a)
each person or group known to beneficially own five percent or more of any class
of the common stock of Capstar, (b) each director of Capstar, (c) each Capstar
Named Executive Officer, and (d) all directors and executive officers of Capstar
as a group and (ii) the combined percentage of all classes of Capstar common
stock that is beneficially owned by each of such person or group of persons.
Except as noted below and pursuant to applicable community property laws,
Capstar believes that each individual or entity named below has sole investment
and voting power with respect to the shares of Capstar common stock set forth
opposite such stockholder's name.

<TABLE>
<CAPTION>
CAPSTAR CLASS A CAPSTAR CLASS B CAPSTAR 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(4) SHARES(4) CLASS(4) SHARES(4) CLASS(4) INTEREST(5) POWER
- ------------------------ --------- -------- --------- -------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capstar Hicks Muse Parties(6).... 272,727 * 5,119,724 84.2% 60,944,528 90.2% 61.5% 85.9%
200 Crescent Court Suite 1600
Dallas, TX 75201
Thomas O. Hicks(6)(7)............ 784,136 2.3% 5,119,724 84.2% 68,051,711 99.2% 4.4% 94.6%
200 Crescent Court Suite 1600
Dallas, Texas 75201
BT Capital Partners, Inc......... -- -- 961,999 15.8% -- -- * --
130 Liberty Street 25th Floor
New York, NY 10006
College Retirement Equities
Fund(8)........................ 2,659,157 7.8% -- -- -- -- 2.5% *
730 Third Avenue
New York, NY 10017
Wellington Management Company,
LLP(9)......................... 1,770,300 5.2% -- -- -- -- 1.6% *
75 State Street
Boston, MA 02109
Merrill Lynch Asset Management,
L.P.(10)....................... 1,736,150 5.1% -- -- -- -- 1.6%
World Financial Center *
North Tower 250 Vesey Street
New York, NY 10381
R. Steven Hicks(11).............. 132,838 * -- -- 2,493,498 3.6% 2.4% 3.5%
John D. Cullen(12)............... 362,822 1.1% -- -- -- -- * *
D. Geoffrey Armstrong(13)........ 596,986 1.7% -- -- -- -- * *
William S. Banowsky, Jr.(14)..... 123,005 * -- -- -- -- * *
Paul D. Stone(15)................ 301,250 * -- -- -- -- * *
Lawrence D. Stuart, Jr........... 74,318 * -- -- 34,464 * * *
Michael J. Levitt................ 12,800 * -- -- 36,464 * * *
James T. Shea, Jr.(16)........... 94,832 * -- -- -- -- * *
R. Gerald Turner(17)............. 20,941 * -- -- -- -- * *
All directors and executive
officers as a group (14
persons)....................... 2,602,063 7.5% 5,119,724 84.2% 68,124,639 99.3% 8.3% 94.9%
</TABLE>

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

* Less than one percent.

(1) The number of shares of Capstar class A common stock does not include the
shares of Capstar class A common stock issuable upon conversion of the
outstanding shares of Capstar class B common stock and Capstar class C
common stock.

(2) The holders of shares of Capstar class B common stock are not entitled to
vote, except as required by law. The shares of Capstar 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 Capstar class A common stock,
subject to certain conditions.

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<PAGE> 266

(3) The holders of the Capstar class C common stock are entitled to vote with
the holders of the Capstar class A common stock on all matters submitted to
a vote of stockholders of Capstar, except with respect to the election of
certain directors and as otherwise required by law. Each share of Capstar
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 Capstar class C 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 Capstar class A common stock, subject to certain
conditions.

(4) Percentage ownership is based on 34,243,730 shares of Capstar class A
common stock, 6,081,723 shares of Capstar class B common stock, and
67,538,121 shares of Capstar class C common stock outstanding as of May 19,
1999.

(5) Percentage of total economic interest includes only shares in which the
person or entity has a direct economic interest. Indirect, passive economic
interests were not included in the calculation.

(6) Includes (i) 272,727 shares of Capstar 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 Capstar 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) 60,944,528 shares of Capstar 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 "Capstar Hicks Muse Parties").
Thomas O. Hicks is a controlling stockholder and serves as Chief Executive
Officer and Chairman of 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 Capstar common stock held by the Capstar Hicks Muse
Parties. Mr. Thomas O. Hicks disclaims beneficial ownership of the shares
of Capstar common stock not owned of record by him.

(7) In addition to the shares of Capstar class A common stock of the Hicks Muse
Parties, the number of shares of Capstar class A common stock includes (i)
102,550 shares owned of record by Thomas O. Hicks, (ii) 219,781 shares
owned of record by a private foundation controlled by Thomas O. Hicks,
(iii) 51,240 shares owned of record by certain trusts for the benefit of
Thomas O. Hicks' children and for which Thomas O. Hicks serves as sole
trustee, (iv) 5,000 shares owned by a trust for the benefit of unrelated
parties for which Thomas O. Hicks serves as co-trustee, (v) 132,838 shares
beneficially owned by R. Steven Hicks that are subject to a voting
agreement in which Thomas O. Hicks controls the vote and (vi) 500 shares
owned by Dean McClure Taylor that are subject to a voting agreement in
which Thomas O. Hicks controls the vote. The shares of Capstar class B
common stock includes the shares of the Hicks Muse Parties. In addition to
the shares of Capstar class C common stock of the Hicks Muse Parties, the
number of shares of Capstar class C common stock includes (i) 4,595,007
shares owned of record by Thomas O. Hicks, (ii) 10,000 shares owned of
record by R. Steven Hicks' children, (iii) 1,436,447 shares owned of record
by R. Steven Hicks, (iv) 1,047,051 shares purchasable pursuant to the terms
of R. Steven Hicks' Warrants, which are beneficially owned by R. Steven
Hicks, and (v) 18,678 shares owned of record by certain trusts for which
Thomas O. Hicks serves as sole trustee. The shares of Capstar class C
common stock beneficially owned by R. Steven Hicks are subject to a voting
agreement in which Thomas O. Hicks controls the vote. Hicks Muse is a party
to the voting agreement, which agreement requires, among other things, the
parties to the voting agreement to vote their shares in favor of the
election to Capstar'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 Capstar common stock
subject to the voting agreement. Thomas O. Hicks disclaims beneficial
ownership of the shares of Capstar common stock not owned of record by him.

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<PAGE> 267

(8) This information was provided to the Securities and Exchange Commission and
Capstar in Schedule 13G, dated February 11, 1999.

(9) This information was provided to the Securities and Exchange Commission and
Capstar in Schedule 13G, dated December 31, 1998. Wellington Management
Company, LLP reports shared voting power of 1,520,300 shares and shared
dispositive power of 1,770,330 shares.

(10) This information was provided to the Securities and Exchange Commission and
Capstar in Schedule 13G, dated February 3, 1999.

(11) The number of shares of Capstar class A common stock includes (i) 65,170
shares issuable upon the exercise of stock options that are currently
vested, (ii) 5,668 shares subject to stock options that are exercisable
within 60 days, (iii) 500 shares owned by Dean McClure Taylor for which R.
Steven Hicks serves as custodian under the Texas Uniform Transfers to
Minors Act, (iv) 1,000 shares owned by Steven Hicks' wife, (v) 3,000 shares
owned by R. Steven Hicks' children, (vi) 50,000 shares owned of record by a
private foundation controlled by R. Steven Hicks and (vii) 7,500 shares
owned of record by R. Steven Hicks. The number of shares of Capstar class C
common stock includes (i) 1,436,447 shares owned of record by R. Steven
Hicks, (ii) 10,000 shares owned of record by R. Steven Hicks' children and
(iii) 1,047,051 shares purchasable by R. Steven Hicks pursuant to the terms
of certain of Steve Hicks' Warrants. R. Steven Hicks has voting rights to
the shares owned by his children under the terms of a stockholders
agreement. R. Steven Hicks disclaims beneficial ownership of the shares of
Capstar 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 stockholders agreement.

(12) Includes (i) 331,988 shares owned of record by Mr. Cullen, (ii) 27,499
shares issuable upon the exercise of stock options that are currently
vested, and (iii) 3,335 shares subject to stock options that are
exercisable within 60 days.

(13) Includes (i) 296,986 shares owned of record by Mr. Armstrong and (ii)
300,000 shares issuable upon the exercise of a warrant that is currently
vested.

(14) Includes (i) 52,167 shares owned of record by Mr. Banowsky, (ii) 65,170
shares issuable upon the exercise of stock options that are currently
vested, and (iii) 5,668 shares subject to stock options that are
exercisable within 60 days.

(15) Includes (i) 230,412 shares owned of record by Mr. Stone, (ii) 65,170
shares issuable upon the exercise of stock options that are currently
vested and (iii) 5,668 shares subject to stock options that are exercisable
within 60 days.

(16) Includes (i) 40,263 shares owned of record by Mr. Shea, (ii) 48,059 shares
issuable upon the exercise of stock options that are currently vested, and
(iii) 6,500 shares subject to stock options that are exercisable within 60
days.

(17) Includes (i) 12,518 shares owned of record by Mr. Turner, (ii) 2,756 shares
issuable upon the exercise of stock options that are currently vested, and
(iii) 5,667 shares subject to stock options that are exercisable within 60
days.

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<PAGE> 268

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As of May 15, 1999, Mr. Thomas O. Hicks and affiliates of Hicks Muse
beneficially owned an aggregate of 25,657,371 shares of Chancellor Media common
stock. Mr. Thomas O. Hicks is Chairman of the Board and Chief Executive Officer
of the Company.

Chancellor Media is subject to a financial monitoring and oversight agreement,
dated April 1, 1996, as amended on September 4, 1997 with Hicks Muse Partners,
an affiliate of Hicks Muse. In connection with the financial monitoring and
oversight agreement, Chancellor Media pays to Hicks Muse Partners an annual fee
of not less than $1.0 million, subject to increase or decrease (but not below
$1.0 million) based upon changes in the consumer price index. Hicks Muse
Partners is also entitled to reimbursement for any out-of-pocket expenses
incurred in connection with rendering services under the financial monitoring
and oversight agreement. The financial monitoring and oversight agreement
provides that the agreement will terminate at the time as Thomas O. Hicks and
his affiliates collectively cease to beneficially own at least two-thirds of the
number of shares of the Chancellor Media common stock beneficially owned by
them, collectively, at the effective time of the merger with Chancellor
Broadcasting Company in September 1997. Chancellor Media paid Hicks Muse
Partners a total of $1.0 million in 1998 and $0.3 million during the first three
months of 1999 in connection with the financial monitoring and oversight
agreement. Effective March 15, 1999, Hicks Muse Partners has agreed to waive the
annual fee payment under the financial monitoring and oversight agreement,
although it will still be entitled to the reimbursement of certain expenses
incurred and the benefit of certain indemnity obligations of Chancellor Media in
connection with the performance of its obligations thereunder.

In connection with the consummation of the merger with Chancellor Broadcasting
Company in September 1997, a financial advisory agreement among Chancellor
Broadcasting Company, Chancellor Radio Broadcasting Company and HM2/Management
Partners, L.P. ("HM2/Management"), an affiliate of Hicks Muse, was terminated.
In consideration thereof, in lieu of any payments required to be made under the
financial advisory agreement in respect of the transactions contemplated by such
merger, HM2/ Management was paid a fee of $10.0 million in cash upon
consummation of the transaction which was accounted for as a direct acquisition
cost. As part of the termination of the financial advisory agreement, Chancellor
Media paid Hicks Muse Partners $1.5 million for financial advisory services in
connection with the acquisition of Katz Media Group, Inc. in 1997 which was
accounted for as a direct acquisition cost.

Upon consummation of the merger with Capstar, Capstar will make aggregate
payments to Hicks Muse Partners of $31.7 million in connection with the
termination of monitoring and oversight and financial advisory agreements with
Capstar and its subsidiaries and in satisfaction of the services performed by
Hicks Muse Partners in connection with the merger. In 1998 and the three months
ended March 31, 1999, Capstar paid Hicks Muse Partners approximately $819,000
and $318,000, respectively, of monitoring and oversight fees and $49.5 million
and $211,000, respectively, of financial advisory fees.

Vernon E. Jordan, Jr., a director of Chancellor Media, also serves on the board
of directors of Bankers Trust Company and Bankers Trust Corporation. BT Alex.
Brown Incorporated, an affiliate of Bankers Trust Company and Bankers Trust
Corporation, was engaged by Chancellor Media in January 1999 as a financial
advisor to explore strategic alternatives in

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an effort to maximize shareholder value. In addition, affiliates of Bankers
Trust Company and Bankers Trust Corporation have in the past provided a variety
of commercial banking, investment banking and financial advisory services to
Chancellor Media, and expect to continue to provide services to Chancellor Media
in the future. Fees paid to BT Alex. Brown Incorporated in 1998 were
approximately $10.3 million.

Chancellor Media is subject to an Amended and Restated Stockholders Agreement,
dated as of February 14, 1996, as amended on September 4, 1997, among Chancellor
Media and certain holders of Chancellor Media's common stock held by former
stockholders of Chancellor Broadcasting Company, which provides for registration
rights for the shares of Chancellor Media's common stock held by such holders.
The stockholders agreement relates to shares of Chancellor Media's common stock
held by certain affiliates of Hicks Muse, and will apply to shares of Chancellor
Media's common stock received in the merger.

As part of the merger with Chancellor Broadcasting Company in September 1997,
Chancellor Media made selected cash payments and accelerated the vesting of
selected stock options previously granted by Chancellor Broadcasting Company to
Steven Dinetz, a former director of Chancellor Media. In connection with Mr.
Dinetz' resignation from Chancellor Media's Board of Directors on May 18, 1999,
all of Mr. Dinetz' unvested options were accelerated, Mr. Dinetz was granted
three years for which to exercise such options, and Mr. Dinetz was relieved of
any non-competition obligations.

In connection with the Capstar/SFX Transaction, Chancellor Media (i) began
programming ten radio stations owned by Capstar under time brokerage agreements
effective May 29, 1998 and paid fees of $28.8 million and $12.4 million to
Capstar related to these agreements during the year ended December 31, 1998 and
during the three months ended March 31, 1999, respectively and (ii) provided a
loan to Capstar in the principal amount of $150 million. Interest income on this
note receivable was $10.6 million and $4.5 million during the year ended
December 31, 1998 and during the three months ended March 31, 1999,
respectively. Chancellor Media also began operating Capstar's WKNR-AM in
Cleveland under a time brokerage agreement effective February 1, 1999.

Chancellor Media recorded revenue of $6.8 million and $1.7 million for the year
ended December 31, 1998 and during the three months ended March 31, 1999,
respectively for providing media representation services to Capstar. Chancellor
Media paid or accrued $11.2 million and $3.4 million in the year ended December
31, 1998 and during the three months ended March 31, 1999, respectively in
connection with Capstar's participation in The AMFM Radio Networks and other
transactions. Chancellor Media had a net payable to Capstar of $1.3 million at
March 31, 1999. Affiliates of Hicks Muse have a controlling interest in Capstar
and a substantial investment in Chancellor Media.

On July 7, 1998, Chancellor Media entered into a merger agreement with the
indirect parent of LIN, to acquire LIN in a stock-for-stock transaction.
Effective March 15, 1999, LIN and Chancellor Media agreed to terminate the LIN
merger agreement. Affiliates of Hicks Muse have a controlling interest in LIN
and a substantial investment in Chancellor Media.

Certain radio stations owned by Capstar have engaged Katz to sell national spot
advertising air time, and such stations pay customary commissions to Katz for
such services. In the year ended December 31, 1998 and the three months ended
March 31, 1999, Capstar paid Katz approximately $4.4 million and $1.4 million,
respectively, for
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media representation services. Additionally, Capstar's radio stations are
affiliated with The AMFM Radio Networks and receive a portion of advertising
revenues generated by the network. In the year ended December 31, 1998 and the
three months ended March 31, 1999, Capstar recorded approximately $8.3 million
and $3.4 million, respectively, in revenue from The AMFM Radio Networks. In
addition, certain television stations owned by LIN have engaged Katz to sell
national advertising time, and such stations pay customary commissions to Katz
for such services.

In October and November 1998, LIN purchased two airplanes and subsequently
entered into two lease agreements with respect to those airplanes with
Chancellor Media. The leases expire in October 1999 and 2003, respectively, and
in 1998 and the three months ended March 31, 1999, Chancellor Media paid to LIN
approximately $415,000 and $618,000, respectively, under the leases.

In connection with Chancellor Media's acquisition of various billboard and
outdoor displays from Triumph in January 1999, Chancellor Media paid
approximately $1.0 million to an entity controlled by James A. McLaughlin, the
President and Chief Operating Officer of the Chancellor Outdoor Group. An
additional $0.7 million that may be paid to such entity is currently held in
escrow, subject to satisfaction of indemnity claims, if any. The aggregate
purchase price for the assets acquired by Chancellor Media from Triumph was
approximately $37.0 million, and such amount was negotiated on behalf of
Chancellor Media by Eric C. Neuman, then Chancellor Media's Senior Vice
President -- Strategic Development.

R. Gerald Turner, a director of Capstar and upon consummation of the merger a
director of Chancellor Media, purchased 7,518 shares of Capstar class A common
stock on July 1, 1997 in exchange for a non-recourse promissory note payable to
Capstar in the principal amount of $75,000 and a recourse note payable to
Capstar in the principal amount of $25,000. The remaining principal and interest
balances on the notes were paid in April 1999.

In 1998, R. Steven Hicks acquired a construction permit issued by the FCC to
construct a new FM broadcast station in Round Rock, Texas for an effective
purchase price of $8.5 million. Mr. Hicks financed the purchase of the permit
through a letter of credit issued by Bankers Trust Company. Capstar purchased
the letter of credit reimbursement obligation owing from Mr. Hicks to Bankers
Trust Company, in its capacity as the issuer of such letter of credit, under a
Guaranty and Purchase Agreement, dated as of February 10, 1998. The $8.5 million
debt from Mr. Hicks to Capstar was satisfied in April 1999 upon the transfer of
the construction permit to Capstar.

CAPSTAR/SFX EXCHANGE

On February 20, 1998, Capstar and Chancellor Media entered into an exchange
agreement pursuant to which Chancellor Media would acquire stations KTXQ-FM and
KBFB-FM in Dallas/Ft. Worth, Texas, KODA-FM, KKRW-FM and KQUE-AM in Houston,
Texas, KPLN-FM and KYXY-FM in San Diego, California, and WVTY-FM, WJJJ-FM,
WXDX-FM and WDVE-FM in Pittsburgh, Pennsylvania (collectively the "Chancellor
Exchange Stations") for an aggregate purchase price of approximately $637.5
million in a series of purchases and exchanges over a three year period ending
February 20, 2001. The Chancellor Exchange Stations were acquired by Capstar in
connection with its acquisition of SFX in May 1998. On May 29, 1998, as part of
the SFX acquisition, Chancellor Media

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exchanged stations WAPE-FM and WFYV-FM in Jacksonville, Florida (valued at $53.0
million) plus approximately $90.3 million in cash to Capstar in exchange for
station KODA-FM in Houston, Texas. In the case of the remaining Chancellor
Exchange Stations, Capstar will identify mid-sized radio stations for exchange
with Chancellor Media. The purchase price for the remaining ten Chancellor
Exchange Stations will be approximately $494.3 million. Capstar and Chancellor
Media intend for such exchanges to qualify as like-kind exchanges. Capstar and
Chancellor Media are currently assessing whether the terms of the exchange
agreement will be modified upon consummation of the merger with Chancellor
Media. During the pendency of the merger, Chancellor Media and Capstar do not
anticipate effecting any exchanges.

Chancellor Media is providing services to the Chancellor Exchange Stations,
other than KODA-FM which was purchased 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. During the year ended December 31, 1998 and
the three month period ended March 31, 1999, Capstar received approximately
$28.8 million and $12.4 million, respectively, in LMA fees from Chancellor
Media. During the nine month period ended December 31, 1999, Capstar expects to
receive approximately $37.0 million in LMA fees, subject to Chancellor Media's
acquisition of one or more of the Chancellor Exchange Stations in 1999. The LMA
fees will decrease as each Chancellor Exchange Station is exchanged.

Pursuant to the exchange agreement, on May 29, 1998, Capstar paid approximately
$1.7 million (net of prorations and expenses) to Chancellor Media. Capstar had
agreed to sell station KKPN-FM for $54.0 million. Chancellor Media was entitled
to 50% of the sale proceeds in excess of $50.0 million.

CHANCELLOR NOTE

In May 1998, Capstar borrowed $150.0 million from Chancellor Media. The loan
ranks pari passu in right of payment to Capstar's guaranty of the indebtedness
under its credit facility. In addition, Capstar has pledged the common stock of
Capstar Partners on a first priority basis to Chancellor Media as security for
the loan.

Interest on the loan accrues at a rate of 12% per annum and is payable
quarterly, of which 5/6 is payable in cash and 1/6 is, at Capstar's option,
either be payable in cash or added to the principal amount of the loan. Capstar
may elect to defer the payment of the cash portion of any interest due until the
earlier to occur of Capstar's election to pay the cash portion in full, a
required mandatory prepayment of the loan or the maturity of the loan (a
"Deferral Election"). In the event of a Deferral Election, the interest rate
will 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 Capstar's option, either be payable in cash or
added to the principal amount of the loan. If Capstar has not 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 Capstar in exchange for station KODA-FM in Houston, Texas and
(ii) the acquisition of stations KVET-AM, KASE-FM and KVET-FM in Austin, Texas)
(x) with an aggregate purchase price of $100.0 million by May 29, 1999, (y) with
an aggregate purchase price of $200.0 million by May 29, 2000, and (z) with an
aggregate purchase price of $300.0 million by May 29, 2001, the interest rate
applicable from time to
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time during each such previous 12-month period will be retroactively increased
by 2% per annum. As a result of the foregoing sentence, the interest rate will
be increased retroactive to May 29, 1998, because Capstar will not have
satisfied the requirement that it complete acquisitions with an aggregate
purchase price of $100.0 million by May 29, 1999. However, such increased
interest will not be required to be paid until August 2, 1999. If during any
period ending on an interest payment date the loan 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 so that the
portion of such interest payment added to the principal of the loan shall equal
1/7 and the portion of such interest payment paid in cash shall equal 6/7, or
(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 so that
the portion of such interest payment added to principal of the loan shall equal
1/8 and the portion of such interest payment paid in cash shall equal 7/8. Any
amount due and accruing which is in cash and is so added to the principal amount
of the loan shall bear interest at the rate otherwise applicable to the
principal amount of the loan. In the period ended December 31, 1998 and the
three month period ended March 31, 1999, Capstar did not make a Deferral
Election and paid approximately $10.6 million and $4.5 million, respectively, in
interest to Chancellor Media. During the pendency of the merger, Capstar and
Chancellor Media do not anticipate exchanging any stations.

Capstar may prepay the loan at anytime; provided, that any prepayment shall not
affect the rights of Chancellor Media to require prepayment. Chancellor Media
has the right to require Capstar to prepay that portion of the loan 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 exchange agreement with Chancellor Media.
Chancellor Media also has the option to require Capstar to prepay any remaining
portion of the loan (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
Media'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 clause (i) or (ii),
as applicable, above. If a Deferral Election occurs during the 12-month period
commencing on the date of issuance of the loan and ending on the anniversary
thereof or during any successive 12-month period, and (x) during such 12-month
period Capstar and Chancellor Media exchange a Capstar Exchange Station of a
Chancellor Exchange Station, and (y) Chancellor Media required Capstar to prepay
a portion of the loan in connection with such exchange, the prepayment amount
set forth in the third sentence of this paragraph with respect to such Capstar
Exchange Station will be increased to equal (x) 50% of the purchase price
therefor plus (y) the product of 50% of the purchase price therefor 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 must
be paid within 10 days following the end of the applicable 12-month period.

Subject to certain exceptions, if Capstar 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 loan)
(a "Non-Exchange Acquisition"), Chancellor Media has the right to require
Capstar to prepay, at the closing of any

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such Non-Exchange Acquisition, that portion of the loan equal to 100% of the
amount that Capstar pays in such Non-Exchange Acquisitions. Chancellor Media did
not require Capstar to repay the loan in connection with Capstar's acquisition
of Triathlon which was a Non-Exchange Acquisition. If Capstar terminates the
Chancellor Exchange Agreement or any definitive purchase agreement with respect
to Capstar Exchange Stations, Capstar will be required to prepay the loan.

Limitation on Incurrence of Indebtedness. The loan provides that Capstar may
not, and may not permit any of its subsidiaries to incur, create or assume
indebtedness after the date of the loan, 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 Capstar and its
subsidiaries is indebtedness for purposes of calculating such ratio. The ratio
calculation must be made in a manner consistent with the leverage ratio
calculation made under Capstar's credit facility, provided that Capstar was
entitled during 1998 to include in EBITDA at least $10.0 million in net revenues
from The AMFM Radio Networks (whether or not such amounts were actually
received). In addition, borrowings under Capstar's credit facility do not count
as indebtedness in the ratio calculation except to the extent such borrowings
exceed $50.0 million.

Restricted Payments. The loan provides that Capstar may not (i) declare or make
payments, dividends or other distributions on all securities of Capstar 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 Capstar 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 loan. Notwithstanding the first sentence of this paragraph,
Capstar is allowed to (i) make timely payments on the loan and (ii) make
restricted payments in an aggregate amount equal to $10.0 million.

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DESCRIPTION OF CHANCELLOR MEDIA CAPITAL STOCK

CHANCELLOR MEDIA COMMON STOCK

General

Assuming approval of the issuance of shares of Chancellor Media common stock in
the merger and the second amended and restated certificate of incorporation of
Chancellor Media, at the effective time of the merger the Chancellor Media
amended and restated certificate of incorporation will be further amended and
restated in the form attached to the merger agreement. Pursuant to Chancellor
Media's second amended and restated certificate of incorporation, Chancellor
Media's authorized common stock will consist of 750,000,000 shares of common
stock, par value $0.01 per share, approximately of which will be
issued in connection with the merger.

The shares of Chancellor Media common stock currently outstanding are validly
issued, fully paid and nonassessable.

Dividends

Holders of shares of Chancellor Media common stock are entitled to receive such
dividends as may be declared by the Board of Directors of Chancellor Media out
of funds legally available for such purpose. The senior credit facility and the
certificates of designation governing the Chancellor Media $3.00 convertible
exchangeable preferred stock and the Chancellor Media 7% convertible preferred
stock each directly restrict, and the indentures governing CMCLA's senior
subordinated notes will each indirectly restrict, Chancellor Media's ability to
pay cash dividends on the Chancellor Media common stock.

Neither Chancellor Media nor Capstar has declared or paid any dividends with
respect to its common stock in the past, and it is not anticipated that
Chancellor Media will pay any cash dividends on the Chancellor Media common
stock in the foreseeable future.

Voting Rights

Holders of shares of Chancellor Media common stock will be entitled to vote on
all matters submitted to a vote of the stockholders, except as otherwise
provided by law. Each share of Chancellor Media common stock is entitled to one
vote per share. Holders of Chancellor Media common stock are not entitled to
cumulative votes in the election of directors.

Under the DGCL, the affirmative vote of the holders of a majority of the
outstanding shares of any class of capital stock of Chancellor Media is required
to approve any amendment to the second amended and restated certificate of
incorporation of Chancellor Media that would increase or decrease the aggregate
number of authorized shares of any class, increase or decrease the par value of
the shares of any class, or modify or change the powers, preferences or special
rights of the shares of any class so as to affect that class adversely.

Liquidation Rights

Upon liquidation, dissolution, or winding-up of Chancellor Media, the holders of
Chancellor Media common stock are entitled to share ratably in all assets
available for

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distribution after payment in full of creditors and the holders of preferred
stock of Chancellor Media.

Change of Control Provisions

Certain provisions of Chancellor Media's second amended and restated certificate
of incorporation and bylaws may have the effect of preventing, discouraging or
delaying any change of control of Parent and may maintain the incumbency of the
Board of Directors and management. The authorization of 50,000,000 shares of
preferred stock makes it possible for the Board of Directors to issue preferred
stock with voting or other rights or preferences that could impede the success
of any attempt to effect a change of control of Chancellor Media. In addition,
the second amended and restated certificate of incorporation of Chancellor Media
provides for three classes of directors serving for staggered three-year terms.
This provision could also impede the success of any attempt to effect a change
of control of Chancellor Media. Under the DGCL, directors on a classified board
may only be removed by stockholders for cause.

Chancellor Media is subject to Section 203 of the DGCL. Section 203 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:

- - prior to that date, the board of directors of the corporation approves either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;

- - 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, excluding certain shares held by persons
who are both directors and officers of the corporation and certain employee
stock plans; or

- - on or after the consummation date, the business combination is approved by the
board of directors and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.

For purposes of Section 203, a "business combination" includes, among other
things, a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is
generally a person who, together with affiliates and associates, owns or within
three years, owned, 15% or more of the corporation's voting stock.

Alien Ownership

Chancellor Media's second amended and restated certificate of incorporation will
restrict the ownership and voting of Chancellor Media's capital stock, including
its common stock, in accordance with the Communications Act and the rules of the
FCC, to prohibit ownership of more than 25% of Chancellor Media's outstanding
capital stock, or control of more than 25% of the voting power it represents, by
or for the account of aliens, foreign governments, or non-U.S. corporations or
corporations otherwise subject to control by such persons or entities. The
second amended and restated certificate of incorporation also prohibits any
transfer of Chancellor Media's capital stock that would cause Chancellor Media
to violate this prohibition. In addition, the second amended and restated
certificate

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of incorporation of Chancellor Media authorizes the Board of Directors of
Chancellor Media to adopt such provisions as its deems necessary to enforce
these prohibitions.

Other Provisions

The holders of Chancellor Media common stock are not entitled to preemptive or
similar rights. The shares of Chancellor Media common stock are not subject to
redemption or a sinking fund.

If a single stockholder controls more than 50.0% of the outstanding voting
shares of a corporation holding radio or television broadcast interests, the
ownership interests of other stockholders are not attributable to that
corporation. No single stockholder of Chancellor Media holds more than 50.0% of
the combined voting power of Chancellor Media. As a result, a holder of an
"attributable" interest in Chancellor Media may violate the FCC's multiple
ownership rules or cross interest rules if such holder also has an
"attributable" interest or, in some cases, a "meaningful" nonattributable
interest, in other television or radio stations, or in daily newspapers,
depending on the number and location of those radio or television stations or
daily newspapers. Such a stockholder may also be restricted in the companies in
which such stockholder may invest.

Transfer Agent

The Bank of New York serves as the Transfer Agent and Registrar for the
Chancellor Media common stock.

PREFERRED STOCK

General

Chancellor Media's authorized preferred stock consists of 50,000,000 shares of
preferred stock, par value $0.01 per share. As of the date of this joint proxy
statement prospectus, 2,200,000 shares of Chancellor Media 7% convertible
preferred stock with a stated liquidation preference of $50.00 per share and
6,000,000 shares of Chancellor Media $3.00 convertible exchangeable preferred
stock with a stated liquidation preference of $50.00 per share are issued and
outstanding. The following is a summary of the material terms of the Chancellor
Media 7% convertible preferred stock and $3.00 convertible exchangeable
preferred stock.

Chancellor Media 7% Convertible Preferred Stock

Dividends

Holders of Chancellor Media 7% convertible preferred stock are entitled to
receive, when, as and if declared by the Board of Directors of Chancellor Media
out of legally available funds, cash dividends at an annual rate equal to 7% of
the $50.00 liquidation preference per share, payable quarterly. Accordingly, on
each January 15, April 15, July 15 and October 15 of each year, holders of
Chancellor Media 7% convertible preferred stock receive a cash dividend of
$0.875 per share.

The Chancellor Media 7% convertible preferred stock has priority as to dividends
over the Chancellor Media common stock and any other series or class of
Chancellor Media's stock that ranks junior to the Chancellor Media 7%
convertible preferred stock as to dividends (the "7% Junior Dividend Stock").
Notwithstanding the foregoing, the Chancellor Media

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7% convertible preferred stock shall rank junior as to dividends, redemption
payments and rights upon a liquidation, dissolution or winding-up of Chancellor
Media to any and all classes or series of capital stock, other than Chancellor
Media common stock, of Chancellor Media, issued in the future, that does not by
its terms expressly provide that it ranks on a parity with or junior to the
Chancellor Media 7% convertible preferred stock as to dividends and rights upon
a liquidation, dissolution or winding-up of Chancellor Media.

No dividend, other than dividends payable solely in Chancellor Media common
stock, any 7% Junior Dividend Stock or warrants or other rights to acquire such
Chancellor Media common stock or 7% Junior Dividend Stock, may be paid or
declared and set apart for payment on, and no purchase, redemption or other
acquisition shall be made by Chancellor Media of the Chancellor Media voting
common stock or 7% Junior Dividend Stock unless all accrued and unpaid dividends
on the Chancellor Media 7% convertible preferred stock, including the full
dividend for the then-current quarterly dividend period, shall have been paid or
declared and set apart for payment without interest.

Except as provided below, Chancellor Media may not pay dividends on any class or
series of stock issued in the future having parity with the Chancellor Media 7%
convertible preferred stock as to dividends ("7% Parity Dividend Stock") unless
it has paid or declared and set apart for payment or contemporaneously pays or
declares and sets apart for payment all accrued and unpaid dividends for all
prior dividend payment periods on the Chancellor Media 7% convertible preferred
stock. In addition, except as provided below, Chancellor Media may not pay
dividends on the Chancellor Media 7% convertible preferred stock unless it has
paid or declared and set apart for payment or contemporaneously pays or declares
and sets apart for payment all accrued and unpaid dividends for all prior
dividend payment periods on the 7% Parity Dividend Stock. Whenever all accrued
dividends in respect of prior dividend payment periods are not paid in full on
Chancellor Media 7% convertible preferred stock and on any 7% Parity Dividend
Stock, all dividends declared on the Chancellor Media 7% Convertible Preferred
Stock and the 7% Parity Dividend Stock will be declared and made pro rata so
that the amount of dividends declared on the Chancellor Media 7% convertible
preferred stock and the 7% Parity Dividend Stock will bear the same ratio that
accrued and unpaid dividends in respect of prior dividend payment periods on the
Chancellor Media 7% convertible preferred stock and the 7% Parity Dividend Stock
bear to each other. The Chancellor Media $3.00 convertible exchangeable
preferred stock constitutes 7% Parity Dividend Stock for purposes of the
Chancellor Media 7% convertible preferred stock.

Chancellor Media may not purchase any shares of the Chancellor Media 7%
convertible preferred stock or any 7% Parity Dividend Stock, except for
consideration payable in Chancellor Media common stock or 7% Junior Dividend
Stock, or redeem fewer than all the shares of the Chancellor Media 7%
convertible preferred stock and 7% Parity Dividend Stock then outstanding if
Chancellor Media has failed to pay any accrued dividend on the Chancellor Media
7% convertible preferred stock or on any 7% Parity Dividend Stock on a stated
payment date. Notwithstanding the foregoing, in such event, Chancellor Media may
purchase or redeem fewer than all the shares of the Chancellor Media 7%
convertible preferred stock and 7% Parity Dividend Stock if such repurchase or
redemption is made pro rata so that the amounts purchased or redeemed bear to
each other the same ratio that the required redemption payments on the shares of
the Chancellor Media 7% convertible preferred stock and any 7% Parity Dividend
Stock then outstanding bear to each other.

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If Chancellor Media issues any series or class of stock that ranks senior as to
dividends to the Chancellor Media 7% convertible preferred stock ("7% Senior
Dividend Stock") and fails to pay or declare and set apart for payment accrued
and unpaid dividends on any 7% Senior Dividend Stock, except to the extent
allowed by the terms of the 7% Senior Dividend Stock, Parent may not pay or
declare and set apart for payment any dividend on the Chancellor Media 7%
convertible preferred stock unless and until all accrued and unpaid dividends on
the 7% Senior Dividend Stock, including the full dividends for the then current
dividend period, have been paid or declared and set apart for payment without
interest.

Liquidation Rights

In the case of the voluntary or involuntary liquidation, dissolution or winding
up of Chancellor Media, subject to the payment in full, or until provision has
been made for the payment in full, of all claims of creditors of Chancellor
Media, holders of Chancellor Media 7% convertible preferred stock are entitled
to receive the liquidation preference of the Chancellor Media 7% convertible
preferred stock, plus an amount equal to any accrued and unpaid dividends,
whether or not declared, to the payment date, before any payment or distribution
is made to the holders of Chancellor Media common stock or any other series or
class of stock issued in the future that ranks junior as to liquidation rights
to the Chancellor Media 7% convertible preferred stock ("7% Junior Liquidation
Stock"). Holders of Chancellor Media 7% convertible preferred stock will not be
entitled to receive the liquidation preference of their shares until the
liquidation preference of any other series or class of stock that ranks senior
as to liquidation rights to the Chancellor Media 7% convertible preferred stock
("7% Senior Liquidation Stock"), if any, and any creditors of Chancellor Media
have been paid in full. The holders of Chancellor Media 7% convertible preferred
stock and any series or class of stock that ranks on a parity as to liquidation
rights with the Chancellor Media 7% convertible preferred stock ("7% Parity
Liquidation Stock") are entitled to share ratably, in accordance with the
respective preferential amounts payable on their stock, in any distribution,
after payment of the liquidation preference on any 7% Senior Liquidation Stock,
that is not sufficient to pay in full the aggregate liquidation preference on
both the Chancellor Media 7% convertible preferred stock and on any 7% Parity
Liquidation Stock. The Chancellor Media $3.00 convertible exchangeable preferred
stock constitutes 7% Parity Liquidation Stock for purposes of the Chancellor
Media 7% convertible preferred stock.

Voting Rights

The holders of Chancellor Media 7% convertible preferred stock will have no
voting rights except as described below or as required by law.

Whenever dividends on the Chancellor Media 7% convertible preferred stock are in
arrears in aggregate amount equal to at least six quarterly dividends, whether
or not consecutive, the size of Chancellor Media's board of directors will be
increased by two, and the holders of Chancellor Media 7% convertible preferred
stock, voting separately as a class together with holders of any 7% Parity
Dividend Stock then having voting rights, will be entitled to elect two
additional directors to the board of directors of Chancellor Media at, subject
to particular limitations, any annual meeting of stockholders at which directors
are to be elected held during the period when the dividends remain in arrears
or, under selected circumstances, at a special meeting of stockholders. These
voting rights will terminate

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when all dividends in arrears and for the current quarterly period have been
paid in full or declared and set apart for payment. The term of office of the
additional directors so elected will terminate immediately upon that payment or
provision for payment.

In addition, so long as any Chancellor Media 7% convertible preferred stock is
outstanding, Chancellor Media may not, without the affirmative vote or consent
of the holders of at least 66 2/3% of all outstanding shares of Chancellor Media
7% convertible preferred stock and outstanding 7% Parity Dividend Stock, voting
as a single class:

- - amend, alter or repeal, by merger or otherwise, any provision of the
certificate of designation for the Chancellor Media 7% convertible preferred
stock, the amended and restated certificate of incorporation of Chancellor
Media or the bylaws of Chancellor Media so as to affect adversely the relative
rights, preferences, qualifications, limitations of restrictions of the
Chancellor Media 7% convertible preferred stock; or

- - effect any reclassification of the Chancellor Media 7% convertible preferred
stock.

Change of Control

The certificate of designation for the Chancellor Media 7% convertible preferred
stock provides that, upon the occurrence of a change of control, each holder
will have the right to require that Chancellor Media purchase all or a portion
of such holder's Chancellor Media 7% convertible 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. If the repurchase of the Chancellor Media 7% convertible
preferred stock would violate or constitute a default under the senior credit
facility or other indebtedness of Chancellor Media, then, under the certificate
of designation for the Chancellor Media 7% convertible preferred stock,
Chancellor Media will either:

- - repay in full all of the indebtedness; or

- - obtain the requisite consents, if any, under the indebtedness required to
permit the repurchase of the Chancellor Media 7% convertible preferred stock.

Redemption at Option of Parent

The Chancellor Media 7% convertible preferred stock may not be redeemed prior to
January 19, 2000. After that date, the Chancellor Media 7% convertible preferred
stock may be redeemed by Chancellor Media, at its option, subject to contractual
and other restrictions with respect to redemption, including limitations under
the senior credit facility and CMCLA's senior subordinated notes indentures and
to the legal availability of funds for the redemption, in whole or in part at
any time, if redeemed during the 12-month period beginning January 15, January
19 in the case of 2000, of any year specified below at

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the following redemption prices, expressed as percentages of the liquidation
preference thereof:

<TABLE>
<CAPTION>
YEAR DIVIDEND
---- --------
<S> <C>
2000................................................. 104.90%
2001................................................. 104.20
2002................................................. 103.50
2003................................................. 102.80
2004................................................. 102.10
2005................................................. 101.40
2006................................................. 100.70
2007 and thereafter.................................. 100.00
</TABLE>

plus in each case accrued and unpaid dividends, whether or not declared, to the
redemption date.

Conversion Rights

Each holder of Chancellor Media 7% convertible preferred stock will have the
right, at the holder's option, to convert any or all shares of Chancellor Media
7% convertible preferred stock into Chancellor Media voting common stock at any
time at a conversion price, subject to adjustment, of $18.095 per share of
underlying Chancellor Media voting common stock. At this conversion price, each
share of Chancellor Media 7% convertible preferred stock would be entitled to
receive 2.76 shares of Chancellor Media common stock upon conversion. If the
Chancellor Media 7% convertible preferred stock is called for redemption, the
conversion right, with respect to the called shares of Chancellor Media 7%
convertible preferred stock, will terminate at the close of business on the
redemption date fixed by the board of directors of Chancellor Media.

Chancellor Media $3.00 Convertible Exchangeable Preferred Stock

Dividends

Holders of Chancellor Media $3.00 convertible exchangeable preferred stock are
entitled to receive, when, as and if declared by the board of directors out of
legally available funds, cash dividends at an annual rate of $3.00, payable
quarterly, on each $50.00 liquidation preference share. Accordingly, on each
March 15, June 15, September 15 and December 15 of each year, holders of
Chancellor Media $3.00 convertible exchangeable preferred stock receive a cash
dividend of $0.75 per share.

The Chancellor Media $3.00 convertible exchangeable preferred stock has priority
as to dividends over the Chancellor Media common stock and the Chancellor Media
nonvoting common stock and any other series or class of Chancellor Media's stock
that ranks junior to the Chancellor Media $3.00 convertible exchangeable
preferred stock as to dividends ("$3.00 Junior Dividend Stock"). Notwithstanding
the foregoing, the Chancellor Media $3.00 convertible exchangeable preferred
stock shall rank junior as to dividends and rights upon a liquidation,
dissolution or winding-up of Chancellor Media to any and all classes or series
of capital stock, other than Chancellor Media common stock, of Chancellor Media,
whether currently issued or issued in the future, that does not by its terms
expressly

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provide that it ranks on a parity with or junior to the Chancellor Media $3.00
convertible exchangeable preferred stock as to dividends and rights upon a
liquidation, dissolution or winding-up of Parent.

No dividend, other than dividends payable solely in Chancellor Media common
stock, any $3.00 Junior Dividend Stock or warrants or other rights to acquire
such Chancellor Media common stock or Chancellor Media $3.00 Junior Dividend
Stock, may be paid or set apart for payment on, and no purchase, redemption or
other acquisition shall be made by Chancellor Media of, the Chancellor Media
common stock or Chancellor Media $3.00 Junior Dividend Stock unless all accrued
and unpaid dividends on the Chancellor Media $3.00 convertible exchangeable
preferred stock, including the full dividend for the then-current quarterly
dividend period, shall have been paid or declared and set apart for payment
without interest.

Except as provided below, Chancellor Media may not pay dividends on any class or
series of stock, if hereafter issued, having parity with the Chancellor Media
$3.00 convertible exchangeable preferred stock as to dividends ("$3.00 Parity
Dividend Stock") unless it has paid or declared and set apart for payment or
contemporaneously pays or declares and sets apart for payment all accrued and
unpaid dividends for all prior dividend payment periods on the Chancellor Media
7% convertible preferred stock. The Chancellor Media 7% convertible preferred
stock constitutes $3.00 Parity Dividend Stock. In addition, except as provided
below, Chancellor Media may not pay dividends on the Chancellor Media $3.00
convertible exchangeable preferred stock unless it has paid or declared and set
apart for payment or contemporaneously pays or declares and sets apart for
payment all accrued and unpaid dividends for all prior dividend payment periods
on the $3.00 Parity Dividend Stock. Whenever all accrued dividends in respect of
prior dividend payment periods are not paid in full on the Chancellor Media
$3.00 convertible exchangeable preferred stock and on any $3.00 Parity Dividend
Stock, all dividends declared on the Chancellor Media $3.00 convertible
exchangeable preferred stock and the $3.00 Parity Dividend Stock will be
declared and made pro rata so that the amount of dividends declared on the
Chancellor Media $3.00 convertible exchangeable preferred stock and the $3.00
Parity Dividend Stock will bear the same ratio that accrued and unpaid dividends
in respect of prior dividend payment periods on the Chancellor Media $3.00
convertible exchangeable preferred stock and the $3.00 Parity Dividend Stock
bear to each other.

Chancellor Media may not purchase any shares of the Chancellor Media $3.00
convertible exchangeable preferred stock or any $3.00 Parity Dividend Stock,
except for consideration payable in Chancellor Media common stock or $3.00
Junior Dividend Stock, or redeem fewer than all the shares of the Chancellor
Media $3.00 convertible exchangeable preferred stock and $3.00 Parity Dividend
Stock then outstanding if Chancellor Media has failed to pay any accrued
dividend on the Chancellor Media $3.00 convertible exchangeable preferred stock
or any $3.00 Parity Dividend Stock on a stated payment date. Notwithstanding the
foregoing, in such event, Chancellor Media may purchase or redeem fewer than all
the shares of the Chancellor Media $3.00 convertible exchangeable preferred
stock and $3.00 Parity Dividend Stock if such repurchase or redemption is made
pro rata so that the amounts purchased or redeemed bear to each other the same
ratio that the required redemption payments on the shares of the Chancellor
Media $3.00 convertible exchangeable preferred stock and any $3.00 Parity
Dividend Stock then outstanding bear to each other.

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<PAGE> 282

If Chancellor Media hereafter issues any series or class of stock that ranks
senior as to dividends to the Chancellor Media $3.00 convertible exchangeable
preferred stock ("$3.00 Senior Dividend Stock") and fails to pay or declare and
set apart for payment accrued and unpaid dividends on any $3.00 Senior Dividend
Stock, except to the extent allowed by the terms of the $3.00 Senior Dividend
Stock, Chancellor Media may not pay or declare and set apart for payment any
dividend on the Chancellor Media $3.00 convertible exchangeable preferred stock
unless and until all accrued and unpaid dividends on the $3.00 Senior Dividend
Stock, including the full dividends for the then current dividend period, have
been paid or declared and set apart for payment without interest.

Liquidation Rights

In the case of the voluntary or involuntary liquidation dissolution or
winding-up of Chancellor Media, subject to the payment in full, or until
provision has been made for the payment in full, of all claims of creditors of
Chancellor Media, holders of Chancellor Media $3.00 convertible exchangeable
preferred stock are entitled to receive the liquidation preference of $50.00 per
share, plus an amount equal to any accrued and unpaid dividends, whether or not
declared, to the payment date, before any payment or distribution is made to the
holders of Chancellor Media common stock or any other series or class of stock
hereafter issued that ranks junior as to liquidation rights to the Chancellor
Media $3.00 convertible exchangeable preferred stock ("$3.00 Junior Liquidation
Stock"). Holders of Chancellor Media $3.00 convertible exchangeable preferred
stock will not be entitled to receive the liquidation preference of their shares
until the liquidation preference of any other series or class of stock hereafter
issued that ranks senior as to liquidation rights to the Chancellor Media $3.00
convertible exchangeable preferred stock ("$3.00 Senior Liquidation Stock"), if
any has been paid in full. The holders of Chancellor Media $3.00 convertible
exchangeable preferred stock and any series or class of stock hereafter issued
that ranks on a parity as to liquidation rights with the Chancellor Media $3.00
convertible exchangeable preferred stock ("$3.00 Parity Liquidation Stock") are
entitled to share ratably, in accordance with the respective preferential
amounts payable on their stock, in any distribution, after payment of the
liquidation preference on any $3.00 Senior Liquidation Stock, that is not
sufficient to pay in full the aggregate liquidation preference on both the
Chancellor Media $3.00 convertible exchangeable preferred stock and any $3.00
Parity Liquidation Stock. The Chancellor Media 7% convertible preferred stock
constitutes $3.00 Parity Liquidation Stock, for purposes of the Chancellor Media
$3.00 convertible exchangeable preferred stock.

Voting Rights

The holders of Chancellor Media $3.00 convertible exchangeable preferred stock
will have no voting rights except as described below or as required by law.

Whenever dividends on the Chancellor Media $3.00 convertible exchangeable
preferred stock are in arrears in an aggregate amount equal to at least six
quarterly dividends, whether or not consecutive, the size of Chancellor Media's
board of directors will be increased by two, and the holders of Chancellor Media
$3.00 convertible exchangeable preferred stock, voting separately as a class
together with holders of any $3.00 Parity Dividend Stock then having voting
rights, will be entitled to elect two additional directors to the board of
directors at, subject to particular limitations, any annual meeting of
stockholders at which directors are to be elected held during the period when
the dividends

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remain in arrears or, under selected circumstances, at a special meeting of
stockholders. These voting rights will terminate when all dividends in arrears
and for the current quarterly period have been paid in full or declared and set
apart for payment. The term of office of the additional directors so elected
will terminate immediately upon that payment or provision for payment.

In addition, so long as any Chancellor Media $3.00 convertible exchangeable
preferred stock is outstanding, Chancellor Media will not, without the
affirmative vote or consent of the holders of at least 66 2/3% of all
outstanding shares of Chancellor Media $3.00 convertible exchangeable preferred
stock and outstanding $3.00 Parity Dividend Stock, voting as a single class:

- - amend, alter or repeal, by merger or otherwise, any provision of the
certificate of incorporation or the bylaws of Chancellor Media so as to affect
adversely the relative rights, preferences, qualifications, limitations or
restrictions of the Chancellor Media $3.00 convertible exchangeable preferred
stock; or

- - effect any reclassification of the Chancellor Media $3.00 convertible
exchangeable preferred stock.

Redemption At The Option Of Chancellor Media

The Chancellor Media $3.00 convertible exchangeable preferred stock may not be
redeemed prior to June 16, 1999. After that date, the Chancellor Media $3.00
convertible exchangeable preferred stock may be redeemed by Chancellor Media, at
its option, subject to contractual and other restrictions with respect to
redemption, including limitations under the senior credit facility and CMCLA's
notes indentures and to the legal availability of funds for the redemption, in
whole or in part at any time, if redeemed during the 12-month period beginning
June 15 of any year specified below, June 16 in the case of 1999, at the
following redemption prices, expressed as percentages of the liquidation
preference thereof:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
1999............................................... 104.80%
2000............................................... 104.20
2001............................................... 103.60
2002............................................... 103.00
2003............................................... 102.40
2004............................................... 101.80
2005............................................... 101.20
2006............................................... 100.60
2007 and thereafter................................ 100.00
</TABLE>

plus in each case accrued and unpaid dividends, whether or not declared, to the
redemption date.

Conversion Rights

Each holder of Chancellor Media $3.00 convertible exchangeable preferred stock
will have the right at any time at the holder's option to convert any and all
shares of Chancellor

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Media $3.00 convertible exchangeable preferred stock into Chancellor Media
common stock at a conversion price, subject to adjustment, of $25.00 per share
of underlying Chancellor Media common stock, equivalent to a conversion rate of
2.00 shares of Chancellor Media common stock per share of Chancellor Media $3.00
convertible exchangeable preferred stock. If the Chancellor Media $3.00
convertible exchangeable preferred stock is called for redemption, the
conversion right will terminate at the close of business on the redemption date
fixed by the board of directors.

Change Of Control

If there occurs a change of control, then shares of the Chancellor Media $3.00
convertible exchangeable preferred stock may be converted, at the option of the
holder thereof at any time from the date of such change of control until the
expiration of 45 days after the date of a note by Chancellor Media to all
holders of the Chancellor Media $3.00 convertible exchangeable preferred stock
of the occurrence of the change of control, into the number of shares of
Chancellor Media common stock determined by dividing:

- - the redemption price for the Chancellor Media $3.00 convertible exchangeable
preferred stock (see "-- Redemption at the Option of Chancellor Media") in
effect on the date of the change of control by;

- - the adjusted conversion price.

The adjusted conversion price is the greater of:

- - the average closing price per share of Chancellor Media common stock for the
last five trading days before the change of control; or

- - 66 2/3% of the last reported sales price of the Chancellor Media common stock
before the date hereof, as adjusted for stock splits or combinations, unless
otherwise provided in the certificate of designation for the Chancellor Media
$3.00 convertible exchangeable preferred stock.

Chancellor Media may, at its option, elect to pay holders of the Chancellor
Media $3.00 convertible exchangeable preferred stock exercising their special
conversion rights an amount in cash equal to 101% of the liquidation preference
of the Chancellor Media $3.00 convertible exchangeable preferred stock plus any
accrued and unpaid dividends. The senior credit facility limits Chancellor
Media's ability to pay cash upon election of the holders of the Chancellor Media
$3.00 convertible exchangeable preferred stock to exercise their special
conversion rights.

Exchange

Shares of Chancellor Media $3.00 convertible exchangeable preferred stock will
be exchangeable at the option of Chancellor Media, in whole but not in part, on
any March 15, June 15, September 15 or December 15, commencing September 15,
2000 (a "Debenture Exchange Date"), through the issuance of Chancellor Media's
6% exchange debentures (the "6% Exchange Debentures") in redemption of and in
exchange for shares of Chancellor Media $3.00 convertible exchangeable preferred
stock, provided selected conditions are met. Holders of the Chancellor Media
$3.00 convertible exchangeable preferred stock will be entitled to receive 6%
Exchange Debentures at the rate of $50.00 principal amount of 6% Exchange
Debentures for each share of Chancellor Media

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<PAGE> 285

$3.00 convertible exchangeable preferred stock. Since 6% Exchange Debentures
will only be issued in denominations of $1,000 or any multiple thereof, holders
of Chancellor Media $3.00 convertible exchangeable preferred stock holding less
than such a multiple will receive in cash the liquidation preference of the
Chancellor Media $3.00 convertible exchangeable preferred stock not so
exchanged. No shares of Chancellor Media $3.00 convertible exchangeable
preferred stock may be exchanged for 6% Exchange Debentures unless Chancellor
Media has paid or set aside for the benefit of the holders of the Chancellor
Media $3.00 convertible exchangeable preferred stock all accrued and unpaid
dividends on the Chancellor Media $3.00 convertible exchangeable preferred stock
to the Debenture Exchange Date. The senior credit facility may limit Chancellor
Media's ability to cause the exchange of the Chancellor Media $3.00 convertible
exchangeable preferred stock for 6% Exchange Debentures. The ability of
Chancellor Media to exchange Chancellor Media $3.00 convertible exchangeable
preferred stock for 6% Exchange Debentures is also subject to selected
conditions contained in the indenture relating to the 6% Exchange Debentures and
to limitations imposed under the DGCL and by applicable laws protecting the
rights of creditors.

COMPARATIVE RIGHTS OF HOLDERS OF CHANCELLOR MEDIA
COMMON STOCK AND CAPSTAR COMMON STOCK

The rights of Chancellor Media stockholders are governed by Chancellor Media's
amended and restated certificate of incorporation, its amended and restated
bylaws and Delaware law, including the DGCL. The rights of Capstar stockholders
are governed by its amended and restated certificate of incorporation, its
amended and restated bylaws and Delaware law, including the DGCL. The rights of
Chancellor Media stockholders following the merger will be governed by
Chancellor Media's second amended and restated certificate of incorporation, its
amended and restated bylaws and Delaware law, including the DGCL.

Assuming approval of the stockholders of both Capstar and Chancellor Media, at
the effective time of the merger, the holders of Capstar common stock will
become holders of Chancellor Media common stock. The rights of the holders of
Chancellor Media common stock will be governed by applicable Delaware law,
including the DGCL, and by Chancellor Media's second amended and restated
certificate of incorporation and amended and restated bylaws.

The following is a summary of the material differences between the rights of the
holders of Capstar common stock and Chancellor Media common stock as compared
with the rights of holders of Chancellor Media common stock following the
merger. Because each of Chancellor Media and Capstar is a Delaware corporation,
these differences arise principally from differences in the provisions of
Chancellor Media's amended and restated certificate of incorporation, Capstar's
amended and restated certificate of incorporation and Chancellor Media's second
amended and restated certificate of incorporation and the differences among
Chancellor Media's amended and restated bylaws and Capstar's amended and
restated bylaws.

The following summaries do not purport to be complete statements of the rights
of Chancellor Media stockholders under Chancellor Media's second amended and
restated certificate of incorporation and Chancellor Media's amended and
restated bylaws as compared with the rights of the Capstar stockholders under
Capstar's amended and restated certificate of incorporation and Capstar's
amended and restated bylaws and does

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<PAGE> 286

not purport to be a complete description of the specific provisions referred to
in this section. The identification of specific differences is not meant to
indicate that other equally or more significant differences do not exist. These
summaries are qualified in their entirety by reference to the governing
corporate instruments of Chancellor Media and Capstar to which stockholders are
referred. The terms of Chancellor Media common stock are described under
"Description of Chancellor Media Capital Stock."

AUTHORIZED CAPITAL STOCK

The authorized capital stock of Capstar as of the date of this joint proxy
statement/ prospectus consists of 750,000,000 shares of Capstar class A common
stock, 150,000,000 shares of Capstar class B common stock, 150,000,000 shares of
Capstar class C common stock and 100,000,000 shares of Capstar preferred stock,
$0.01 par value.

The authorized capital stock of Chancellor Media as of the date of this joint
proxy statement/prospectus consists of 200,000,000 shares of Chancellor Media
common stock, 75,000,000 shares of Chancellor Media class A common stock and
50,000,000 shares of Chancellor Media preferred stock.

At the effective time of the merger, the authorized capital stock of Chancellor
Media will consist of 750,000,000 shares of Chancellor Media common stock and
50,000,000 shares of Chancellor Media preferred stock, par value $0.01 per
share.

PREEMPTIVE RIGHTS

Capstar's amended and restated certificate of incorporation does not grant any
preemptive rights to stockholders.

Chancellor Media's amended and restated certificate of incorporation does not
grant any preemptive rights to stockholders.

Chancellor Media's second amended and restated certificate of incorporation will
not grant any preemptive rights to stockholders.

LIQUIDATION RIGHTS

Capstar's amended and restated certificate of incorporation provides that upon
liquidation, dissolution or winding-up of Capstar, the holders of the capital
stock of Capstar, including holders of Capstar common stock, are entitled to
ratably share in all assets available for distribution after payment in full of
Capstar's creditors and after payment of all sums payable in respect of the
Capstar preferred stock, if any. There are currently no shares of Capstar
preferred stock issued and outstanding.

Chancellor Media's amended and restated certificate of incorporation provides
that upon liquidation, dissolution, or winding-up of Chancellor Media, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of Chancellor Media preferred stock, the holders of Chancellor Media
common stock and Chancellor Media class A common stock shall be entitled to
receive all of the remaining assets of the corporation available for
distribution to its stockholders, ratably in proportion to the number of shares
held by them.

Chancellor Media's second amended and restated certificate of incorporation will
provide that upon liquidation, dissolution or winding-up of Chancellor Media,
after distribution in

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full of the preferential amounts, if any, to be distributed to the holders of
Chancellor Media preferred stock, the holders of shares of Chancellor Media
common stock and Chancellor Media nonvoting common stock shall be entitled to
receive all of the remaining assets of the corporation available for
distribution to its stockholders, ratably in proportion to the number of shares
held by them.

VOTING RIGHTS GENERALLY

Capstar's amended and restated bylaws provide that, except as otherwise required
by Delaware law, Capstar's amended and restated certificate of incorporation or
Capstar's amended and restated bylaws, the holders of a majority in voting power
of the outstanding shares entitled to vote on a matter, present in person or
represented by proxy, shall constitute a quorum at any meeting of stockholders
for the transaction of business. Notwithstanding the previous sentence, in no
event does a quorum consist of less than one-third of the shares entitled to
vote at the meeting of stockholders. If a quorum exists, action on a matter is
approved by the vote of a majority in voting power of the outstanding shares
then entitled to vote who are present, in person or by proxy, at the meeting,
except as otherwise required by Delaware law, Capstar's amended and restated
certificate of incorporation or Capstar's amended and restated bylaws.

Chancellor Media's amended and restated bylaws provide that, except as required
by Delaware law or Chancellor Media's amended and restated certificate of
incorporation, a majority of the outstanding shares entitled to vote on a
matter, present in person or by proxy, shall constitute a quorum at any meeting
of stockholders for the transaction of business. If a quorum exists, action on a
matter is approved by the vote of a majority of the shares entitled to vote that
are present, in person or by proxy, at the meeting, except as otherwise required
by Delaware law or Chancellor Media's amended and restated certificate of
incorporation.

Capstar's amended and restated certificate of incorporation provides that
holders of shares of Capstar class A common stock and Capstar class C common
stock vote together as a single class on all matters submitted to a vote of
stockholders, with each share of Capstar class A common stock entitled to one
vote and each share of Capstar class C common stock entitled to ten votes,
except:

- - the holders of Capstar class A common stock, voting as a separate class, will
be entitled to elect two class A directors;

- - with respect to any proposed "going private" transaction, as defined in Rule
13e-3 under the Exchange Act, with Hicks Muse or any of its affiliates (a
"Rule 13e-3 Transaction"), each share of Capstar class A common stock and each
share of Capstar class C common stock shall be entitled to one vote, but the
holders of shares of Capstar class A common stock and Capstar class C common
stock shall vote together as a single class in Rule 13e-3 Transactions; and

- - as otherwise required by law.

The Capstar 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 Capstar, the vote of the holders of at
least a majority in voting power of the outstanding shares then entitled to vote
who are present, in person or by proxy, at the meeting shall decide any question
brought before a meeting of Capstar's stockholders.

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<PAGE> 288

Capstar's amended and restated certificate of incorporation also provides that
the directors of Capstar 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.

Chancellor Media's amended and restated certificate of incorporation provides
that holders of shares of Chancellor Media common stock and Chancellor Media
class A common stock, each voting as a separate class, shall be entitled to vote
on all matters submitted to a vote of the stockholders of Chancellor Media and
shall be entitled to one vote for each share of Chancellor Media common stock or
Chancellor Media class A common stock held.

Chancellor Media's second amended and restated certificate of incorporation will
provide that holders of shares of Chancellor Media common stock shall be
entitled to vote as a class upon any matters submitted to a vote of the
stockholders of Chancellor Media and shall be entitled to one vote for each
share of Chancellor Media common stock held.

AMENDMENT OF BYLAWS

Under Delaware law, an amendment to a corporation's bylaws requires the approval
of the stockholders, unless the certificate of incorporation confers the power
to amend the bylaws upon the board of directors.

Capstar's amended and restated certificate of incorporation grants the board of
directors the power to adopt, amend or repeal Capstar's amended and restated
bylaws.

Chancellor Media's amended and restated certificate of incorporation does not
grant the board of directors the power to adopt, amend or repeal Chancellor
Media's amended and restated bylaws.

Chancellor Media's second amended and restated certificate of incorporation will
grant the board of directors the power to adopt, amend or repeal Chancellor
Media's amended and restated bylaws.

NUMBER AND CLASSIFICATION OF THE BOARD OF DIRECTORS

Capstar's amended and restated certificate of incorporation and Capstar's
amended and restated bylaws provide for not less than one director nor more than
twenty-one directors, plus the number of directors as may be elected from time
to time by the holders of any class or series of Capstar preferred stock. The
directors need not be a stockholder of Capstar nor a resident of the state of
Delaware.

Chancellor Media's amended and restated certificate of incorporation and
Chancellor Media's amended and restated bylaws provide for not less than five
nor more than thirteen directors, plus such number of directors as may be
elected from time to time by the holders of any class or series of Chancellor
Media preferred stock. None of the directors of Chancellor Media need be a
stockholder of Chancellor Media or a resident of the State of Delaware.

Chancellor Media's second amended and restated certificate of incorporation and
Chancellor Media's bylaws will provide for not less than five nor more than
fourteen directors, plus the number of directors as may be elected from time to
time by the holders of any class or series of Chancellor Media preferred stock.
None of the directors of

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Chancellor Media need be a stockholder of Chancellor Media or a resident of the
State of Delaware.

Delaware law permits, but does not require, a classified board of directors,
with staggered terms under which one-half to one-third of the directors are
elected for terms of two or three years, respectively.

Capstar's amended and restated certificate of incorporation provides that,
except for the directors elected by the Class A stockholders who are elected
annually, the board of directors of Capstar will consist of three classes of
directors. Class I directors hold their respective offices until the 1999 annual
meeting of the Capstar stockholders. Class II directors hold their respective
offices until the 2000 annual meeting of the Capstar stockholders. Class III
directors hold their respective offices until the 2001 annual meeting of the
Capstar stockholders. Each director will hold office until his or her successor
has been duly elected and qualified.

Chancellor Media's amended and restated certificate of incorporation provides
that the board of directors of Chancellor Media will consist of three classes of
directors. Class II directors will hold their respective offices until the 1999
annual meeting of the Chancellor Media stockholders. Class III directors will
hold their respective offices until the 2000 annual meeting of the Chancellor
Media stockholders. Class I directors will hold their respective offices until
the 2001 annual meeting of the Chancellor Media stockholders. Each director will
hold office until his or her successor has been duly elected and qualified.

Chancellor Media's second amended and restated certificate of incorporation will
provide that the board of directors of Chancellor Media shall consist of three
classes of directors. Class III directors will hold their respective offices
until the 2000 annual meeting of the Chancellor Media stockholders. Class I
directors will hold their respective offices until the 2001 annual meeting of
the Chancellor Media stockholders. Class II directors shall hold their
respective offices until the 2002 annual meeting of the Chancellor Media
stockholders. Each director will hold office until his or her successor has been
duly elected and qualified.

INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF LIABILITY

Capstar's amended and restated certificate of incorporation contains provisions
indemnifying any person who was or is threatened to be made a party to a
proceeding by reason of the fact that he or she:

- - is or was a director or officer of Capstar; or

- - while a director or officer, is or was serving at the request of Capstar as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, to the fullest extent permitted under the DGCL.

Capstar's amended and restated certificate of incorporation provides that no
director shall be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability for:

- - breaches of the director's duty of loyalty to the corporation or its
stockholders;

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- - acts or omissions not in good faith or involving intentional misconduct or
knowing violations of laws;

- - the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or

- - transactions in which the director received an improper personal benefit.

Chancellor Media's amended and restated certificate of incorporation contains
provisions indemnifying any person who was or is threatened to be made a party
to a proceeding by reason of the fact that he or she:

- - is or was a director, officer, employee or agent of Chancellor Media; or

- - is or was serving at the request of Chancellor Media as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, to the fullest extent permitted under the DGCL.

Chancellor Media's amended and restated certificate of incorporation provides
that no director shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for:

- - breaches of the director's duty of loyalty to the corporation or its
stockholders;

- - acts or omissions not in good faith or involving intentional misconduct or
knowing violations of laws;

- - the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or

- - transactions in which the director received an improper personal benefit.

Chancellor Media's second amended and restated certificate of incorporation will
contain provisions indemnifying any person who was or is threatened to be made a
party to a proceeding by reason of the fact that he or she:

- - is or was a director, officer, employee or agent of Chancellor Media; or

- - is or was serving at the request of Chancellor Media as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the DGCL.

Chancellor Media's second amended and restated certificate of incorporation
provides that no director shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for:

- - breaches of the director's duty of loyalty to the corporation or its
stockholders;

- - acts or omissions not in good faith or involving intentional misconduct or
knowing violations of laws;

- - the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or

- - transactions in which the director received an improper personal benefit.

RESTRICTIONS ON FOREIGN OWNERSHIP

Capstar's amended and restated certificate of incorporation provides that, in
accordance with the Communications Act:

- - not more than 25% of the total number of all shares of capital stock of
Capstar outstanding or the total voting power of all shares of capital stock
of Capstar outstanding

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may be owned of record by Aliens, as defined in Capstar's amended and restated
certificate of incorporation;

- - no Alien shall be entitled to vote or direct or control the vote of more than
25% of the total number of shares of the capital stock of Capstar outstanding
and entitled to vote at any time or more than 25% of the total voting power of
all shares of the capital stock of Capstar outstanding and entitled to vote at
any time;

- - shares of the capital stock of Capstar determined by Capstar'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 action of Capstar's board of directors to the extent necessary,
in the judgment of Capstar's Board of Directors, to comply with the Alien
ownership restrictions of the Communications Act and the FCC rules and
regulations.

In addition, Capstar's amended and restated certificate of incorporation
authorizes Capstar's board of directors to adopt such provisions as it deems
necessary to enforce these provisions.

Chancellor Media's amended and restated certificate of incorporation provides
that, in accordance with the Communications Act:

- - not more than 25% of the capital stock of Chancellor Media may be owned of
record by Aliens, as defined in Chancellor Media's amended and restated
certificate of incorporation;

- - no Alien shall be entitled to vote or direct or control the vote of more than
25% of the total number of shares of capital stock of Chancellor Media
outstanding and entitled to vote at any time or more than 25% of the total
voting power of all shares of the capital stock of the corporation outstanding
and entitled to vote at any time;

- - no Alien shall be qualified to act as an officer of Chancellor Media; and

- - no more than 25% of the total number of directors of Chancellor Media may be
Aliens.

In addition, the certificate authorizes the board of directors of Chancellor
Media to adopt such provisions as it deems necessary to enforce these
prohibitions.

Chancellor Media's second amended and restated certificate of incorporation will
provide that, in accordance with the Communications Act:

- - not more than 25% of the total number of all shares capital stock of
Chancellor Media outstanding may be owned of record by Aliens, as defined in
Chancellor Media's second amended and restated certificate of incorporation;

- - no Alien shall be entitled to vote or direct or control the vote of more than
25% of the total number of shares of the capital stock of Chancellor Media
outstanding and entitled to vote at any time or more than 25% of the total
voting power of all shares of the capital stock of Chancellor Media
outstanding and entitled to vote at any time; and

- - Chancellor Media's board of directors shall have all powers necessary to
implement these provisions.

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VOTING WITH RESPECT TO CERTAIN BUSINESS COMBINATIONS

Section 203 of the DGCL provides that a corporation shall not engage in any
business combination, generally defined as a merger, consolidation, sale of
greater than 10% of assets, issuance of stock or granting of other financial
benefits, with any interested shareholder, generally defined as any person
owning greater than 15% of the voting stock of a corporation, for a period of
three years following the time that such stockholder became an interested
stockholder, unless:

- - prior to that time the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;

- - upon consummation of the transaction which resulted in the shareholder
becoming an interested shareholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or

- - at or subsequent to such time the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.

Capstar is subject to Section 203 of the DGCL.

Chancellor Media is, and after the effective time of the merger will be, subject
to Section 203 of the DGCL.

LEGAL MATTERS

The validity of the shares of Chancellor Media common stock to be issued in the
merger will be passed upon and an opinion with respect to certain United States
federal income tax consequences of the merger will be rendered to Chancellor
Media by Weil, Gotshal & Manges LLP, Dallas, Texas and New York, New York.
Certain partners of Weil, Gotshal & Manges LLP own shares of Chancellor Media
common stock.

An opinion with respect to certain United States federal income tax consequences
of the merger will be rendered to Capstar by Vinson & Elkins L.L.P., Dallas,
Texas.

EXPERTS

The consolidated financial statements and financial statement schedules of
Chancellor Media Corporation and Subsidiaries as of December 31, 1997 and 1998
and for the years then ended included in this Registration Statement have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.

The consolidated financial statements of Chancellor Media Corporation and
Subsidiaries, the financial statements of WLIT Inc., the combined financial
statements of KYSR Inc. and KIBB Inc. and the consolidated financial statements
of Lamar Advertising Company,

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<PAGE> 293

have been audited by KPMG LLP, independent certified public accountants, to the
extent and for the periods indicated in their reports thereon, which reports are
included herein. Such financial statements are included herein in reliance upon
the reports of KPMG LLP and upon the authority of said firm as experts in
accounting and auditing.

The consolidated financial statements of Chancellor Broadcasting Company and
Subsidiaries as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996 included in this Registration Statement have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

The combined statement of assets acquired as of April 3, 1998 and the related
combined statements of revenues and direct operating expenses of KBIG-FM,
KLDE-FM and WBIX-FM (formerly WNSR-FM) for each of the three years ended
December 31, 1997 included in this Registration Statement, have been so included
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.

The statement of assets acquired as of May 29, 1998 and the related statements
of revenues and direct operating expenses of KODA-FM for each of the two years
ended December 31, 1997 included in this Registration Statement, have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.

The financial statements of the Outdoor Advertising Division of Whiteco
Industries, Inc. as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997, included in this joint proxy
statement/prospectus, have been audited by BDO Seidman, LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
in reliance upon the authority of said firm as experts in accounting and
auditing.

The consolidated financial statements of Capstar Broadcasting Corporation and
Subsidiaries as of December 31, 1997 and 1998 and for each of the three years in
the period ended December 31, 1998 included in this Registration Statement, have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

Ernst & Young LLP, independent auditors, have audited 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. These consolidated statements of operations and
cash flows are included herein in reliance on their report, given on their
authority as experts in accounting and auditing.

The consolidated financial statements of Capstar Communications, Inc. and
Subsidiaries (formerly known as SFX Broadcasting Inc. and Subsidiaries) as of
December 31, 1998 and for the five month period ended May 31, 1998 and the seven
month period ended December 31, 1998 included in this Registration Statement
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of Capstar Communications, Inc. and Subsidiaries (formerly known as
SFX Broadcasting, Inc. and Subsidiaries) as of December 31, 1997 and for the
years ended

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December 31, 1996 and 1997. These consolidated financial statements are included
herein in reliance on their report, given on their authority as experts in
accounting and auditing.

The financial statements of Martin Media as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997, included in
this joint proxy statement/prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.

The financial statements of Martin & MacFarlane, Inc. as of December 31, 1997
and 1996 and for each of the two years in the period ended December 31, 1997 and
the six month period ended December 31, 1995, included in this joint proxy
statement/prospectus, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.

The financial statements of Martin & MacFarlane, Inc. as of June 30, 1995 and
for the year ended June 30, 1995, included in this joint proxy
statement/prospectus, have been audited by Barbich Longcrier Hooper & King
Accountancy Corporation, independent auditors, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.

The financial statements of The Broadcast Group, Inc. as of December 31, 1998
and 1997 and for the years then ended included in this joint proxy
statement/prospectus have been included herein in reliance on the report of
Kleiman, Carney & Greenbaum, independent accountants, given as the authorized
firm as experts in accounting and auditing.

STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS

CHANCELLOR MEDIA

Proposals of stockholders intended to be presented at the Annual Meeting of
Stockholders of Chancellor Media to be held in 2000 must be received by
Chancellor Media no later than February 10, 2000 in order to be considered for
inclusion in Chancellor Media's proxy statement and form of proxy relating to
such meeting. Such proposals should be directed to Chancellor Media Corporation,
1845 Woodall Rodgers Freeway, Suite 1300, Dallas, Texas 75201, ATTENTION:
Corporate Secretary. Proposals must comply with the proxy rules of the SEC
relating to stockholder proposals in order to be included in the proxy
materials.

In accordance with the rules and regulations of the SEC, Chancellor Media's
management will have discretionary authority to vote on any proposal raised by a
stockholder at the 2000 Annual Meeting if the proponent of such proposal fails
to notify Chancellor Media on or before April 25, 2000.

The bylaws of Chancellor Media provide that any stockholder of record who is
entitled to vote for the election of directors at a meeting called for that
purpose may nominate persons for election to the Board of Directors subject to
the following notice requirements.

As described more fully in Chancellor Media's bylaws, a stockholder desiring to
nominate a person for election to the Board of Directors must send a written
notice to the Secretary of Chancellor Media setting forth (i) as to each person
who the stockholder proposes to

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nominate, all information required to be disclosed in solicitations of proxies
for election of directors, or as otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act of 1934 (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected) and (ii) as to the stockholder giving the notice: (a) the
name and address of such stockholder as it appears on Chancellor Media's books
and (b) the class and number of shares of Chancellor Media that are owned of
record by such stockholder. To be timely, notice of persons to be nominated by a
stockholder as a director at a meeting of stockholders must be delivered to or
mailed and received at the principal executive offices of Chancellor Media not
more than 90 nor less than 60 days before the first anniversary of the preceding
year's annual meeting.

CAPSTAR

If the merger is not consummated, Capstar will hold an annual meeting of its
stockholders as soon as practicable after termination of the merger agreement.
Any proposals of stockholders of Capstar intended to be presented at the annual
meeting of stockholders of Capstar to be held in 1999 must have been received by
no later than sixty days before such annual meeting or (if later) ten days after
the first public notice of such meeting is sent to the stockholders of Capstar.
Such proposals should be directed to Capstar Broadcasting Corporation, 600
Congress Avenue, Suite 1400, Austin, Texas, ATTENTION: Corporate Secretary.
Proposals must comply with the proxy rules of the SEC relating to stockholder
proposals in order to be included in the proxy materials.

In accordance with the rules and regulations of the SEC, Capstar's management
will have discretionary authority to vote on any proposal raised by a
stockholder at the annual meeting if the proponent of such proposal fails to
notify Capstar on or before the later of the sixtieth day before the annual
meeting or the tenth day after the first public notice of such meeting is sent
to the stockholders of Capstar.

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CHANCELLOR MEDIA CORPORATION

PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma financial information of Chancellor Media (together
with its subsidiaries, the "Company") is presented using the purchase method of
accounting for all acquisitions and reflects the combination of consolidated
historical financial data of the Company and each of the companies acquired in
the transactions completed by the Company during 1998 and 1999 and the
elimination of the consolidated historical data related to the sale and
disposition transactions completed by the Company during 1998 and 1999. The
unaudited pro forma balance sheet data at March 31, 1999 presents adjustments
for the transactions completed or pending subsequent to March 31, 1999 as if
each such transaction had occurred at March 31, 1999. The unaudited pro forma
statement of operations data for the twelve months ended December 31, 1998 and
for the three months ended March 31, 1999 excludes extraordinary items and
presents adjustments for (a) the radio station acquisitions and dispositions
completed during 1998 and 1999, or pending at March 31, 1999, (b) the 1998
Financing Transactions, as if each such transaction occurred on January 1, 1998
and (c) the sale of the Company's outdoor business from the dates of acquisition
of the outdoor businesses acquired during 1998 and 1999, and the concurrent
acquisition of the equity interest in Lamar.

The purchase method of accounting has been used in the preparation of the
unaudited pro forma financial information. Under this method of accounting, the
aggregate purchase price is allocated to assets acquired and liabilities assumed
based on their estimated fair values. For purposes of the unaudited pro forma
financial information, the purchase prices of the assets acquired have been
allocated based primarily on publicly available information or information
furnished by management of the acquired or to be acquired assets. The final
allocation of the respective purchase prices of the assets acquired are
determined a reasonable time after consummation of such transactions and are
based on a complete evaluation of the assets acquired and liabilities assumed.
Accordingly, the information presented herein may differ from the final purchase
price allocation; however, such allocations are not expected to differ
materially from the preliminary amounts.

In the opinion of the Company's management, all adjustments have been made
that are necessary to present fairly the pro forma data.

The unaudited pro forma financial information should be read in conjunction
with the respective financial statements and related notes thereto of the
Company which have previously been reported. The unaudited pro forma financial
information is presented for illustrative purposes only and is not necessarily
indicative of the results of operations or financial position that would have
been achieved had the transactions reflected therein been consummated as of the
dates indicated, or of the results of operations or financial positions for any
future periods or dates.

P-1
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CHANCELLOR MEDIA CORPORATION

UNAUDITED PRO FORMA BALANCE SHEET
AT MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPSTAR AS
ADJUSTED
PRO FORMA COMPANY FOR THE PRO FORMA
ADJUSTMENTS AS ADJUSTED COMPLETED CAPSTAR ADJUSTMENTS
COMPANY FOR THE FOR THE AND PENDING FOR THE
HISTORICAL COMPLETED COMPLETED CAPSTAR CAPSTAR
AT 3/31/99 TRANSACTIONS(1) TRANSACTIONS TRANSACTIONS(2) MERGER
---------- --------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets............................... $ 388,262 $ -- $ 388,262 $ 134,842 $ --
Property and equipment, net.................. 1,395,898 (23,867) 1,372,031 264,931 --
Intangible assets, net....................... 5,294,161 (4,467) 5,289,694 4,442,670 1,656,122(3)
Investment in affiliate...................... -- -- -- -- --
Other assets................................. 369,269 -- 369,269 45,337 (150,000)(4)
---------- -------- ---------- ---------- ----------
Total assets......................... $7,447,590 $(28,334) $7,419,256 $4,887,780 $1,506,122
========== ======== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses........ $ 275,865 $ -- $ 275,865 $ 90,387 $ --
Current portion of long-term debt............ -- -- -- 39,891 --
---------- -------- ---------- ---------- ----------
Total current liabilities............ 275,865 -- 275,865 130,278 --
Long-term debt, excluding current portion.... 4,378,000 (42,800) 4,335,200 2,034,766 70,588(3)
(150,000)(4)
Deferred tax liabilities..................... 455,903 5,063 460,966 1,183,136 346,328(3)
Other liabilities............................ 52,518 -- 52,518 (848) --
---------- -------- ---------- ---------- ----------
Total liabilities.................... 5,162,286 (37,737) 5,124,549 3,347,332 266,916
Redeemable preferred stock................... -- -- -- 269,267 35,962(3)
STOCKHOLDERS' EQUITY:
Preferred stock.............................. 409,500 -- 409,500 -- --
Common stock................................. 1,431 -- 1,431 1,076 (543)(3)
Additional paid-in capital................... 2,262,916 -- 2,262,916 1,517,857 958,808(3)
Stock subscriptions receivable............... -- -- -- (2,773) --
Unearned compensation........................ -- -- -- (4,397) 4,397(3)
Accumulated deficit.......................... (388,543) 9,403 (379,140) (240,582) 240,582(3)
---------- -------- ---------- ---------- ----------
Total stockholders' equity........... 2,285,304 9,403 2,294,707 1,271,181 1,203,244
---------- -------- ---------- ---------- ----------
Total liabilities and stockholders'
equity............................. $7,447,590 $(28,334) $7,419,256 $4,887,780 $1,506,122
========== ======== ========== ========== ==========

<CAPTION>
COMPANY
AS ADJUSTED
FOR THE
COMPLETED PRO FORMA
TRANSACTIONS ADJUSTMENTS FOR
AND THE THE PENDING COMPANY
CAPSTAR MERGER TRANSACTIONS(5) PRO FORMA
-------------- --------------- -----------
<S> <C> <C> <C>
ASSETS:
Current assets............................... $ 523,104 $ (46,717) $ 476,387
Property and equipment, net.................. 1,636,962 (1,189,293) 447,669
Intangible assets, net....................... 11,388,486 (419,662) 10,968,824
Investment in affiliate...................... -- 901,562 901,562
Other assets................................. 264,606 (7,444) 257,162
----------- ----------- -----------
Total assets......................... $13,813,158 $ (761,554) $13,051,604
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses........ $ 366,252 $ (28,450) $ 337,802
Current portion of long-term debt............ 39,891 -- 39,891
----------- ----------- -----------
Total current liabilities............ 406,143 (28,450) 377,693
Long-term debt, excluding current portion.... 6,290,554 (590,000) 5,700,554
Deferred tax liabilities..................... 1,990,430 (113,165) 1,877,265
Other liabilities............................ 51,670 (1,854) 49,816
----------- ----------- -----------
Total liabilities.................... 8,738,797 (733,469) 8,005,328
Redeemable preferred stock................... 305,229 -- 305,229
STOCKHOLDERS' EQUITY:
Preferred stock.............................. 409,500 -- 409,500
Common stock................................. 1,964 -- 1,964
Additional paid-in capital................... 4,739,581 -- 4,739,581
Stock subscriptions receivable............... (2,773) -- (2,773)
Unearned compensation........................ -- -- --
Accumulated deficit.......................... (379,140) (28,085) (407,225)
----------- ----------- -----------
Total stockholders' equity........... 4,769,132 (28,085) 4,741,047
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $13,813,158 $ (761,554) $13,051,604
=========== =========== ===========
</TABLE>

See accompanying notes to Unaudited Pro Forma Financial Information

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CHANCELLOR MEDIA CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>

PRO FORMA
ADJUSTMENTS CAPSTAR AS
FOR THE COMPANY AS ADJUSTED FOR THE PRO FORMA
COMPANY COMPANY ADJUSTED COMPLETED ADJUSTMENTS
COMPLETED AND THE FOR THE CAPSTAR AND FOR THE
YEAR ENDED COMPANY TRANSACTIONS COMPLETED COMPLETED PENDING CAPSTAR CAPSTAR
DECEMBER 31, 1998 HISTORICAL HISTORICAL(6) TRANSACTIONS TRANSACTIONS TRANSACTIONS(11) MERGER
- ----------------- ---------- -------------- ------------ ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues.................... $1,440,357 $ 70,588 $ -- $1,510,945 $ 724,889 $ (56,261)(12)
Less: agency commissions.......... (166,501) (11,312) -- (177,813) (62,662) --
---------- -------- -------- ---------- --------- ---------
Net revenues...................... 1,273,856 59,276 -- 1,333,132 662,227 (56,261)
Operating expenses excluding
depreciation and amortization.... 682,061 30,031 -- 712,092 382,956 (4,400)(12)
Depreciation and amortization..... 446,338 23,846 29,160(7) 499,344 143,578 (49,425)(12)
283,658(13)
Corporate general and
administrative................... 36,722 3,275 -- 39,997 28,963 --
Stock option compensation......... -- -- -- -- 21,401
Merger, nonrecurring and systems
development expense.............. 63,661 -- 63,661 22,892 (8,000)(14)
---------- -------- -------- ---------- --------- ---------
Operating income (loss)........... 45,074 2,124 (29,160) 18,038 62,437 (278,094)
Interest expense.................. 217,136 2,341 48,419(8) 267,896 193,968 (18,000)(12)
1,750(15)
Interest income................... (15,650) (200) -- (15,850) (3,870) 10,600(12)
Gain on disposition of assets..... (123,845) -- -- (123,845) -- --
Gain on disposition of
representation contracts......... (32,198) -- -- (32,198) -- --
Loss on investment in limited
liability companies.............. -- -- -- -- 28,565 --
Other (income) expense............ (3,221) 842 -- (2,379) 1,524 --
---------- -------- -------- ---------- --------- ---------
Other (income) expense, net....... 42,222 2,983 48,419 93,624 220,187 (5,650)
---------- -------- -------- ---------- --------- ---------
Income (loss) before income
taxes............................ 2,852 (859) (77,579) (75,586) (157,750) (272,444)
Income tax expense (benefit)...... 33,751 -- (40,910)(9) (7,159) (47,111) (67,770)(16)
Dividends and accretion on
preferred stock of subsidiary.... 17,601 -- (17,601)(10) -- 25,586 --
---------- -------- -------- ---------- --------- ---------
Income (loss) before equity in net
loss of affiliate................ (48,500) (859) (19,068) (68,427) (136,225) (204,674)
Equity in net loss of affiliate... -- -- -- -- -- --
---------- -------- -------- ---------- --------- ---------
Loss.............................. (48,500) (859) (19,068) (68,427) (136,225) (204,674)
Preferred stock dividends......... 25,670 -- -- 25,670 -- --
---------- -------- -------- ---------- --------- ---------
Loss attributable to common
stockholders..................... $ (74,170) $ (859) $(19,068) $ (94,097) $(136,225) $(204,674)
========== ======== ======== ========== ========= =========
Basic and diluted loss per common
share............................ $ (0.54) $ (0.68)
========== ==========
Weighted average common shares
outstanding(19).................. 137,979 137,979 53,324
========== ========== =========

<CAPTION>
COMPANY
PRO FORMA
AS ADJUSTED
FOR COMPLETED
TRANSACTIONS COMPANY
AND THE PRO FORMA
YEAR ENDED CAPSTAR PENDING COMPANY
DECEMBER 31, 1998 MERGER TRANSACTIONS PRO FORMA
- ----------------- ------------- ------------ ----------
<S> <C> <C> <C>
Gross revenues.................... $2,179,573 $(40,053)(17) $2,139,520
Less: agency commissions.......... (240,475) 3,816(17) (236,659)
---------- -------- ----------
Net revenues...................... 1,939,098 (36,237) 1,902,861
Operating expenses excluding
depreciation and amortization.... 1,090,648 (17,041)(17) 1,073,607
Depreciation and amortization..... 877,155 (19,748)(17) 857,407
Corporate general and
administrative................... 68,960 (1,985)(17) 66,975
Stock option compensation......... 21,401 -- 21,401
Merger, nonrecurring and systems
development expense.............. 78,553 -- 78,553
---------- -------- ----------
Operating income (loss)........... (197,619) 2,537 (195,082)
Interest expense.................. 445,614 (3,234)(17) 442,380
Interest income................... (9,120) -- (9,120)
Gain on disposition of assets..... (123,845) -- (123,845)
Gain on disposition of
representation contracts......... (32,198) -- (32,198)
Loss on investment in limited
liability companies.............. 28,565 -- 28,565
Other (income) expense............ (855) 112(17) (743)
---------- -------- ----------
Other (income) expense, net....... 308,161 (3,122) 305,039
---------- -------- ----------
Income (loss) before income
taxes............................ (505,780) 5,659 (500,121)
Income tax expense (benefit)...... (122,040) 1,981(17) (120,059)
Dividends and accretion on
preferred stock of subsidiary.... 25,586 -- 25,586
---------- -------- ----------
Income (loss) before equity in net
loss of affiliate................ (409,326) 3,678 (405,648)
Equity in net loss of affiliate... -- (33,806)(18) (33,806)
---------- -------- ----------
Loss.............................. (409,326) (30,128) (439,454)
Preferred stock dividends......... 25,670 -- 25,670
---------- -------- ----------
Loss attributable to common
stockholders..................... $ (434,996) $(30,128) $ (465,124)
========== ======== ==========
Basic and diluted loss per common
share............................ $ (2.27) $ (2.43)
========== ==========
Weighted average common shares
outstanding(19).................. 191,303 191,303
========== ==========
</TABLE>

See accompanying notes to Unaudited Pro Forma Financial Information

P-3
<PAGE> 299

CHANCELLOR MEDIA CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>

PRO FORMA
ADJUSTMENTS CAPSTAR AS
FOR THE COMPANY AS ADJUSTED FOR THE PRO FORMA
COMPANY COMPANY ADJUSTED COMPLETED ADJUSTMENTS
COMPLETED AND THE FOR THE CAPSTAR AND FOR THE
THREE MONTHS ENDED COMPANY TRANSACTIONS COMPLETED COMPLETED PENDING CAPSTAR CAPSTAR
MARCH 31, 1999 HISTORICAL HISTORICAL(6) TRANSACTIONS TRANSACTIONS TRANSACTIONS(11) MERGER
- ------------------ ---------- ------------- ------------ ------------ ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues..................... $ 394,123 $1,242 $ -- $ 395,365 $ 161,727 $(14,043)(12)
Less: agency commissions........... (43,858) (269) -- (44,127) (14,631) --
--------- ------ -------- --------- --------- --------
Net revenues....................... 350,265 973 -- 351,238 147,096 (14,043)
Operating expenses excluding
depreciation and amortization..... 208,510 527 -- 209,037 96,680 (1,400)(12)
Depreciation and amortization...... 147,744 (462) 1,607(7) 148,889 37,992 (12,356)(12)
69,464(13)
Corporate general and
administrative.................... 17,814 -- -- 17,814 6,814 --
Stock option compensation.......... -- -- -- -- 2,045 --
Merger, nonrecurring and systems
development expense............... 28,979 -- -- 28,979 2,549 (1,137)(14)
--------- ------ -------- --------- --------- --------
Operating income (loss)............ (52,782) 908 (1,607) (53,481) 1,016 (68,614)
Interest expense................... 89,023 -- 1,177(8) 90,200 46,562 (4,500)(12)
438(15)
Interest income.................... (4,631) -- -- (4,631) (232) 4,500(12)
Gain on disposition of
representation contracts.......... (3,603) -- -- (3,603) -- --
Other (income) expense............. -- -- -- -- 464 --
--------- ------ -------- --------- --------- --------
Other (income) expense net......... 80,789 -- 1,177 81,966 46,794 438
--------- ------ -------- --------- --------- --------
Income (loss) before income
taxes............................. (133,571) 908 (2,784) (135,447) (45,778) (69,052)
Income tax expense (benefit)....... (30,126) -- (12,456)(9) (42,582) (13,997) (17,272)(16)
Dividends and accretion on
preferred stock of subsidiary..... -- -- -- -- 6,899 --
--------- ------ -------- --------- --------- --------
Income (loss) before equity in net
loss of affiliate................. (103,445) 908 9,672 (92,865) (38,680) (51,780)
Equity in net loss of affiliate.... -- -- -- -- -- --
--------- ------ -------- --------- --------- --------
Income (loss)...................... (103,445) 908 9,672 (92,865) (38,680) (51,780)
Preferred stock dividends.......... 6,417 -- -- 6,417 -- --
--------- ------ -------- --------- --------- --------
Income (loss) attributable to
common stockholders............... $(109,862) $ 908 $ 9,672 $ (99,282) $ (38,680) $(51,780)
========= ====== ======== ========= ========= ========
Basic and diluted loss per common
share............................. $ (0.77) $ (0.69)
========= =========
Weighted average common shares
outstanding(19)................... 142,960 142,960 53,324
========= ========= ========

<CAPTION>
COMPANY
PRO FORMA
AS ADJUSTED
FOR COMPLETED
TRANSACTIONS COMPANY
AND THE PRO FORMA
THREE MONTHS ENDED CAPSTAR PENDING COMPANY
MARCH 31, 1999 MERGER TRANSACTIONS PRO FORMA
- ------------------ ------------- ------------ ---------
<S> <C> <C> <C>
Gross revenues..................... $ 543,049 $(57,145)(17) $ 485,904
Less: agency commissions........... (58,758) 4,391(17) (54,367)
--------- -------- ---------
Net revenues....................... 484,291 (52,754) 431,537
Operating expenses excluding
depreciation and amortization..... 304,317 (27,971)(17) 276,346
Depreciation and amortization...... 243,989 (29,463)(17) 214,526
Corporate general and
administrative.................... 24,628 (2,825)(17) 21,803
Stock option compensation.......... 2,045 -- 2,045
Merger, nonrecurring and systems
development expense............... 30,391 -- 30,391
--------- -------- ---------
Operating income (loss)............ (121,079) 7,505 (113,574)
Interest expense................... 132,700 (10,405)(17) 122,295
Interest income.................... (363) -- (363)
Gain on disposition of
representation contracts.......... (3,603) -- (3,603)
Other (income) expense............. 464 (82)(17) 382
--------- -------- ---------
Other (income) expense net......... 129,198 (10,487) 118,711
--------- -------- ---------
Income (loss) before income
taxes............................. (250,277) 17,992 (232,285)
Income tax expense (benefit)....... (73,851) 6,297(17) (67,554)
Dividends and accretion on
preferred stock of subsidiary..... 6,899 -- 6,899
--------- -------- ---------
Income (loss) before equity in net
loss of affiliate................. (183,325) 11,695 (171,630)
Equity in net loss of affiliate.... -- (11,163)(18) (11,163)
--------- -------- ---------
Income (loss)...................... (183,325) 532 (182,793)
Preferred stock dividends.......... 6,417 -- 6,417
--------- -------- ---------
Income (loss) attributable to
common stockholders............... $(189,742) $ 532 $(189,210)
========= ======== =========
Basic and diluted loss per common
share............................. $ (0.97) $ (0.96)
========= =========
Weighted average common shares
outstanding(19)................... 196,284 196,284
========= =========
</TABLE>

See accompanying notes to Unaudited Pro Forma Financial Information

P-4
<PAGE> 300

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED
TO THE COMPLETED TRANSACTIONS

(1) Reflects the completed transactions that were completed after March 31,
1999 as follows:

<TABLE>
<CAPTION>
FINANCING
PURCHASE PRICE ALLOCATION -------------
-------------------------------------------------------------------- INCREASE
PROPERTY AND INTANGIBLE DEFERRED (DECREASE) IN
COMPLETED PURCHASE/ EQUIPMENT, ASSETS, TAX ACCUMULATED LONG-TERM
TRANSACTIONS SALES PRICE NET NET LIABILITIES DEFICIT DEBT
- ------------ ----------- ------------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outdoor Acquisition(a).... $ 3,700 $ 3,700 $ -- $ -- $ -- $ 3,700
Chicago Disposition(b).... (21,000) (2,067) (4,467) (5,063) (9,403) (21,000)
Outdoor Divestiture(c).... (25,500) (25,500) -- -- -- (25,500)
-------- -------- ------- ------- ------- --------
$(42,800) $(23,867) $(4,467) $(5,063) $(9,403) $(42,800)
======== ======== ======= ======= ======= ========
</TABLE>

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

(a) On April 12, 1999, the Company acquired approximately 159 billboards
and outdoor displays in various markets for approximately $3,700 in
cash.

(b) On April 16, 1999, the Company sold WMVP-AM in Chicago to ABC, Inc.
for $21,000 in cash and recognized a gain of $14,466. The Company had
previously entered into a time brokerage agreement effective
September 10, 1998 to sell substantially all of the broadcast time of
WMVP-AM pending completion of the sale. The amounts allocated to
accumulated deficit and deferred tax liabilities represent the gain
on the disposition of WMVP-AM net of taxes of $5,063.

(c) On May 24, 1999, the Company sold 466 billboards and outdoor displays
in various markets to PNE Media, LLC for approximately $25,500 in
cash. The assets were accounted for as assets held for sale and no
gain or loss was recognized by the Company upon consummation of the
sale. The excess of the carrying amount over the proceeds has been
accounted for as an adjustment to the original purchase price of the
billboards and outdoor displays.

P-5
<PAGE> 301

ADJUSTMENTS TO THE UNAUDITED PRO FORMA BALANCE SHEET RELATED TO CAPSTAR AS
ADJUSTED FOR THE COMPLETED CAPSTAR AND PENDING CAPSTAR TRANSACTIONS

(2) The historical balance sheet of Capstar at March 31, 1999 and the pro
forma adjustments related to the completed Capstar and pending Capstar
transactions are summarized below:

<TABLE>
<CAPTION>
CAPSTAR AS CAPSTAR AS
PRO FORMA ADJUSTED FOR PRO FORMA ADJUSTED FOR THE
ADJUSTMENTS FOR THE ADJUSTMENTS FOR COMPLETED
CAPSTAR THE COMPLETED COMPLETED THE PENDING CAPSTAR AND
HISTORICAL CAPSTAR CAPSTAR CAPSTAR PENDING CAPSTAR
AT 3/31/99 TRANSACTIONS(A) TRANSACTIONS TRANSACTIONS TRANSACTIONS
------------ --------------- ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets.................... $ 127,957 $ 6,885 $ 134,842 $ -- $ 134,842
Property and equipment, net....... 252,004 11,814 263,818 1,113(b) 264,931
Intangible assets, net............ 4,210,887 217,508 4,428,395 14,275(b) 4,442,670
Other assets...................... 37,837 7,500 45,337 -- 45,337
---------- -------- ---------- -------- ----------
Total assets............. $4,628,685 $243,707 $4,872,392 $ 15,388 $4,887,780
========== ======== ========== ======== ==========

LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable and accrued
expenses........................ $ 85,860 $ 4,527 $ 90,387 $ -- $ 90,387
Current portion of long-term
debt............................ 39,891 -- 39,891 -- 39,891
---------- -------- ---------- -------- ----------
Total current
liabilities............ 125,751 4,527 130,278 -- 130,278
Long-term debt, excluding current
portion......................... 1,769,923 206,455 1,976,378 15,388(b) 2,034,766
43,000(c)
Deferred tax liabilities.......... 1,149,563 33,573 1,183,136 -- 1,183,136
Other liabilities................. -- (848) (848) -- (848)
---------- -------- ---------- -------- ----------
Total liabilities........ 3,045,237 243,707 3,288,944 58,388 3,347,332
Redeemable preferred stock........ 269,267 -- 269,267 -- 269,267

STOCKHOLDERS' EQUITY:
Common stock...................... 1,076 -- 1,076 -- 1,076
Additional paid-in capital........ 1,504,144 -- 1,504,144 13,713(d) 1,517,857
Stock subscriptions receivable.... (2,773) -- (2,773) -- (2,773)
Unearned compensation............. (4,397) -- (4,397) -- (4,397)
Accumulated deficit............... (183,869) -- (183,869) (43,000)(c) (240,582)
(13,713)(d)
---------- -------- ---------- -------- ----------
Total stockholders'
equity................. 1,314,181 -- 1,314,181 (43,000) 1,271,181
---------- -------- ---------- -------- ----------
Total liabilities and
stockholders' equity... $4,628,685 $243,707 $4,872,392 $ 15,388 $4,887,780
========== ======== ========== ======== ==========
</TABLE>

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

(a) Reflects the completed Capstar transactions as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE ALLOCATION
------------------------------------------------------------------------------------------------
PROPERTY
AND INTANGIBLE DEFERRED
COMPLETED CAPSTAR PURCHASE CURRENT EQUIPMENT, ASSETS, OTHER CURRENT TAX OTHER
TRANSACTIONS PRICE ASSETS NET(I) NET(II) ASSETS LIABILITIES LIABILITIES LIABILITIES
- ----------------- -------- ------- ---------- ---------- ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Triathlon Acquisition(iii)... $201,955 $ 8,795 $16,158 $216,910 $ -- $(5,891) $(33,573)(iv) $ (444)
Other Triathlon
Transactions(v)............ (10,000) (1,910) (4,452) (13,794) 7,500 1,364 -- 1,292
Other Transactions(vi)....... 14,500 -- 108 14,392 -- -- -- --
-------- ------- ------- -------- ------ ------- -------- ------
Total................ $206,455 $ 6,885 $11,814 $217,508 $7,500 $(4,527) $(33,573) $ 848
======== ======= ======= ======== ====== ======= ======== ======

<CAPTION>
FINANCING
----------
INCREASE
(DECREASE)
COMPLETED CAPSTAR IN LONG-
TRANSACTIONS TERM DEBT
- ----------------- ----------
<S> <C>
Triathlon Acquisition(iii)... $201,955
Other Triathlon
Transactions(v)............ (10,000)
Other Transactions(vi)....... 14,500
--------
Total................ $206,455
========
</TABLE>

(i) The amounts allocated to net property and equipment are based on
preliminary appraisals provided by the management of Capstar.

P-6
<PAGE> 302

(ii) Capstar, on a preliminary basis, has allocated the intangible assets to
broadcast licenses and goodwill resulting from the recognition of deferred
tax liabilities in connection with the Triathlon acquisition with estimated
average lives of 40 years. The amounts allocated to net intangible assets
are preliminary and are based upon historical information from prior radio
acquisitions.

(iii)On April 30, 1999, Capstar acquired Triathlon for an aggregate purchase
price of approximately $201,955 which included (a) the conversion of each
outstanding share of each class of Triathlon common stock into the right to
receive $13.00 in cash, resulting in cash payments of approximately
$63,688; (b) the conversion of each outstanding depositary share of
Triathlon, representing one-tenth interest in a share of Triathlon's 9%
mandatory convertible preferred stock, into the right to receive $10.83 in
cash, resulting in cash payments of approximately $63,182 plus accrued and
unpaid dividends of $443; (c) additional consideration of $0.11 per
depositary share based upon the average closing price for Triathlon's
common stock for the twenty days prior to the closing related to the
settlement of a depositary shareholder lawsuit on February 12, 1999,
resulting in cash payments of $642; (d) the conversion of each outstanding
share of Triathlon's Series B convertible preferred stock into the right to
receive $.01 in cash, resulting in cash payments of approximately $6; (e)
the conversion to cash of warrants, stock options, and stock appreciation
rights resulting in cash payments of approximately $2,650; (f) the
assumption of long-term debt of $62,485 and (g) estimated acquisition costs
of $8,859. Triathlon operated 32 radio stations (22 FM and 10 AM) in six
markets: Wichita, Kansas; Colorado Springs, Colorado; Lincoln, Nebraska;
Omaha, Nebraska; Spokane, Washington; and Tri-Cities, Washington.

(iv) Reflects a deferred tax liability related to the difference between the
financial statement carrying amount and the tax basis of assets acquired in
the stock acquisition of Triathlon.

(v) In order to consummate the acquisition of Triathlon, Capstar was required
to dispose of KSPZ-FM (owned by Triathlon) in the Colorado Springs market;
KNSS-AM (owned by Capstar) and KFH-AM, KEYN-FM, KQAM-AM and KWSJ-FM (owned
by Triathlon) in the Wichita, Kansas market. Capstar entered into an
exchange agreement and an asset purchase agreement with Citadel
Broadcasting Company wherein, upon consummation of the Triathlon
acquisition, Capstar exchanged KSPZ-FM for KKLI-FM in Colorado Springs,
Colorado and sold stations KTWK-AM and KVOR-AM in Colorado Springs,
Colorado and KEYF-FM and KEYF-AM in Spokane, Washington (all of which were
owned by Triathlon) for approximately $10,000 in cash. Prior to
consummation of the Triathlon acquisition, Triathlon sold Pinnacle Sports
Productions, LLC. Upon consummation of the Triathlon acquisition, the
Wichita, Kansas stations were placed in a trust pending the sale of the
stations. The trustee is actively seeking the sale of the Wichita, Kansas
stations. Capstar also contributed the Muzak affiliate territory in Omaha,
Nebraska acquired as part of the Triathlon Acquisition to Muzak Holdings
LLC in exchange for an additional 2.74% voting interest in Muzak Holdings
LLC.

(vi) Subsequent to April 1, 1999, Capstar disposed of 1 AM radio station for
$500 in cash and acquired LAN International, Inc., a software development
company, for $15,000. The purchase price for the acquisition of LAN
International, Inc. was financed with a $14,300 promissory note in favor of
the seller and a promise to pay $700 when the promissory note is paid.

(b) Reflects the Pending Capstar Transactions as follows:

<TABLE>
<CAPTION>
PURCHASE PRICE ALLOCATION FINANCING
---------------------------------- -------------
PROPERTY INCREASE
AND INTANGIBLE IN
PURCHASE EQUIPMENT, ASSETS, LONG-TERM
PENDING CAPSTAR TRANSACTIONS PRICE NET(I) NET(II) DEBT
- ---------------------------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Various Pending Capstar Transactions(iii)......... $15,388 $1,113 $14,275 $15,388
======= ====== ======= =======
</TABLE>

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

(i) The amounts allocated to net property and equipment are based on
preliminary appraisals provided by the management of Capstar.

P-7
<PAGE> 303

(ii) Capstar, on a preliminary basis, has allocated the intangible assets to
broadcast licenses with estimated average lives of 40 years. The amounts
allocated to net intangible assets are preliminary and are based upon
historical information from prior radio acquisitions.

(iii)Various Pending Capstar Transactions include the acquisition of three FM
stations and the disposition of 1 AM station.

(c) Reflects additional bank borrowings of $43,000 required to finance estimated
financial advisory and other expenses to be incurred by Capstar in
connection with the Capstar merger.

(d) Reflects the adjustment to record estimated stock option compensation
expense of $13,713 relating to the vesting of certain executive warrants in
connection with the Capstar merger. The actual charge will depend on the
fair market value of Capstar's class A common stock on the date of the
Capstar merger.

ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED TO
THE CAPSTAR MERGER

(3) Merger Purchase Price Information. In connection with the Capstar
merger, each outstanding share of Capstar common stock will be
converted into the right to receive 0.4955 shares of the combined
entity. For purposes of the unaudited pro forma condensed combined
financial statements, the fair market value of common stock is
calculated by using $44.75 per share which is based on the market price
of Chancellor Media common stock on the announcement date of the
Capstar merger on August 26, 1998. The aggregate purchase price is
summarized below:

<TABLE>
<S> <C> <C>
EXCHANGE OF CAPSTAR COMMON STOCK:
Shares of Capstar common stock outstanding.................. 107,616,456
Exchange ratio.............................................. 0.4955
-----------
Shares of Chancellor Media common stock issued in connection
with the Capstar merger................................... 53,323,954
===========
AGGREGATE PURCHASE PRICE:
Estimated fair value of common stock to be issued in
connection with the Capstar merger (53,323,954 shares @
$44.75 per share)......................................... $2,386,247
Capstar debt and equity assumed at fair values:
Long-term debt outstanding:
Capstar Credit Facility................................ 1,197,843
12 3/4% Senior Discount Notes due 2009................. 232,680
9 1/4% Senior Subordinated Notes due 2007.............. 202,580
10 3/4% Senior Subordinated Notes due 2006............. 330,195
11 3/8% Senior Subordinated Notes due 2000............. 566
Note payable to affiliate.............................. 150,000
Capital lease obligation and other notes payable....... 6,381
-----------
Total long-term debt outstanding.......................... 2,120,245
12% senior exchangeable preferred stock................... 142,352
12 5/8% Series E cumulative exchangeable preferred
stock.................................................. 162,877
Stock options and warrants issued by Capstar.............. 90,951
Financial advisors, legal, accounting and other transaction
costs..................................................... 25,000
----------
Aggregate purchase price.................................... $4,927,672
==========
</TABLE>

P-8
<PAGE> 304

To record the aggregate purchase price of the Capstar merger and eliminate
certain Capstar historical balances as follows:

<TABLE>
<CAPTION>
ELIMINATION
OF CAPSTAR
HISTORICAL
BALANCES
AS ADJUSTED
FOR THE
COMPLETED
CAPSTAR AND
PURCHASE PENDING CAPSTAR
PRICE CAPSTAR MERGER NET
ALLOCATION TRANSACTIONS FINANCING ADJUSTMENT
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Current assets......................... $ 134,842 $ (134,842) $ -- $ --
Property and equipment, net(a)......... 264,931 (264,931) -- --
Intangible assets(a)................... 6,098,792 (4,442,670) -- 1,656,122
Other assets........................... 45,337 (45,337) -- --
Current liabilities.................... (90,387) 90,387 -- --
Long-term debt(b)...................... -- 2,074,657 (2,145,245) (70,588)
Deferred tax liability(c).............. (1,529,464) 1,183,136 -- (346,328)
Other liabilities...................... 848 (848) -- --
Redeemable preferred stock(d).......... -- 269,267 (305,229) (35,962)
Common stock(e)........................ -- 1,076 (533) 543
Additional paid-in capital(f).......... -- 1,517,857 (2,476,665) (958,808)
Stock subscription receivable.......... 2,773 (2,773) -- --
Unearned compensation.................. -- (4,397) -- (4,397)
Accumulated deficit.................... -- (240,582) -- (240,582)
----------- ----------- ----------- ----------
Aggregate purchase price............... $ 4,927,672 $ -- $(4,927,672) $ --
=========== =========== =========== ==========
</TABLE>

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

(a) The Company has assumed that historical balances of net property and
equipment acquired approximate fair value for the preliminary allocation
of the purchase price. The Company, on a preliminary basis, has
allocated $4,569,328 of intangible assets to broadcast licenses with an
estimated average life of 15 years and $1,529,464 to goodwill resulting
from the recognition of deferred tax liabilities with an estimated
average life of 15 years. This preliminary allocation is based upon
historical information from prior radio acquisitions.

(b) Reflects the adjustment to record debt assumed or incurred by the
Company including (i) the fair value of Capstar's long-term debt of
$2,120,245 and (ii) additional bank borrowings of $25,000 required to
finance estimated financial advisors, legal, accounting and other
transaction costs.

(c) Reflects the adjustment to record a $1,529,464 deferred tax liability
related to the difference between the financial statement carrying
amount and the tax basis of Capstar acquired assets.

(d) Reflects the adjustment to record the estimated fair value of redeemable
preferred stock to be assumed by the Company including (i) Capstar's 12%
senior exchangeable preferred stock of $142,352 and (ii) Capstar's
12 5/8% series E cumulative exchangeable preferred stock of $162,877.

(e) Reflects 53,323,954 shares of Chancellor Media common stock at a par
value of $0.01 to be issued in connection with the Capstar merger.

(f) Reflects additional paid-in capital of $2,385,714 related to 53,323,954
shares of Chancellor Media common stock issued in connection with the
Capstar merger and the fair value of stock options and warrants assumed
by Chancellor Media of $90,951. The fair value of the Capstar stock
options and warrants was estimated using the Black-Scholes option
pricing model and the Capstar merger exchange ratio of 0.4955 applied to
Capstar's outstanding options and warrants and exercise prices.

P-9
<PAGE> 305

At March 31, 1999, Capstar had 4,034,336 options outstanding with
exercise prices ranging from $7.10 to $21.63 and 2,696,406 warrants
outstanding with exercise prices ranging from $14.00 to $18.10.

(4) Reflects the elimination of the $150,000 Capstar loan (as described on
page P-12) in connection with the Capstar merger.

ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET RELATED TO
THE PENDING TRANSACTIONS

(5) Reflects the pending transactions as follows:
<TABLE>
<CAPTION>

PURCHASE PRICE ALLOCATION
----------------------------------------------------------------------------------------
PROPERTY
PURCHASE/ AND INTANGIBLE
PENDING SALES CURRENT EQUIPMENT, ASSETS, INVESTMENT IN OTHER CURRENT
TRANSACTION PRICE ASSETS NET(A) NET(B) AFFILIATE ASSETS LIABILITIES
----------- ---------- -------- ----------- ---------- ------------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Phoenix
Acquisition(c)...... $ 90,000 $ -- $ 1,750 $ 88,250 $ -- $ -- $ --
Outdoor
Disposition(d)...... (680,000) (46,717) (1,191,043) (507,912) 901,562 (7,444) 28,450
--------- -------- ----------- --------- -------- ------- -------
$(590,000) $(46,717) $(1,189,293) $(419,662) $901,562 $(7,444) $28,450
========= ======== =========== ========= ======== ======= =======

<CAPTION>
FINANCING
PURCHASE PRICE ALLOCATION ----------
--------------------------------------- INCREASE
(DECREASE)
DEFERRED IN
PENDING TAX OTHER ACCUMULATED LONG-TERM
TRANSACTION LIABILITIES LIABILITIES DEFICIT DEBT
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Phoenix
Acquisition(c)...... $ -- $ -- $ -- $ 90,000
Outdoor
Disposition(d)...... 113,165 1,854 28,085 (680,000)
-------- ------ ------- ---------
$113,165 $1,854 $28,085 $(590,000)
======== ====== ======= =========
</TABLE>

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

(a) The Company has assumed that historical balances of net property and
equipment to be acquired approximate fair value for the preliminary
allocation of the purchase price. Such amounts are based primarily on
information provided by management of the company to be acquired in the
pending acquisition.

(b) The Company, on a preliminary basis, has allocated the intangible assets to
broadcast licenses with an estimated average life of 15 years. The amounts
allocated to net intangible assets are preliminary and are based upon
historical information from prior acquisitions.

(c) On September 15, 1998, the Company entered into an agreement to acquire
KKFR-FM and KFYI-AM in Phoenix from The Broadcast Group, Inc. for $90,000
in cash plus various other direct acquisition costs. The Company began
operating KKFR-FM and KFYI-AM under a time brokerage agreement effective
November 5, 1998.

(d) On June 1, 1999, the Company entered into an agreement to sell its outdoor
advertising business to Lamar in exchange for $700,000 in cash and
26,227,273 shares of Lamar's class A common stock, subject to a working
capital adjustment. For purposes of the unaudited pro forma condensed
combined financial statements, the fair market value of the Lamar common
stock to be received is calculated by using $34.375 per share which is
based on the market price of Lamar common stock on May 27, 1999. The
aggregate sales price is summarized below:

<TABLE>
<S> <C>
Cash to be received..................................... $ 700,000
Less estimated transaction costs........................ (20,000)
----------
Net cash proceeds....................................... 680,000
Estimated fair value of common stock to be issued by
Lamar (26,227,273 shares @ $34.375 per share)......... 901,562
----------
Aggregate sales price................................... $1,581,562
==========
</TABLE>

The amount allocated to accumulated deficit represents the estimated loss
on the disposition of $43,208 net of taxes of $15,123. The Company's
interest in Lamar will be accounted for under the equity method of
accounting and is valued for purposes of the unaudited pro forma condensed
combined financial statements at $901,562. The Company's estimated cost
basis of the investment in Lamar of $901,562 exceeded the Company's
underlying equity in the net assets of Lamar by $493,422, which the Company
will amortize on a straight-line basis over a period of 40 years.

P-10
<PAGE> 306

ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
RELATED TO THE COMPLETED TRANSACTIONS HISTORICAL

(6) The Completed Transactions historical condensed combined statement of
operations for the year ended December 31, 1998 and for the three months
ended March 31, 1999 are summarized below:
<TABLE>
<CAPTION>
DISPOSITIONS
------------
ACQUISITIONS WBAB-FM
----------------------------------------------------------- WBLI-FM
CAPSTAR/SFX PRIMEDIA CLEVELAND WGBB-AM
TRANSACTIONS WWDC-FM/AM ACQUISITION ACQUISITIONS WHFM-FM
YEAR ENDED HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL
DECEMBER 31, 1998 1/1-12/31 (a) 1/1-6/1 (b) 1/1-10/23 (c) 1/1-12/31 (d) 1/1-5/29 (e)
----------------- ------------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Gross revenues..................... $34,324 $4,273 $12,797 $36,432 $(5,063)
Less: agency commissions........... (4,302) (528) (3,358) (4,859) 514
------- ------ ------- ------- -------
Net revenues....................... 30,022 3,745 9,439 31,573 (4,549)
Operating expenses excluding
depreciation and amortization.... 18,464 2,158 5,363 20,962 (3,331)
Depreciation and amortization...... 21,435 45 2,350 861 --
Corporate general and
administrative................... -- -- 2,794 481 --
------- ------ ------- ------- -------
Operating income (loss)............ (9,877) 1,542 (1,068) 9,269 (1,218)
Interest expense................... -- 62 1,972 307 --
Interest income.................... -- (18) -- (182) --
Other (income) expense............. -- (49) 24 867 --
------- ------ ------- ------- -------
Income (loss) before income
taxes............................ (9,877) 1,547 (3,064) 8,277 (1,218)
Income tax expense................. -- -- -- -- --
------- ------ ------- ------- -------
Net income (loss).................. (9,877) 1,547 (3,064) 8,277 (1,218)
Preferred stock dividends.......... -- -- -- -- --
------- ------ ------- ------- -------
Income (loss) attributable to
common stockholders.............. $(9,877) $1,547 $(3,064) $ 8,277 $(1,218)
======= ====== ======= ======= =======

<CAPTION>
DISPOSITIONS
----------------------------

CHICAGO COMPANY
DISPOSITION OUTDOOR COMPLETED
YEAR ENDED HISTORICAL DIVESTITURE TRANSACTIONS
DECEMBER 31, 1998 1/1-12/31 (f) 1/1-12/31(g) HISTORICAL
----------------- ------------- ------------ ------------
<S> <C> <C> <C>
Gross revenues..................... $(11,530) $(645) $ 70,588
Less: agency commissions........... 1,221 -- (11,312)
-------- ----- --------
Net revenues....................... (10,309) (645) 59,276
Operating expenses excluding
depreciation and amortization.... (13,271) (314) 30,031
Depreciation and amortization...... (592) (253) 23,846
Corporate general and
administrative................... -- -- 3,275
-------- ----- --------
Operating income (loss)............ 3,554 (78) 2,124
Interest expense................... -- -- 2,341
Interest income.................... -- -- (200)
Other (income) expense............. -- -- 842
-------- ----- --------
Income (loss) before income
taxes............................ 3,554 (78) (859)
Income tax expense................. -- -- --
-------- ----- --------
Net income (loss).................. 3,554 (78) (859)
Preferred stock dividends.......... -- -- --
-------- ----- --------
Income (loss) attributable to
common stockholders.............. $ 3,554 $ (78) $ (859)
======== ===== ========
</TABLE>

P-11
<PAGE> 307

<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITION
--------------------------- -----------
CAPSTAR/SFX CLEVELAND COMPANY
TRANSACTIONS ACQUISITIONS OUTDOOR COMPLETED
THREE MONTHS ENDED HISTORICAL HISTORICAL DIVESTITURE TRANSACTIONS
MARCH 31, 1999 1/1-2/1 (a) 1/1-2/2 (d) 1/1-3/31(g) HISTORICAL
------------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Gross revenues............................... $ 55 $2,034 $(847) $1,242
Less: agency commissions..................... (4) (265) -- (269)
---- ------ ----- ------
Net revenues................................. 51 1,769 (847) 973
Operating expenses excluding depreciation and
amortization............................... 100 907 (480) 527
Depreciation and amortization................ -- -- (462) (462)
---- ------ ----- ------
Operating income (loss)...................... (49) 862 95 908
Other (income) expense....................... -- -- -- --
---- ------ ----- ------
Income (loss) before income taxes............ (49) 862 95 908
Income tax expense........................... -- -- -- --
---- ------ ----- ------
Net income (loss)............................ (49) 862 95 908
Preferred stock dividends.................... -- -- -- --
---- ------ ----- ------
Income (loss) attributable to common
stockholders............................... $(49) $ 862 $ 95 $ 908
==== ====== ===== ======
</TABLE>

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

(a) On February 20, 1998, the Company entered into an agreement to acquire from
Capstar KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and
KQUE-AM in Houston, KPLN-FM and KYXY-FM in San Diego and WPHH-FM, WJJJ-FM,
WXDX-FM and WDVE-FM in Pittsburgh (collectively, the "Capstar/SFX
Stations") for an aggregate purchase price of approximately $637,500 in a
series of purchases and exchanges over a period of three years (the
"Capstar/ SFX Transaction"). The Company also provided a loan to Capstar in
the principal amount of $150,000 as part of the Capstar/SFX Transaction.
The Capstar/SFX Stations were acquired by Capstar as part of Capstar's
acquisition of SFX on May 29, 1998. This adjustment reflects the following
aspects of the Capstar/SFX Transaction:

(i) On May 29, 1998, the Company exchanged WAPE-FM and WFYV-FM in
Jacksonville (valued at $53,000) for Capstar station KODA-FM in
Houston. As part of the KODA-FM transaction, the Company also paid
cash of $90,250 to the owners of KVET-AM, KVET-FM and KASE-FM, who
simultaneously transferred such stations to Capstar. Thus, this
adjustment records the results of operations of KODA-FM for the period
January 1, 1998 to May 29, 1998. Chancellor entered into a time
brokerage agreement to sell substantially all of the broadcast time of
WAPE-FM and WFYV-FM effective July 1, 1996. Therefore, the results of
operations of WAPE-FM and WFYV-FM are not included in the Company's
historical condensed statement of operations for the year ended
December 31, 1998.

(ii)The Company began operating the remaining ten Capstar/SFX stations
under time brokerage agreements effective May 29, 1998 pending the
consummation of the Capstar merger. Thus, this adjustment records the
results of operations of the ten Capstar/SFX stations and the related
LMA fee payment to Capstar of $20,594 for the period January 1, 1998
to May 29, 1998.

(iii)On February 1, 1999, the Company began operating WKNR-FM in
Cleveland under a time brokerage agreement with Capstar, pending the
consummation of the Capstar merger. WKNR-FM was acquired by Capstar
as part of Capstar's acquisition of SFX on May 29, 1998. Therefore,
in addition to the above items, this adjustment records the results
of operations of WKNR-FM for the year ended December 31, 1998 and for
the period January 1, 1999 to January 31, 1999.

P-12
<PAGE> 308

(b) On June 1, 1998, the Company acquired WWDC-FM/AM in Washington, D.C. from
Capitol Broadcasting Company and its affiliates for $74,062 in cash
(including $2,062 for the purchase of the stations' accounts receivable)
plus various other direct acquisition costs.

(c) On October 23, 1998, the Company acquired Primedia Broadcast Group, Inc.
and certain of its affiliates, which own and operate eight FM stations in
Puerto Rico, for a purchase price of $75,619 including various other direct
acquisition costs.

(d) On January 28, 1999, the Company acquired Wincom Broadcasting Corporation
which owns WQAL-FM in Cleveland. The Company had previously been operating
WQAL-FM under a time brokerage agreement effective October 1, 1998. On
February 2, 1999, the Company acquired five additional radio stations in
Cleveland including (i) WDOK-FM and WRMR-AM from Independent Group Limited
Partnership, (ii) WZAK-FM from Zapis Communications and (iii) Zebra
Broadcasting Corporation which owns WZJM-FM and WJMO-AM. The six Cleveland
stations were acquired for an aggregate purchase price of $283,758 in cash
including working capital, subject to certain adjustments.

(e) Chancellor began programming WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM in Long
Island under a time brokerage agreement effective July 1, 1996. On May 29,
1998, as part of the Capstar/ SFX Transaction, the Company's time brokerage
agreements regarding the Long Island properties were terminated. The
Company's historical condensed statement of operations for the year ended
December 31, 1998 includes the results of operations of WBAB-FM, WBLI-FM,
WGBB-AM and WHFM-FM in Long Island from January 1, 1998 through May 29,
1998.

(f) On April 16, 1999, the Company sold WMVP-AM in Chicago to ABC, Inc. for
$21,000 in cash. The Company entered into a time brokerage agreement to
sell substantially all of the broadcast time of WMVP-AM effective September
10, 1998.

(g) On May 24, 1999, the Company sold 466 billboards and outdoor displays in
various markets to PNE Media, LLC for approximately $25,500 in cash.

(7) Reflects incremental amortization related to the completed transactions and
is based on the following allocation to intangible assets:

<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1998 PERIOD(A) ASSETS, NET(B) EXPENSE EXPENSE INCREASE
---------------------------- ------------ -------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Denver Acquisition........................... 1/1-1/30 $ 24,589 $ 137 $ -- $ 137
Bonneville Option............................ 1/1-4/3 186,349 3,209 -- 3,209
KODA-FM...................................... 1/1-5/29 93,294 2,574 656 1,918
WWDC-FM/AM................................... 1/1-6/1 64,338 1,799 -- 1,799
Primedia Acquisition......................... 1/1-10/23 69,361 3,763 1,765 1,998
Cleveland Acquisitions....................... 1/1-12/31 309,903 20,660 561 20,099
-------- ------- ------ -------
Total................................ $747,834 $32,142 $2,982 $29,160
======== ======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
THREE MONTHS ENDED MARCH 31, 1999 PERIOD(A) ASSETS, NET EXPENSE EXPENSE INCREASE
--------------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Cleveland Acquisitions(b)........................ 1/1-1/28 $309,903 $1,607 $-- $1,607
======== ====== === ======
</TABLE>

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

(a) The incremental amortization period represents the period of the year
that the acquisition was not completed. Actual amortization may differ
based upon final purchase price allocations.

(b) Intangible assets consist primarily of FCC licenses which are amortized
on a straight-line basis over an estimated average life of 15 years.

P-13
<PAGE> 309

(8) Reflects the adjustment to interest expense as follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Additional bank borrowings related to:
Completed Chancellor acquisitions......................... $608,034 $283,758
Completed Chancellor dispositions......................... (21,000) (21,000)
-------- --------
Total additional bank borrowings............................ $587,034 $262,758
======== ========
Interest expense at 7.0%.................................... $ 41,092 $ 4,598
Less: historical interest expense recognized subsequent to
completed acquisition or prior to completed disposition... (12,374) (3,421)
-------- --------
Incremental interest expense................................ 28,718 1,177
Less: historical interest expense recognized by the acquired
company................................................... (2,341) --
-------- --------
Net increase in interest expense............................ 26,377 1,177
Reduction in interest expense on bank debt related to the
application of net proceeds of the following at 7.0%:
Proceeds from the March 13, 1998 equity offering used to
reduce bank borrowings by $673,000..................... (9,553) --
CMCLA 9% Senior Subordinated Notes issuance on September
30, 1998 for net proceeds of $730,000.................. (38,325) --
CMCLA 8% Senior Notes issuance on November 17, 1998 for
net proceeds of $730,000............................... (44,996) --
Interest expense on borrowings of $262,495 to finance the
repurchase of CMCLA's 12% exchange debentures on June 10,
1998...................................................... 8,167 --
Interest expense on borrowings of $143,836 to finance the
repurchase of CMCLA's 12 1/4% exchange debentures on
August 19, 1998........................................... 6,405 --
Interest expense on CMCLA's $750,000 9% Senior Subordinated
Notes issued September 30, 1998........................... 50,625 --
Interest expense on CMCLA's $750,000 8% Senior Notes issued
November 17, 1998......................................... 52,833 --
Elimination of historical interest expense on the CMCLA 12%
Subordinated Exchange Debentures from May 13, 1998 through
June 10, 1998............................................. (1,976) --
Elimination of historical interest expense on the CMCLA
12 1/4% Subordinated Exchange Debentures from July 23,
1998 through August 19, 1998.............................. (1,138) --
-------- --------
Total adjustment for net increase in interest expense....... $ 48,419 $ 1,177
======== ========
</TABLE>

(9) Reflects the tax effect of the pro forma adjustments.

(10) Reflects the elimination of preferred stock dividends on the 12% Preferred
Stock and the 12 1/4% Preferred Stock of $17,601 for the year ended
December 31, 1998, in connection with the exchange of the 12% Preferred
Stock and 12 1/4% Preferred Stock into 12% Debentures and 12 1/4%
Debentures, respectively, and the subsequent repurchase of all the 12%
Debentures and 12 1/4% Debentures.

P-14
<PAGE> 310

ADJUSTMENTS TO CAPSTAR'S HISTORICAL CONDENSED STATEMENT OF OPERATIONS RELATED TO
THE COMPLETED CAPSTAR TRANSACTIONS

(11) Capstar's historical condensed statement of operations for the year ended
December 31, 1998 and the three months ended March 31, 1999 and pro forma
adjustments related to the completed and pending Capstar transactions is
summarized below:
<TABLE>
<CAPTION>

PRO FORMA CAPSTAR PRO FORMA
ADJUSTMENTS AS ADJUSTED ADJUSTMENTS
COMPLETED FOR THE FOR THE PENDING FOR THE
CAPSTAR COMPLETED COMPLETED CAPSTAR PENDING
YEAR ENDED CAPSTAR TRANSACTIONS CAPSTAR CAPSTAR TRANSACTIONS CAPSTAR
DECEMBER 31, 1998 HISTORICAL HISTORICAL(A) TRANSACTIONS TRANSACTIONS HISTORICAL(M) TRANSACTIONS
- ----------------- ---------- ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues........................ $568,050 $ 157,075 $ -- $ 725,125 $ (236) $ --
Less: agency commissions.............. (50,583) (12,277) -- (62,860) 198 --
-------- --------- -------- --------- ------- -------
Net revenues.......................... 517,467 144,798 -- 662,265 (38) --
Operating expenses excluding
depreciation and amortization....... 304,565 79,391 -- 383,956 (1,000) --
Depreciation and amortization......... 96,207 15,611 31,346(B) 143,164 227 187(N)
Corporate general and
administrative...................... 23,678 5,285 -- 28,963 -- --
Stock option compensation............. 21,260 74,340 (74,199)(C) 21,401 --
LMA fees.............................. 4,103 697 (4,800)(D) -- -- --
Other nonrecurring costs.............. 12,970 37,777 (11,255)(E) 22,892 -- --
(16,600)(F)
-------- --------- -------- --------- ------- -------
Operating income (loss)............... 54,684 (68,303) 75,508 61,889 735 (187)
Interest expense...................... 121,145 37,900 30,252(G) 189,297 102 4,569(O)
Interest income....................... (3,423) (447) -- (3,870) -- --
Loss on investments in limited
liability companies................. 28,565 -- -- 28,565 -- --
Other (income) expense................ 183 4,540 (3,163)(H) 1,560 (36) --
-------- --------- -------- --------- ------- -------
Income (loss) before income taxes..... (91,786) (110,296) 48,419 (153,663) 669 (4,756)
Income tax expense (benefit).......... (24,317) 210 (21,573)(I) (45,680) -- (1,431)(P)
Dividends and accretion on preferred
stock of subsidiary................. 21,987 -- 17,264(J) 25,586 -- --
(13,665)(K)
-------- --------- -------- --------- ------- -------
Net income (loss)..................... (89,456) (110,506) 66,393 (133,569) 669 (3,325)
Preferred stock dividends............. -- 22,771 (17,264)(J) -- -- --
(5,507)(L)
-------- --------- -------- --------- ------- -------
Income (loss) attributable to common
stockholders........................ $(89,456) $(133,277) $ 89,164 $(133,569) $ 669 $(3,325)
======== ========= ======== ========= ======= =======

<CAPTION>
CAPSTAR
AS ADJUSTED
FOR THE
COMPLETED
CAPSTAR
AND PENDING
YEAR ENDED CAPSTAR
DECEMBER 31, 1998 TRANSACTIONS
- ----------------- ------------
<S> <C>
Gross revenues........................ $ 724,889
Less: agency commissions.............. (62,662)
---------
Net revenues.......................... 662,227
Operating expenses excluding
depreciation and amortization....... 382,956
Depreciation and amortization......... 143,578
Corporate general and
administrative...................... 28,963
Stock option compensation............. 21,401
LMA fees.............................. --
Other nonrecurring costs.............. 22,892
---------
Operating income (loss)............... 62,437
Interest expense...................... 193,968
Interest income....................... (3,870)
Loss on investments in limited
liability companies................. 28,565
Other (income) expense................ 1,524
---------
Income (loss) before income taxes..... (157,750)
Income tax expense (benefit).......... (47,111)
Dividends and accretion on preferred
stock of subsidiary................. 25,586
---------
Net income (loss)..................... (136,225)
Preferred stock dividends............. --
---------
Income (loss) attributable to common
stockholders........................ $(136,225)
=========
</TABLE>

P-15
<PAGE> 311
<TABLE>
<CAPTION>

PRO FORMA CAPSTAR PRO FORMA
ADJUSTMENTS AS ADJUSTED ADJUSTMENTS
COMPLETED FOR THE FOR THE PENDING FOR THE
CAPSTAR COMPLETED COMPLETED CAPSTAR PENDING
THREE MONTHS ENDED CAPSTAR TRANSACTIONS CAPSTAR CAPSTAR TRANSACTIONS CAPSTAR
MARCH 31, 1999 HISTORICAL HISTORICAL(A) TRANSACTIONS TRANSACTIONS HISTORICAL(M) TRANSACTIONS
- ------------------ ---------- ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues........................ $155,721 $ 5,571 $ -- $ 161,292 $ 435 $ --
Less: agency
commissions......................... (13,716) (907) -- (14,623) (8) --
-------- ------- -------- --------- ------- -------
Net revenues.......................... 142,005 4,664 -- 146,669 427 --
Operating expenses excluding
depreciation and amortization....... 92,186 4,215 -- 96,401 279 --
Depreciation and amortization......... 36,439 289 1,160(B) 37,888 52 52(N)
Corporate general and
administrative...................... 6,306 508 -- 6,814 -- --
Stock option compensation............. 2,002 43 -- 2,045
LMA fees.............................. 319 -- (319)(D) -- -- --
Other nonrecurring costs.............. 2,548 1 -- 2,549 -- --
-------- ------- -------- --------- ------- -------
Operating income (loss)............... 2,205 (392) (841) 972 96 (52)
Interest expense...................... 40,958 1,295 3,141(G) 45,394 21 1,147(O)
Interest income....................... (216) (16) -- (232) -- --
Other (income) expense................ 145 319 -- 464 --
-------- ------- -------- --------- ------- -------
Income (loss) before income taxes..... (38,682) (1,990) (3,982) (44,654) 75 (1,199)
Income tax expense (benefit).......... (13,640) -- 37(I) (13,603) -- (394)(P)
Dividends and accretion on preferred
stock of subsidiary................. 6,899 -- -- 6,899 -- --
-------- ------- -------- --------- ------- -------
Net income (loss)..................... (31,941) (1,990) (4,019) (37,950) 75 (805)
Preferred stock dividends............. -- 1,377 (1,377)(L) -- -- --
-------- ------- -------- --------- ------- -------
Income (loss) attributable to common
stockholders........................ $(31,941) $(3,367) $ (2,642) $ (37,950) $ 75 $ (805)
======== ======= ======== ========= ======= =======

<CAPTION>
CAPSTAR
AS ADJUSTED
FOR THE
COMPLETED
CAPSTAR
AND PENDING
THREE MONTHS ENDED CAPSTAR
MARCH 31, 1999 TRANSACTIONS
- ------------------ ------------
<S> <C>
Gross revenues........................ $161,727
Less: agency
commissions......................... (14,631)
--------
Net revenues.......................... 147,096
Operating expenses excluding
depreciation and amortization....... 96,680
Depreciation and amortization......... 37,992
Corporate general and
administrative...................... 6,814
Stock option compensation............. 2,045
LMA fees.............................. --
Other nonrecurring costs.............. 2,549
--------
Operating income (loss)............... 1,016
Interest expense...................... 46,562
Interest income....................... (232)
Other (income) expense................ 464
--------
Income (loss) before income taxes..... (45,778)
Income tax expense (benefit).......... (13,997)
Dividends and accretion on preferred
stock of subsidiary................. 6,899
--------
Net income (loss)..................... (38,680)
Preferred stock dividends............. --
--------
Income (loss) attributable to common
stockholders........................ $(38,680)
========
</TABLE>

P-16
<PAGE> 312

(A) The detail of the historical financial data of the stations to be acquired
or disposed of in the completed transactions by Capstar for the year ended
December 31, 1998 and the three months ended March 31, 1999 has been
obtained from the historical financial statements of the respective stations
and is summarized below:
<TABLE>
<CAPTION>
OTHER OTHER
PATTERSON SFX SFX OTHER COMPLETED
ACQUISITION ACQUISITION TRANSACTIONS TRIATHLON TRIATHLON CAPSTAR
YEAR ENDED HISTORICAL HISTORICAL HISTORICAL HISTORICAL TRANSACTIONS TRANSACTIONS
DECEMBER 31, 1998 1/1-1/29(I) 1/1-5/29(II) 1/1-5/29(III) 1/1-12/31(IV) 1/1-12/31(V) HISTORICAL(VI)
----------------- ----------- ------------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues................ $ 3,853 $ 141,369 $(24,457) $45,025 $(9,951) $ 1,236
Less: agency commissions...... (350) (16,692) 5,430 (4,442) 464 3,313
------- --------- -------- ------- ------- -------
Net revenues.................. 3,503 124,677 (19,027) 40,583 (9,487) 4,549
Operating expenses excluding
depreciation and
amortization................. 2,523 78,235 (26,309) 26,727 (6,936) 5,151
Depreciation and
amortization................. 497 17,668 (4,875) 4,794 (422) (2,051)
Corporate general and
administrative............... 171 3,069 -- 2,077 -- (32)
Stock option compensation..... -- 74,199 -- 141 -- --
LMA fees...................... -- 697 -- -- -- --
Other nonrecurring costs...... -- 35,318 -- -- -- 2,459
------- --------- -------- ------- ------- -------
Operating income (loss)....... 312 (84,509) 12,157 6,844 (2,129) (978)
Interest expense.............. 645 30,867 (4) 5,994 -- 398
Interest income............... -- (352) -- (67) -- (28)
Other expense................. 3,163 -- 145 1,193 -- 39
------- --------- -------- ------- ------- -------
Income (loss) before income
taxes........................ (3,496) (115,024) 12,016 (276) (2,129) (1,387)
Income tax expense............ -- 210 -- -- -- --
------- --------- -------- ------- ------- -------
Net income (loss)............. (3,496) (115,234) 12,016 (276) (2,129) (1,387)
Preferred stock dividends..... -- 17,264 -- 5,507 -- --
------- --------- -------- ------- ------- -------
Income (loss) attributable to
common stockholders.......... $(3,496) $(132,498) $ 12,016 $(5,783) $(2,129) $(1,387)
======= ========= ======== ======= ======= =======

COMPLETED
CAPSTAR
YEAR ENDED TRANSACTIONS
DECEMBER 31, 1998 HISTORICAL
----------------- ------------
<S> <C>
Gross revenues................ $ 157,075
Less: agency commissions...... (12,277)
---------
Net revenues.................. 144,798
Operating expenses excluding
depreciation and
amortization................. 79,391
Depreciation and
amortization................. 15,611
Corporate general and
administrative............... 5,285
Stock option compensation..... 74,340
LMA fees...................... 697
Other nonrecurring costs...... 37,777
---------
Operating income (loss)....... (68,303)
Interest expense.............. 37,900
Interest income............... (447)
Other expense................. 4,540
---------
Income (loss) before income
taxes........................ (110,296)
Income tax expense............ 210
---------
Net income (loss)............. (110,506)
Preferred stock dividends..... 22,771
---------
Income (loss) attributable to
common stockholders.......... $(133,277)
=========
</TABLE>

<TABLE>
<CAPTION>
OTHER
OTHER COMPLETED COMPLETED
TRIATHLON TRIATHLON CAPSTAR CAPSTAR
THREE MONTHS ENDED HISTORICAL ACQUISITIONS TRANSACTIONS TRANSACTIONS
MARCH 31, 1999 1/1-3/31(IV) 1/1-3/31(V) HISTORICAL(VI) HISTORICAL
------------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Gross revenues................ $10,699 $(2,847) $(2,281) $ 5,571
Less: agency commissions...... (968) 87 (26) (907)
------- ------- ------- -------
Net revenues.................. 9,731 (2,760) (2,307) 4,664
Operating expenses excluding
depreciation and
amortization................ 6,819 (1,929) (675) 4,215
Depreciation and
amortization................ 1,202 (208) (705) 289
Corporate general and
administrative.............. 508 -- -- 508
Stock option compensation..... 43 -- -- 43
LMA fees...................... -- -- -- --
Other nonrecurring costs...... -- -- 1 1
------- ------- ------- -------
Operating income (loss)....... 1,159 (623) (928) (392)
Interest expense.............. 1,297 -- (2) 1,295
Interest income............... (16) -- -- (16)
Other expense................. 322 -- (3) 319
------- ------- ------- -------
Income (loss) before income
taxes....................... (444) (623) (923) (1,990)
Income tax expense............ -- -- -- --
------- ------- ------- -------
Net income (loss)............. (444) (623) (923) (1,990)
Preferred stock dividends..... 1,377 -- -- 1,377
------- ------- ------- -------
Income (loss) attributable to
common stockholders......... $(1,821) $ (623) $ (923) $(3,367)
======= ======= ======= =======
</TABLE>

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

(i) In January 1998, Capstar acquired 39 radio stations (25 FM and 14 AM) from
Patterson Broadcasting, Inc. for approximately $227,186 in cash.

P-17
<PAGE> 313

(ii) On May 29, 1998, Capstar acquired SFX, a radio broadcasting company which
owned 81 radio stations (60 FM and 21 AM) and operated two additional
radio stations (1 FM and 1 AM) under time brokerage or joint sales
agreements (the "SFX Acquisition"). The acquisition was effected through
the merger of a wholly owned subsidiary of Capstar with and into SFX, with
SFX surviving the merger as a wholly owned subsidiary of Capstar. The
total consideration paid for all of the outstanding common equity interest
of SFX was approximately $1,279,656, including direct costs of the
acquisition. In connection with the SFX Acquisition, Capstar assumed (a)
long-term debt with a fair value of $812,436 which included $313,000 of
borrowings outstanding under the SFX senior credit facility, $450,000 of
10 3/4% Senior Subordinated Notes due 2006 at a fair value of $497,458,
$566 of 11 3/8% Senior Subordinated Notes due 2000 and other notes payable
of $1,412 and (b) 2,392,022 shares of 12 5/8% series E cumulative
exchangeable preferred stock with a fair value of $283,605, including
accrued and unpaid interest of $13,754.

(iii) Other SFX transactions include the following transactions related to
stations acquired by Capstar from SFX on May 29, 1998:

(a)In connection with the Capstar/SFX Transaction (as defined at 6(a)),
Capstar entered into a time brokerage agreement with the Company to sell
substantially all of the broadcasting time of ten of the Capstar/SFX
Stations (9 FM and 1 AM) acquired by Capstar effective May 29, 1998
pending consummation of the Capstar merger. Reflects the adjustment to
eliminate the results of operations of the Capstar/SFX Stations operated
by the Company under time brokerage agreements and to record the related
LMA fee revenue of $20,594 for the period January 1, 1998 to May 29,
1998.

(b)In connection with the SFX Acquisition, Capstar was required to dispose
of certain stations acquired from SFX due to governmental restrictions
on multiple station ownership. On May 29, 1998, Capstar completed the
following disposition and exchange transactions to comply with the
multiple ownership rules:

-the sale of one FM station in Houston, Texas to HBC Houston, Inc. for
approximately $54,000;

-the sale of four radio stations (3 FM and 1 AM) in Long Island, New
York to Cox Radio, Inc for approximately $46,000;

-the sale of four radio stations (3 FM and 1 AM) in Greenville, South
Carolina to Clear Channel Radio, Inc. for approximately $35,000;

-the sale of one FM station in Daytona Beach, Florida to Clear Channel
Metroplex, Inc. for approximately $11,500;

-the assignment of four radio stations (2 FM and 2 AM) in Fairfield,
Connecticut with an aggregate fair market value of $15,000 to a trust
pending the sale to a third party; and

-the exchange of KODA-FM in Houston, Texas to the Company for two FM
stations in Jacksonville, Florida (valued at $53,000) and $90,250 in
cash, which was used by Capstar to acquire three stations (2 FM and 1
AM) in Austin, Texas through a qualified intermediary.

Reflects the adjustment to eliminate the results of operations of the SFX
stations disposed by Capstar and to record the results of operations for
the stations received in the exchange transaction for the period January
1, 1998 to May 29, 1998.

(c)On February 1, 1999, Capstar entered into a time brokerage agreement
with the Company to sell substantially all of the broadcast time of
WKNR-FM in Cleveland, which was acquired by Capstar as part of the SFX
Acquisition on May 29, 1998. Reflects the adjustment to eliminate the
results of operations of WKNR-FM for the year ended December 31, 1998.

(iv) On April 30, 1999, Capstar acquired Triathlon for an aggregate purchase
price of approximately $201,955. Triathlon then operated 32 radio stations
(22 FM and 10 AM) in six markets: Wichita, Kansas; Colorado Springs,
Colorado; Lincoln, Nebraska; Omaha, Nebraska; Spokane, Washington; and
Tri-Cities, Washington.

(v) In order to consummate the acquisition of Triathlon, Capstar was required
to dispose of KSPZ-FM (owned by Triathlon) in the Colorado Spring market;
KNSS-AM (owned by Capstar Broadcasting)

P-18
<PAGE> 314

and KFH-AM, KEYN-FM, KQAM-AM and KWSJ-FM (owned by Triathlon) in the
Wichita, Kansas market. Capstar entered into an exchange agreement and an
asset purchase agreement with Citadel Broadcasting Company wherein, upon
consummation of the Triathlon acquisition, Capstar exchanged KSPZ-FM for
KKLI-FM in Colorado Springs, Colorado and sold stations KTWK-AM and
KVOR-AM in Colorado Springs, Colorado and KEYF-FM and KEYF-AM in Spokane,
Washington (all of which were owned by Triathlon) for approximately
$10,000 in cash. Prior to consummation of the Triathlon acquisition,
Triathlon sold Pinnacle Sports Productions, LLC. Upon consummation of the
Triathlon acquisition, the Wichita, Kansas stations were placed in a trust
pending the sale of the stations. The trustee is actively seeking the sale
of the Wichita, Kansas stations. Capstar also contributed the Muzak
affiliate territory in Omaha, Nebraska acquired as part of the Triathlon
Acquisition to Muzak Holdings LLC in exchange for an additional 2.74%
voting interest in Muzak Holdings LLC.

(vi) Reflects the historical results of operations for various other completed
Capstar transactions. 1998 completed transactions include the acquisition
of 43 radio stations (28 FM and 15 AM) for approximately $204,610 in cash;
the disposition of 15 radio stations (10 FM and 5 AM) for approximately
$99,620 in cash; and the exchange of 2 radio stations (1 FM and 1 AM) for
2 radio stations (1 FM and 1 AM). 1999 completed transactions include the
acquisition of 15 radio stations (11 FM and four AM) for approximately
$16,990 in cash; the disposition of one AM radio station for $500 in cash;
the contribution of Muzak affiliate territories in Atlanta, Albany and
Macon, Georgia and Ft. Myers, Florida in exchange for a 20.13% voting
interest in Muzak Holdings LLC; and the acquisition of LAN International,
Inc., a software development company.

(B) Reflects incremental amortization related to the completed transactions
and is based on the following allocation to intangible assets:

<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
COMPLETED TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1998 PERIOD(I) ASSETS, NET EXPENSE EXPENSE INCREASE
---------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Patterson Acquisition............ 1/1-1/29 $ 268,219 $ 540 $ 356 $ 184
SFX Acquisition.................. 1/1-5/29 3,194,742 33,057 9,515 23,542
Triathlon Acquisition............ 1/1-12/31 216,910 5,423 3,408 2,015
Other Triathlon Transactions..... 1/1-12/31 (13,794) (345) -- (345)
Other Completed Capstar
Transactions................... Various 236,144 6,243 293 5,950
---------- ------- ------- -------
$3,902,221 $44,918 $13,572 $31,346
========== ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
COMPLETED TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
THREE MONTHS ENDED MARCH 31, 1999 PERIOD(I) ASSETS, NET EXPENSE EXPENSE INCREASE
--------------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Triathlon Acquisition............. 1/1-3/31 $216,910 $1,356 $828 $ 528
Other Triathlon Transactions...... 1/1-3/31 (13,794) (86) -- (86)
Other Completed Capstar
Transactions.................... Various 26,761 790 72 718
-------- ------ ---- ------
$229,877 $2,060 $900 $1,160
======== ====== ==== ======
</TABLE>

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

(i) The incremental amortization period represents the period of the year
that the acquisition was not completed. Intangible assets consist of
broadcast licenses of $3,868,648 for 1998 and $196,304 for 1999 and
goodwill of $33,573 for 1998 and 1999 resulting from the recognition
of deferred tax liabilities in connection with the Triathlon
acquisition and are amortized on a straight-line basis over estimated
average lives of 40 years. Actual amortization may differ based upon
final purchase price allocations.

(C) Reflects the elimination of non-recurring transaction-related compensation
expense of $74,199 attributable to the voluntary settlement of the
outstanding options, SARs and unit purchase options by SFX in connection
with Capstar's acquisition of SFX.

P-19
<PAGE> 315

(D) Reflects the elimination of $4,800 of time brokerage (LMA) fees for the
year ended December 31, 1998, of which $4,103 were paid by Capstar and
$697 by SFX, and $319 of time brokerage (LMA) fees paid by Capstar for the
three months ended March 31, 1999 related to acquired radio stations that
were previously operated under time brokerage agreements.

(E) Reflects the elimination of non-recurring transaction-related charges of
$11,255 recorded by SFX in connection with Capstar's acquisition of SFX
and the spin-off of SFX Entertainment, Inc. These charges consist
primarily of legal, accounting and regulatory fees.

(F) Reflects the elimination of the consent solicitation payments to the
holders of the 10 3/4% Senior Subordinated Notes due 2006 and 12 5/8%
series E cumulative exchangeable preferred stock of SFX incurred in
connection with the spin-off of SFX Entertainment of $16,600. The spin-off
of SFX Entertainment was consummated in April 1998.

P-20
<PAGE> 316

(G) Reflects the adjustment to interest expense in connection with the
consummation of the completed Capstar transactions:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Additional bank borrowings related to completed
acquisitions....................................... $1,929,715 $223,945
Reduction of bank borrowings related to completed
dispositions....................................... (240,458) (500)
---------- --------
$1,689,257 $223,445
========== ========
Interest expense at 8.00%............................ $ 135,141 $ 4,469
Less: historical interest expense recognized
subsequent to completed acquisition or prior to
completed disposition.............................. (75,222) (33)
---------- --------
Incremental interest expense......................... 59,919 4,436
Less: historical interest expense recognized by the
acquired company................................... (37,900) (1,295)
---------- --------
Net increase in interest expense..................... 22,019 3,141
Reduction in interest expense related to the
following:
Repurchase of $76,808 principal amount of 13 1/4%
Capstar Radio Notes on March 30, 1998........... (2,544) --
Proceeds from issuance of common stock to
affiliates used to reduce bank borrowings by
$634,102 at 8.0%................................ (8,473) --
Proceeds from the May 29, 1998 equity offering used
to reduce bank borrowings by $551,308 at 8.0%... (18,254) --
Redemption of $154,000 principal amount of 10 3/4%
CCI Notes at fair value on July 3, 1998......... (7,866) --
Redemption of $1,866 principal amount of 10 3/4%
CCI Notes at fair value on July 10, 1998........ (99) --
Interest expense on borrowings of $90,200 to finance
the repurchase of $76,808 principal amount of
13 1/4% Capstar Radio Notes on March 30, 1998...... 1,804 --
Interest expense on borrowings of $313,000 made on
May 29, 1998 to finance the payoff of the credit
facility assumed as part of the SFX transaction.... 10,364 --
Interest expense, including amortization of premiums,
on assumption of $450,000 principal amount of
10 3/4% CCI Notes on May 29, 1998.................. 18,716 --
Interest expense on assumption of $566 principal
amount of 11 3/8% CCI Notes on May 29, 1998........ 27 --
Interest expense on $150,000 12% note payable to the
Company issued on May 29, 1998..................... 7,450 --
Interest expense on borrowings of $172,800 to finance
the redemption of $154,000 principal amount of
10 3/4% CCI Notes on July 3, 1998.................. 7,027 --
Interest expense on borrowings of $1,915 to finance
the redemption of $1,866 principal amount of
10 3/4% CCI Notes on July 10, 1998................. 81 --
---------- --------
Total adjustment for net increase in interest
expense............................................ $ 30,252 $ 3,141
========== ========
</TABLE>

(H) Adjustment represents the elimination of $3,163 of transaction expenses
recorded by Patterson in connection with Capstar's acquisition of
Patterson.

(I) Reflects the tax effect of the pro forma adjustments.

P-21
<PAGE> 317

(J) Reclassification of SFX's historical preferred stock dividends of $17,264
to Capstar's dividends on preferred stock of subsidiaries.

(K) Reflects the elimination of a portion of the redeemable preferred stock
dividends related to the SFX Acquisition and the subsequent redemption of
$119,600 and $500 liquidation preference on July 3, 1998 and July 10,
1998, respectively, of the 12 5/8% series E cumulative preferred stock of
SFX as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Dividends on 6% series C redeemable preferred stock
redeemed as part of the SFX Merger on May 29,
1998................................................ $ (112)
Dividends on 6 1/2% series D cumulative convertible
exchangeable preferred stock redeemed as part of the
SFX Merger on May 29, 1998.......................... (5,841)
Dividends on 12 5/8% series E cumulative exchangeable
preferred stock of $119,500 and $500 for the period
January 1, 1998 to the redemption dates of July 3,
1998 and July 10, 1998, respectively................ (7,712)
--------
Total adjustment for net decrease in dividends and
accretion........................................... $(13,665)
========
</TABLE>

(L) Reflects the elimination of Triathlon's preferred stock dividends of
$5,507 for the year ended December 31, 1998 and $1,377 for the three
months ended March 31, 1999. The Triathlon preferred stock was redeemed in
connection with Capstar's acquisition of Triathlon in 1999.

ADJUSTMENTS TO CAPSTAR'S HISTORICAL CONDENSED STATEMENT OF OPERATIONS RELATED TO
THE PENDING CAPSTAR TRANSACTIONS

(M) The detail of the historical financial data of the stations to be acquired
or disposed of in the pending Capstar transactions for the year ended
December 31, 1998 and the three months ended March 31, 1999 has been
obtained from the historical financial statements of the respective
stations. Pending Capstar transactions include the acquisition of three FM
stations and the disposition of 1 AM station.

(N) Reflects incremental amortization related to the pending Capstar
transactions and is based on the following allocation to intangible
assets:

<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
PENDING CAPSTAR TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
YEAR ENDED DECEMBER 31, 1998 PERIOD(I) ASSETS, NET EXPENSE(I) EXPENSE INCREASE
---------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Various Pending Capstar
Transactions............... Various $14,695 $367 $180 $187
</TABLE>

<TABLE>
<CAPTION>
INCREMENTAL HISTORICAL ADJUSTMENT
PENDING CAPSTAR TRANSACTIONS AMORTIZATION INTANGIBLE AMORTIZATION AMORTIZATION FOR NET
THREE MONTHS ENDED MARCH 31, 1999 PERIOD(I) ASSETS, NET EXPENSE(I) EXPENSE INCREASE
--------------------------------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Various Pending Capstar
Transactions................. Various $14,695 $92 $40 $52
</TABLE>

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

(i) The incremental amortization period represents the period of the year
that the acquisition was not completed. Intangible assets are
amortized on a straight-line basis over estimated average lives of 40
years.

P-22
<PAGE> 318

(O) Reflects the adjustment to interest expense in connection with the
consummation of the pending Capstar transactions:

<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
<S> <C> <C>
Interest expense on additional bank borrowings related to
pending acquisitions of $15,388 at 8.0%................... $1,231 $ 308
Interest expense on additional bank borrowings related to
estimated financial advisors, legal, accounting and other
professional fees of $43,000 at 8.0%...................... 3,440 860
Less: historical interest expense of the stations to be
acquired in the Pending Capstar Transactions.............. (102) (21)
------ ------
Total adjustment for net increase in interest expense....... $4,569 $1,147
====== ======
</TABLE>

(P) Reflects the tax effect of the pro forma adjustments.

ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
RELATED TO THE CAPSTAR MERGER

(12) Reflects the elimination of intercompany transactions between the Company
and Capstar for the Company's media representation services provided to
Capstar, Capstar's participation in the Company's The AMFM Radio Networks,
fees paid by the Company to Capstar under time brokerage agreements and
interest on Capstar's note payable to the Company of $150,000 for the year
ended December 31, 1998 and the three months ended March 31, 1999.

(13) Reflects incremental amortization related to the Capstar merger and is
based on the allocation of the total consideration as follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, 1998 1999
----------------- ------------
<S> <C> <C>
Amortization expense on $6,098,792 of intangible assets,
which includes $4,569,328 of intangible assets and
$1,529,464 resulting from the recognition of deferred
tax liabilities amortized on a straight-line basis
over a period of 15 years............................. $ 406,591 $101,645
Less: historical amortization expense................... (122,933) (32,181)
--------- --------
Adjustment for net increase in amortization expense..... $ 283,658 $ 69,464
========= ========
</TABLE>

Historical depreciation expense of Capstar is assumed to approximate
depreciation expense on a pro forma basis. Actual depreciation and
amortization may differ based upon final purchase price allocations.

(14) Reflects the elimination of financial advisory and other expenses of
Capstar in connection with the Capstar merger of $8,000 for the year ended
December 31, 1998 and $1,137 for the three months ended March 31, 1999.

(15) Reflects the adjustment to record interest expense of $1,750 for the year
ended December 31, 1998 and $438 for the three months ended March 31, 1999
on additional bank borrowings related to estimated financial advisors,
legal, accounting and other professional fees of $25,000 at 7.0%.

(16) Reflects the tax effect of the pro forma adjustments.

P-23
<PAGE> 319

ADJUSTMENTS TO UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS RELATED TO
THE PENDING TRANSACTION

(17) The detail of the historical financial data of the pending transactions for
the year ended December 31, 1998 and the three months ended March 31, 1999
has been obtained from the historical financial statements of the
respective companies and is summarized below:

<TABLE>
<CAPTION>
PRO FORMA
PHOENIX ADJUSTMENTS COMPANY
ACQUISITION OUTDOOR FOR THE PRO FORMA
YEAR ENDED HISTORICAL DISPOSITION PENDING PENDING
DECEMBER 31, 1998 1/1 - 12/31(A) 1/1 - 12/31(B) TRANSACTIONS TRANSACTIONS
----------------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Gross revenues............................ $12,052 $(52,105) $ -- $(40,053)
Less: agency commissions.................. (1,329) 5,145 -- 3,816
------- -------- ------- --------
Net revenues.............................. 10,723 (46,960) -- (36,237)
Operating expenses excluding depreciation
and amortization........................ 6,150 (23,191) -- (17,041)
Depreciation and amortization............. 188 (25,733) 5,797(c) (19,748)
Corporate general and administrative...... -- (1,985) -- (1,985)
------- -------- ------- --------
Operating income (loss)................... 4,385 3,949 (5,797) 2,537
Interest expense.......................... 332 -- (3,566)(d) (3,234)
Other (income) expense.................... -- 112 -- 112
------- -------- ------- --------
Income (loss) before income taxes......... 4,053 3,837 (2,231) 5,659
Income tax expense (benefit).............. -- 783 1,198(e) 1,981
------- -------- ------- --------
Net income (loss)......................... $ 4,053 $ 3,054 $(3,429) $ 3,678
======= ======== ======= ========
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS COMPANY
OUTDOOR FOR THE PRO FORMA
THREE MONTHS ENDED DISPOSITION PENDING PENDING
MARCH 31, 1999 1/1 - 3/31(B) TRANSACTIONS TRANSACTIONS
------------------ ------------- ------------ ------------
<S> <C> <C> <C>
Gross revenues......................................... $(57,145) $ -- $(57,145)
Less: agency commissions............................... 4,391 -- 4,391
-------- -------- --------
Net revenues........................................... (52,754) -- (52,754)
Operating expenses excluding depreciation and
amortization......................................... (27,971) -- (27,971)
Depreciation and amortization.......................... (30,934) 1,471(c) (29,463)
Corporate general and administrative................... (2,825) -- (2,825)
-------- -------- --------
Operating income (loss)................................ 8,976 (1,471) 7,505
Interest expense....................................... -- (10,405)(d) (10,405)
Other (income) expense................................. (82) -- (82)
-------- -------- --------
Income (loss) before income taxes...................... 9,058 8,934 17,992
Income tax expense (benefit)........................... 2,627 3,670(e) 6,297
-------- -------- --------
Net income (loss)...................................... $ 6,431 $ 5,264 $ 11,695
======== ======== ========
</TABLE>

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

(a) On September 15, 1998, the Company entered into an agreement to acquire
KKFR-FM and KFYI-AM in Phoenix from The Broadcast Group, Inc. for $90,000
in cash. The Company began operating KKFR-FM and KFYI-AM under a time
brokerage agreement effective November 5, 1998.

P-24
<PAGE> 320

(b) On June 1, 1999, the Company agreed to sell its outdoor advertising
business to Lamar in exchange for net proceeds of $680,000 in cash and
26,227,273 shares of Lamar's class A common stock.

(c) Reflects incremental amortization related to the assets acquired in the
pending transaction and is based on the allocation of the total
consideration as follows:

<TABLE>
<CAPTION>
PENDING TRANSACTION INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
YEAR ENDED AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
DECEMBER 31, 1998 PERIOD(I) NET EXPENSE(I) EXPENSE INCREASE
- ------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Phoenix Acquisition........... 1/1-12/31 $88,250 $5,883 $86 $5,797
======= ====== === ======
</TABLE>

<TABLE>
<CAPTION>
PENDING TRANSACTION INCREMENTAL INTANGIBLE HISTORICAL ADJUSTMENT
THREE MONTHS ENDED AMORTIZATION ASSETS, AMORTIZATION AMORTIZATION FOR NET
MARCH 31, 1999 PERIOD(I) NET EXPENSE(I) EXPENSE INCREASE
- ------------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Phoenix Acquisition........... 1/1-3/31 $88,250 $1,471 $-- $1,471
======= ====== === ======
</TABLE>

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

(i)
Intangible assets are amortized on a straight-line basis over an
estimated average 15 year life. The incremental amortization period
represents the period of the year that the acquisition was not
completed.

Historical depreciation expense of the pending transaction is assumed to
approximate depreciation expense on a pro forma basis. Actual depreciation
and amortization may differ based upon final purchase price allocations.

(d) Reflects the adjustment to interest expense in connection with the
consummation of the pending transactions:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Interest expense on additional bank borrowings of $90,000
related to the Phoenix Acquisition at 7.0%.............. $ 6,300 $ 1,575
------- --------
Reduction in interest expense related to proceeds of
$680,000 for the outdoor disposition at 7.0%............ (9,866) (11,980)
------- --------
Total adjustment for net decrease in interest expense..... $(3,566) $(10,405)
======= ========
</TABLE>

P-25
<PAGE> 321

(e) Reflects the tax effect of the pro forma adjustments.

(18) On June 1, 1999, the Company agreed to sell its outdoor advertising
business to Lamar in exchange for net proceeds of $680,000 in cash and
26,227,273 shares of Lamar's class A common stock. The adjustment to
reflect the Company's 30.0% equity interest in Lamar and amortization of
the investment basis in excess of underlying equity in the net assets of
Lamar over an estimated life of 40 years is as follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Lamar historical net loss applicable to common
stock.............................................. $(12,255) $(10,797)
Pro forma adjustments for acquisitions completed by
Lamar during 1998 and 1999......................... (13,200) (215)
Pro forma adjustments to reflect the pending
acquisition by Lamar of the Company's outdoor
business........................................... (46,113) (15,918)
-------- --------
Lamar pro forma net loss applicable to common
stockholders....................................... (71,568) (26,930)
Chancellor Media equity interest..................... 30.0% 30.0%
-------- --------
Equity in pro forma net loss of Lamar................ (21,470) (8,079)
Amortization of investment basis in excess of
underlying equity in the net assets of Lamar....... (12,336) (3,084)
-------- --------
Total equity in net loss of affiliate................ $(33,806) $(11,163)
======== ========
</TABLE>

The Lamar pro forma net loss applicable to common stockholders was
estimated by the Company based on information obtained from publicly filed
financial statements. These estimates including the allocation of purchase
price are preliminary and subject to change upon completion of the
transaction.

(19) The pro forma combined loss per common share data is computed by dividing
pro forma loss attributable to common stockholders by the weighted average
common shares assumed to be outstanding. A summary of shares used in the
pro forma combined loss per common share calculation follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Historical weighted average shares outstanding....... 137,979 142,960
Incremental weighted average shares relating to:
53,323,954 shares of Common Stock to be issued in
connection with the Capstar merger.............. 53,324 53,324
-------- --------
Shares used in the pro forma combined earnings per
share calculation.................................. 191,303 196,284
======== ========
</TABLE>

P-26
<PAGE> 322

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES
Report of Independent Accountants......................... F-4
Independent Auditors' Report.............................. F-5
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-6
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998....................... F-7
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997, and 1998.......... F-8
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997
and 1998............................................... F-9
Notes to Consolidated Financial Statements................ F-10
Schedule I -- Condensed Balance Sheets -- Parent Company
as of December 31, 1997 and 1998....................... F-40
Schedule I -- Condensed Statements of Operations -- Parent
Company for the years ended December 31, 1996, 1997 and
1998................................................... F-41
Schedule I -- Condensed Statements of Cash Flows -- Parent
Company for the years ended December 31, 1996, 1997 and
1998................................................... F-42
Schedule I -- Notes to Condensed Financial
Statements -- Parent Company........................... F-43
Schedule II -- Valuation and Qualifying Accounts.......... F-44
Consolidated Balance Sheets as of December 31, 1998 and
March 31, 1999 (unaudited)............................. F-45
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1999............. F-46
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1999............. F-47
Notes to Unaudited Consolidated Financial Statements...... F-48
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
Report of Independent Accountants......................... F-53
Consolidated Balance Sheets as of December 31, 1995 and
1996................................................... F-54
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996....................... F-55
Consolidated Statements of Changes in Common Stockholders'
Equity for the years ended December 31, 1994, 1995 and
1996................................................... F-56
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996....................... F-57
Notes to Consolidated Financial Statements................ F-58
OUTDOOR ADVERTISING DIVISION OF WHITECO INDUSTRIES, INC.
Independent Auditors' Report.............................. F-75
Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited)......................... F-76
Statements of Income for the years ended December 31,
1995, 1996, 1997 and the nine months ended September
30, 1997 and 1998 (unaudited).......................... F-77
Statements of Cash Flows for the years ended December 31,
1995, 1996, 1997 and the nine months ended September
30, 1997 and 1998 (unaudited).......................... F-78
Notes to Financial Statements............................. F-79
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES
Report of Independent Accountants......................... F-82
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-83
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1998...... F-84
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended December 31,
1998................................................... F-85
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1998...... F-87
Notes to Consolidated Financial Statements................ F-88
Unaudited Consolidated Balance Sheets as of December 31,
1998 and March 31, 1999................................ F-122
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1999............. F-123
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1999..... F-124
Notes to Unaudited Consolidated Financial Statements...... F-125
</TABLE>

F-1
<PAGE> 323

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
COMMODORE MEDIA, INC. AND SUBSIDIARIES
Report of Independent Auditors............................ F-131
Consolidated Statements of Operations for the period from
January 1, 1996 to October 16, 1996 and the year ended
December 31, 1995...................................... F-132
Consolidated Statements of Cash Flows for the period from
January 1, 1996 to October 16, 1996 and the year ended
December 31, 1995...................................... F-133
Notes to Consolidated Statements of Operations and Cash
Flows.................................................. F-134
MARTIN MEDIA
Report of Independent Public Accountants.................. F-141
Balance Sheets as of December 31, 1997 and 1996........... F-142
Statements of Operations for each of the years ended
December 31, 1997, 1996 and 1995....................... F-143
Statements of Partners' Capital (Deficit) for each of the
years ended December 31, 1997, 1996 and 1995........... F-144
Statements of Cash Flows for each of the years ended
December 31, 1997, 1996 and 1995....................... F-145
Notes to Financial Statements............................. F-146
Statements of Operations for the six months ended June 30,
1998 and 1997 (unaudited).............................. F-155
Statements of Cash Flows for the six months ended June 30,
1998 and 1997 (unaudited).............................. F-156
Note to Financial Statements.............................. F-157
MARTIN & MACFARLANE, INC.
Report of Independent Public Accountants.................. F-158
Balance Sheets as of December 31, 1997 and 1996........... F-159
Statements of Income for each of the years ended December
31, 1997 and 1996 and six month period ended December
31, 1995............................................... F-160
Statements of Retained Earnings for each of the years
ended December 31, 1997 and 1996 and six month period
ended December 31, 1995................................ F-161
Statements of Cash Flows for each of the years ended
December 31, 1997 and 1996 and six month period ended
December 31, 1995...................................... F-162
Notes to Financial Statements............................. F-163
Independent Auditors' Report.............................. F-173
Balance Sheet as of June 30, 1995......................... F-174
Statement of Income for the year ended June 30, 1995...... F-175
Statement of Retained Earnings for the year ended June 30,
1995................................................... F-176
Statement of Cash Flows for the year ended June 30,
1995................................................... F-177
Notes to Financial Statements............................. F-178
Statements of Operations for the six months ended June 30,
1998 and 1997 (unaudited).............................. F-185
Statements of Cash Flows for the six months ended June 30,
1998 and 1997 (unaudited).............................. F-186
Note to Financial Statements.............................. F-187
KYSR INC. AND KIBB INC.
Independent Auditors' Report.............................. F-188
Combined Statement of Operations for the year ended
December 31, 1996 and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-189
Combined Statement of Cash Flows for the year ended
December 31, 1996 and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-190
Notes to Combined Financial Statements.................... F-191
WLIT INC.
Independent Auditors' Report.............................. F-195
Statement of Earnings for the year ended December 31, 1996
and the six months ended June 30, 1996 and 1997
(unaudited)............................................ F-196
Statement of Cash Flows for the year ended December 31,
1996 and the six months ended June 30, 1996 and 1997
(unaudited)............................................ F-197
Notes to Financial Statements............................. F-198
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES (FORMERLY
KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)
Report of Independent Accountants......................... F-202
Report of Independent Accountants......................... F-203
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-204
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997, the five months ended May 31,
1998 and the seven months ended December 31, 1998...... F-205
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1997, the five months
ended May 31, 1998 and the seven months ended December
31, 1998............................................... F-206
</TABLE>

F-2
<PAGE> 324

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997, the five months ended May 31,
1998 and the seven months ended December 31, 1998...... F-207
Notes to Consolidated Financial Statements................ F-208
Unaudited Consolidated Balance Sheets as of December 31,
1998 and March 31, 1999................................ F-231
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1999............. F-232
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1999..... F-233
Notes to Unaudited Consolidated Financial Statements...... F-234
KBIG-FM, KLDE-FM, WBIX-FM (FORMERLY WNSR-FM)
Report of Independent Accountants......................... F-237
Combined Statement of Assets Acquired as of April 3,
1998................................................... F-238
Combined Statements of Revenues and Direct Operating
Expenses for the years ended December 31, 1995, 1996
and 1997 and the three months ended March 31, 1997 and
1998 (unaudited)....................................... F-239
Notes to the Combined Financial Statements................ F-240
KODA-FM
Report of Independent Accountants......................... F-242
Statement of Assets Acquired as of May 29, 1998........... F-243
Statements of Revenues and Direct Operating Expenses for
the years ended December 31, 1996 and 1997 and the
three months ended March 31, 1997 and 1998
(unaudited)............................................ F-244
Notes to the Financial Statements......................... F-245
THE BROADCAST GROUP, INC.
Independent Auditors' Report.............................. F-247
Balance Sheets as of December 31, 1998 and 1997........... F-248
Statements of Stockholder's Equity (Deficit) for the years
ended December 31, 1998 and 1997....................... F-249
Statements of Income for the years ended December 31, 1998
and 1997............................................... F-250
Statements of Cash Flows for the years ended December 31,
1998 and 1997.......................................... F-251
Notes to Financial Statements as of December 31, 1998 and
1997................................................... F-252
KFYI-AM AND KKFR-FM
Unaudited Combined Statement of Assets to be Acquired as
of March 31, 1999...................................... F-254
Unaudited Combined Statements of Revenues and Direct
Operating Expenses for the three months ended March 31,
1999 and 1998.......................................... F-255
Notes to the Unaudited Combined Financial Statements...... F-256
LAMAR ADVERTISING COMPANY
Independent Auditors' Report.............................. F-258
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-259
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997, the two months ended
December 31, 1996 and the year ended October 31,
1996................................................... F-260
Consolidated Statements of Comprehensive Income for the
years ended December 31, 1998 and 1997, the two months
ended December 31, 1996 and the year ended October 31,
1996................................................... F-261
Consolidated Statements of Stockholders' Equity for the
year ended October 31, 1996, the two months ended
December 31, 1996 and the years ended December 31, 1997
and 1998............................................... F-262
Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997, the two months ended
December 31, 1996 and the year ended October 31,
1996................................................... F-263
Notes to Consolidated Financial Statements................ F-264
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998...................... F-281
Condensed Consolidated Statements of Operations
(Unaudited) for the three months ended March 31, 1999
and March 31, 1998..................................... F-282
Condensed Consolidated Statements of Comprehensive Income
(Unaudited) for the three months ended March 31, 1999
and 1998............................................... F-283
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the three months ended March 31, 1999
and 1998............................................... F-284
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. F-285
</TABLE>

F-3
<PAGE> 325

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders of
Chancellor Media Corporation:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholder's equity and cash
flows present fairly, in all material respects, the financial position of
Chancellor Media Corporation and its subsidiaries at December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Dallas, Texas
February 10, 1999, except as to Note 16,
which is as of March 15, 1999

F-4
<PAGE> 326

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Chancellor Media Corporation:

We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Chancellor Media Corporation (formerly
Evergreen Media Corporation) and subsidiaries for the year ended December 31,
1996. In connection with our audit of the consolidated financial statements, we
have also audited the financial statement schedules for the year ended December
31, 1996. These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedules 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 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Chancellor Media Corporation and subsidiaries for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

KPMG LLP

Dallas, Texas
January 31, 1997

F-5
<PAGE> 327

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 16,584 $ 12,256
Accounts receivable, less allowance for doubtful accounts
of $12,651 in 1997 and $15,580 in 1998................. 239,744 352,646
Other current assets (note 3)............................. 34,811 59,909
---------- ----------
Total current assets.............................. 291,139 424,811
Property and equipment, net (note 4)........................ 159,797 1,388,156
Intangible assets, net (note 5)............................. 4,404,443 5,056,047
Other assets, net (note 3).................................. 113,496 358,893
---------- ----------
$4,968,875 $7,227,907
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses (note 6)............ $ 178,415 $ 236,618
Long-term debt (note 7)..................................... 2,573,000 4,096,000
Deferred tax liabilities (note 10).......................... 361,640 453,134
Other liabilities........................................... 44,405 50,325
---------- ----------
Total liabilities................................. 3,157,460 4,836,077
---------- ----------
Commitments and contingencies (notes 2, 7 and 11)
Redeemable preferred stock (note 8):
Redeemable senior cumulative exchangeable preferred stock
of subsidiary, par value $.01 per share; 1,000,000
shares authorized, issued and outstanding in 1997;
liquidation preference of $121,274..................... 119,445 --
Redeemable cumulative exchangeable preferred stock of
subsidiary, par value $.01 per share; 3,600,000 shares
authorized and 2,117,629 shares issued and outstanding
in 1997; liquidation preference of $223,519............ 211,763 --
Stockholders' equity (note 9):
Preferred stock, $.01 par value. 2,200,000 shares of 7%
convertible preferred stock authorized, issued and
outstanding............................................ 110,000 110,000
Preferred stock, $.01 par value. 6,000,000 shares
authorized; 5,990,000 shares of $3.00 convertible
exchangeable preferred stock issued and outstanding.... 299,500 299,500
Common stock, $.01 par value. Authorized 200,000,000
shares; issued and outstanding 119,921,814 shares in
1997 and 142,847,674 shares in 1998.................... 1,199 1,428
Paid-in capital........................................... 1,226,930 2,259,583
Accumulated deficit....................................... (157,422) (278,681)
---------- ----------
Total stockholders' equity........................ 1,480,207 2,391,830
---------- ----------
$4,968,875 $7,227,907
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 328

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Gross revenues.............................................. $337,405 $663,804 $1,440,357
Less agency commissions................................... 43,555 81,726 166,501
-------- -------- ----------
Net revenues........................................... 293,850 582,078 1,273,856
-------- -------- ----------
Operating expenses:
Operating expenses, excluding depreciation and
amortization........................................... 174,344 316,248 682,061
Depreciation and amortization............................. 93,749 185,982 446,338
Corporate general and administrative...................... 7,797 21,442 36,722
Executive severance charge (note 13)...................... -- -- 63,661
-------- -------- ----------
Operating expenses..................................... 275,890 523,672 1,228,782
-------- -------- ----------
Operating income....................................... 17,960 58,406 45,074
-------- -------- ----------
Other (income) expense:
Interest expense.......................................... 37,527 85,017 217,136
Interest income........................................... (477) (1,922) (15,650)
Gain on disposition of assets (note 2).................... -- (18,380) (123,845)
Gain on disposition of representation contracts........... -- -- (32,198)
Other (income) expense, net............................... -- 383 (3,221)
-------- -------- ----------
Other (income) expense, net............................ 37,050 65,098 42,222
-------- -------- ----------
Income (loss) before income taxes and extraordinary
item................................................. (19,090) (6,692) 2,852
Income tax expense (benefit) (note 10)...................... (2,896) 7,802 33,751
Dividends on preferred stock of subsidiary (note 8)......... -- 12,901 17,601
-------- -------- ----------
Loss before extraordinary item............................ (16,194) (27,395) (48,500)
Extraordinary loss, net of income tax benefit (notes 7 and
8)........................................................ -- 4,350 47,089
-------- -------- ----------
Net loss.......................................... (16,194) (31,745) (95,589)
Preferred stock dividends (note 9(a))....................... 3,820 12,165 25,670
-------- -------- ----------
Net loss attributable to common stockholders.............. $(20,014) $(43,910) $ (121,259)
======== ======== ==========
Basic and diluted loss per common share (notes 1(m) and 9):
Before extraordinary item................................. $ (.33) $ (.41) $ (.54)
Extraordinary item........................................ -- (.05) (.34)
-------- -------- ----------
Net loss.......................................... $ (.33) $ (.46) $ (.88)
======== ======== ==========
Weighted average common shares outstanding.................. 60,414 95,636 137,979
======== ======== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE> 329

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
--------------------- -------------------- ------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- -------- ----------- ------ ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995...... 1,610,000 $ 80,500 49,859,058 $ 499 6,232,132 $62 $ 317,014 $ (93,498)
Issuance of Common Stock in
public offering (note 9(b)).... -- -- 18,000,000 180 -- -- 264,056 --
Conversion of 1993 Preferred
Stock (note 9(a)).............. (1,608,297) (80,415) 10,051,832 100 -- -- 80,315 --
Redemption of 1993 Preferred
Stock (note 9(a)).............. (1,703) (85) -- -- -- -- (5) --
Exercise of common stock options
(note 9(d)).................... -- -- 166,806 2 -- -- 700 --
Convertible preferred stock
dividends (note 9(a)).......... -- -- -- -- -- -- -- (3,820)
Net loss......................... -- -- -- -- -- -- -- (16,194)
---------- -------- ----------- ------ ---------- --- ---------- ---------
Balances at December 31, 1996...... -- -- 78,077,696 781 6,232,132 62 662,080 (113,512)
Issuance of $3.00 Convertible
Preferred Stock (note 9(a)).... 5,990,000 299,500 -- -- -- -- (11,692) --
Issuance of Common Stock in
merger (note 9(b))............. -- -- 34,617,460 346 -- -- 536,225 --
Issuance of common stock options
in merger (note 9(d)).......... -- -- -- -- -- -- 34,977 --
Issuance of 7% Preferred Stock in
merger (note 9(a))............. 2,200,000 110,000 -- -- -- -- -- --
Conversion of Class B Common
Stock (note 9(b)).............. -- -- 6,232,132 62 (6,232,132) (62) -- --
Exercise of common stock options
(note 9(d)).................... -- -- 994,526 10 -- -- 5,340 --
Convertible preferred stock
dividends (note 9(a)).......... -- -- -- -- -- -- -- (12,165)
Net loss......................... -- -- -- -- -- -- -- (31,745)
---------- -------- ----------- ------ ---------- --- ---------- ---------
Balances at December 31, 1997...... 8,190,000 409,500 119,921,814 1,199 -- -- 1,226,930 (157,422)
Issuance of Common Stock (note
9(b)).......................... -- -- 21,850,000 219 -- -- 994,423 --
Exercise of common stock options
(note 9(c)).................... -- -- 1,075,860 10 -- -- 22,230 --
Stock option compensation (note
9(c)).......................... -- -- -- -- -- -- 16,000 --
Convertible preferred stock
dividends (note 9(a)).......... -- -- -- -- -- -- -- (25,670)
Net loss......................... -- -- -- -- -- -- -- (95,589)
---------- -------- ----------- ------ ---------- --- ---------- ---------
Balances at December 31, 1998...... 8,190,000 $409,500 142,847,674 $1,428 -- $-- $2,259,583 $(278,681)
========== ======== =========== ====== ========== === ========== =========

TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balances at December 31, 1995...... $ 304,577
Issuance of Common Stock in
public offering (note 9(b)).... 264,236
Conversion of 1993 Preferred
Stock (note 9(a)).............. --
Redemption of 1993 Preferred
Stock (note 9(a)).............. (90)
Exercise of common stock options
(note 9(d)).................... 702
Convertible preferred stock
dividends (note 9(a)).......... (3,820)
Net loss......................... (16,194)
----------
Balances at December 31, 1996...... 549,411
Issuance of $3.00 Convertible
Preferred Stock (note 9(a)).... 287,808
Issuance of Common Stock in
merger (note 9(b))............. 536,571
Issuance of common stock options
in merger (note 9(d)).......... 34,977
Issuance of 7% Preferred Stock in
merger (note 9(a))............. 110,000
Conversion of Class B Common
Stock (note 9(b)).............. --
Exercise of common stock options
(note 9(d)).................... 5,350
Convertible preferred stock
dividends (note 9(a)).......... (12,165)
Net loss......................... (31,745)
----------
Balances at December 31, 1997...... 1,480,207
Issuance of Common Stock (note
9(b)).......................... 994,642
Exercise of common stock options
(note 9(c)).................... 22,240
Stock option compensation (note
9(c)).......................... 16,000
Convertible preferred stock
dividends (note 9(a)).......... (25,670)
Net loss......................... (95,589)
----------
Balances at December 31, 1998...... $2,391,830
==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE> 330

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (16,194) $ (31,745) $ (95,589)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation........................................ 7,707 14,918 47,027
Amortization of goodwill, intangible assets and
other
assets........................................... 86,042 171,064 399,311
Executive severance................................. -- -- 16,000
Provision for doubtful accounts..................... 2,179 5,174 5,684
Deferred income tax expense (benefit)............... (4,353) (3,829) 28,718
Gain on sale of representation contracts............ -- -- (32,198)
Gain on disposition of assets....................... -- (18,380) (123,845)
Dividends on preferred stock of subsidiary.......... 12,901 17,601
Extraordinary loss, net of income tax benefit....... -- 4,350 47,089
Changes in certain assets and liabilities, net of
effects of acquisitions:
Accounts receivable.............................. (28,146) (29,977) (89,392)
Other current assets............................. (2,804) 733 (7,964)
Accounts payable and accrued expenses............ 3,991 20,004 58,027
Other assets..................................... (354) (4,283) (6,461)
Other liabilities................................ (587) (1,416) 3,623
--------- ----------- -----------
Net cash provided by operating activities...... 47,481 139,514 267,631
--------- ----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired.................... (458,332) (1,631,505) (1,995,991)
Issuance of note receivable........................... -- -- (150,000)
Escrow deposits on pending acquisitions............... (17,000) (4,655) --
Proceeds from sale of assets.......................... 32,000 269,250 --
Payments made on purchases of representation
contracts........................................... -- (31,456) (32,410)
Payments for cost basis investments................... -- -- (30,000)
Payments received on sales of representation
contracts........................................... -- 9,296 26,500
Capital expenditures.................................. (6,543) (11,666) (43,461)
Other................................................. (12,063) (22,273) (65,807)
--------- ----------- -----------
Net cash used by investing activities.......... (461,938) (1,423,009) (2,291,169)
--------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.............. 447,750 2,945,250 3,596,000
Principal payments on long-term debt.................. (290,750) (1,901,250) (2,073,000)
Net proceeds from issuance of common stock, preferred
stock and warrants.................................. 264,938 293,158 1,003,784
Dividends on preferred stock.......................... (3,820) (14,572) (57,039)
Payments for debt issuance costs...................... (3,941) (25,567) (47,318)
Redemption of exchange debentures..................... -- -- (403,217)
Redemption of preferred stock......................... (90) -- --
--------- ----------- -----------
Net cash provided by financing activities...... 414,087 1,297,019 2,019,210
--------- ----------- -----------
Increase (decrease) in cash and cash equivalents........ (370) 13,524 (4,328)
Cash and cash equivalents at beginning of year.......... 3,430 3,060 16,584
--------- ----------- -----------
Cash and cash equivalents at end of year................ $ 3,060 $ 16,584 $ 12,256
========= =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-9
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CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Description of Business

Chancellor Media Corporation (formerly known as Evergreen Media
Corporation) ("Chancellor Media") (together with its subsidiaries, the
"Company") is a diversified media company with operations in radio broadcasting,
outdoor advertising and media representation. As of December 31, 1998, the
Chancellor Radio Group portfolio (including 13 stations operated under time
brokerage agreements) consisted of 119 radio stations (89 FM and 30 AM)
concentrated in the top 30 markets in the United States and in Puerto Rico and a
national radio network, the AMFM Radio Networks, which broadcasts advertising
and syndicated programming shows to a national audience of approximately 66
million listeners in the United States (including approximately 39 million
listeners from the Company's portfolio of stations). As of December 31, 1998,
Chancellor Outdoor Group operated approximately 38,000 outdoor advertising
display faces in 37 states. The media representation business consists of Katz
Media Group, Inc. ("Katz"), a full-service media representation firm that sells
national spot advertising time for clients in the radio and television
industries throughout the United States and for the Company's portfolio of
stations.

(b) Principles of Consolidation

The consolidated financial statements include the accounts of Chancellor
Media and its subsidiaries, all of which are wholly owned. Significant
intercompany balances and transactions have been eliminated in consolidation.

The majority of the Company's outdoor advertising structures are located on
leased land. Land rent is typically paid in advance for periods ranging from one
to twelve months. Prepaid land leases are expensed ratably over the related
rental term.

(d) Property and Equipment

Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense as
incurred.

(e) Intangible Assets

Intangible assets consist primarily of broadcast licenses, goodwill and
other identifiable intangible assets. Intangible assets resulting from
acquisitions are valued based upon estimated fair values. The Company amortizes
such intangible assets using the straight-line method over estimated useful
lives ranging from one to 40 years. The Company continually evaluates the
propriety of the carrying amount of goodwill and other intangible assets and
related amortization periods to determine whether current events or
circumstances warrant adjustments to the carrying value and/or revised estimates
of amortization periods. These evaluations consist of the projection of
undiscounted cash flows over the remaining amortization periods of the related
intangible assets. The projections are based on historical trend lines of actual
results, adjusted for expected changes in operating results. To the extent such
projections indicate that undiscounted cash flows is not expected to be adequate
to recover the carrying amounts of the related intangible assets, such carrying
amounts are written down by charges to expense. At this time, the Company
believes that no impairment of goodwill or other intangible assets has occurred
and that no revisions to the amortization periods are warranted.

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CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(f) Debt Issuance Costs

Costs related to the issuance of debt are capitalized and amortized over
the terms of the related debt. In 1996, 1997 and 1998, the Company recorded
amortization of debt issuance costs of $1,113, $1,337 and $3,768 respectively,
which amounts are included in depreciation and amortization expense.

(g) Barter Transactions

The Company trades commercial air time and outdoor advertising space for
goods and services used principally for promotional, sales and other business
activities. An asset and liability is recorded at the fair market value of the
goods or services received. Barter revenue is recorded and the liability
relieved when commercials are broadcast or outdoor advertising space is
utilized. Barter expense is recorded and the asset relieved when goods or
services are received or used. Barter amounts are not significant to the
Company's consolidated financial statements.

(h) 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 year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts more likely than not to
be realized. Income tax expense is the total of tax payable for the period and
the change during the period in deferred tax assets and liabilities which
impacted operations.

(i) Revenue Recognition

Radio broadcast revenue is derived from the sale of advertising time to
local and national advertisers and is recognized as advertisements are
broadcast. Outdoor advertising revenue is derived from contracts with
advertisers for the rental of outdoor advertising space and is recognized on an
accrual basis ratably over the terms of the contracts, which generally cover
periods of one month up to five years. Media representation revenue is derived
from commissions on sales of advertising time for radio and television stations
under representation contracts by the Company's media representation firm, Katz,
and is recognized as advertisements are broadcast.

Fees received or paid pursuant to time brokerage agreements are recognized
as gross revenues or amortized to expense, respectively, over the term of the
agreement.

(j) Representation Contracts

Representation contracts typically may be terminated by either party upon
written notice one year after receipt of such notice. In accordance with
industry practice, in lieu of termination, a buyout agreement is typically
entered into for the purchase of such contracts by the successor representation
firm. The purchase price paid by the successor representation firm is based upon
the historical commission income projected over the remaining contract period,
including the evergreen or notice period, plus two months.

Costs of obtaining representation contracts are deferred and amortized over
the related period of benefit. Amortization of costs of obtaining representation
contracts included in depreciation and amortization was $380 and $10,862 for the
years ended December 31, 1997 and 1998, respectively. Gains on the disposition
of representation contracts are recognized on the effective date of the buyout
agreement as a component of other (income) expense.

F-11
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CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(k) Statements of Cash Flows

For purposes of the statements of cash flows, the Company considers
temporary cash investments purchased with original maturities of three months or
less to be cash equivalents.

The Company paid approximately $37,042, $84,610 and $191,674 for interest
in 1996, 1997 and 1998, respectively. Cash payments (refunds) for income taxes
were $733, $11,079 and ($79) for 1996, 1997 and 1998, respectively.

(l) Derivative Financial Instruments

The Company's derivative financial instruments are used to manage
well-defined interest rate risks related to interest on the Company's
outstanding debt and are not used for trading purposes.

As interest rates change under interest rate swap and collar agreements,
the differential to be paid or received is recognized as an adjustment to
interest expense. The Company's exposure to credit loss is minimal as its
interest rate swap agreements are with the participating banks under the
Company's senior credit facility.

(m) Basic and Diluted Loss Per Common Share

Basic and diluted loss per common share is based on the weighted average
shares of common stock outstanding during each year. Stock options, the $3.00
Convertible Exchangeable Preferred Stock and the 7% Convertible Preferred Stock
are not included in the calculation as their effect would be antidilutive.

On August 8, 1996, the Company declared a three-for-two stock split
effected in the form of a stock dividend payable on August 26, 1996 to
shareholders of record at the close of business on August 19, 1996. On December
18, 1997, the Company declared a two-for-one stock split effected in the form of
a stock dividend payable on January 12, 1998 to shareholders of record at the
close of business on December 29, 1997. All share and per share data (other than
authorized share data) has been adjusted to give effect to the stock dividends.

(n) Disclosure of Certain Significant Risks and Uncertainties

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.

In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers and the geographic
diversification of the Company's customer base. The Company performs ongoing
credit evaluations of its customers and believes that adequate allowances for
any uncollectible trade receivables are maintained. At December 31, 1997 and
1998, no receivable from any customer exceeded 5% of stockholders' equity and no
customer accounted for more than 10% of net revenues in 1996, 1997 or 1998.

(o) Stock Option Plan

The Company accounts for its stock-based award plans in accordance with
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, under which compensation expense is
recorded to the extent that the current market price of the underlying stock
exceeds the exercise price. Note 9(c) provides pro forma net income and pro
forma earnings per share disclosures as if the stock-based awards had been
accounted for using the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation.
F-12
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CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(p) Recently Issued Accounting Principle

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This Statement
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. Management does not anticipate that
this Statement will have a material impact on the Company's consolidated
financial statements.

(q) Reclassifications

Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current year presentation.

(2) ACQUISITIONS AND DISPOSITIONS

(a) Completed Transactions

On January 17, 1996, the Company acquired Pyramid Communications, Inc.
("Pyramid"), a radio broadcasting company with nine FM and three AM radio
stations in five radio markets (Chicago, Philadelphia, Boston, Charlotte and
Buffalo) (the "Pyramid Acquisition"). The Pyramid Acquisition was effected
through the merger of a wholly-owned subsidiary of the Company with and into
Pyramid, with Pyramid surviving the merger as a wholly-owned subsidiary of the
Company. The total purchase price, including closing costs, allocated to net
assets acquired was approximately $316,343 in cash.

On May 3, 1996, the Company acquired WKLB-FM in Boston from Fairbanks
Communications for $34,000 in cash plus various other direct acquisition costs.
On November 26, 1996, the Company exchanged WKLB-FM in Boston (now known as
WROR-FM) for WGAY-FM in Washington, D.C. The exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction. The Company had previously been operating WGAY-FM under a time
brokerage agreement and selling substantially all of the broadcast time of
WKLB-FM under a time brokerage agreement, in each case since June 17, 1996,
pending completion of the exchange.

On July 19, 1996, the Company sold WHTT-FM and WHTT-AM in Buffalo to
Mercury Radio for $19,500 in cash, and on August 1, 1996, the Company sold
WSJZ-FM in Buffalo to American Radio Systems for $12,500 in cash (collectively,
the "Buffalo Stations"). The assets of the Buffalo Stations were classified as
assets held for sale in the Pyramid Acquisition and no gain or loss was
recognized by the Company upon consummation of the sales. The combined net
income of the Buffalo stations of approximately $733 has been excluded from the
consolidated statement of operations for the year ended December 31, 1996. The
excess of the proceeds over the carrying amounts at the dates of sale
approximated $2,561 (including interest costs during the holding period of
approximately $1,169) and has been accounted for as an adjustment to the
original purchase price of the Pyramid Acquisition. The Company had previously
entered into time brokerage agreements (effective April 15, 1996 for WSJZ-FM and
April 25, 1996 for WHTT-FM and WHTT-AM) to sell substantially all of the
broadcast time of these stations pending completion of the sales.

On August 14, 1996, the Company acquired KYLD-FM in San Francisco from
Crescent Communications for $44,000 in cash plus various other direct
acquisition costs. The Company had previously been operating KYLD-FM under a
time brokerage agreement since May 1, 1996.

On October 18, 1996, the Company acquired WEDR-FM in Miami from affiliates
of the Rivers Group for $65,000 in cash plus various other direct acquisition
costs.

On January 31, 1997, the Company acquired WWWW-FM and WDFN-AM in Detroit
from affiliates of Chancellor Broadcasting Company ("CBC") for $30,000 in cash
plus various other direct acquisition costs. The Company had previously provided
certain sales and promotional functions to WWWW-FM and

F-13
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CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

WDFN-AM under a joint sales agreement since February 14, 1996 and subsequently
operated the stations under a time brokerage agreement since April 1, 1996.

On January 31, 1997, the Company acquired KKSF-FM and KDFC-FM/AM in San
Francisco from affiliates of the Brown Organization for $115,000 in cash plus
various other direct acquisition costs. The Company had previously been
operating KKSF-FM and KDFC-FM/AM under a time brokerage agreement since November
1, 1996. On July 21, 1997, the Company sold KDFC-FM to Bonneville International
Corporation ("Bonneville") for $50,000 in cash. The assets of KDFC-FM were
classified as assets held for sale in connection with the purchase price
allocation of the acquisition of KKSF-FM and KDFC-FM/AM and no gain or loss was
recognized by the Company upon consummation of the sale. The combined net income
of KDFC-FM of approximately $934 has been excluded from the consolidated
statement of operations for the year ended December 31, 1997. The excess of the
proceeds over the carrying amount at the date of sale approximated $739
(including interest costs during the holding period of approximately $1,750) and
has been accounted for as an adjustment to the original purchase price of the
acquisition of KKSF-FM and KDFC-FM/AM.

On April 1, 1997, the Company acquired WJLB-FM and WMXD-FM in Detroit from
Secret Communications, L.P. ("Secret") for $168,000 in cash plus various other
direct acquisition costs. The Company had previously been operating WJLB-FM and
WMXD-FM under time brokerage agreements since September 1, 1996.

On April 3, 1997, the Company exchanged WQRS-FM in Detroit (which the
Company acquired on April 3, 1997 from Secret for $32,000 in cash plus various
other direct acquisition costs), to affiliates of Greater Media Radio, Inc. in
return for WWRC-AM in Washington, D.C. and $9,500 in cash. The exchange was
accounted for as a like-kind exchange and no gain or loss was recognized upon
consummation of the transaction. The net purchase price to the Company of
WWRC-AM was therefore $22,500. The Company had previously been operating WWRC-AM
under a time brokerage agreement since June 17, 1996.

On May 1, 1997, the Company acquired WDAS-FM/AM in Philadelphia from
affiliates of Beasley FM Acquisition Corporation for $103,000 in cash plus
various other direct acquisition costs.

On May 15, 1997, the Company exchanged five of its six stations in
Charlotte, North Carolina (WPEG-FM, WBAV-FM/AM, WRFX-FM and WFNZ-AM) for two FM
stations in Philadelphia (WIOQ-FM and WUSL-FM) owned by EZ Communications, Inc.
("EZ") in Philadelphia (the "Charlotte Exchange"), and also sold the Company's
sixth radio station in Charlotte, WNKS-FM, to EZ for $10,000 in cash and
recognized a gain of $3,536. The Charlotte Exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction.

On May 30, 1997, the Company acquired WPNT-FM in Chicago from affiliates of
Century Broadcasting Company for $75,740 in cash (including $1,990 for the
purchase of the station's accounts receivable) plus various other direct
acquisition costs. On June 19, 1997, the Company sold WPNT-FM in Chicago to
Bonneville for $75,000 in cash and recognized a gain of $529.

On June 3, 1997, the Company sold WEJM-FM in Chicago to affiliates of
Crawford Broadcasting for $14,750 in cash and recognized a gain of $9,258.

On July 2, 1997, the Company acquired WLTW-FM and WAXQ-FM in New York and
WMZQ-FM, WJZW-FM, WZHF-AM and WBZS-AM in Washington, D.C. from Viacom
International, Inc. ("Viacom") for approximately $612,388 in cash including
various other direct acquisition costs (the "Viacom Acquisition"). The Viacom
Acquisition was financed with (i) bank borrowings under the Senior Credit
Facility (as defined) of $552,559; (ii) $53,750 in escrow funds paid by the
Company on February 19, 1997 and (iii) $6,079 financed through working capital.
In June 1997, the Company issued 5,990,000 shares of $3.00 Convertible
Exchangeable Preferred Stock for net proceeds of $287,808 which were used to
repay

F-14
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CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

borrowings under the Senior Credit Facility and subsequently were reborrowed on
July 2, 1997 as part of the financing of the Viacom Acquisition. On July 7,
1997, the Company sold WJZW-FM in Washington, D.C. to affiliates of Capital
Cities/ABC Radio for $68,000 in cash. The assets of WJZW-FM, as well as the
assets of WZHF-AM and WBZS-AM, which were sold on August 13, 1997, were
accounted for as assets held for sale in connection with the purchase price
allocation of the Viacom Acquisition and no gain or loss was recognized by the
Company upon consummation of the sales. The combined net income of WJZW-FM,
WZHF-AM and WBZS-AM of approximately $153 has been excluded from the
consolidated statement of operations for the year ended December 31, 1997. The
excess of the carrying amounts over the proceeds at the dates of sale
approximated $894 and has been accounted for as an adjustment to the original
purchase price of the Viacom Acquisition.

On July 7, 1997, the Company sold the Federal Communications Commission
("FCC") authorizations and certain transmission equipment previously used in the
operation of KYLD-FM in San Francisco to Susquehanna Radio Corporation
("Susquehanna") for $44,000 in cash and recognized a gain of $1,726.
Simultaneously therewith, CBC sold the call letters "KSAN-FM" (which CBC
previously used in San Francisco) to Susquehanna. On July 7, 1997, the Company
and CBC entered into a time brokerage agreement to enable the Company to operate
KYLD-FM on the frequency previously assigned to KSAN-FM, and on July 7, 1997,
CBC changed the call letters of KSAN-FM to KYLD-FM. Upon the consummation of the
Chancellor Merger (as defined herein), the Company changed the format of the new
KYLD-FM to the format previously operated on the old KYLD-FM.

On July 14, 1997, the Company completed the disposition of WLUP-FM in
Chicago to Bonneville for net proceeds of $80,000 which were held by a qualified
intermediary pending the completion of the deferred exchange of WLUP-FM for
KZPS-FM and KDGE-FM in Dallas. On October 7, 1997, the Company applied the net
proceeds from the disposition of WLUP-FM of $80,000 in cash, plus an additional
$3,500 and various other direct acquisition costs, in a deferred exchange of
WLUP-FM for KZPS-FM and KDGE-FM in Dallas. The exchange was accounted for as a
like-kind exchange and no gain or loss was recognized upon consummation of the
transaction. The Company had previously operated KZPS-FM and KDGE-FM under time
brokerage agreements effective August 1, 1997.

On July 21, 1997, the Company entered into a time brokerage agreement with
CBC whereby the Company began managing certain limited functions of CBC's
stations KISQ-FM (formerly KBGG-FM), KNEW-AM and KABL-FM in San Francisco
pending the consummation of the Chancellor Merger (as defined herein), which
occurred on September 5, 1997.

On August 13, 1997, the Company sold WBZS-AM and WZHF-AM in Washington,
D.C. (acquired as part of the Viacom Acquisition) for $13,000 and KDFC-AM in San
Francisco for $5,000 to affiliates of Douglas Broadcasting ("Douglas") for a
total sales price of $18,000 in the form of a note receivable. The note
receivable bears interest at 7 3/4%, with a balloon principal payment due four
years after closing. At closing, Douglas was required to post a $1,000 letter of
credit for the benefit of the Company that will remain outstanding until all
amounts due under the promissory note are paid.

On August 27, 1997, the Company sold WEJM-AM in Chicago to Douglas for
$7,500 in cash and recognized a gain of $3,331.

On September 5, 1997, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of February 19, 1997 and amended and restated on July
31, 1997 (the "Chancellor Merger Agreement"), among CBC, Chancellor Radio
Broadcasting Company ("CRBC"), Evergreen Media Corporation ("Evergreen"),
Evergreen Mezzanine Holdings Corporation ("EMHC") and Evergreen Media
Corporation of Los Angeles ("EMCLA"), (i) CBC was merged (the "Parent Merger")
with and into EMHC, a direct, wholly-owned subsidiary of Evergreen, with EMHC
remaining as the surviving corporation and (ii) CRBC was merged (the "Subsidiary
Merger") with and into EMCLA, a direct, wholly-owned subsidiary of EMHC,

F-15
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CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

with EMCLA remaining as the surviving corporation (collectively, the "Chancellor
Merger"). Upon consummation of the Parent Merger, the Company was renamed
Chancellor Media Corporation and EMHC was renamed Chancellor Mezzanine Holdings
Corporation ("CMHC"). Upon consummation of the Subsidiary Merger, EMCLA was
renamed Chancellor Media Corporation of Los Angeles ("CMCLA"). Consummation of
the Chancellor Merger added 52 radio stations (36 FM and 16 AM) to the Company's
portfolio of stations, including 13 stations in markets in which the Company
previously operated. The total purchase price allocated to net assets acquired
was approximately $1,998,383 which included (i) the conversion of each
outstanding share of CBC Common Stock into 0.9091 shares of the Company's Common
Stock, resulting in the issuance of 34,617,460 shares of the Company's Common
Stock at $15.50 per share, (ii) the assumption of long-term debt of CRBC of
$949,000 which included $549,000 of borrowings outstanding under the CRBC senior
credit facility, $200,000 of CRBC's 9 3/8% Senior Subordinated Notes due 2004
and $200,000 of CRBC's 8 3/4% Senior Subordinated Notes due 2007 (iii) the
issuance of 2,117,629 shares of CMCLA's 12% Exchangeable Preferred Stock in
exchange for CRBC's substantially identical securities with a fair value of
$215,570 including accrued and unpaid dividends of $3,807, (iv) the issuance of
1,000,000 shares of CMCLA's 12 1/4% Series A Senior Cumulative Exchangeable
Preferred Stock in exchange for CRBC's substantially identical securities with a
fair value of $120,217 including accrued and unpaid dividends of $772, (v) the
issuance of 2,200,000 shares of the Company's 7% Convertible Preferred Stock in
exchange for CBC's substantially identical securities with a fair value of
$111,048 including accrued and unpaid dividends of $1,048, (vi) the assumption
of stock options issued to CBC stock option holders with a fair value of $34,977
and (vii) estimated acquisition costs of $31,000.

On October 28, 1997, the Company acquired Katz, a full-service media
representation firm, in a tender offer transaction for a total purchase price of
approximately $379,101 (the "Katz Acquisition") which included (i) the
conversion of each outstanding share of Katz Common Stock into the right to
receive $11.00 in cash, resulting in total cash payments of $149,601, (ii) the
assumption of long-term debt of Katz and its subsidiaries of $222,000 which
included $122,000 of borrowings outstanding under the Katz senior credit
facility and $100,000 of 10 1/2% Senior Subordinated Notes due 2007 of Katz
Media Corporation (a subsidiary of Katz) and (iii) estimated acquisition costs
of $7,500.

On December 29, 1997, the Company acquired five radio stations from Pacific
and Southern Company, Inc., a subsidiary of Gannett Co., Inc., consisting of
WGCI-FM/AM in Chicago for $140,000, KKBQ-FM/AM in Houston for $110,000 and
KHKS-FM in Dallas for $90,000, for an aggregate purchase price of $340,000 in
cash plus various other direct acquisition costs.

On January 30, 1998, the Company acquired KXPK-FM in Denver from Ever Green
Wireless LLC for $26,000 in cash plus various other direct acquisition costs, of
which $1,655 was previously paid by the Company as escrow funds and are
classified as other assets at December 31, 1997. The Company had previously been
programming KXPK-FM under a time brokerage agreement since September 1, 1997.

On April 3, 1998, the Company exchanged WTOP-AM in Washington, KZLA-FM in
Los Angeles and WGMS-FM in Washington plus $63,000 in cash (including $3,000
previously paid by the Company as escrow funds and classified as other assets at
December 31, 1997) to Bonneville for WTJM-FM in New York, KLDE-FM in Houston and
KBIG-FM in Los Angeles and recognized a gain of $123,845. The Company had
previously operated KLDE-FM and KBIG-FM under time brokerage agreements since
October 1, 1997 and WTJM-FM since October 10, 1997, and had sold substantially
all of the broadcast time of WTOP-AM, KZLA-FM and WGMS-FM to Bonneville since
October 1, 1997.

On May 29, 1998, as part of the Capstar/SFX Transaction (defined below),
the Company exchanged WAPE-FM and WFYV-FM in Jacksonville (valued at $53,000)
for Capstar Broadcasting Corporation (together with its subsidiaries, "Capstar")
station KODA-FM in Houston (the "Houston Exchange"). As part of the transaction,
the Company also paid cash of $90,250 to the owners of KVET-AM, KVET-FM and
KASE-FM, who simultaneously transferred such stations to Capstar.
F-16
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CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On June 1, 1998, the Company acquired WWDC-FM/AM in Washington, D.C. from
Capitol Broadcasting Company and its affiliates for $74,062 in cash (including
$2,062 for the purchase of the stations' accounts receivable) plus various other
direct acquisition costs.

On June 15, 1998, the Company's national radio network, The AMFM Radio
Networks, acquired the syndicated programming shows of Global Satellite Network
for $14,000 in cash plus various other direct acquisition costs. The syndicated
programming shows acquired include "Rockline", "Modern Rock Live", "Reelin' in
the Years" and the concert series "Live from the Pit".

On July 31, 1998, the Company acquired Martin Media L.P., Martin &
MacFarlane, Inc. and certain affiliated companies ("Martin") for a total
purchase price of $615,117 which consisted of $612,848 in cash including various
other direct acquisition costs and the assumption of notes payable of $2,270.
Martin is an outdoor advertising company with over 13,700 billboards and outdoor
displays in 12 states serving 23 markets. As part of the Martin transaction, the
Company acquired an asset purchase agreement with Kunz & Company and paid an
additional $6,000 in cash for a purchase option deposit previously paid by
Martin.

On August 28, 1998, the Company acquired various syndicated programming
shows of Casey Kasem and the related programming libraries for $7,150 in cash
and $7,000 in the form of a note payable due August 2000. The note is payable in
two equal annual installments of $3,500 each on August 28, 1999 and August 28,
2000.

On October 23, 1998, the Company acquired Primedia Broadcast Group, Inc.
and certain of its affiliates, which own and operate eight FM radio stations in
Puerto Rico, for a purchase price of $75,619 including various other direct
acquisition costs.

On November 13, 1998, the Company acquired approximately 1,000 billboards
and outdoor display faces from Kunz & Company for $40,264 in cash, of which
$6,000 was previously paid as a purchase option deposit in connection with the
Martin acquisition on July 31, 1998. The Company had previously been operating
these properties under a management agreement effective July 31, 1998.

On December 1, 1998, the Company acquired the assets and working capital of
the outdoor advertising division of Whiteco Industries, Inc. ("Whiteco"),
including approximately 22,500 billboards and outdoor displays in 34 states, for
$981,698 in cash including various other direct acquisition costs.

Between September and December 1998, the Company acquired approximately 670
additional billboards and outdoor displays in various markets for approximately
$23,582 in cash.

The acquisitions discussed above were accounted for as purchases, and are
subject to certain adjustments. Accordingly, the accompanying consolidated
financial statements include the results of operations of the acquired entities
accounted for as purchases from the dates of acquisition.

F-17
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CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the net assets acquired follows:

<TABLE>
<CAPTION>
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Cash and cash equivalents......................... $ 1,011 $ 9,724 $ 7,826
Accounts receivable, net.......................... 13,618 129,907 31,223
Other current assets.............................. 1,125 27,596 16,098
Property and equipment............................ 11,519 118,371 1,238,365
Assets held for sale.............................. 32,000 131,000 --
Intangible assets................................. 465,824 3,823,746 1,133,062
Other assets...................................... -- 26,742 1,195
Accounts payable and accrued expenses............. (4,536) (100,422) (14,973)
Deferred tax liabilities.......................... (61,218) (279,371) (98,042)
Other liabilities................................. -- (39,681) (12)
-------- ---------- ----------
Total net assets acquired............... 459,343 3,847,612 2,314,742
Less:
Cash and cash equivalents acquired.............. 1,011 9,724 7,826
Prior year escrow payments...................... -- 17,000 4,655
Notes payable................................... -- -- 9,270
Long-term debt assumed.......................... -- 1,171,000 --
Redeemable preferred stock issued............... -- 335,787 --
Preferred stock issued.......................... -- 111,048 --
Common stock issued............................. -- 536,571 --
Stock options assumed........................... -- 34,977 --
Gain on exchange................................ -- -- 123,845
Assets transferred in exchange.................. -- -- 173,155
-------- ---------- ----------
Cash paid for acquisitions........................ $458,332 $1,631,505 $1,995,991
======== ========== ==========
</TABLE>

The pro forma consolidated condensed results of operations data for 1997
and 1998, as if the 1997 and 1998 acquisitions and dispositions discussed above,
the 1997 preferred stock offering described in note 9, the 8 1/8% Notes offering
described in note 7(f), the 9% Notes offering described in note 7(g), the 8%
Senior Notes offering described in note 7(b) and the amendment and restatement
of the Senior Credit Facility described in note 7(a) occurred at January 1,
1997, follow:

<TABLE>
<CAPTION>
UNAUDITED
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Net revenues................................................ $1,227,083 $1,460,968
Net loss.................................................... (200,485) (92,054)
Basic and diluted loss per common share..................... (1.67) (0.85)
</TABLE>

The pro forma results are not necessarily indicative of the financial
results which would have occurred if the transactions had been in effect for the
entire periods presented.

On January 21, 1999 and February 9, 1999, the Company acquired
approximately 4,500 outdoor display faces from Triumph Outdoor Holdings and
certain affiliated companies for $36,345 in cash including working capital and
various other direct acquisition costs and is subject to certain adjustments.

F-18
<PAGE> 340
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Partnership, (ii) WZAK-FM from Zapis Communications and (iii) Zebra Broadcasting
Corporation which owns WZJM-FM and WJMO-AM. The six Cleveland stations were
acquired for an aggregate purchase price of $282,970 in cash including working
capital and is subject to certain adjustments.

Subsequent to January 1, 1999, the Company acquired approximately 100
additional billboards and outdoor displays in various markets for approximately
$8,178 in cash.

(b) Pending Transactions

On February 20, 1998, the Company entered into an agreement to acquire from
Capstar KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, KODA-FM, KKRW-FM and KQUE-AM in
Houston, KPLN-FM and KYXY-FM in San Diego and WDRV-FM, WJJJ-FM, WXDX-FM and
WDVE-FM in Pittsburgh (collectively, "the Capstar/SFX Stations") for an
aggregate purchase price of approximately $637,500 in a series of purchases and
exchanges over a period of three years (the "Capstar/SFX Transaction"). The
Capstar/ SFX Stations were acquired by Capstar as part of Capstar's acquisition
of SFX on May 29, 1998. On May 29, 1998, the Company completed the Houston
Exchange (defined above) and began programming the remaining ten Capstar/SFX
Stations under time brokerage agreements. The purchase price for the remaining
ten Capstar/SFX Stations will be approximately $494,250. The Company is
currently assessing whether the terms of the Capstar/SFX Transaction will be
modified upon the consummation of the Capstar Merger.

On August 14, 1998, the Company entered into an agreement to sell WMVP-AM
in Chicago to ABC, Inc. for $21,000 in cash. The Company entered into a time
brokerage agreement to sell substantially all of the broadcast time of WMVP-AM
effective September 10, 1998. Although there can be no assurance, the Company
expects that the disposition of WMVP-AM will be consummated in the second
quarter of 1999.

On August 26, 1998, the Company and Capstar entered into an agreement to
merge in a stock-for-stock transaction that will create the nation's largest
radio broadcasting entity (the "Capstar Merger"). Pursuant to this agreement, as
amended, the Company will acquire Capstar in a merger of Capstar into a
wholly-owned subsidiary of Chancellor Media. Each share of Chancellor Media
common stock will represent one share in the combined entity. Each share of
Capstar common stock will entitle the holder thereof to 0.4955 of a share of
common stock of Chancellor Media. Upon consummation of its pending transactions,
Capstar will own and operate or program approximately 340 radio stations serving
81 mid-sized markets nationwide. On February 1, 1999, the Company began
operating WKNR-AM in Cleveland, a station owned by Capstar, under a time
brokerage agreement. The Capstar Merger is subject to stockholder approval of
both the Company and Capstar. Although there can be no assurance, the Company
expects that the Capstar Merger will be consummated in the second quarter or
early third quarter of 1999.

On September 15, 1998, the Company entered into an agreement to acquire
KKFR-FM and KFYI-AM in Phoenix from The Broadcast Group, Inc. for $90,000 in
cash. The Company began operating KKFR-FM and KFYI-AM under a time brokerage
agreement effective November 5, 1998. Although there can be no assurance, the
Company expects that the Phoenix acquisition will be consummated in the second
quarter of 1999.

Consummation of each of the transactions discussed above is subject to
various conditions, including, in most cases, approval from the FCC and the
expiration or early termination of any waiting period required under the HSR
Act. The Company believes that such conditions will be satisfied in the ordinary
course, but there can be no assurance that this will be the case.

On April 13, 1998, the Company and Secret entered into a settlement
agreement regarding WFLN-FM in Philadelphia. Previously in August 1996, the
Company and Secret had entered into an agreement under which the Company would
acquire WFLN-FM from Secret for $37,750 in cash. In April 1997, the Company
F-19
<PAGE> 341
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

entered into an agreement to sell WFLN-FM to Greater Media for $41,800 in cash.
On July 16, 1997, Secret purported to terminate the sale of WFLN-FM to the
Company. The Company subsequently brought suit against Secret to enforce its
rights to acquire WFLN-FM. Pursuant to a court settlement entered in August 1997
and the settlement agreement between the Company and Secret entered on April 13,
1998, (i) Secret sold WFLN-FM directly to Greater Media for $37,750, (ii)
Greater Media deposited $4,050 (the difference between the Company's proposed
acquisition price for WFLN-FM from Secret and the Company's proposed sale price
for WFLN-FM to Greater Media) with the court and (iii) the Company received
$3,500 of such amount deposited by Greater Media with the court, plus applicable
interest (the "WFLN Settlement"), and Secret received the balance of $550, plus
applicable interest.

On May 29, 1998, Capstar sold KKPN-FM in Houston (acquired by Capstar as
part of Capstar's acquisition of SFX Broadcasting, Inc. ("SFX")) due to the
attributable ownership of Hicks Muse in both Capstar and the Company in order to
comply with the FCC's multiple ownership limits. In connection with Capstar's
sale of KKPN-FM, the Company received a commission from Capstar of $1,730.

(3) OTHER ASSETS

Other current assets consist of the following at December 31, 1997 and
1998:

<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Prepaid expenses and other.................................. $18,348 $42,451
Representation contracts receivable......................... 16,463 17,458
------- -------
$34,811 $59,909
======= =======
</TABLE>

Other assets consist of the following at December 31, 1997 and 1998:

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Note receivable -- Capstar(a)............................... $ -- $150,000
Note receivable -- Douglas (note 2)......................... 18,000 18,000
Deferred debt issuance costs, less accumulated amortization
of $943 in 1997 and $4,711 in 1998........................ 24,624 66,959
Deferred costs on purchases of representation contracts,
less accumulated amortization of $380 in 1997 and $11,242
in 1998................................................... 35,411 56,719
Investments at cost(b)...................................... -- 30,000
Representation contracts receivable......................... 12,187 14,181
Escrow deposits (note 2).................................... 4,655 --
Other....................................................... 18,619 23,034
-------- --------
$113,496 $358,893
======== ========
</TABLE>

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

(a) On May 29, 1998, the Company provided a loan (the "Capstar Loan") to Capstar
in the principal amount of $150,000 as part of the Capstar/SFX Transaction.
The Capstar Loan bears interest at the rate of 12% per annum (subject to
increase in certain circumstances), and is secured by a senior pledge of
common stock of Capstar's direct subsidiary. A portion of the Capstar Loan
will be prepaid by Capstar in connection with the Company's acquisition of,
and the proceeds of such prepayment would be used by the Company as a
portion of the purchase price for, each Capstar/SFX Station. Hicks Muse,
which is a substantial shareholder of the Company, controls Capstar, and
certain officers and directors of the Company are directors and/or executive
officers of Capstar and/or Hicks Muse.

(b) On October 9, 1998, the Company acquired a non-voting interest in Z-Spanish
Media Corporation for $25,000 in cash, which is accounted for under the cost
method. Z-Spanish Media is the owner and

F-20
<PAGE> 342
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operator of 22 Hispanic format radio stations in California, Texas, Arizona
and Illinois and provides Hispanic format network programming to an
additional 28 affiliated radio stations. Also, on December 18, 1998, the
Company acquired an interest in USA Digital Radio for $5,000 in cash, which
is accounted for under the cost method. USA Digital Radio is a leading
developer of In-Band On-Channel(TM) AM and FM digital audio broadcasting
technology, which is designed to allow radio broadcasters to transmit both
analog and digital signals simultaneously using existing frequency spectrum
allocations.

(4) PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 1997 and
1998:

<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE 1997 1998
--------------------- -------- ----------
<S> <C> <C> <C>
Advertising structures....................... 15 years $ -- $1,178,751
Transmitter and studio equipment............. 3-20 years 90,493 96,515
Buildings and improvements................... 3-35 years 36,914 58,491
Land......................................... -- 23,122 46,062
Furniture and fixtures....................... 5-7 years 15,554 24,765
Construction in progress..................... -- -- 13,114
Vehicles..................................... 5-7 years 2,870 7,625
Other equipment.............................. Various 23,576 35,914
-------- ----------
192,529 1,461,237
Less accumulated depreciation................ 32,732 73,081
-------- ----------
$159,797 $1,388,156
======== ==========
</TABLE>

(5) INTANGIBLE ASSETS

Intangible assets consist of the following at December 31, 1997 and 1998:

<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE 1997 1998
--------------------- ---------- ----------
<S> <C> <C> <C>
Broadcast licenses......................... 15-40 years $3,593,384 $4,110,469
Goodwill................................... 15-40 years 631,739 1,086,083
Other...................................... 1-40 years 491,272 532,011
---------- ----------
4,716,395 5,728,563
Less accumulated amortization.............. 311,952 672,516
---------- ----------
$4,404,443 $5,056,047
========== ==========
</TABLE>

Other intangible assets include: (i) premium advertising revenue base (the
value of the higher radio advertising revenues in certain of the Company's
markets as compared to other markets of similar population); (ii) advertising
client base (the value of the well-established advertising base in place at the
time of acquisition of certain stations); (iii) talent contracts (the value of
employment contracts between certain stations and their key employees); (iv)
fixed asset delivery premium (the benefit expected from the Company's ability to
operate fully constructed and operational stations from the date of
acquisition), (v) premium audience growth pattern (the value of expected
above-average population growth in a given market) and (vi) the fair market
value of media representation contracts acquired in connection with the
acquisition of Katz.

F-21
<PAGE> 343
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following at December
31, 1997 and 1998:

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Accounts payable............................................ $ 78,990 $113,362
Accrued interest............................................ 18,130 43,221
Accrued payroll............................................. 34,274 36,858
Representation contracts payable............................ 21,680 24,859
Notes payable............................................... -- 4,198
Accrued dividends........................................... 16,120 2,353
Other accrued expenses...................................... 9,221 11,767
-------- --------
$178,415 $236,618
======== ========
</TABLE>

(7) LONG-TERM DEBT

Long-term debt consists of the following at December 31, 1997 and 1998:

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Senior Credit Facility(a)................................... $1,573,000 $1,596,000
8% Senior Notes(b).......................................... -- 750,000
9 3/8% Notes(c)............................................. 200,000 200,000
8 3/4% Notes(d)............................................. 200,000 200,000
10 1/2% Notes(e)............................................ 100,000 100,000
8 1/8% Notes(f)............................................. 500,000 500,000
9% Notes(g)................................................. -- 750,000
---------- ----------
Total long-term debt.............................. $2,573,000 $4,096,000
========== ==========
</TABLE>

(a) Senior Credit Facility

The Company's senior credit facility, as amended on November 9, 1998 (the
"Senior Credit Facility") provides for aggregate commitments under a revolving
loan facility and a term loan facility of $1,600,000 and $900,000, respectively.
In connection with the amendment and restatement of the Senior Credit Facility
on April 25, 1997, the Company wrote off the unamortized balance of deferred
debt issuance costs of $4,350 (net of a tax benefit of $2,343) as an
extraordinary charge in 1997.

Borrowings under the Senior Credit Facility bear interest at a rate which,
at the option of the Company, is based on the participating banks' prime rate or
Eurodollar rate, plus an incremental rate. Without giving effect to the interest
rate swap and cap agreements described below, the interest rate on the $900,000
outstanding under the term loan facility at December 31, 1998 was 7.31%, based
on Eurodollar rates, and the interest rate on the $680,000 and $16,000 of
advances outstanding under the revolving loan facility were 7.31% on a blended
basis and 8.5%, respectively, at December 31, 1998, based on the Eurodollar and
prime rates, respectively. The Company pays fees ranging from 0.25% to 0.375%
per annum on the aggregate unused portion of the loan commitment based upon the
leverage ratio for the most recent quarter end, in addition to an annual agent's
fee.

Pursuant to the Senior Credit Facility, the Company is required to enter
into interest hedging agreements that result in fixing or placing a cap on the
Company's floating rate debt so that no less than 50% of the principal amount of
total debt outstanding has a fixed or capped rate. At December 31, 1998,
interest rate swap agreements covering a notional balance of $1,810,000 were
outstanding. These outstanding swap agreements mature from 1999 through 2002 and
require the Company to pay fixed rates of 4.70% to 6.63%

F-22
<PAGE> 344
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

while the counterparty pays a floating rate based on the three-month London
Interbank Borrowing Offered Rate ("LIBOR"). During the years ended December 31,
1996, 1997 and 1998, the Company recognized charges under its interest rate swap
agreements of $111, $2,913 and $5,134 respectively. The Company's exposure to
credit loss is minimal as its interest rate swap agreements are with the
participating banks under the senior credit facility.

The term loan facility is payable in quarterly installments commencing on
September 30, 2000 and ending June 30, 2005. The revolving loan facility
requires scheduled annual reductions of the commitment amount, payable in
quarterly installments commencing on September 30, 2000 and ending on June 30,
2005. The capital stock of the Company's subsidiaries is pledged to secure the
performance of the Company's obligations under the Senior Credit Facility, and
each of the Company's domestic subsidiaries have guaranteed those obligations.

(b) 8% Senior Notes

On November 17, 1998, the Company issued $750,000 aggregate principal
amount of 8% Senior Notes due 2008 (the "8% Senior Notes") for estimated net
proceeds of $730,000 in a private placement. Interest on the 8% Senior Notes is
payable semiannually, commencing on May 1, 1999. The 8% Senior Notes mature on
November 1, 2008 and are redeemable, in whole or in part, at the option of the
Company at a redemption price equal to 100% plus the Applicable Premium (as
defined in the indenture governing the 8% Senior Notes) plus accrued and unpaid
interest. In addition, on or prior to November 1, 2001, the Company may redeem
up to 25% of the original aggregate principal amount of the 8% Senior Notes at a
redemption price equal to 108% plus accrued and unpaid interest with the net
proceeds of one or more public equity offerings of Chancellor Media, CMHC or
CMCLA. Upon the occurrence of a change in control (as defined in the indenture
governing the 8% Senior Notes), the holders of the 8% Senior Notes have the
right to require the Company to repurchase all or any part of the 8% Senior
Notes at a purchase price equal to 101% plus accrued and unpaid interest.

Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company assumed CRBC's $200,000 aggregate principal amount of 9 3/8% Senior
Subordinated Notes due 2004 (the "9 3/8% Notes"). Interest on the 9 3/8% Notes
is payable semiannually, commencing on April 1, 1996. The 9 3/8% Notes mature on
October 1, 2004 and are redeemable, in whole or in part, at the option of the
Company on or after February 1, 2000, at redemption prices ranging from 104.688%
at February 1, 2000 and declining to 100% on or after February 1, 2003, plus in
each case accrued and unpaid interest. In addition, on or prior to January 31,
1999, the Company may redeem up to 25% of the original aggregate principal
amount of the 9 3/8% Notes at a redemption price of 107.031% plus accrued and
unpaid interest with the net proceeds of one or more public equity offerings of
CMHC or CMCLA. Upon the occurrence of a change in control (as defined in the
indenture governing the 9 3/8% Notes), the holders of the 9 3/8% Notes have the
right to require the Company to repurchase all or any part of the 9 3/8% Notes
at a purchase price equal to 101% plus accrued and unpaid interest.

(d) 8 3/4% Notes

Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company assumed CRBC's $200,000 aggregate principal amount of 8 3/4% Senior
Subordinated Notes due 2007 (the "8 3/4% Notes"). Interest on the 8 3/4% Notes
is payable semiannually, commencing on December 15, 1997. The 8 3/4% Notes
mature on June 15, 2007 and are redeemable, in whole or in part, at the option
of the Company on or after June 15, 2002, at redemption prices ranging from
104.375% at June 15, 2002 and declining to 100% on or after June 15, 2005, plus
in each case accrued and unpaid interest. In addition, prior to June 15, 2000,
the Company

F-23
<PAGE> 345
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

may redeem up to 25% of the original aggregate principal amount of the 8 3/4%
Notes at a redemption price of 108.75% plus accrued and unpaid interest with the
net proceeds of one or more public equity offerings of CMHC or CMCLA. Upon the
occurrence of a change in control (as defined in the indenture governing the
8 3/4% Notes) on or prior to June 15, 2000, the 8 3/4% Notes may be redeemed as
a whole at the option of the Company at a redemption price of 100% plus the
Applicable Premium (as defined in the indenture governing the 8 3/4% Notes) and
accrued and unpaid interest. Upon the occurrence of a change in control after
June 15, 2000, the holders of the 8 3/4% Notes have the right to require the
Company to repurchase all or any part of the 8 3/4% Notes at a purchase price
equal to 101% plus accrued and unpaid interest.

(e) 10 1/2% Notes

Upon consummation of the Katz Acquisition, on October 28, 1997, the Company
assumed Katz Media Corporation's $100,000 aggregate principal amount of 10 1/2%
Senior Subordinated Notes due 2007 (the "10 1/2% Notes"). Interest on the
10 1/2% Notes is payable semiannually, commencing on July 15, 1997. The 10 1/2%
Notes mature on January 15, 2007 and are redeemable, in whole or in part, at the
option of the Company on or after January 15, 2002, at redemption prices ranging
from 105.25% at January 15, 2002 and declining to 100% on or after January 15,
2006, plus in each case accrued and unpaid interest. In addition, prior to
January 15, 2000, the Company may redeem up to 35% of the original aggregate
principal amount of the 10 1/2% Notes at a redemption price of 109.5% plus
accrued and unpaid interest with the net proceeds of one or more offerings of
equity interests of Chancellor Media, CMHC or CMCLA. Upon the occurrence of a
change in control (as defined in the indenture governing the 10 1/2% Notes), the
holders of the 10 1/2% Notes have the right to require the Company to repurchase
all or any part of the 10 1/2% Notes at a purchase price equal to 101% plus
accrued and unpaid interest.

(f) 8 1/8% Notes

On December 22, 1997, the Company issued $500,000 aggregate principal
amount of 8 1/8% Senior Subordinated Notes due 2007 (the "8 1/8% Notes") for
estimated net proceeds of $485,000 in a private placement and subsequently
registered the 8 1/8% Notes on May 8, 1998. Interest on the 8 1/8% Notes is
payable semiannually, commencing on June 15, 1998. The 8 1/8% Notes mature on
December 15, 2007 and are redeemable, in whole or in part, at the option of the
Company on or after December 15, 2002, at redemption prices ranging from
104.063% at December 15, 2002 and declining to 100% on or after December 15,
2005, plus in each case accrued and unpaid interest. In addition, prior to
December 15, 2000, the Company may redeem up to 35% of the original aggregate
principal amount of the 8 1/8% Notes at a redemption price of 108.125% plus
accrued and unpaid interest with the net proceeds of one or more public equity
offerings of Chancellor Media, CMHC or CMCLA. Also, upon the occurrence of a
change in control (as defined in the indenture governing the 8 1/8% Notes), the
8 1/8% Notes may be redeemed as a whole at the option of the Company at a
redemption price of 100% plus the Applicable Premium (as defined in the
indenture governing the 8 1/8% Notes) and accrued and unpaid interest. Upon the
occurrence of a change in control after December 15, 2000, the holders of the
8 1/8% Notes have the right to require the Company to repurchase all or any part
of the 8 1/8% Notes at a purchase price equal to 101% plus accrued and unpaid
interest.

(g) 9% Notes

On September 30, 1998, the Company issued $750,000 aggregate principal
amount of 9% Senior Subordinated Notes due 2008 (the "9% Notes") for estimated
net proceeds of $730,000 in a private placement and subsequently registered the
9% Notes on December 10, 1998. Interest on the 9% Notes is payable semiannually,
commencing on April 1, 1999. The 9% Notes mature on October 1, 2008 and are
redeemable, in whole or in part, at the option of the Company on and after
October 1, 2003, at redemption prices ranging from 106.5% at October 1, 2003 and
declining to 100% on October 1, 2008, plus in each case accrued and unpaid
interest. In addition, on or prior to October 1, 2000, the Company may redeem up
to 25%
F-24
<PAGE> 346
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of the original aggregate principal amount of the 9% Notes at a redemption price
of 109% plus accrued and unpaid interest with the net proceeds of one or more
public equity offerings of Chancellor Media, CMHC or CMCLA. Upon the occurrence
of a change in control (as defined in the indenture governing the 9% Notes), the
9% Notes may be redeemed, on or prior to October 1, 2000, as a whole at the
option of the Company at a redemption price of 100% plus the Applicable Premium
(as defined in the indenture governing the 9% Notes) and accrued and unpaid
interest. Upon the occurrence of a change in control after October 1, 2000, the
holders of the 9% Notes have the right to require the Company to repurchase all
or any part of the 9% Notes at a purchase price equal to 101% plus accrued and
unpaid interest.

(h) Other

The 9 3/8% Notes, the 8 3/4% Notes, the 10 1/2% Notes, the 8 1/8% Notes and
the 9% Notes (collectively, the "Subordinated Notes") are unsecured obligations
of the Company, subordinated in right of payment to all existing and any future
senior indebtedness of the Company. The Subordinated Notes are fully and
unconditionally guaranteed, on a joint and several basis, by all of the
Company's direct and indirect subsidiaries other than certain inconsequential
subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantors are
wholly-owned subsidiaries of the Company.

The 8% Senior Notes are senior unsecured obligations of the Company and
rank equal in right of payment to the obligations of the Company under the
Senior Credit Facility and existing and all other indebtedness of the Company
not expressly subordinated to the 8% Senior Notes. However, because the 8%
Senior Notes are unsecured, the 8% Senior Notes are effectively subordinated in
right of payment to the Company's secured debt, including the Senior Credit
Facility. The 8% Senior Notes are fully and unconditionally guaranteed, on a
joint and several basis, by the Subsidiary Guarantors.

The Senior Credit Facility and the indentures governing the 8% Senior Notes
and the Subordinated Notes contain customary restrictive covenants, which, among
other things and with certain exceptions, limit the ability of the Company and
its subsidiaries 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, effect
an asset swap and make acquisitions. The Company is required under the Senior
Credit Facility to maintain specified financial ratios, including leverage, cash
flow and debt service coverage ratios (as defined).

A summary of the future maturities of long-term debt at December 31, 1998
follows:

<TABLE>
<S> <C>
1999........................................................ $ --
2000........................................................ 67,500
2001........................................................ 157,500
2002........................................................ 180,000
2003........................................................ 316,000
Thereafter.................................................. 3,375,000
</TABLE>

(8) REDEEMABLE PREFERRED STOCK

(a) 12 1/4% Preferred Stock

Upon consummation of the Chancellor Merger on September 5, 1997, the
Company issued 1,000,000 shares of CMCLA's 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock (the "12 1/4% Preferred Stock") in exchange for
CRBC's substantially identical securities with a fair value of $120,217
including accrued and unpaid dividends of $772. The liquidation preference of
each share of 12 1/4% Preferred Stock was $119.445 plus accrued and unpaid
dividends of $1,829 at December 31, 1997. The dividend rate on the 12 1/4%
Preferred Stock was 12.25% per annum of the liquidation preference and was
payable quarterly.

F-25
<PAGE> 347
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On July 20, 1998, CMCLA completed a consent solicitation (the "12 1/4%
Preferred Stock Consent Solicitation") to modify certain timing restrictions on
its ability to exchange all shares of its 12 1/4% Preferred Stock for its
12 1/4% Subordinated Exchange Debentures due 2008 (the "12 1/4% Debentures").
Consenting holders of 12 1/4% Preferred Stock received payments of $0.05 per
share of 12 1/4% Preferred Stock. On July 23, 1998, CMCLA exchanged the shares
of 12 1/4% Preferred Stock for 12 1/4% Debentures (the "12 1/4% Exchange"). In
connection with the 12 1/4% Preferred Stock Consent Solicitation and 12 1/4%
Exchange, CMCLA incurred approximately $170 in transaction costs which were
recorded as deferred debt issuance costs.

On August 19, 1998, CMCLA completed a cash tender offer (the "12 1/4%
Debentures Tender Offer") for all of its 12 1/4% Debentures for an aggregate
repurchase cost of $143,836 which included (i) the principal amount of the
12 1/4% Debentures of $119,445, (ii) premiums on the repurchase of the 12 1/4%
Debentures of $22,683, (iii) accrued and unpaid interest on the 12 1/4%
Debentures from July 23, 1998 through August 19, 1998 of $1,138 and (iv)
estimated transaction costs of $570. In connection with the 12 1/4% Debentures
Tender Offer, CMCLA recorded an extraordinary charge of $15,224 (net of a tax
benefit of $8,199) consisting of the premiums, estimated transaction costs and
the write-off of the unamortized balance of deferred debt issuance costs.

(b) 12% Preferred Stock

Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company issued 2,117,629 shares of CMCLA's 12% Exchangeable Preferred Stock (the
"12% Preferred Stock") in exchange for CRBC's substantially identical securities
with a fair value of $215,570 including accrued and unpaid dividends of $3,807.
The liquidation preference of each share of 12% Preferred Stock was $100.00 plus
accrued and unpaid dividends of $11,756 at December 31, 1997. The dividend rate
on the 12% Preferred Stock was 12% per annum of the liquidation preference and
was payable semi-annually.

On May 8, 1998, CMCLA completed a consent solicitation (the "12% Preferred
Stock Consent Solicitation") to modify certain timing restrictions on its
ability to exchange all shares of its 12% Preferred Stock for its 12%
Subordinated Exchange Debentures due 2009 (the "12% Debentures"). Consenting
holders of 12% Preferred Stock received payments of $0.05 per share of 12%
Preferred Stock. On May 13, 1998, CMCLA exchanged the shares of 12% Preferred
Stock for 12% Debentures (the "12% Exchange"). In connection with the 12%
Preferred Stock Consent Solicitation and 12% Exchange, CMCLA incurred
approximately $270 in transaction costs which were recorded as deferred debt
issuance costs.

On June 10, 1998, CMCLA completed a cash tender offer (the "12% Debentures
Tender Offer") for all of its 12% Debentures for an aggregate repurchase cost of
$262,495 which included (i) the principal amount of the 12% Debentures of
$211,763, (ii) premiums on the repurchase of the 12% Debentures of $47,798,
(iii) accrued and unpaid interest on the 12% Debentures from May 13, 1998
through June 10, 1998 of $1,976 and (iv) estimated transaction costs of $958. In
connection with the 12% Debentures Tender Offer, CMCLA recorded an extraordinary
charge of $31,865 (net of a tax benefit of $17,158) consisting of the premiums,
estimated transaction costs and the write-off of the unamortized balance of
deferred debt issuance costs.

(9) STOCKHOLDERS' EQUITY

(a) Preferred Stock

(i) 1993 Convertible Preferred Stock

In October 1993, the Company issued 1,610,000 shares of $3.00 Convertible
Exchangeable Preferred Stock (the "1993 Convertible Preferred Stock") for net
proceeds of approximately $76,645. The Company converted 1,608,297 shares of the
1993 Convertible Preferred Stock into 10,051,832 shares of the Company's Common
Stock and redeemed the remaining 1,703 shares of 1993 Convertible Preferred
Stock at $52.70 per

F-26
<PAGE> 348
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

share in 1996 (the "1996 Preferred Stock Conversion"). The 1993 Convertible
Preferred Stock had a liquidation preference of $50.00 per share plus accrued
and unpaid dividends and a dividend rate of $3.00 per share, payable quarterly.

(ii) $3.00 Convertible Exchangeable Preferred Stock

In June 1997, the Company issued 5,990,000 shares of Chancellor Media's
$3.00 Convertible Exchangeable Preferred Stock (the "$3.00 Convertible Preferred
Stock") for net proceeds of $287,808. The liquidation preference of each share
of Convertible Preferred Stock is $50.00 plus accrued and unpaid dividends of
$749 at December 31, 1997 and 1998. Dividends on the $3.00 Convertible Preferred
Stock are cumulative and payable quarterly commencing September 15, 1997 at a
rate per annum of $3.00 per share, when, as and if declared by the Board of
Directors of the Company. The $3.00 Convertible Preferred Stock is convertible
at the option of the holder at any time unless previously redeemed or exchanged,
into the Company's Common Stock, par value $.01 per share at a conversion price
of $25.00 per share, subject to adjustment in certain events. The $3.00
Convertible Preferred Stock is redeemable in whole or in part, at the option of
the Company, on or after June 16, 1999, at redemption prices ranging from 104.8%
and declining to 100% of the liquidation preference on or after June 15, 2007,
plus in each case accrued and unpaid dividends, provided that on or prior to
June 15, 2000, the closing price of the Common Stock has equaled or exceeded
150% of the conversion price for 20 out of any 30 consecutive trading days. The
$3.00 Convertible Preferred Stock is exchangeable, subject to certain
conditions, at the option of the Company, in whole but not in part, commencing
September 15, 2000, for 6% Convertible Subordinated Exchange Debentures due 2012
(the "6% Exchange Debentures") at a rate of $50.00 principal amount of 6%
Exchange Debentures for each share of $3.00 Convertible Preferred Stock. Upon
the occurrence of a change in control (as defined in the certificate of
designation governing the $3.00 Convertible Preferred Stock), holders will have
special conversion rights, subject to cash redemption by the Company. The $3.00
Convertible Preferred Stock is senior in liquidation preference to the Common
Stock of Chancellor Media and pari passu with the 7% Convertible Preferred
Stock.

(iii) 7% Convertible Preferred Stock

Upon consummation of the Chancellor Merger, on September 5, 1997, the
Company issued 2,200,000 shares of Chancellor Media's 7% Convertible Preferred
Stock (the "7% Convertible Preferred Stock") in exchange for Chancellor's
substantially identical securities with a fair value of $111,048 including
accrued and unpaid dividends of $1,048. The liquidation preference of each share
of 7% Convertible Preferred Stock is $50.00 plus accrued and unpaid dividends of
$1,604 at December 31, 1997 and 1998. Dividends on the 7% Convertible Preferred
Stock are cumulative and payable quarterly, commencing July 15, 1997. The 7%
Convertible Preferred Stock is convertible at the option of the holder at any
time unless previously redeemed or exchanged, into the Company's Common Stock,
par value $.01 per share at a conversion price of $18.095 per share, subject to
adjustment in certain events. The 7% Convertible Preferred Stock is redeemable
in whole or in part, at the option of the Company, on or after January 15, 2000,
at redemption prices ranging from 104.9% at January 15, 2000 and declining to
100% of the liquidation preference on or after January 15, 2007, plus in each
case accrued and unpaid dividends. Upon the occurrence of a change in control
(as defined in the certificate of designation governing the 7% Convertible
Preferred Stock), the holders of the 7% Convertible Preferred Stock have the
right to require the Company to repurchase all or any part of the 7% Convertible
Preferred Stock at a price of 101% of the liquidation preference, plus accrued
and unpaid dividends. The 7% Convertible Preferred Stock is senior in
liquidation preference to the Common Stock of Chancellor Media and pari passu
with the $3.00 Convertible Preferred Stock.

F-27
<PAGE> 349
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) Common Stock

On October 17, 1996, the Company completed a secondary public offering of
18,000,000 shares of its Common Stock (the "1996 Offering"). The net proceeds to
the Company in connection with the 1996 Offering of approximately $264,236 were
used to reduce borrowings under the Company's prior senior credit facility.

On September 5, 1997, the Company issued 34,617,460 shares of Common Stock
at $15.50 per share in connection with the Chancellor Merger. In addition, upon
consummation of the Chancellor Merger, each share of the Company's formerly
outstanding Class A Common Stock and Class B Common Stock was reclassified,
changed and converted into one share of Common Stock.

On August 8, 1996, the Company declared a three-for-two stock split
effected in the form of a stock dividend payable on August 26, 1996 to
shareholders of record at the close of business on August 19, 1996. On December
18, 1997, the Company declared a two-for-one stock split effected in the form of
a stock dividend payable on January 12, 1998 to shareholders of record at the
close of business on December 29, 1997. All share and per share data (other than
authorized share data) contained in the accompanying consolidated financial
statements have been retroactively adjusted to give effect to the stock
dividend.

On March 13, 1998, the Company completed an offering of 21,850,000 shares
of its Common Stock for net proceeds of approximately $994,642. The net proceeds
were used to reduce bank borrowings under the revolving credit portion of the
Senior Credit Facility (as defined) and the excess proceeds were initially
invested in short-term investment grade securities. The Company subsequently
used the excess proceeds for general corporate purposes, including the financing
of certain acquisitions and exchanges.

The Company has established the 1992, 1993, 1995 and 1998 Key Employee
Stock Option Plans (the "Employee Option Plans") which provide for the issuance
of stock options to officers and other key employees of the Company and its
subsidiaries. The Employee Option Plans make available for issuance an aggregate
of 15,105,000 shares of Common Stock. Options issued under the Employee Option
Plans have varying vesting periods as provided in separate stock option
agreements and generally carry an expiration date of ten years subsequent to the
date of issuance. Options issued under the 1993, 1995 and 1998 Employee Option
Plans are required to have exercise prices equal to or in excess of the fair
market value of the Company's Common Stock on the date of issuance unless
approved by the Compensation Committee of the Company's Board of Directors.

In May 1995, the Company also established the Stock Option Plan for
Non-Employee Directors (the "Director Plan") which provides for the issuance of
stock options to non-employee directors of the Company. The Director Plan makes
available for issuance an aggregate of 900,000 shares of Common Stock. Options
issued under the Director Plan have exercise prices equal to the fair market
value of the Company's Common Stock on the date of issuance, vest over a three
year period and have an expiration date of ten years subsequent to the date of
issuance.

In connection with the BPI Acquisition, the Company assumed outstanding
options to purchase 310,276 shares of the Company's Common Stock (the "BPI
Options"). The BPI Options vested and became exercisable on May 12, 1996 and
have an expiration date of ten years subsequent to the original date of issuance
by BPI.

In connection with the Chancellor Merger, the Company assumed outstanding
options to purchase 3,526,112 shares of the Company's Common Stock (the
"Chancellor Options") with a fair value of $34,977. The Chancellor Options have
varying vesting periods as provided in separate stock option agreements and
generally carry an expiration date of ten years subsequent to the original date
of issuance by CBC.

F-28
<PAGE> 350
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The total options available for grant were 1,115,894 and 2,171,939 at
December 31, 1997 and 1998, respectively.

Following is a summary of activity in the employee option plans and
agreements discussed above for the years ended December 31, 1996, 1997 and 1998:

<TABLE>
<CAPTION>
1996 1997 1998
-------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year..................... 2,579,748 $ 3.46 3,559,984 $ 5.97 8,826,696 $12.98
Granted.................... 1,174,500 11.56 2,773,590 22.89 7,392,000 39.28
Assumed in acquisitions.... -- -- 3,526,112 9.29 -- --
Exercised.................. (166,806) 4.27 (994,526) 5.43 (1,075,860) 9.55
Canceled................... (27,458) 4.96 (38,464) 19.46 (316,847) 20.82
--------- --------- ----------
Outstanding at end of
year..................... 3,559,984 $ 5.97 8,826,696 $12.98 14,825,989 $26.03
========= ========= ==========
Options exercisable at year
end...................... 1,935,484 5,687,960 10,211,090
========= ========= ==========
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- --------------------------------
NUMBER NUMBER
OUTSTANDING AT WEIGHTED AVERAGE WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, REMAINING AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1998 CONTRACTUAL LIFE EXERCISE PRICE 1998 EXERCISE PRICE
--------------- -------------- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$0.01................ 645,000 3.6 years $ 0.01 645,000 $ 0.01
$4.13 to 6.17........ 1,850,688 5.5 years 4.60 1,850,688 4.60
$10.67 to 15.81...... 2,121,349 7.2 years 11.50 1,537,488 11.49
$17.05 to 24.13...... 3,459,002 8.6 years 22.26 2,639,914 22.16
$26.38 to 32.13...... 1,095,000 9.5 years 30.26 338,000 29.31
$37.31 to 48.38...... 5,654,950 9.4 years 42.96 3,200,000 41.96
---------- ----------
14,825,989 $26.03 10,211,090 $22.42
========== ==========
</TABLE>

The weighted-average fair value of options granted during 1996, 1997 and
1998 which have exercise prices equal to or in excess of the market value of the
Company's common stock on the date of issuance was $5.25, $10.25 and $17.50,
respectively. The weighted-average fair value of options granted during 1998
which have exercise prices less than the market value of the Company's common
stock on the date of issuance was $28.19.

F-29
<PAGE> 351
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company applies APB Opinion No. 25 in accounting for its Employee
Option Plans and, accordingly, no compensation cost is recognized in the
consolidated financial statements for stock options which have exercise prices
equal to or in excess of the market value of the Company's Common Stock on the
date of issuance. A charge for stock compensation expense of $16,000 is included
in executive severance charge for the year ended December 31, 1998 (see note
13). Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Net loss:
As reported....................................... $(16,194) $(31,745) $ (95,589)
Pro forma......................................... (19,249) (44,639) (160,687)
Basic and diluted loss per common share:
As reported....................................... (.33) (.46) (.88)
Pro forma......................................... (.38) (.59) (1.35)
</TABLE>

Pro forma net loss reflects only options granted subsequent to December 31,
1994. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net loss amounts
presented above.

The fair value for the stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996, 1997 and 1998: expected stock volatility ranging from
39.9% to 44.5%; risk-free interest rates ranging from 4.8% to 6.0%; dividend
yields of 0%; and expected lives ranging from three to seven years.

(10) INCOME TAXES

Income tax expense (benefit) from continuing operations consists of the
following:

<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal............................................... $ 485 $ 6,840 $ --
State................................................. 972 4,791 5,033
------- ------- -------
Total current tax expense............................... 1,457 11,631 5,033
Deferred tax expense (benefit).......................... (4,353) (3,829) 28,718
------- ------- -------
Total income tax expense (benefit)...................... $(2,896) $ 7,802 $33,751
======= ======= =======
</TABLE>

During 1997 and 1998, the Company incurred extraordinary losses in
connection with various refinancings. The tax benefit related to the
extraordinary losses were approximately $2,343 and $25,357 for the years ended
December 31, 1997 and 1998, respectively. This tax benefit, which reduced
current taxes payable, is separately allocated to the extraordinary item. See
Note 7(a) and Note 8. During 1998, the Company reduced current taxes payable by
$13,098 due to a tax benefit received from the exercise of certain stock
options.

F-30
<PAGE> 352
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Total income tax expense (benefit) differed from the amount computed by
applying the U.S. federal statutory income tax rate of 35% to loss from
continuing operations for the years ended December 31, 1996, 1997 and 1998 as a
result of the following:

<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)............... $(6,682) $(2,342) $ 998
Amortization of goodwill................................ 2,477 5,744 11,728
State income taxes, net of federal benefit.............. 632 2,533 4,919
Non-deductible executive compensation................... -- -- 13,221
Non-deductible meals and entertainment.................. 729 1,028 2,312
Other, net.............................................. (52) 839 573
------- ------- -------
$(2,896) $ 7,802 $33,751
======= ======= =======
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
1998 are presented below:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss and credit carryforwards............... $ 38,552 $ 76,755
Accrued executive compensation and stock options.......... 1,720 10,452
Differences in book and tax bases related to media
representation contracts............................... 39,908 27,233
Differences in book and tax bases of lease liabilities.... 4,727 4,727
Other..................................................... 3,147 1,754
--------- ---------
Total deferred tax assets......................... 88,054 120,921
--------- ---------
Deferred tax liabilities:
Property and equipment and intangibles, primarily related
to acquisitions........................................ (445,992) (567,221)
Other..................................................... (3,702) (6,834)
--------- ---------
Total deferred tax liabilities.................... (449,694) (574,055)
--------- ---------
Net deferred tax liability........................ $(361,640) $(453,134)
========= =========
</TABLE>

Deferred tax assets and liabilities are computed by applying the U.S.
federal and state income tax rate in effect to the gross amounts of temporary
differences and other tax attributes, such as net operating loss carryforwards.

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, projected future taxable income,
and tax planning strategies in making this assessment. The Company expects the
deferred tax assets at December 31, 1998 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, 1998, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $176,600, expiring
from 2001 to 2018 and has alternative minimum tax credit carryforwards of
approximately $4,700 that do not expire. Approximately $102,800 and $2,800 of
the net operating loss and tax credit carryforwards, respectively, at December
31, 1998 are subject to annual use limitations under tax rules governing changes
of ownership.

F-31
<PAGE> 353
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) COMMITMENTS AND CONTINGENCIES

The Company has long-term operating leases for office space, certain
broadcasting facilities and equipment and the majority of the land occupied by
its outdoor advertising structures. The leases expire at various dates,
generally during the next ten years, and have varying options to renew and
cancel. Rental expense for operating leases (excluding those with lease terms of
one month or less that were not renewed) was approximately $5,462, $10,913 and
$39,427 for 1996, 1997 and 1998, respectively. Future minimum lease payments
under noncancelable operating leases (with initial or remaining lease terms in
excess of one year) as of December 31, 1998 are as follows:

<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $ 67,218
2000...................................................... 66,957
2001...................................................... 64,904
2002...................................................... 63,501
2003...................................................... 62,992
Thereafter................................................ 1,501,398
</TABLE>

In July 1998, a stockholder derivative action was commenced in the Delaware
Court of Chancery by a stockholder purporting to act on behalf of the Company.
The defendants in the case include Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse"), LIN Television and some of Chancellor Media's directors. The
plaintiff alleges that, among other things, (1) Hicks Muse allegedly caused the
Company to pay too high of a price for LIN because Hicks Muse had allegedly paid
too high of a price when it acquired LIN; and (2) the transaction therefore
allegedly constitutes a breach of fiduciary duty and a waste of corporate assets
by Hicks Muse, which is alleged to control the Company, and the directors of the
Company named as defendants. The plaintiff seeks to enjoin consummation or
rescission of the transaction, compensatory damages, an order requiring that the
directors named as defendants "carry out their fiduciary duties," and attorneys'
fees and other costs. Plaintiff, defendants and the Company had reached a
tentative settlement of this lawsuit. However, as a result of the decision by
the Boards of Directors of the Company and LIN to terminate the LIN Merger, the
settlement will not proceed as planned.

In September 1998, a stockholder class action complaint was filed in the
Delaware Court of Chancery by a stockholder purporting to act individually and
on behalf of all other persons, other than defendants, who own securities of
Chancellor Media and are similarly situated. The defendants in the case are
named as Chancellor Media, Hicks Muse, Thomas O. Hicks, Jeffrey A. Marcus, James
E. de Castro, Eric C. Neuman, Lawrence D. Stuart, Jr., Steven Dinetz, Thomas J.
Hodson, Perry Lewis, John H. Massey and Vernon E. Jordan, Jr. The plaintiff
alleges breach of fiduciary duties, gross mismanagement, gross negligence or
recklessness, and other matters relating to the defendants' actions in
connection with the proposed Capstar merger. The plaintiff seeks to certify the
complaint as a class action, enjoin consummation of the Capstar merger, order
defendants to account to plaintiff and other alleged class members for damages,
and award attorneys' fees and other costs. The Company believes that the lawsuit
is without merit and intends to vigorously defend the action.

On July 10, 1998, the Company entered into an agreement to acquire a 50%
economic interest in Grupo Radio Centro, S.A. de C.V., an owner and operator of
radio stations in Mexico, for approximately $120,500 in cash and $116,500 in
Chancellor Media common stock. On October 15, 1998, the Company announced that
it had provided notice to Grupo Radio that it was terminating the acquisition
agreement in accordance with its terms. The Company has received notice from
Grupo Radio requesting arbitration under the terms of the acquisition agreement
of allegations that Chancellor Media wrongfully terminated that agreement, and
the parties have commenced the arbitration process. The Company believes that it
had a proper basis for terminating the agreement in accordance with its terms
and intends to contest these allegations vigorously.

F-32
<PAGE> 354
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is also involved in various other claims and lawsuits which are
generally incidental to its business. The Company is also vigorously contesting
all of these matters and believes that the ultimate resolution of these matters
and those mentioned above will not have a material adverse effect on its
consolidated financial position or results of operations.

The Company offers substantially all of its employees voluntary
participation in a 401(k) Plan. The Company may make discretionary contributions
to the plans; however, no such contributions were made by the Company during
1996, 1997 or 1998.

(12) FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

(a) Interest Rate Risk Management

The Company enters into interest rate swaps and collars to diversify its
risk associated with interest rate fluctuations. Under interest rate swaps, the
Company agrees with other parties to exchange, at specified intervals, the
difference between fixed rate and floating rate interest amounts calculated by
reference to an agreed notional principal amount.

Under interest rate collars, the Company agrees with other parties to
exchange, at specified intervals and interest rate levels, the difference
between fixed rate and floating rate interest amounts calculated by reference to
an agreed notional principal amount. If the index rate is between the cap rate
and floor rate, the Company does not receive or make any payments.

(b) Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1997 and 1998. 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>
1997 1998
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Notes receivable.......................... $ 18,000 $ 18,000 $ 168,000 $ 182,600
Long-term debt -- Senior Credit
Facility................................ 1,573,000 1,573,000 1,596,000 1,596,000
Long-term debt -- 8% Senior Notes......... -- -- 750,000 761,250
Long-term debt -- 9 3/8% Notes............ 200,000 209,000 200,000 208,000
Long-term debt -- 8 3/4% Notes............ 200,000 205,000 200,000 204,000
Long-term debt -- 10 1/2% Notes........... 100,000 110,000 100,000 110,000
Long-term debt -- 8 1/8% Notes............ 500,000 500,000 500,000 495,000
Long-term debt -- 9% Notes................ -- -- 750,000 787,500
Interest rate swaps and collars
liability............................... -- 3,919 -- 12,799
Redeemable preferred stock -- 12 1/4%
Preferred Stock......................... 119,445 133,000 -- --
Redeemable preferred stock -- 12%
Preferred Stock......................... 211,763 239,821 -- --
Preferred stock -- $3.00 Convertible
Preferred Stock......................... 299,500 473,959 299,500 567,553
Preferred stock -- 7% Convertible
Preferred Stock......................... 110,000 237,875 110,000 285,626
</TABLE>

F-33
<PAGE> 355
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:

Cash and cash equivalents, accounts receivable and accounts
payable: The carrying amount of these assets and liabilities approximates
fair value because of the short maturity of these instruments.

Notes receivable: The fair value of notes receivable is estimated by
discounting the expected future cash flows at interest rates commensurate
with the creditworthiness of the third party.

Long-term debt: The fair values of the Company's 8% Senior Notes,
9 3/8% Notes, 8 3/4% Notes, 10 1/2% Notes, 8 1/8% Notes, and 9% Notes are
based on quoted market prices at December 31, 1997 and 1998. As amounts
outstanding under the Company's Senior Credit Facility agreements bear
interest at current market rates, their carrying amounts approximate fair
market value.

Interest rate swaps and collars: The fair value of the interest rate
swap and collar contracts 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 either party.

Redeemable preferred stock: The fair values of the Company's 12 1/4%
Preferred Stock and 12% Preferred Stock are based on December 31, 1997
quoted market prices.

Preferred stock: The fair values of the Company's $3.00 Convertible
Preferred Stock and 7% Convertible Preferred Stock are based on quoted
market prices at December 31, 1997 and 1998.

(13) RELATED PARTY AND OTHER TRANSACTIONS

As of December 31, 1998, Thomas O. Hicks and affiliates of Hicks Muse
beneficially owned an aggregate 16,944,371 shares of Common Stock of the
Company. Mr. Hicks is Chairman of the Board and a director of the Company.

The Company is subject to a financial monitoring and oversight agreement,
dated April 1, 1996, as amended on September 4, 1997, with Hicks, Muse & Co.
Partners, L.P. ("Hicks Muse Partners"), an affiliate of Hicks Muse. In
connection with the financial monitoring and oversight agreement, the Company
pays to Hicks Muse Partners an annual fee of not less than $1,000, subject to
increase or decrease (but not below $1,000), based upon changes in the consumer
price index. Hicks Muse Partners is also entitled to reimbursement for any
out-of-pocket expenses incurred in connection with rendering services under the
financial monitoring and oversight agreement. The financial monitoring and
oversight agreement provides that the agreement will terminate at the time as
Thomas O. Hicks and his affiliates collectively cease to beneficially own at
least two-thirds of the number of shares of Chancellor Media common stock
beneficially owned by them, collectively, at the effective time of the
Chancellor Merger. The Company paid Hicks Muse Partners $333 and $1,019 in 1997
and 1998, respectively, in connection with the financial monitoring and
oversight agreement which is included in corporate general and administrative
expense.

In connection with the consummation of the Chancellor Merger, a financial
advisory agreement among CBC, CRBC and HM2/Management Partners, L.P.
("HM2/Management"), an affiliate of Hicks Muse, was terminated. In consideration
thereof, in lieu of any payments required to be made under the financial
advisory agreement in respect of the transactions contemplated by the Chancellor
Merger, HM2/Management was paid a fee of $10,000 in cash upon consummation of
the Chancellor Merger in 1997 which was accounted for as a direct acquisition
cost. As part of the termination of the financial advisory agreement, the
Company paid Hicks Muse Partners $1,500 for financial advisory services in
connection with the acquisition of Katz in 1997 which was accounted for as a
direct acquisition cost.

F-34
<PAGE> 356
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Vernon E. Jordan, Jr., a director of the Company, also serves on the board
of directors of Bankers Trust Company and Bankers Trust Corporation. BT Alex.
Brown Incorporated, an affiliate of Bankers Trust Company and Bankers Trust
Corporation, was engaged by the Company in January 1999 as a financial advisor
to explore strategic alternatives in an effort to maximize shareholder value. In
addition, affiliates of Bankers Trust Company and Bankers Trust Corporation have
in the past provided a variety of commercial banking, investment banking and
financial advisory services to the Company, and expect to continue to provide
services to the Company in the future. Fees paid to BT Alex. Brown in 1998 were
approximately $10,275.

In connection with the Capstar/SFX Transaction, the Company (i) began
programming ten radio stations owned by Capstar under time brokerage agreements
effective May 29, 1998 and paid fees of $28,831 to Capstar related to these
agreements during 1998 and (ii) provided a loan to Capstar in the principal
amount of $150,000 (see note 3). Interest income on this note receivable was
$10,600 during 1998. The Company also began operating Capstar's WKNR-AM in
Cleveland under a time brokerage agreement effective February 1, 1999.

The Company recorded revenue of $365 for the period October 28, 1997 to
December 31, 1997 and $6,836 for the year ended December 31, 1998 for providing
media representation services to Capstar. The Company paid or accrued $11,157 in
1998 in connection with Capstar's participation in the Company's AMFM Radio
Networks and other transactions. The Company had a net receivable balance from
Capstar of $748 at December 31, 1997, and a net payable to Capstar of $162 at
December 31, 1998.

In October and November 1998, LIN purchased two airplanes and subsequently
entered into two lease agreements with respect to those airplanes with the
Company. The leases expire in October 1999 and 2003, respectively, and in 1998,
the Company paid approximately $415 to LIN under the leases.

On April 14, 1998, Scott K. Ginsburg resigned as President and Chief
Executive Officer of the Company, and on April 20, 1998, Mr. Ginsburg resigned
as director of the Company and from all appointments and positions with its
respective subsidiaries. On April 20, 1998, Mr. Ginsburg and the Company entered
into a separation and consulting agreement. Following Mr. Ginsburg's
resignation, the Company entered into new employment agreements with James E. de
Castro, the Company's Chief Operating Officer, and Matthew E. Devine, the
Company's Chief Financial Officer, each effective April 17, 1998. On April 29,
1998, Jeffrey A. Marcus was named President and Chief Executive Officer, and the
Company entered into an employment agreement with Mr. Marcus effective June 1,
1998. In connection with Mr. Ginsburg's resignation, the Company incurred a
one-time executive severance charge of $59,475 which consists of (i) a lump sum
severance payment of $20,000 to Mr. Ginsburg; (ii) compensation expense of
$16,000 related to the grant of 800,000 stock options to Mr. Ginsburg at an
exercise price of $23.25 per share, (iii) consulting fees of $12,500 to be paid
to Mr. Ginsburg over five years, (iv) one-time cash payments of $5,000 and
$2,000 to Mr. de Castro and Mr. Devine, respectively, (v) execution bonuses of
$1,000 each paid to Mr. de Castro, Mr. Devine and Mr. Marcus and (vi) other
costs incurred in connection with Mr. Ginsburg's resignation of $975.
Subsequently, Matthew E. Devine resigned as Senior Vice President and Chief
Financial Officer of the Company and from all appointments and positions with
its respective subsidiaries and entered into a termination agreement with the
Company. In connection with Mr. Devine's resignation, the Company incurred a
one-time executive severance charge of $4,186 which consists of (i) a one-time
cash payment of $2,000, (ii) bonus payments totaling $2,033 and (iii) other
costs of $153.

(14) SEGMENT DATA

The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, effective January 1, 1998. This statement
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments.
F-35
<PAGE> 357
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SFAS No. 131 also requires disclosures about products and services, geographic
areas, and major customers. The adoption of SFAS No. 131 did not affect the
results of operations or financial position of the Company, but did affect the
disclosure of segment information. Certain information disclosed in the prior
year has been restated to conform to the provisions of SFAS No. 131.
Intersegment revenue is included in the segment totals for internal reporting.
This intercompany revenue is eliminated in consolidation. The accounting
policies of the segments are the same as those described in note 1.

The Company conducts business in three distinct operating segments
consisting of radio broadcasting, outdoor advertising and media representation.
Information about each of the operating segments follows:

(a) Chancellor Radio Group -- radio broadcasting

The Chancellor Radio Group portfolio consisted of 119 radio stations (89 FM
and 30 AM) concentrated in the top 30 markets in the United States and in Puerto
Rico at December 31, 1998, including 13 stations operated under time brokerage
agreements. As of December 31, 1998, the Chancellor Radio Group owned
superduopolies (clusters of four or five FM stations) in 11 of the nation's 15
largest radio markets - New York, Los Angeles, Chicago, San Francisco,
Philadelphia, Detroit, Dallas/Ft. Worth, Washington, D.C., Houston, Puerto Rico
and Phoenix and in four other large markets - Minneapolis-St. Paul, Pittsburgh,
Denver and Orlando. The Chancellor Radio Group also operates a national radio
network, the AMFM Radio Networks, which broadcasts advertising and syndicated
programming shows to a national audience of approximately 66 million listeners
in the United States (including approximately 39 million listeners from the
Company's portfolio of stations).

(b) Chancellor Outdoor Group -- outdoor advertising

The Chancellor Outdoor Group owned and operated approximately 38,000
outdoor advertising billboards and display faces in 37 states at December 31,
1998. The Company entered into the outdoor advertising business with the
acquisition of Martin on July 31, 1998 and further expanded its outdoor
advertising segment with the acquisition of Whiteco on December 1, 1998. The
Chancellor Outdoor Group segment data includes the results of operations of each
of the acquired entities from the date of acquisition.

The Company entered into the media representation business with the
acquisition of Katz on October 28, 1997. Katz is a full-service media
representation firm that sells national spot advertising time for its clients in
the radio, television and cable industries throughout the United States. Katz is
retained on an exclusive basis by radio stations, television stations and cable
television systems in over 200 designated market areas throughout the United
States, including at least one radio or television station in each of the 50
largest designated market areas. The media representation segment data includes
the results of operations of Katz from the date of acquisition.

F-36
<PAGE> 358
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Separate financial data for each of the Company's three business segments
is provided below. The Company evaluates the performance of its segments based
on the following:

<TABLE>
<CAPTION>
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Chancellor Radio Group -- radio broadcasting:
Net revenues.................................... $293,850 $ 548,856 $1,057,044
Operating expenses.............................. 174,344 297,085 551,037
Depreciation and amortization................... 83,765 168,597 376,833
Operating income................................ 32,493 75,450 122,188
Capital expenditures............................ 6,015 10,544 18,736
Identifiable assets............................. 875,768 4,265,038 4,649,127
Chancellor Outdoor Group -- outdoor advertising:
Net revenues.................................... -- -- 47,605
Operating expenses.............................. -- -- 23,505
Depreciation and amortization................... -- -- 25,986
Operating loss.................................. -- -- (3,871)
Capital expenditures............................ -- -- 5,344
Identifiable assets............................. -- -- 1,743,254
Katz -- media representation:
Net revenues.................................... -- 35,901 192,794
Operating expenses.............................. -- 21,842 131,106
Depreciation and amortization................... -- 4,210 29,630
Operating income................................ -- 8,399 25,299
Capital expenditures............................ -- 436 15,190
Identifiable assets............................. -- 495,951 528,238
</TABLE>

The segment financial data includes intersegment revenues and expenses
which must be excluded to reconcile to the Company's consolidated financial
statements. In addition, certain depreciation and amortization expenses,
corporate general and administrative expenses, executive severance expenses,
corporate capital expenditures and general corporate assets were not allocated
to business segments and must be included to reconcile to the Company's
consolidated financial statements. Reconciling financial data is provided below:

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- -------
<S> <C> <C> <C>
Intersegment net revenues............................. $ -- $ 2,679 $23,587
Intersegment operating expenses....................... -- 2,679 23,587
Unallocated depreciation and amortization............. 9,984 13,175 13,889
Unallocated corporate general and administrative
expenses............................................ 4,549 12,268 20,992
Unallocated executive severance....................... -- -- 63,661
Unallocated corporate capital expenditures............ 528 686 4,191
Unallocated general corporate assets.................. 145,191 207,886 307,288
</TABLE>

F-37
<PAGE> 359
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(15) QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1997:
Net revenues..................................... $ 81,897 $106,364 $145,022 $248,795
Operating income................................. 568 16,968 15,002 25,868
Income (loss) before extraordinary item.......... (6,011) 9,870 (6,000) (25,254)
Net income (loss) attributable to common
stockholders.................................. (6,011) 4,821 (11,049) (31,671)
Basic and diluted income (loss) per common share:
Before extraordinary item..................... (0.07) 0.11 (0.12) (0.27)
Net income (loss)............................. (0.07) 0.06 (0.12) (0.27)
1998:
Net revenues..................................... $233,557 $321,710 $343,829 $374,760
Operating income (loss).......................... (13,201) (18,072) 38,010 38,337
Income (loss) before extraordinary item.......... (68,571) 40,401 6,262 (26,592)
Net income (loss) attributable to common
stockholders.................................. (74,988) 2,118 (15,379) (33,010)
Basic and diluted income (loss) per common share:
Before extraordinary item..................... (0.60) 0.23 -- (0.23)
Net income (loss)............................. (0.60) 0.01 (0.11) (0.23)
</TABLE>

Basic and diluted loss per common share for the years ended December 31,
1997 and 1998 differs from the sum of basic and diluted loss per common share
for the quarters during the respective year due to the different periods used to
calculate weighted average shares outstanding.

(16) SUBSEQUENT EVENTS

LIN Merger Termination. On July 7, 1998, the Company entered into a merger
agreement with the indirect parent of LIN Television Corporation ("LIN") to
acquire LIN in a stock for stock transaction (the "LIN Merger"). On March 15,
1999, the Boards of Directors of the Company and LIN agreed to terminate the LIN
merger agreement.

On April 8, 1998, the Company entered into an agreement to acquire Petry
Media Corporation, an independent television representation firm, for
approximately $127,000 in cash and on September 3, 1998, the Company entered
into an agreement to acquire Pegasus Broadcasting of San Juan, L.L.C., a
television broadcasting company, for approximately $69,600 in cash. In
connection with the termination of the LIN merger, on March 15, 1999, the
Company's Board of Directors approved the negotiation of the assignment of the
Company's agreements to acquire Petry and Pegasus to LIN Television Corporation.
The assignment of these agreements is subject to negotiation of definitive
documentation, third-party approval and various other conditions, including
governmental approvals and, accordingly, there can be no assurance that such
agreements will be assigned by the Company at all.

Executive Management Realignment. On March 15, 1999, the Company announced
the following executive management changes:

- the appointments of Thomas O. Hicks as Chief Executive Officer of the
Company, of James E. de Castro as President and Chief Executive Officer
of a newly created Chancellor Radio and Outdoor Group and of R. Steven
Hicks, currently President and Chief Executive Officer of Capstar, as
President and Chief Executive Officer of the newly created Chancellor
Media Services Group;

F-38
<PAGE> 360
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- the creation of an Office of the Chairman of the Company's Board of
Directors, in which Mr. de Castro and Mr. Steven Hicks will join the
Company's Chairman, Mr. Thomas Hicks, as Vice Chairmen;

- the resignation of Jeffrey A. Marcus as the Company's President and Chief
Executive Officer effective March 15, 1999;

- the appointments of Kenneth J. O'Keefe as Chief Operating Officer of
Chancellor Radio Group and James A. McLaughlin as President and Chief
Operating Officer of Chancellor Outdoor Group;

- the appointment of D. Geoffrey Armstrong, currently Chief Operating
Officer of Capstar, as acting Chief Financial Officer, replacing Thomas
P. McMillin, who also resigned from his executive positions with the
Company effective March 15, 1999;

- the resignation of Eric C. Neuman as the Company's Senior Vice
President -- Strategic Development effective March 15, 1999;

- the appointment of William S. Banowsky, Jr., currently Executive Vice
President and General Counsel of Capstar, as the Company's General
Counsel, replacing Richard A. B. Gleiner, who also resigned from his
executive positions with the Company effective March 15, 1999.

The Company is expected to record a significant non-recurring charge in the
first quarter of 1999 in connection with the termination for the LIN Merger and,
if completed, assignment of the Petry Media Corporation and Pegasus Broadcasting
purchase agreements to LIN and the executive management realignment discussed
above.

See note 11 for the current status of certain litigation related to the LIN
Merger.

F-39
<PAGE> 361

SCHEDULE I
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS -- PARENT COMPANY
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Investment in subsidiaries, at equity....................... $1,480,207 $2,391,830
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities................................................. $ -- $ --
Stockholders' equity:
Preferred stock........................................... 409,500 409,500
Common stocks............................................. 1,199 1,428
Paid-in capital........................................... 1,226,930 2,259,583
Accumulated deficit....................................... (157,422) (278,681)
---------- ----------
Total stockholders' equity........................ 1,480,207 2,391,830
---------- ----------
Total liabilities and stockholders' equity........ $1,480,207 $2,391,830
========== ==========
</TABLE>

See accompanying notes to condensed financial statements.

F-40
<PAGE> 362

SCHEDULE I, CONT.

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED STATEMENTS OF OPERATIONS -- PARENT COMPANY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net loss -- equity in losses of unconsolidated
subsidiaries.............................................. $(16,194) $(31,745) $(95,589)
======== ======== ========
</TABLE>

See accompanying notes to condensed financial statements.

F-41
<PAGE> 363

SCHEDULE I, CONT.

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED STATEMENTS OF CASH FLOWS -- PARENT COMPANY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (16,194) $ (31,745) $ (95,589)
Equity in undistributed losses of unconsolidated
subsidiaries......................................... 16,194 31,745 95,589
--------- --------- ----------
Net cash provided by operating activities....... -- -- --
--------- --------- ----------
Cash flows from investing activities -- investment in
subsidiaries............................................ (261,028) (282,244) (978,114)
--------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, preferred stock
and warrants......................................... 264,938 293,158 1,003,784
Redemption of redeemable preferred stock................ (90) -- --
Dividends on preferred stock............................ (3,820) (10,914) (25,670)
Distributions from subsidiaries......................... -- -- --
--------- --------- ----------
Net cash provided by financing activities....... 261,028 282,244 978,114
--------- --------- ----------
Net change in cash and cash equivalents................... -- -- --
Cash and cash equivalents at beginning of year............ -- -- --
--------- --------- ----------
Cash and cash equivalents at end of year.................. $ -- $ -- $ --
========= ========= ==========
</TABLE>

See accompanying notes to condensed financial statements.

F-42
<PAGE> 364

SCHEDULE I, CONT.

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED FINANCIAL STATEMENTS -- PARENT COMPANY

(1) GENERAL

The accompanying condensed financial statements of Chancellor Media
Corporation (the "Company") should be read in conjunction with the consolidated
financial statements of the Company and its subsidiaries included in the
Company's Annual Report on Form 10-K.

(2) OBLIGATIONS, GUARANTEES AND COMMITMENTS

On November 6, 1992, the Company organized a new wholly-owned subsidiary to
which the Company transferred and assigned substantially all of its assets and
liabilities. The Company has guaranteed the obligations under a loan agreement
of this subsidiary (the "Senior Credit Facility"). Prior to such time the
Company was the debtor on such obligations. See note 7 to consolidated financial
statements of Chancellor Media Corporation and Subsidiaries regarding these
obligations.

(3) OTHER

See note 9 to consolidated financial statements of Chancellor Media
Corporation and Subsidiaries for a description of the preferred stock, common
stock and other equity securities of the Company.

F-43
<PAGE> 365

SCHEDULE II

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITEOFFS OF PERIOD
- ----------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1998............. $12,651 $5,684 $3,827(1) $6,582 $15,580
======= ====== ====== ====== =======
Year ended December 31, 1997............. $ 2,292 $5,174 $7,049(1) $1,864 $12,651
======= ====== ====== ====== =======
Year ended December 31, 1996............. $ 2,000 $2,179 $ 156(1) $2,043 $ 2,292
======= ====== ====== ====== =======
</TABLE>

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

(1) Additions result from the application of purchase accounting relating to the
Pyramid Acquisition in 1996, the Chancellor Merger, the Viacom Acquisition
and the Katz Acquisition in 1997 and the acquisitions of WWDC-FM/AM, Martin
Media, Primedia and the Outdoor Advertising Division of Whiteco in 1998.

F-44
<PAGE> 366

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 12,256 $ 7,069
Accounts receivable, less allowance for doubtful accounts
of $15,580 in 1998 and $17,844 in 1999................. 352,646 310,916
Other current assets...................................... 59,909 70,277
---------- ----------
Total current assets.............................. 424,811 388,262
Property and equipment, net................................. 1,388,156 1,395,898
Intangible assets, net...................................... 5,056,047 5,294,161
Other assets, net........................................... 358,893 369,269
---------- ----------
$7,227,907 $7,447,590
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses..................... $ 236,618 $ 275,865
Long-term debt.............................................. 4,096,000 4,378,000
Deferred tax liabilities.................................... 453,134 455,903
Other liabilities........................................... 50,325 52,518
---------- ----------
Total liabilities................................. 4,836,077 5,162,286
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. 2,200,000 shares of 7%
convertible preferred stock authorized, issued and
outstanding............................................ 110,000 110,000
Preferred stock, $.01 par value. 6,000,000 shares
authorized; 5,990,000 shares of $3.00 convertible
exchangeable preferred stock issued and outstanding.... 299,500 299,500
Common stock, $.01 par value. Authorized 200,000,000
shares; issued and outstanding 142,847,674 shares in
1998 and 143,063,179 shares in 1999.................... 1,428 1,431
Paid-in capital........................................... 2,259,583 2,262,916
Accumulated deficit....................................... (278,681) (388,543)
---------- ----------
Total stockholders' equity........................ 2,391,830 2,285,304
---------- ----------
$7,227,907 $7,447,590
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-45
<PAGE> 367

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
1998 1999
--------- ---------
<S> <C> <C>
Gross revenues.............................................. $262,421 $ 394,123
Less agency commissions................................... 28,864 43,858
-------- ---------
Net revenues...................................... 233,557 350,265
-------- ---------
Operating expenses:
Operating expenses, excluding depreciation and
amortization........................................... 148,019 208,510
Depreciation and amortization............................. 91,936 147,744
Corporate general and administrative...................... 6,803 17,814
Non-recurring charges..................................... -- 28,979
-------- ---------
Operating expenses..................................... 246,758 403,047
-------- ---------
Operating loss......................................... (13,201) (52,782)
-------- ---------
Other (income) expense:
Interest expense, net..................................... 48,300 84,392
Gain on disposition of representation contracts........... -- (3,603)
-------- ---------
Other (income) expense, net............................ 48,300 80,789
-------- ---------
Loss before income taxes............................... (61,501) (133,571)
Income tax benefit.......................................... 2,941 30,126
Dividends on preferred stock of subsidiary.................. 10,011 --
-------- ---------
Net loss.......................................... (68,571) (103,445)
Preferred stock dividends................................... 6,417 6,417
-------- ---------
Net loss attributable to common stockholders.............. $(74,988) $(109,862)
======== =========
Basic and diluted loss per common share..................... $ (0.60) $ (0.77)
======== =========
Weighted average common shares outstanding.................. 124,718 142,960
======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-46
<PAGE> 368

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (68,571) $(103,445)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 6,058 34,872
Amortization of goodwill, intangible assets and other
assets................................................ 85,878 112,872
Provision for doubtful accounts........................ 1,625 3,119
Deferred income tax benefit............................ (2,941) (33,393)
Gain on sale of representation contracts............... -- (3,603)
Write-off of transaction costs......................... -- 16,783
Dividends on preferred stock of subsidiary............. 10,011 --
Other.................................................. (449) --
Changes in certain assets and liabilities, net of
effects of acquisitions:
Accounts receivable.................................. 9,901 44,734
Other current assets................................. (3,308) (10,368)
Accounts payable and accrued expenses................ (6,962) 32,206
Other assets......................................... (25) (1,456)
Other liabilities.................................... (577) (1,085)
--------- ---------
Net cash provided by operating activities......... 30,640 91,236
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ (24,350) (332,110)
Escrow deposits on pending acquisitions................... (4,000) --
Payments made on purchases of representation contracts.... (7,422) (8,676)
Payments received on sales of representation contracts.... 4,164 6,187
Construction of advertising structures.................... -- (5,157)
Purchases of property and equipment....................... (6,224) (9,771)
Other..................................................... (4,844) (25,815)
--------- ---------
Net cash used by investing activities............. (42,676) (375,342)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 56,000 329,000
Principal payments on long-term debt...................... (729,000) (47,000)
Net proceeds from issuance of common stock................ 997,667 3,336
Dividends on preferred stock.............................. (22,887) (6,417)
Payments for debt issuance costs.......................... (23) --
--------- ---------
Net cash provided by financing activities......... 301,757 278,919
--------- ---------
Increase (decrease) in cash and cash equivalents............ 289,721 (5,187)
Cash and cash equivalents at beginning of period............ 16,584 12,256
--------- ---------
Cash and cash equivalents at end of period.................. $ 306,305 $ 7,069
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-47
<PAGE> 369

CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

1. BASIS OF PRESENTATION

The accompanying unaudited interim financial statements include the
accounts of Chancellor Media Corporation and its subsidiaries (collectively,
"the Company" or "Chancellor Media"), all of which are wholly owned. All
significant intercompany balances and transactions have been eliminated in
consolidation and in the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial position,
results of operations and cash flows have been recorded. Interim periods are not
necessarily indicative of results to be expected for the year.

These financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
year-end consolidated balance sheet data was derived from the audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.

Loss per common share is based on the weighted average shares of common
stock outstanding during the period. Stock options, the $3.00 Convertible
Exchangeable Preferred Stock and the 7% Convertible Preferred Stock are not
included in the calculation of loss per common share as their effect would be
antidilutive. Shares excluded from the calculation that related to potentially
dilutive securities amounted to 23,775,091 and 24,900,162 for the three months
ended March 31, 1998 and 1999, respectively.

2. RECENT DEVELOPMENTS

(a) Completed Transactions

On January 15, 1999, the Company acquired the music production library and
related license agreements of Brown Bag Productions for a purchase price of
$8,483 including various other direct acquisition costs.

On January 21, 1999 and February 9, 1999, the Company acquired
approximately 4,500 outdoor display faces from Triumph Outdoor Holdings and
certain affiliated companies for $37,006 in cash including working capital and
various other direct acquisition costs.

On January 28, 1999, the Company acquired Wincom Broadcasting Corporation
which owns WQAL-FM in Cleveland. The Company had previously been operating
WQAL-FM under a time brokerage agreement effective October 1, 1998. On February
2, 1999, the Company acquired five additional radio stations in Cleveland
including (i) WDOK-FM and WRMR-AM from Independent Group Limited Partnership,
(ii) WZAK-FM from Zapis Communications and (iii) Zebra Broadcasting Corporation
which owns WZJM-FM and WJMO-AM. The six Cleveland stations were acquired for an
aggregate purchase price of $283,758 in cash including working capital.

Between January and March 1999, the Company acquired approximately 100
billboards and outdoor displays in various transactions for approximately $8,198
in cash.

The acquisitions were accounted for as purchases. Accordingly, the
accompanying consolidated financial statements include the results of operations
of the acquired entities accounted for as purchases from the respective dates of
acquisition.

F-48
<PAGE> 370
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the net assets acquired follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1999
------------
<S> <C>
Cash and cash equivalents.............................. $ 4,360
Accounts receivable, net............................... 6,403
Other current assets................................... 1,355
Property and equipment................................. 27,768
Intangible assets...................................... 336,383
Accounts payable and accrued expenses.................. (2,662)
Deferred tax liabilities............................... (36,162)
--------
Total net assets acquired.................... 337,445
Less:
Cash and cash equivalents acquired................... 4,360
Liability assumed.................................... 725
Notes payable........................................ 250
--------
Cash paid for acquisitions............................. $332,110
========
</TABLE>

The pro forma consolidated condensed results of operations data for the
three months ended March 31, 1998 and 1999, as if the acquisitions during 1998
and 1999 and the related financing transactions occurred at January 1, 1998,
follow:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
1998 1999
--------- ---------
<S> <C> <C>
Net revenues................................................ $308,622 $352,184
Net loss.................................................... (79,164) (87,697)
Basic and diluted loss per common share..................... (0.69) (0.66)
</TABLE>

The pro forma results are not necessarily indicative of the financial
results which would have occurred if the transactions had been in effect for the
entire periods presented.

On April 12, 1999, the Company acquired approximately 159 billboards and
outdoor displays in various markets for approximately $3,700 in cash.

On April 16, 1999, the Company sold WMVP-AM in Chicago to ABC, Inc. for
$21,000 in cash and recognized a gain of $14,466. The Company had previously
entered into a time brokerage agreement effective September 10, 1998 to sell
substantially all of the broadcast time of WMVP-AM pending completion of the
sale.

(b) Pending Transactions

On August 26, 1998, the Company and Capstar Broadcasting Corporation
(together with its subsidiaries, "Capstar") entered into an agreement to merge
in a stock-for-stock transaction that will create the nation's largest radio
broadcasting entity (the "Capstar Merger"). Pursuant to the agreement, as
amended, each share of Capstar common stock will be converted into 0.4955 of a
share of common stock of Chancellor Media. Previously, on February 20, 1998, the
Company had entered into an agreement to acquire, over a period of three years,
eleven radio stations from Capstar for an aggregate purchase price of $637,500,
of which the acquisition of one radio station was completed on May 29, 1998 for
$143,250. The Company is currently assessing the effects of the Capstar Merger
on the February 20, 1998 purchase agreement. On February 1,

F-49
<PAGE> 371
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1999, the Company began operating WKNR-AM in Cleveland, a station owned by
Capstar, under a time brokerage agreement. Although there can be no assurance,
the merger with Capstar is expected to be completed in the second or early third
quarter of 1999.

Consummation of the pending transactions is subject to various conditions,
including, in most cases, approval from the Federal Communications Commission
and the expiration or early termination of any waiting period required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company
believes that such conditions will be satisfied in the ordinary course, but
there can be no assurance that this will be the case.

3. NON-RECURRING CHARGES

In March 1999, the Company recorded a charge of $28,979 which consisted of
the following:

<TABLE>
<S> <C>
Write-off of LIN Merger and Petry transaction costs(a)..... $16,783
Executive severance costs(b)............................... 12,196
-------
Total............................................ $28,979
=======
</TABLE>

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

(a) On July 7, 1998, the Company entered into a merger agreement with the
indirect parent of LIN Television Corporation ("LIN") to acquire LIN in a
stock for stock transaction (the "LIN Merger"). On April 8, 1998, the
Company entered into an agreement to acquire Petry Media Corporation, a
leading independent television representation firm, for approximately
$127,000. Effective March 15, 1999, the Company and LIN agreed to terminate
the LIN Merger agreement and in connection with the termination of the LIN
Merger, the Company's Board of Directors approved the negotiation of the
assignment of the Petry purchase agreement to LIN. Subsequently, the
Company terminated the Petry acquisition agreement, in accordance with its
terms, effective April 28, 1999. The Company recorded a charge of $16,783
to write off transaction costs incurred in connection with the LIN Merger
and Petry transaction.

(b) On March 15, 1999, the Company announced an executive realignment which
included (i) the resignation of Jeffrey A. Marcus as the Company's
President and Chief Executive Officer; (ii) the resignation of Thomas P.
McMillin as the Company's Chief Financial Officer; (iii) the departure of
Richard A. B. Gleiner as the Company's General Counsel; and (iv) the
resignation of Eric C. Neuman as the Company's Senior Vice
President -- Strategic Development, each effective March 15, 1999. The
Company recorded a charge of $12,196 for executive severance and other
costs.

4. CONTINGENCIES

F-50
<PAGE> 372
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

damages, an order requiring that the directors named as defendants "carry out
their fiduciary duties," and attorneys' fees and other costs. Plaintiff,
defendants and the Company had reached a tentative settlement of this lawsuit.
However, as a result of the decision by the Company and LIN to terminate the LIN
Merger, the settlement will not proceed as planned.

In September 1998, a stockholder class action complaint was filed in the
Delaware Court of Chancery by a stockholder purporting to act individually and
on behalf of all other persons, other than defendants, who own securities of the
Company and are similarly situated. The defendants in the case are named as
Chancellor Media, Hicks Muse, Thomas O. Hicks, Jeffrey A. Marcus, James E. de
Castro, Eric C. Neuman, Lawrence D. Stuart, Jr., Steven Dinetz, Thomas J.
Hodson, Perry Lewis, John H. Massey and Vernon E. Jordan, Jr. The plaintiff
alleges breach of fiduciary duties, gross mismanagement, gross negligence or
recklessness, and other matters relating to the defendants' actions in
connection with the proposed Capstar merger. The plaintiff seeks to certify the
complaint as a class action, enjoin consummation of the Capstar merger, order
defendants to account to plaintiff and other alleged class members for damages,
and award attorneys' fees and other costs. The Company believes that the lawsuit
is without merit and intends to vigorously defend the action.

On July 10, 1998, the Company entered into an agreement to acquire a 50%
economic interest in Grupo Radio Centro, S.A. de C.V., an owner and operator of
radio stations in Mexico, for approximately $120.5 million in cash and $116.5
million in Chancellor Media common stock. On October 15, 1998, the Company
announced that it had provided notice to Grupo Radio that it was terminating the
acquisition agreement in accordance with its terms. The Company has received
notice from Grupo Radio requesting arbitration under the terms of the
acquisition agreement of allegations that Chancellor Media wrongfully terminated
that agreement, and the parties have commenced the arbitration process. The
Company believes that it had a proper basis for terminating the agreement in
accordance with its terms and intends to contest these allegations vigorously.

F-51
<PAGE> 373
CHANCELLOR MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. SEGMENT DATA

The Company conducts business in three distinct operating segments
consisting of radio broadcasting, outdoor advertising and media representation.
Separate financial data for each of the Company's three business segments is
provided below.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
1998 1999
--------- ---------
<S> <C> <C>
Chancellor Radio Group -- radio broadcasting:
Net revenues.............................................. $200,349 $261,779
Operating expenses........................................ 123,352 154,121
Depreciation and amortization............................. 80,723 104,682
Operating loss............................................ (5,473) (298)
Chancellor Outdoor Group -- outdoor advertising:
Net revenues.............................................. -- 53,601
Operating expenses........................................ -- 28,451
Depreciation and amortization............................. -- 31,396
Operating loss............................................ -- (9,071)
Katz -- media representation:
Net revenues.............................................. 38,671 39,695
Operating expenses........................................ 30,130 30,748
Depreciation and amortization............................. 6,567 7,783
Operating income (loss)................................... 255 (344)
</TABLE>

The segment financial data includes intersegment revenues and expenses
which must be excluded to reconcile to the Company's consolidated financial
statements. In addition, certain depreciation and amortization expenses,
corporate general and administrative expenses and non-recurring charges were not
allocated to business segments and must be included to reconcile to the
Company's consolidated financial statements. Reconciling financial data is
provided below:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
1998 1999
--------- ---------
<S> <C> <C>
Intersegment net revenues................................... $5,463 $ 4,810
Intersegment operating expenses............................. 5,463 4,810
Unallocated depreciation and amortization................... 4,646 3,883
Unallocated corporate general and administrative expenses... 3,337 10,207
Unallocated non-recurring charges........................... -- 28,979
</TABLE>

6. RECENTLY ISSUED ACCOUNTING PRINCIPLE

F-52
<PAGE> 374

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Chancellor Broadcasting Company:

We have audited the accompanying consolidated balance sheets of Chancellor
Broadcasting Company and Subsidiaries (collectively the "Company") as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, changes in common 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.

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
the Company as of December 31, 1995 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, 1996, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
February 13, 1997,
except for Note 15 as
to which the date is
February 19, 1997

F-53
<PAGE> 375

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 1,314,214 $ 3,788,546
Accounts receivable, net of allowance for doubtful
accounts of $263,528 and $1,023,660, respectively...... 13,243,292 46,584,705
Prepaid expenses and other................................ 546,405 2,753,731
------------ ------------
Total current assets.............................. 15,103,911 53,126,982
Restricted cash............................................. -- 20,363,329
Property and equipment, net................................. 17,925,845 49,122,932
Intangibles and other, net.................................. 203,808,395 551,406,094
Deferred financing costs, net............................... 4,284,413 16,723,346
------------ ------------
Total assets...................................... $241,122,564 $690,742,683
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,873,888 $ 4,409,389
Accrued liabilities....................................... 4,692,948 12,529,831
Accrued interest.......................................... 2,710,891 6,868,839
Current portion of long-term debt......................... 4,062,500 400,000
------------ ------------
Total current liabilities......................... 13,340,227 24,208,059
Long-term debt.............................................. 168,107,242 354,913,499
Deferred income taxes....................................... 4,952,361 2,606,314
Other....................................................... -- 801,572
------------ ------------
Total liabilities................................. 186,399,830 382,529,444
------------ ------------
Commitments (Note 11)
Redeemable senior cumulative exchangeable preferred stock of
subsidiary, par value $.01 per share; 1,000,000 shares
authorized, none and 1,000,000 shares issued and
outstanding, respectively; preference in liquidation of
$109,110,301.............................................. -- 107,222,416
Common stockholders' equity:
Class A common stock, par value $.01 per share; 40,000,000
shares authorized, 302,107 and 9,937,320 shares issued,
respectively, and 302,107 and 9,881,656 shares
outstanding, respectively.............................. 3,021 99,373
Class B common stock, par value $.01 per share; 10,000,000
shares authorized, 63,500 and 8,547,910 shares issued
and outstanding, respectively.......................... 635 85,479
Class C common stock, par value $.01 per share; 10,000,000
shares authorized, 8,484,410 and zero shares issued and
outstanding, respectively.............................. 84,844 --
Additional paid-in capital................................ 66,271,500 231,930,337
Accumulated deficit....................................... (11,637,266) (30,086,232)
Treasury stock............................................ -- (1,038,134)
------------ ------------
Total common stockholders' equity................. 54,722,734 200,990,823
------------ ------------
Total liabilities and stockholders' equity........ $241,122,564 $690,742,683
============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-54
<PAGE> 376

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Gross broadcasting revenues......................... $30,080,829 $ 73,278,860 $203,188,125
Less agency commissions............................. 3,763,734 8,956,717 24,786,594
----------- ------------ ------------
Net revenues.............................. 26,317,095 64,322,143 178,401,531
----------- ------------ ------------
Operating expenses:
Programming, technical and news................... 5,678,829 11,734,285 40,987,411
Sales and promotion............................... 7,137,039 17,556,256 47,026,490
General and administrative........................ 2,844,284 8,174,189 23,195,565
Depreciation and amortization..................... 2,954,159 8,256,268 20,877,374
Corporate expenses................................ 599,657 1,815,535 4,844,985
Stock option compensation......................... -- 6,360,000 3,800,000
----------- ------------ ------------
19,213,968 53,896,533 140,731,825
----------- ------------ ------------
Income from operations.................... 7,103,127 10,425,610 37,669,706
Other (income) expense:
Interest expense.................................. 5,246,827 18,114,549 35,703,862
Other, net........................................ (19,265) 42,402 68,419
----------- ------------ ------------
Income (loss) before provision for income
taxes and extraordinary loss............ 1,875,565 (7,731,341) 1,897,425
Provision for income taxes.......................... 1,163,716 3,799,955 4,612,551
Dividends and accretion on preferred stock of
subsidiary........................................ -- -- 11,556,943
----------- ------------ ------------
Net income (loss) before extraordinary
loss.................................... 711,849 (11,531,296) (14,272,069)
Extraordinary loss on early extinguishment of debt,
net of income tax benefit......................... 817,819 -- 4,176,897
----------- ------------ ------------
Net loss.................................. (105,970) (11,531,296) (18,448,966)
Loss on repurchase of preferred stock............... -- -- 16,570,065
----------- ------------ ------------
Net loss attributable to common stock..... $ (105,970) $(11,531,296) $(35,019,031)
=========== ============ ============
Loss applicable to common stock:
Income (loss) before extraordinary loss........... $ 0.14 $ (1.30) $ (1.85)
Extraordinary loss................................ (0.16) -- (0.25)
----------- ------------ ------------
Net loss.................................. $ (0.02) $ (1.30) $ (2.10)
=========== ============ ============
Weighted average number of shares outstanding....... 5,166,039 8,849,936 16,704,381
=========== ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-55
<PAGE> 377

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- --------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ------- --------- ------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1994................ -- -- 166 $ 2 -- -- $ 998 --
Issuance of common
stock on January 10,
1994................ 302,107 $ 3,021 63,334 633 3,884,211 $ 38,842 25,456,504 --
Issuance of common
stock on October 12,
1994................ -- -- -- -- 4,600,033 46,000 34,454,000 --
Net loss.............. -- -- -- -- -- -- -- $ (105,970)
--------- ------- --------- ------- ---------- -------- ------------ ------------
Balance, December 31,
1994................ 302,107 3,021 63,500 635 8,484,244 84,842 59,911,502 (105,970)
Stock option
compensation........ -- -- -- -- -- -- 6,360,000 --
Issuance of common
stock on June 29,
1995................ -- -- -- -- 166 2 (2) --
Net loss.............. -- -- -- -- -- -- -- (11,531,296)
--------- ------- --------- ------- ---------- -------- ------------ ------------
Balance, December 31,
1995................ 302,107 3,021 63,500 635 8,484,410 84,844 66,271,500 (11,637,266)
Stock option
compensation........ -- -- -- -- -- -- 3,800,000 --
Issuance of common
stock on February
14, 1996............ 8,447,192 84,472 -- -- -- -- 155,390,782 --
Loss on repurchase of
preferred stock of
subsidiary on
February 21, 1996... -- -- -- -- -- -- (16,570,065) --
Repurchase of common
stock on February
21, 1996............ (55,664) -- -- -- -- -- -- --
Issuance of common
stock on August 9,
1996................ 1,185,521 11,855 -- -- -- -- 22,988,145 --
Issuance of common
stock on August 20,
1996................ 2,500 25 -- -- -- -- 49,975 --
Conversion of common
stock on October 22,
1996................ -- -- 8,484,410 84,844 (8,484,410) (84,844) -- --
Net loss.............. -- -- -- -- -- -- -- (18,448,966)
--------- ------- --------- ------- ---------- -------- ------------ ------------
Balance, December 31,
1996................ 9,881,656 $99,373 8,547,910 $85,479 -- $ -- $231,930,337 $(30,086,232)
========= ======= ========= ======= ========== ======== ============ ============

TREASURY
STOCK TOTAL
----------- ------------
<S> <C> <C>
Balance, January 1,
1994................ -- $ 1,000
Issuance of common
stock on January 10,
1994................ -- 25,499,000
Issuance of common
stock on October 12,
1994................ -- 34,500,000
Net loss.............. -- (105,970)
----------- ------------
Balance, December 31,
1994................ -- 59,894,030
Stock option
compensation........ -- 6,360,000
Issuance of common
stock on June 29,
1995................ -- --
Net loss.............. -- (11,531,296)
----------- ------------
Balance, December 31,
1995................ -- 54,722,734
Stock option
compensation........ -- 3,800,000
Issuance of common
stock on February
14, 1996............ -- 155,475,254
Loss on repurchase of
preferred stock of
subsidiary on
February 21, 1996... -- (16,570,065)
Repurchase of common
stock on February
21, 1996............ $(1,038,134) (1,038,134)
Issuance of common
stock on August 9,
1996................ -- 23,000,000
Issuance of common
stock on August 20,
1996................ -- 50,000
Conversion of common
stock on October 22,
1996................ -- --
Net loss.............. -- (18,448,966)
----------- ------------
Balance, December 31,
1996................ $(1,038,134) $200,990,823
=========== ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-56
<PAGE> 378

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (105,970) $(11,531,296) $ (18,448,966)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 2,954,159 8,256,268 20,877,374
Amortization of deferred financing costs.... 226,000 791,000 2,633,583
Stock option compensation................... -- 6,360,000 3,800,000
Deferred income taxes....................... 1,490,716 3,788,877 4,548,481
Dividends and accretion on preferred stock
of subsidiary............................. -- -- 11,556,943
Extraordinary loss.......................... 490,819 -- 4,176,897
Changes in assets and liabilities, net of
the effects of acquired businesses:
Accounts receivable, net.................. (9,675,567) (2,343,520) (13,408,364)
Prepaids and other........................ 216,036 (214,868) (982,637)
Accounts payable.......................... 1,509,064 (541,914) 1,429,070
Accrued liabilities....................... 1,334,397 447,196 3,706,725
Accrued interest.......................... 2,251,654 459,237 4,157,948
------------- ------------ -------------
Net cash provided by operating
activities........................... 691,308 5,470,980 24,047,054
------------- ------------ -------------
Cash flows from investing activities:
Purchases of broadcasting properties........... (204,509,849) (24,351,529) (439,533,609)
Purchases of other property and equipment...... (238,648) (1,709,897) (3,208,553)
------------- ------------ -------------
Net cash used in investing
activities........................... (204,748,497) (26,061,426) (442,742,162)
------------- ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt....... 168,910,299 -- 277,627,630
Proceeds from borrowings under revolving debt
facility.................................... 5,639,237 54,458,819 101,966,762
Repayment of long-term debt.................... (25,000,000) (2,437,500) (109,816,233)
Repayments of borrowings under revolving debt
facility.................................... (3,975,539) (31,633,467) (105,540,183)
Issuance of preferred stock of subsidiary...... -- -- 175,412,322
Repurchase of preferred stock.................. -- -- (95,462,423)
Issuance of common stock....................... 60,000,000 -- 178,525,254
Repurchase of common stock..................... -- -- (1,038,134)
Payment of preferred stock dividends........... -- -- (505,555)
------------- ------------ -------------
Net cash provided by financing
activities........................... 205,573,997 20,387,852 421,169,440
------------- ------------ -------------
Net increase (decrease) in cash........ 1,516,808 (202,594) 2,474,332
Cash, at beginning of year....................... -- 1,516,808 1,314,214
------------- ------------ -------------
Cash, at end of year............................. $ 1,516,808 $ 1,314,214 $ 3,788,546
============= ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(NOTE 5):
Cash paid during the period for:
Interest....................................... $ 2,769,173 $ 16,864,312 $ 28,912,331
Income taxes................................... $ -- $ -- $ 62,407
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-57
<PAGE> 379

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

Chancellor Broadcasting Company, formerly Chancellor Corporation
("Chancellor") and its subsidiaries (collectively, the "Company") operate in a
single industry segment, which segment encompasses the ownership and management
of radio broadcast stations located in markets throughout the United States.
Chancellor conducts its business through Chancellor Radio Broadcasting Company
("Chancellor Broadcasting") and has no operations or cash flows of its own.
Chancellor and Chancellor Broadcasting were formed in June 1994 to acquire and
operate radio stations owned by American Media, Inc. and two corporations and
one partnership affiliated with American Media, Inc. (collectively, the
"American Media Station Group") and by Chancellor Communications Corporation
("Chancellor Communications"). That transaction was consummated on October 12,
1994. Chancellor Communications was formed in 1993 to acquire and operate radio
stations KGBY-FM and KFBK-AM. That transaction closed on January 10, 1994 and
the consolidated financial statements include the activity of all the stations
since their respective dates of acquisition.

In June 1995, the 1,000 shares of common stock of Chancellor Communications
held by an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse")
were exchanged for additional shares of common stock of Chancellor, which
subsequently contributed these shares to Chancellor Broadcasting as an
additional capital contribution. As a result, Chancellor Communications became a
wholly owned subsidiary of Chancellor Broadcasting. Chancellor Communications
was then merged with the Company. The transactions had no effect on the
financial position or results of operations of the Company.

Chancellor Broadcasting Licensee Company is a wholly-owned non-operating
legal entity formed to hold title to the Company's broadcast licenses. Such
entity has no significant other assets and no material liabilities,
contingencies or commitments. Consistent with industry practice for financial
reporting purposes, no material value has been specifically allocated to the
licenses. Accordingly, no financial statement information has been provided
herein due to its immateriality to investors.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of Chancellor
and its subsidiaries Chancellor Broadcasting and Chancellor Broadcasting
Licensee Company for all periods presented, and its subsidiaries Trefoil
Communications, Inc., Shamrock Broadcasting Inc., Shamrock Radio Licenses, Inc.,
Shamrock Broadcasting Licenses of Denver, Inc. and Shamrock Broadcasting of
Texas, Inc. from their date of acquisition. All significant intercompany
accounts and transactions have been eliminated.

Cash

The Company maintains cash in demand deposits with financial institutions.
The Company had no cash equivalents during the periods presented. All highly
liquid investments with an original maturity of less than three months are
considered cash equivalents.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation is determined using the straight-line method over the
estimated useful lives of the various classes of assets, which range from three
to twenty-five years. 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-58
<PAGE> 380
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Intangibles

Goodwill represents the excess of cost over the fair values of the
identifiable tangible and other intangible net assets acquired and is being
amortized over the straight-line method over forty years. Other intangible
assets comprise amounts paid for pending acquisitions, agreements not to
compete, a tower lease advantage and organization costs incurred in the
incorporation of the Company. Other intangibles, excluding pending acquisition
costs, are being amortized by the straight-line method over their estimated
useful lives ranging from three to ten years. Pending acquisition costs are
deferred and capitalized as part of completed acquisitions or expensed in the
period in which the pending acquisition is terminated.

The Company evaluates intangible assets for potential impairment 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 impairment.

Deferred Financing Costs

Costs associated with obtaining debt financing are capitalized and
amortized using the interest method over the term of the related debt. As a
result of refinancing the Company's original credit facility, during the year
ended December 31, 1994 unamortized deferred financing costs of approximately
$818,000 were expensed as an extraordinary item in the consolidated statements
of operations. As a result of refinancing the Company's second credit facility,
the early redemption of $20.0 million of its existing notes (defined) and the
prepayment of $18.7 million of it's a Term Loan Facility (defined) from its
third credit facility, during the year ended December 31, 1996 unamortized
deferred financing costs of $3.4 million, less $543,500 of tax benefit, were
expensed as an extraordinary item in the consolidated statements of operations.
Approximately $5.1 million, $118,000 and $18.6 million of new financing costs
were incurred for the years ended December 31, 1994, 1995 and 1996,
respectively. Accumulated amortization at December 31, 1995 and 1996, amounted
to approximately $959,000 and $2.8 million, respectively.

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.

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 the Company are included in accounts payable and accounts receivable,
respectively.

Advertising Costs

The Company incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred and totaled
approximately $1.4 million, $4.2 million and $16.2 million for the years ended
December 31, 1994, 1995 and 1996, respectively.

F-59
<PAGE> 381
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock Option Compensation

Stock option compensation expense is recognized in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".

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 year-end based on enacted tax laws and
statutory tax rates applicable to the periods 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.

Chancellor, Chancellor Radio Broadcasting and Chancellor Broadcasting
Licensee Company have elected to file consolidated federal income tax returns
(the "Chancellor Group") and Trefoil Communications, Inc., Shamrock Broadcasting
Inc., Shamrock Radio Licenses, Inc., Shamrock Broadcasting Licenses of Denver,
Inc. and Shamrock Broadcasting of Texas, Inc. have elected to file consolidated
federal income tax returns (the "Shamrock Group"). Each of these groups have
entered into a tax sharing agreement governing the allocation of any
consolidated federal income tax liability among its members. In general, each
subsidiary allocates and pays income taxes computed as if each subsidiary filed
a separate federal income tax return. Similar principles apply to any
consolidated state and local income tax liabilities.

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 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 trade receivables are maintained.

Income (Loss) Per Share

Net income (loss) per share is based on the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding during
each respective period. Proceeds from the exercise of the dilutive stock options
are assumed to be used to repurchase outstanding shares of the Company's common
stock at the average fair market value during the period. The calculation of
income (loss) per common share is adjusted for the recapitalization as discussed
in Note 8 and dividends and accretion on preferred stock.

Reclassifications

Certain prior year amounts have been reclassified to conform with the
current year's presentation.

F-60
<PAGE> 382
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Land....................................................... $ 1,572,229 $ 3,036,663
Building and building improvements......................... 3,159,848 9,202,378
Towers and antenna systems................................. 3,689,972 14,476,104
Studio, technical and transmitting equipment............... 7,830,375 23,026,564
Office equipment, furniture and fixtures................... 2,484,261 5,521,010
Record library............................................. 1,800,510 2,193,236
Vehicles................................................... 362,787 1,117,908
Construction in progress................................... 503,504 78,877
----------- -----------
21,403,486 58,652,740
Less accumulated depreciation.............................. (3,477,641) (9,529,808)
----------- -----------
$17,925,845 $49,122,932
=========== ===========
</TABLE>

Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $0.9 million, $2.6 million and $6.5 million, respectively.

4. INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Goodwill................................................. $205,971,820 $567,377,120
Noncompete agreements.................................... 1,950,000 2,025,000
Tower lease advantage.................................... 305,000 305,000
Pending acquisition costs................................ 3,246,265 2,620,474
Other.................................................... 45,718 626,220
------------ ------------
211,518,803 572,953,814
Less accumulated amortization............................ (7,710,408) (21,547,720)
------------ ------------
$203,808,395 $551,406,094
============ ============
</TABLE>

Amortization expense for intangible assets for the years ended December 31,
1994, 1995 and 1996 was $2.0 million, $5.7 million and $14.3 million,
respectively.

5. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES

On January 9, 1994, Chancellor Communications purchased substantially all
the assets and assumed certain liabilities of KGBY-FM and KFBK-AM for
approximately $49.5 million, including acquisition costs. Liabilities assumed
were limited to certain ongoing contractual rights and obligations. 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-61
<PAGE> 383
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment.................................... $ 4,921
Goodwill and other intangibles............................ 44,401
Prepaid expenses and other assets......................... 413
Accrued liabilities....................................... (205)
-------
Total acquisition................................. $49,530
=======
</TABLE>

On October 12, 1994, Chancellor Radio Broadcasting purchased substantially
all the assets and assumed certain liabilities consisting solely of accrued
expenses and future payments under ongoing contracts of the American Media
Station Group (other than KHYL-FM in Sacramento, California) for approximately
$139.5 million in cash, including acquisition costs and payments in respect of
agreements not to compete. On the same date, Chancellor Communications purchased
all the assets and certain liabilities consisting solely of accrued expenses and
future payments under ongoing contracts of KHYL-FM for approximately $15.5
million in cash, including acquisition costs and payments in respect of an
agreement not to compete. These acquisitions have been accounted for as
purchases 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 and liabilities assumed:
Property and equipment.................................... $ 12,671
Goodwill and other intangibles............................ 142,618
Prepaid expenses and other assets......................... 353
Accrued liabilities....................................... (662)
--------
Total acquisition................................. $154,980
========
</TABLE>

Simultaneously with the closing of these transactions, Chancellor acquired
all of Chancellor Communications' outstanding nonvoting stock in exchange for
newly issued shares of Chancellor's nonvoting stock. Chancellor contributed all
the acquired shares of Chancellor Communication's nonvoting stock to Chancellor
Radio Broadcasting, as a result of which Chancellor Communications became a
subsidiary of Chancellor Radio Broadcasting. Because these entities are under
common management and control, this exchange has been accounted for at
historical cost in a manner similar to a pooling of interests.

On July 31, 1995, the Company purchased substantially all the assets and
assumed certain liabilities of KDWB-FM for approximately $22.6 million,
including acquisition costs. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. 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 and liabilities assumed:
Property and equipment.................................... $ 1,866
Goodwill and other intangibles............................ 21,032
Prepaid expenses and other assets......................... 82
Other liabilities......................................... (383)
-------
Total acquisition................................. $22,597
=======
</TABLE>

F-62
<PAGE> 384
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On February 14, 1996, the Company acquired all of the outstanding capital
stock of Trefoil Communications, Inc. ("Trefoil") for approximately $408.0
million, including acquisition costs. Trefoil is a holding company, the sole
asset of which is the capital stock of Shamrock Broadcasting, Inc. ("Shamrock
Broadcasting"). The acquisition of Trefoil was financed through a new credit
agreement, new senior subordinated notes, Chancellor's initial public stock
offering, senior exchangeable preferred stock and the issuance of unregistered
common stock of Chancellor. The acquisition of Trefoil was accounted for as a
purchase for financial accounting purposes and a non-taxable business
combination for tax purposes 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 and liabilities assumed:
Cash...................................................... $ 38
Accounts receivable, net.................................. 18,636
Prepaid expenses and other assets......................... 1,274
Property and equipment.................................... 36,429
Goodwill and other intangibles............................ 361,425
Deferred tax asset........................................ 5,464
Accrued liabilities....................................... (14,564)
Other noncurrent liabilities.............................. (702)
--------
Total acquisition................................. $408,000
========
</TABLE>

Simultaneously with the acquisition of Trefoil, the Company entered into a
time brokerage agreement with Evergreen Media Corporation for the outsourcing of
certain limited functions of WWWW-FM and WDFN-AM, both Detroit stations acquired
with Trefoil, and an option to purchase such stations for $30.0 million of cash.
These stations were operated pursuant to this agreement until January 30, 1997,
the date on which the disposition of these stations occurred. Subsequent to the
acquisition of Trefoil, KTBZ-FM, a Houston station acquired with Trefoil, was
operated by Secret Communications, L.P. ("Secret") under a Local Marketing
Agreement ("LMA")/Exchange Agreement with the Company. In March 1996, the
Company entered into an agreement to exchange KTBZ-FM and $5.6 million of cash
to Secret for KALC-FM and KIMN-FM, Denver, Colorado. The Company began managing
certain limited functions of these stations, pursuant to an LMA, effective April
1, 1996 and closed on the exchange of the stations effective July 31, 1996. The
exchange has been accounted for using the fair values of the assets exchanged
plus the $5.6 million of additional cash and $0.8 million of additional
acquisition costs, and was allocated to the net assets acquired based upon their
estimated fair market values. The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $28.7
million, which has been accounted for as goodwill and is being amortized over 40
years using the straight line method.

The exchange is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Prepaid expenses and other assets......................... $ 163
Property and equipment.................................... 2,363
Goodwill and other intangibles............................ 28,657
Accrued liabilities....................................... (138)
-------
Total acquisition................................. $31,045
=======
</TABLE>

F-63
<PAGE> 385
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On May 15, 1996, the Company entered into an agreement to acquire
substantially all the assets and certain liabilities of OmniAmerica Group
("Omni") for an aggregate price of $178.0 million, including $163.0 million of
cash and $15.0 million of Chancellor's Class A Common Stock. On June 24, 1996,
the Company entered into an agreement with American Radio Systems Corporation
("American Radio") whereby it will exchange the West Palm Beach, Florida
stations acquired from Omni for American Radio's KSTE-AM and $33.0 million of
cash. KSTE-AM is located in Rancho Cordova, California and is part of the
Sacramento market. On July 1, 1996, Chancellor entered into an agreement with
SFX Broadcasting, Inc. ("SFX") whereby it will exchange the Jacksonville,
Florida stations being acquired pursuant to the Omni acquisition agreement and
$11.0 million of cash for SFX's WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM,
Nassau-Suffolk, New York. Pursuant to various agreements, the Company began
managing certain limited functions of the remaining Omni stations and the SFX
stations beginning July 1, 1996, and station KSTE-AM beginning August 1, 1996.

On November 22, 1996, the Company acquired substantially all the assets of
WKYN-AM, Florence, Kentucky, for approximately $1.4 million, including
transaction costs. WKYN-AM serves the Cincinnati, Ohio market.

On January 23, 1997, the Company acquired substantially all the assets and
certain liabilities of Colfax Communications ("Colfax") for an aggregate price
of $373.0 million. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition will be accounted for as a
purchase. Pursuant to the acquisition agreement, at December 31, 1996 the
Company had $20.4 million of cash in a restricted escrow account which was
remitted to Colfax at closing. On January 29, 1997, the Company entered into an
agreement to sell WMIL-FM and WOKY-AM, Milwaukee, Wisconsin stations acquired
from Colfax, to Clear Channel Radio, Inc. for $40.0 million in cash.

On February 13, 1997, the Company acquired substantially all the assets and
certain liabilities of Omni for $163.0 million of cash and $15.0 million of
Chancellor Class A Common Stock. Liabilities assumed were limited to certain
ongoing contractual rights and obligations. The acquisition will be accounted
for as a purchase.

The following summarizes the unaudited consolidated pro forma data as
though the acquisitions of KDWB-FM, Shamrock Broadcasting Company and KIMN-FM
and KALC-FM had occurred as of the beginning of 1995 (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue............................... $64,322 $162,360 $178,402 $187,198
Net income (loss) before extraordinary
loss.................................... (11,531) (21,477) (14,272) (15,113)
Net loss.................................. (11,531) (21,477) (18,449) (15,113)
Net loss before extraordinary loss per
share................................... (1.30) (1.16) (1.85) (0.82)
Net loss per share........................ (1.30) (1.16) (2.10) (0.82)
</TABLE>

F-64
<PAGE> 386
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following summarizes the unaudited consolidated pro forma balance sheet
as of December 31, 1996 as though the acquisition of Colfax, the issuance of the
Exchangeable Preferred Stock, the issuance of the Convertible Preferred Stock
(including the over-allotment), and the New Credit Agreement had occurred on
that date (in thousands):

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- -----------
(UNAUDITED)
<S> <C> <C>
Total assets................................................ $690,743 $1,053,833
======== ==========
Current liabilities......................................... $ 24,208 $ 40,598
Long-term liabilities....................................... 358,322 410,359
Preferred stock............................................. 107,222 404,585
Common stockholders' equity................................. 200,991 198,291
-------- ----------
Total liabilities and stockholders' equity........ $690,743 $1,053,833
======== ==========
</TABLE>

6. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- -----------
<S> <C> <C>
Salaries.................................................... $ 534,297 $ 3,697,072
Sales commissions........................................... 889,010 2,149,167
Rep commissions............................................. 561,189 1,549,048
Other....................................................... 2,708,452 5,134,544
---------- -----------
$4,692,948 $12,529,831
========== ===========
</TABLE>

7. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Term loan................................................ $ 67,562,500 $ 74,968,527
Revolving credit loan.................................... 24,607,242 20,344,972
Subordinated notes due 2004.............................. 80,000,000 260,000,000
------------ ------------
172,169,742 355,313,499
Less current portion..................................... 4,062,500 400,000
------------ ------------
$168,107,242 $354,913,499
============ ============
</TABLE>

The Company's term and revolving credit facilities were refinanced on
January 23, 1997, in conjunction with the acquisition of Colfax Communications
under a new bank credit agreement (the "New Credit Agreement") with Bankers
Trust Company, as administrative agent, and other institutions party thereto.
The New Credit Agreement includes a $225.0 million term loan facility (the "Term
Loan Facility") and a revolving loan facility (the "Revolving Loan Facility"
and, together with the Term Loan, the "New Bank Financing"). The Revolving Loan
Facility originally provides for borrowings up to $120.0 million, which is
subsequently reduced as and when the Company receives the net cash proceeds of
the pending station swaps and dispositions. In connection with the refinancing
of the term and revolving loan facilities in January 1997, the Company incurred
an extraordinary charge to write-off deferred finance costs of approximately
$4.5 million.

F-65
<PAGE> 387
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The New Bank Financing is collateralized by (i) a first priority perfected
pledge of all capital stock and notes owned by the Company and (ii) a first
priority perfected security interest in all other assets (including receivables,
contracts, contract rights, securities, patents, trademarks, other intellectual
property, inventory, equipment and real estate) owned by the Company, excluding
FCC licenses, leasehold interests in studio or office space and leasehold and
partnership interests in tower or transmitter sites in which necessary consents
to the granting of a security interest cannot be obtained without payments to
any other party or on a timely basis. The New Bank Financing also is guaranteed
by the subsidiaries of Chancellor and Chancellor Radio Broadcasting, whose
guarantees are collateralized by a first priority perfected pledge of the
capital stock Chancellor Radio Broadcasting. The Term Loan Facility is due in
increasing quarterly installments beginning in 1997 and matures in January 2003.
All outstanding borrowings under the Revolving Facility mature in January 2003.
The facilities bear interest at a rate equal to, at the Company's option, the
prime rate of Bankers Trust Company, as announced from time to time, or the
London Inter-Bank Offered Rate ("LIBOR") in effect from time to time, plus an
applicable margin rate. The Company pays quarterly commitment fees in arrears
equal to either .375% or .250% per annum on the unused portion of the Revolving
Facility, depending upon whether the Company's leverage ratio is equal to or
greater than 4.5:1 or less than 4.5:1, respectively. The bank financing
facilities which existed on December 31, 1996 accrued interest at the prime rate
plus 1.25% (9.5%) on $3.0 million and the LIBOR rate plus 2.50% (8.125%) on
$92.0 million of borrowings.

In connection with the IPO (defined), the Company redeemed 25% of its
Existing Notes (defined) for approximately $22.2 million. The redemption was
completed in March 1996 and resulted in an extraordinary charge of $2.8 million.
The remaining $60.0 million 12 1/2% Senior Subordinated Notes due 2004 (the
"Existing Notes") mature October 1, 2004, and bear interest at 12.5% per annum.
On February 14, 1996, in conjunction with the acquisition of Trefoil
Communications, Inc., the Company issued $200.0 million aggregate principal
amount of 9 3/8% Senior Subordinated Notes due 2004 (the "New Notes" and,
together with the Existing Notes, the "Notes"), which mature on October 1, 2004,
and bear interest at 9.375% per annum. Interest on the Notes is paid
semi-annually. The Existing and New Notes are redeemable, in whole or in part,
at the option of the Company on or after October 1, 1999 and February 1, 2000,
respectively, at redemption prices expressed as a percentage of the principal
amount, ranging from 100.000% to 105.556%, plus accrued interest thereon to the
date of acquisition. In addition, prior to January 31, 1999, the Company may
redeem up to 25% of the original aggregate principal amount of the New Notes
with the net proceeds of one or more public equity offerings. The Notes are
unsecured obligations of the Company, ranking subordinate in right of payment to
all senior debt of the Company. The New Notes rank pari passu in right of
payment to the Existing Notes. The Notes are guaranteed on a senior subordinated
basis by Chancellor Radio Broadcasting Company's subsidiaries.

Scheduled debt maturities for the Company's outstanding long-term debt at
December 31, 1996 for each of the next five years and thereafter are as follows:

<TABLE>
<S> <C>
1997........................................................ $ 400,000
1998........................................................ 400,000
1999........................................................ 9,874,886
2000........................................................ 11,296,119
2001........................................................ 17,469,864
Thereafter.................................................. 315,872,630
------------
$355,313,499
============
</TABLE>

See Note 5 for pro forma effects of the New Bank Financing subsequent to
year end. Both the New Bank Financing and Notes indentures contain certain
covenants, including, among others, limitations on the incurrence of additional
debt, in the case of the New Bank Financing; requirements to maintain certain

F-66
<PAGE> 388
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

financial ratios; and restrictions on the payment of dividends to stockholders
and from the subsidiaries to Chancellor.

8. CAPITAL STRUCTURE

In February 1996, Chancellor sold 7.7 million shares of its Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), in an initial
public offering, (the "IPO"), which generated net proceeds of $142.4 million,
and in a private placement, issued $100.0 million of exchangeable redeemable
preferred stock (the "Acquisition Preferred Stock") of Chancellor Radio
Broadcasting and 742,192 shares of Class A common stock of Chancellor to an
affiliated entity and other investors.

Immediately prior to the IPO, Chancellor effected a recapitalization of its
current capital stock. Pursuant to the recapitalization, each six shares of
Chancellor's Nonvoting Stock were reclassified into one share of Class A Common
Stock. Each six shares of Chancellor's Voting Stock were reclassified into one
share of Class B Common Stock and each six shares of Convertible Nonvoting Stock
were reclassified into one share of Class C Common Stock. In connection with the
recapitalization, 63,334 shares of Class A Common Stock were exchanged for an
equal number of shares of Class B Common Stock, and an additional 8,484,410
shares of Class A Common Stock were exchanged for an equal number of shares of
Class C Common Stock. The recapitalization has been given retroactive effect in
the financial statements.

In February 1996, subsequent to the IPO, the Company completed a private
placement of $100.0 million of newly authorized Senior Cumulative Exchangeable
Preferred Stock (the "Old Preferred Stock"). Upon completion, the proceeds of
the Old Preferred Stock were used to redeem the Acquisition Preferred Stock and
55,664 shares of Class A Common Stock. The redemption resulted in a charge to
net loss attributable to common stock of approximately $16.6 million and an
additional reduction of stockholders' equity of approximately $1.0 million.

In June 1996, the holders of Chancellor's Class C Common Stock filed an
application with the FCC to convert the stock into Chancellor's Class B Common
Stock. The holders of Class C Common Stock received approval of their
applications and subsequently converted their stock on October 22, 1996.

In August 1996 pursuant to an agreement entered into at the time of the
IPO, Chancellor sold 1.2 million shares of Class A Common Stock in a private
placement to an affiliated entity, which generated proceeds of $23.0 million
which were contributed to Chancellor Radio Broadcasting.

In September 1996, the Company completed an exchange offering whereby it
exchanged the Old Preferred Stock for 1,000,000 shares of 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock (the "Senior Exchangeable
Preferred Stock") in a transaction registered under the Securities Act of 1933,
as amended. The terms of the Senior Exchangeable Preferred Stock are
substantially identical to those of the Old Preferred Stock. Dividends on the
Senior Exchangeable Preferred Stock accrue from its date of issuance and are
payable quarterly commencing November 15, 1996, at a rate per annum of 12 1/4%
of the then effective liquidation preference per share. Dividends may be paid,
at the Company's option, on any dividend payment date occurring on or prior to
February 15, 2001 either in cash or by adding such dividends to the then
effective liquidation preference of the Senior Exchangeable Preferred Stock. The
Senior Exchangeable Preferred Stock is redeemable at the Company's option, in
whole or in part at any time on or after February 15, 2001, at various
redemption prices, plus, accumulated and unpaid dividends to the date of
redemption. In addition, prior to February 15, 1999, the Company may, at its
option, redeem the Senior Exchangeable Preferred Stock with the net cash
proceeds from one or more Public Equity Offerings (as defined), at various
redemption prices, plus, accumulated and unpaid dividends to the redemption
date; provided, however, that after any such redemption there is outstanding at
least 75% of the number of shares of Senior Exchangeable Preferred Stock
originally issued.

F-67
<PAGE> 389
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is required, subject to certain conditions, to redeem all of
the Senior Exchangeable Preferred Stock outstanding on February 15, 2008, at a
redemption price equal to 100% of the then effective liquidation preference
thereof, plus, accumulated and unpaid dividends to the date of redemption. Upon
the occurrence of a change of control (as defined), the Company must offer to
purchase all of the then outstanding shares of Senior Exchangeable Preferred
Stock at a price equal to 101% of the then effective liquidation preference
thereof, plus, accumulated and unpaid dividends to the date of purchase. Subject
to certain conditions, the Senior Exchangeable Preferred Stock is exchangeable
in whole, but not in part, at the option of the Company, on any dividend payment
date for the Company's 12 1/4% subordinated exchange debentures due 2008.

On January 23, 1997, Chancellor completed a private placement of $100.0
million of newly authorized 7% Convertible Preferred Stock (the "Convertible
Preferred Stock") and Chancellor Radio Broadcasting completed a private
placement of $200.0 million of newly authorized 12% Exchangeable Preferred Stock
(the "Exchangeable Preferred Stock").

Dividends on the Convertible Preferred Stock accrue from its date of
issuance and are payable quarterly commencing April 15, 1997, at a rate per
annum of 7% of the liquidation preference per share. The liquidation preference
of the Convertible Preferred Stock is $50.00 per share. The Convertible
Preferred Stock is convertible at the option of the holder at any time after
March 23, 1997, unless previously redeemed, into Class A Common Stock of
Chancellor at a conversion price of $32.90 per share of Class A Common Stock,
subject to adjustment in certain events. In addition, after January 19, 2000,
the Company may, at its option, redeem the Convertible Preferred Stock, in whole
or in part, at specified redemption prices plus accrued and unpaid dividends
through the redemption date. Upon the occurrence of a change of control (as
defined), Chancellor must, subject to certain conditions, offer to purchase all
of the then outstanding shares of Convertible Preferred Stock at a price equal
to 101% of the liquidation preference thereof, plus accrued and unpaid dividends
to the date of purchase.

Dividends on the Exchangeable Preferred Stock will accrue from the date of
its issuance and will be payable semi-annually commencing July 15, 1997, at a
rate per annum of 12% of the liquidation preference per share. Dividends may be
paid, at the Company's option, on any dividend payment date occurring on or
prior to January 15, 2002 either in cash or in additional shares of Exchangeable
Preferred Stock. The liquidation preference of the Exchangeable Preferred Stock
will be $100.00 per share. The Exchangeable Preferred Stock is redeemable at the
Company's option, in whole or in part at any time on or after January 15, 2002,
at the redemption prices set forth herein, plus accrued and unpaid dividends to
the date of redemption. In addition, prior to January 15, 2000, the Company may,
at its option, redeem the Exchangeable Preferred Stock with the net cash
proceeds from one or more Public Equity Offerings (as defined), at various
redemption prices plus accrued and unpaid dividends to the redemption date;
provided, however, that after any such redemption there is outstanding at least
$150.0 million aggregate liquidation preference of Exchangeable Preferred Stock.
The Company is required, subject to certain conditions, to redeem all of the
Exchangeable Preferred Stock outstanding on January 15, 2009, at a redemption
price equal to 100% of the liquidation preference thereof, plus accrued and
unpaid dividends to the date of redemption. Upon the occurrence of a Change of
Control (as defined), the Company will, subject to certain conditions, offer to
purchase all of the then outstanding shares of Exchangeable Preferred Stock at a
price equal to 101% of the liquidation preference thereof, plus accrued and
unpaid dividends to the repurchase date. In addition, prior to January 15, 1999,
upon the occurrence of a Change of Control, the Company will have the option to
redeem the Exchangeable Preferred Stock in whole but not in part at a redemption
price equal to 112% of the liquidation preference thereof, plus accrued and
unpaid dividends to the date of redemption. The Exchangeable Preferred Stock
will, with respect to dividend rights and rights on liquidation, rank junior to
the Senior Exchangeable Preferred Stock. Subject to certain conditions, the
Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the
option of the Company, on any dividend payment date for the Company's 12%
subordinated exchange debentures due 2009, including any such securities paid in
lieu of cash interest.
F-68
<PAGE> 390
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition to the accrued dividends discussed above, the recorded value of
the Senior Exchangeable Preferred Stock, the Convertible Preferred Stock and the
Exchangeable Preferred Stock includes or will include an amount for the
accretion of the difference between the stock's fair value at date of issuance
and its mandatory redemption amount, calculated using the effective interest
method.

9. INCOME TAXES

All of the Company's revenues were generated in the United States. The
provision for income taxes for continuing operations consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
State.......................................... $ -- $ 11,098 $ 64,070
Deferred:
Federal........................................ 1,267,109 3,220,528 3,866,209
State.......................................... 223,607 568,329 682,272
---------- ---------- ----------
Total provision........................ $1,490,716 $3,799,955 $4,612,551
========== ========== ==========
</TABLE>

Income tax expense differs from the amount computed by applying the federal
statutory income tax rate of 34% to income before income taxes for the following
reasons:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
---------- ----------- ----------
<S> <C> <C> <C>
U.S. federal income tax at statutory rate....... $ 637,692 $(2,628,656) $ 645,125
State income taxes, net of federal benefit.... 112,533 (463,880) 113,846
Valuation allowance provided for loss
carryforward generated during the current
period..................................... 720,490 6,589,750 307,000
Reconciliation of return to estimate.......... -- 71,510 --
Permanent difference.......................... 20,001 231,231 3,546,580
---------- ----------- ----------
$1,490,716 $ 3,799,955 $4,612,551
========== =========== ==========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
The deferred tax assets (liabilities) consist of the
following:
Loss carryforwards expiring 2009 and 2010................ $ 4,766,240 $11,806,985
Deferred stock option compensation deduction............. 2,544,000 4,064,000
Tax credits.............................................. -- 2,951,555
Other.................................................... 105,411 680,819
----------- -----------
Gross deferred tax assets............................. 7,415,651 19,503,359
----------- -----------
Depreciation and amortization............................ (5,057,772) (21,488,463)
----------- -----------
Deferred tax assets valuation allowance.................. (7,310,240) (621,210)
----------- -----------
Net deferred tax liabilities.......................... $(4,952,361) $(2,606,314)
=========== ===========
</TABLE>

The deferred tax valuation allowance was originally established due to the
uncertainty surrounding the realizability of the Company's deferred tax assets
using the "more likely than not" criteria. During the fourth quarter of 1996,
the Company revised its estimate of the likelihood that it will realize the
majority of its deferred tax assets and adjusted its valuation allowance
accordingly. This revised estimate was the direct result
F-69
<PAGE> 391
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of the acquisition of Trefoil. Reversal of the valuation allowance related to
deferred tax assets which existed on the date of acquisition or which were
acquired as a result of the Trefoil acquisition were credited against the
original purchase accounting allocation to goodwill. The reversal of the
valuation allowance related to deferred tax assets generated subsequent to the
acquisition were credited as a reduction of income tax expense and extraordinary
losses as appropriate.

The Company's tax credits and net operating loss carryforwards at December
31, 1996 begin expiring in 1997 and 2001, respectively. The Company has provided
a valuation allowance for those tax credits which do not meet a "more likely
than not" realizability test.

10. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) Savings Plan, whereby eligible employees can
contribute up to either 15% of their salary, per year, subject to certain
maximum contribution amounts. Prior to 1996, the Company had not made any
contributions to the plan, nor is it required to in future periods. However, the
Company did elect to make a discretionary match for 1996 of approximately
$250,000. Employees become eligible to participate in the plan after the
completion of one year of service and the attainment of age twenty-one.

11. COMMITMENTS

The Company leases real property, office space, broadcasting equipment and
office equipment under various noncancellable operating leases. Certain of the
Company's leases contain escalation clauses, renewal options and/or purchase
options. In addition, the Company assumed lease obligations in connection with
the acquisition of Trefoil on February 14, 1996. The Company also has employment
and rating survey agreements in excess of one year, and has entered into a
twelve-year financial monitoring and oversight agreement with Hicks Muse & Co.
Partners, L.P., which is an affiliate of Hicks, Muse, Tate & Furst Incorporated.

Future minimum payments under the noncancellable operating lease agreements
at December 31, 1996 are approximately as follows:

<TABLE>
<S> <C>
1997........................................................ $ 6,023,586
1998........................................................ 4,865,095
1999........................................................ 4,277,779
2000........................................................ 3,564,247
2001........................................................ 2,805,282
Thereafter.................................................. 13,080,261
-----------
$34,616,250
===========
</TABLE>

Rent expense was approximately $227,000, $1.3 million and $4.8 million for
the years ended December 31, 1994, 1995 and 1996, respectively.

12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

For cash, short-term debt, and other current amounts receivable and
payable, and the variable-rate term debt, the carrying amount approximates fair
value.

For the fixed-rate long-term debt, the fair value is estimated based on
quoted market prices. The carrying values at December 31, 1995 and 1996 were
$80.0 million and $260.0 million, respectively, and the estimated fair values at
each date were $85.4 million and $267.8 million, respectively.

F-70
<PAGE> 392
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For Chancellor Radio Broadcasting's Senior Exchangeable Preferred Stock,
the fair value of $113.75 per share at December 31, 1996 is estimated based on
quoted market prices.

13. STOCK-BASED COMPENSATION

During 1994, Chancellor's Board of Directors granted options to purchase
996,068 shares of its common stock to the senior management of the Company at
exercise prices of $6.00 and $7.50. The option agreements vest over a five year
period and originally contained certain performance criteria and indexed
exercise prices. On September 30, 1995, Chancellor entered into an agreement
with its senior management to substantially revise and amend these option
agreements to eliminate certain of the performance criteria provisions and to
adjust and fix the exercise prices at $7.50 and $8.40, respectively. Management
developed an estimate of the fair value of the stock options in the amount of
$19.0 million. Based upon this estimate and the applicable vesting periods, the
Company recognized stock option compensation expense and a corresponding credit
to equity of $6.4 million in 1995, with the remaining amount to be amortized
over an approximate four year period.

During 1994, Chancellor's Board of Directors adopted a stock option plan
for its non-employee directors providing for the grant of options and stock
awards for up to 480,000 shares of its common stock. Upon election to the Board
of Directors, each person shall be granted a stock option to purchase a number
of shares of common stock equal to the number of shares of common stock acquired
by purchase by such person upon their initial election to the Board of
Directors. Each option shall be immediately vested, will have a maximum term of
ten years and an exercise price, as determined by the plan committee, equal to
or greater than the fair market value of the common stock on the respective
dates of grant.

In February 1996, Chancellor's Board of Directors adopted a stock award
plan for the Company's management, employees and non-employee directors, elected
after the date of adoption of the plan, providing for the grant of options and
stock awards for up to 916,456 shares of Chancellor's Class A Common Stock. The
Company's compensation committee has the sole authority to grant stock options
and to establish option exercise prices and vesting schedules. However,
per-share exercise prices shall not be less than the fair market value of the
stock on the respective date of grant and if the compensation committee does not
determine a vesting schedule, such option shall vest 20% on the first
anniversary of the respective date of grant and the remaining 80% shall vest pro
rata on a monthly basis over the four-year period following the first
anniversary of the date of grant. Non-employee directors elected after the
effective date of this plan automatically are granted a fully-vested option to
purchase 5,000 shares of Chancellor's Class A Common Stock on the date he or she
first becomes a member of the Board of Directors. Terms of all options are
limited to ten years.

F-71
<PAGE> 393
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the Company's option activity follows. The Company has elected
to continue expense recognition under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and accordingly, has included
certain required pro forma information. Estimates of weighted-average grant-
date fair values of options granted and pro forma option compensation amounts
were determined using the Black-Scholes Single Option approach assuming an
expected option term of 6 years, interest rates ranging from 5.5% to 7.2%, a
dividend yield of zero and a volatility factor of .4 (zero for options issued
prior to the Company's initial public offering in February 1996).

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1994 1995 1996
-------------------------- ---------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year....... -- $ -- 996,068 $ 7.27 1,022,734 $ 7.89
Granted:
Exercise price:
equals FMV....... 996,068 7.27 26,666 7.50 713,916 26.03
less than FMV.... -- -- 996,068 7.90 -- --
Exercised............. -- -- -- -- -- --
Canceled.............. -- -- (996,068) 7.27 (9,000) 24.51
------- ----- --------- ------ --------- ------
End of year............. 996,068 $7.27 1,022,734.. $ 7.89 1,727,650 $15.30
======= ===== ========= ====== ========= ======
Exercisable as of end of
year.................. -- $ -- 225,879.. $ 7.85 431,758 $ 8.06
======= ===== ========= ====== ========= ======
Weighted-average grant-
date fair value of
options granted:
Exercise price:
equals FMV......... -- 3.59 12.69
less than FMV...... -- 21.56 --
</TABLE>

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------
--------------------------- WEIGHTED AVE-
RANGE OF REMAINING EXERCISE RAGE EXERCISE
EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE
--------------- --------- ---------------- -------- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 7.50 -- $ 7.50........................ 577,971 7.06 $ 7.50 247,188 $ 7.50
8.40 -- 8.40........................ 444,763 7.83 8.40 177,904 8.40
20.00 -- 25.25........................ 431,916 9.14 20.51 6,666 20.00
31.00 -- 36.75........................ 273,000 9.75 34.81 -- --
--------- ---- ------ ------- ------
$ 7.50 -- $36.75........................ 1,727,650 8.20 $15.30 431,758 $ 8.06
========= ==== ====== ======= ======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Historical net loss......................................... $(11,531,296) $(18,448,966)
Pro forma adjustment for stock option compensation.......... (781,465) (1,524,302)
Pro forma tax benefit....................................... 312,586 609,721
------------ ------------
Pro forma net loss.......................................... $(12,000,175) $(19,363,547)
============ ============
Pro forma loss per share.................................... $ (1.36) $ (1.16)
</TABLE>

F-72
<PAGE> 394
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. RELATED PARTY TRANSACTIONS

The Company has entered into a twelve-year agreement (the "Financial
Monitoring and Oversight Agreement") with Hicks Muse & Co. Partners, L.P.
("Hicks Muse Partners") and HM2/Management Partners, L.P. ("HM2"), each of which
is an affiliate of Hicks Muse. Chancellor and the Company paid Hicks Muse
Partners an annual fee of $82,000, $200,000 and $408,000 for financial oversight
and monitoring services for the years ended December 31, 1994, 1995 and 1996,
respectively. The annual fee is adjustable each December 31, according to a
formula based on changes in the consumer price index. HM2 received fees of
approximately $0.3 million, $2.4 million and $6.2 million upon consummation of
the acquisitions of KDWB-FM, the American Media Station Group and Trefoil
Communications, Inc., respectively, and is entitled to receive a fee equal to
1.5% of the transaction value (as defined) upon the consummation of each add-on
transaction (as defined) involving Chancellor or any of its subsidiaries.

Effective April 1, 1996, the Company entered into a revised financial
monitoring and oversight agreement with Hicks & Muse & Co. Partners, L.P. and
HM2/Management Partners, L.P., each of which is an affiliate of Hicks, Muse,
Tate & Furst Incorporated. The annual fee for financial oversight and monitoring
services to the Company has been adjusted to $500,000. The annual fee is
adjustable each January 1, to an amount equal to the budgeted consolidated
annual net sales of the Company for the then-current fiscal year, multiplied by
0.25%, provided, however, that in no event shall the annual fee be less than
$500,000.

The Financial Monitoring and Oversight Agreement makes available the
resources of HM2 and Hicks Muse Partners concerning a variety of financial
matters. The services that have been and will continue to be provided by HM2 and
Hicks Muse Partners could not otherwise be obtained by Chancellor and the
Company without the addition of personnel or the engagement of outside
professional advisors.

In February of 1996, the Company lent $200,000 to an affiliate of the
Company. The loan is unsecured, does not bear interest and will be forgiven
during the next three years.

15. SUBSEQUENT EVENTS

On February 14, 1997, Chancellor Radio Broadcasting completed a private
placement of an additional $10.0 million of Convertible Preferred Stock pursuant
to its over-allotment option. The net proceeds of this offering were used to
repay borrowings under the Revolving Credit Facility.

On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered
into an agreement to merge with Evergreen Media Corporation ("Evergreen") in a
stock-for-stock transaction (the "merger"), with Evergreen remaining as the
surviving corporation (the "Surviving Company"). Pursuant to the agreement,
shareholders of the Company's common stock will receive 0.9091 shares of
Evergreen's common stock. Consummation of the merger is subject to shareholder
approval and certain other closing conditions including regulatory approval.

On February 19, 1997, the Company and Evergreen entered into a joint
purchase agreement whereby in the event that consummation of the stock purchase
agreement between Evergreen and Viacom International, Inc. ("Viacom") occurs
prior to the consummation of the merger, the Company will be required to
purchase the Viacom subsidiaries which own four of the ten Viacom stations for
$480 million and Evergreen will be required to purchase the Viacom subsidiaries
which own six of the ten Viacom stations for $595 million. In the event that
consummation of the stock purchase agreement between Evergreen and Viacom occurs
after the consummation of the merger, the Surviving Company will acquire the
stock of certain Viacom subsidiaries which own and operate ten radio stations in
five major markets. Consummation of the transaction is dependent upon certain
closing conditions including regulatory approval.

F-73
<PAGE> 395
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. UNCERTAINTIES AND THE USE OF ESTIMATES AND ASSUMPTIONS

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 their broadcast licenses. The new legislation will
enable the Company to retain all of its radio stations and to acquire more
properties; at the same time, this legislation will also allow other broadcast
entities to increase their ownership in markets where the Company currently
operates stations. The Company's management is unable to determine the ultimate
effect of this legislation on its competitive environment.

The 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.

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 dates of financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual amounts could differ from those estimates.

17. RECENT ACCOUNTING PRONOUNCEMENT

The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per
Share" in March 1997, which establishes standards for computing and presenting
earnings per share. The disclosure requirements of SFAS No. 128 will be
effective for the Company's financial statements beginning in 1997. Management
has not yet determined the impact that the adoption of SFAS No. 128 will have on
the financial statements of the Company.

18. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
1996 FISCAL QUARTERS
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues............................. $25,642,239 $44,425,668 $52,770,414 $55,563,210
Income from operations................... 2,831,163 11,028,609 12,107,887 11,702,047
Income before extraordinary loss......... (7,585,314) (2,355,054) (1,061,804) (3,269,897)
Net loss................................. (12,231,235) (2,355,054) (2,025,071) (1,837,606)
Net loss attributable to common stock.... (28,801,300) (2,355,054) (2,025,071) (1,837,606)
Net loss per share before extraordinary
loss................................... (1.83) (0.14) (0.06) (0.18)
Net loss per share....................... (2.18) (0.14) (0.11) (0.10)
</TABLE>

The above results reflect the acquisition of Shamrock Broadcasting on
February 13, 1996, the exchange of KTBZ-FM for KIMN-FM and KALC-FM on July 31,
1996, and the various operating agreements with Omni, Secret, SFX and American
Radio which began during the third quarter. First and third quarter results
include extraordinary losses related to the early extinguishment of debt. Fourth
quarter results reflect an extraordinary tax benefit related to the previously
recognized extraordinary losses on early extinguishment of debt resulting from
management's change in estimate as to the likelihood of it utilizing its
deferred tax assets.

F-74
<PAGE> 396

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Whiteco Industries, Inc.
Merrillville, Indiana

We have audited the accompanying balance sheets of the Outdoor Advertising
Division of Whiteco Industries, Inc. as of December 31, 1996 and 1997, and the
related statements of income and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Division's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Outdoor Advertising
Division of Whiteco Industries, Inc. as of December 31, 1996 and 1997, and the
results of its operations and cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

BDO Seidman, LLP

Chicago, Illinois
September 17, 1998

F-75
<PAGE> 397

OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash............................................. $ 155,781 $ 249,733 $ 7,109,413
Accounts receivable (net of $631,000, $1,111,000
and $1,941,000 allowance for uncollectible
accounts for December 31, 1996, 1997 and
September 30, 1998, respectively)............. 9,112,798 10,718,470 13,113,464
Prepaid expenses and other
receivables................................... 2,520,913 2,684,801 2,655,593
Prepaid sign costs............................... 4,880,789 5,064,178 4,951,369
------------ ------------ ------------
Total current assets..................... 16,670,281 18,717,182 27,829,839
------------ ------------ ------------
Property and equipment
Land, buildings and improvements................. 5,389,827 6,279,957 6,980,180
Advertising signs................................ 134,120,274 150,697,192 160,138,490
Equipment........................................ 4,226,984 4,925,336 6,210,613
------------ ------------ ------------
Total cost............................... 143,737,085 161,902,485 173,329,283
Accumulated depreciation......................... 84,300,457 91,601,392 98,914,094
------------ ------------ ------------
Net property and equipment......................... 59,436,628 70,301,093 74,415,189
------------ ------------ ------------
Other sign costs................................... 707,273 1,424,848 2,164,372
------------ ------------ ------------
$ 76,814,182 $ 90,443,123 $104,409,400
============ ============ ============

LIABILITIES AND DIVISIONAL EQUITY
Current liabilities
Accounts payable................................. $ 505,561 $ 900,145 $ 462,790
Customers' advance payments and deposits......... 127,925 70,174 17,777
Accrued expenses................................. 1,577,194 2,210,355 3,965,815
------------ ------------ ------------
Total current liabilities................ 2,210,680 3,180,674 4,446,382
------------ ------------ ------------
Commitments
Divisional equity.................................. 74,603,502 87,262,449 99,963,018
------------ ------------ ------------
$ 76,814,182 $ 90,443,123 $104,409,400
============ ============ ============
</TABLE>

See accompanying notes to financial statements.

F-76
<PAGE> 398

OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues....................... $108,447,476 $117,268,324 $126,800,754 $93,827,208 $103,693,938
Less: Agency discounts......... 6,616,011 8,400,821 8,702,563 6,372,877 7,190,622
------------ ------------ ------------ ----------- ------------
Net revenues................. 101,831,465 108,867,503 118,098,191 87,454,331 96,503,316
Cost of revenues............... 40,659,116 42,021,229 45,615,461 34,260,557 34,981,851
Selling and administrative
expenses..................... 14,878,784 16,288,955 18,369,034 13,127,709 14,642,469
Corporate overhead expenses.... 5,176,832 5,644,490 6,073,671 4,786,406 5,193,299
Depreciation and
amortization................. 8,675,204 10,501,844 11,525,410 8,232,183 8,760,265
Profit participation fee....... 2,101,620 2,248,329 2,321,884 1,701,068 1,756,342
------------ ------------ ------------ ----------- ------------
Income from operations before
other income and interest
expense...................... 30,339,909 32,162,656 34,192,731 25,346,408 31,169,090
Other income, less other
expenses..................... (1,060,355) (1,131,033) (1,833,411) (1,523,219) (852,526)
Interest expense............... 38,556 17,927 3,794 622 98,231
------------ ------------ ------------ ----------- ------------
Net income..................... $ 31,361,708 $ 33,275,762 $ 36,022,348 $26,869,005 $ 31,923,385
============ ============ ============ =========== ============
</TABLE>

See accompanying notes to financial statements.

F-77
<PAGE> 399

OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income................................... $ 31,361,708 $ 33,275,762 $ 36,022,348 $ 26,869,005 $ 31,923,385
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for depreciation and
amortization........................... 8,675,204 10,501,844 11,525,410 8,232,183 8,760,266
Gain on disposals of assets.............. (795,498) (812,482) (1,488,665) (1,369,119) (792,637)
Increase in accounts receivable.......... (694,344) (1,853,160) (1,605,672) (1,332,818) (2,394,994)
Decrease (increase) in prepaid expenses
and other receivables.................. (220,881) (1,202,910) (163,888) (373,047) 29,208
Increase in prepaid sign costs and other
sign costs............................. (1,044,722) (815,916) (1,840,672) (963,958) (1,063,971)
(Decrease) increase in accounts payable
and accrued expenses................... (66,319) 869,627 1,027,745 570,828 1,318,105
Increase (decrease) in customers' advance
payments and deposits.................. 185,750 (57,825) (57,751) (41,035) (52,397)
------------ ------------ ------------ ------------ ------------
Total adjustments.................... 6,039,190 6,629,178 7,396,507 4,723,034 5,803,580
------------ ------------ ------------ ------------ ------------
Net cash provided by operating activities.... 37,400,898 39,904,940 43,418,855 31,592,039 37,726,965
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities
Proceeds from sales of assets.............. 1,352,297 1,115,793 2,474,779 1,679,067 1,170,065
Expenditures for advertising signs......... (26,033,225) (14,713,166) (19,541,162) (16,815,288) (9,563,563)
Expenditures for property and equipment.... (1,986,847) (2,180,644) (2,895,119) (2,111,561) (3,250,971)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities........ (26,667,775) (15,778,017) (19,961,502) (17,247,782) (11,644,469)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities
Interdivisional transactions............... (11,489,912) (24,124,287) (23,363,401) (7,445,015) (19,222,816)
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities........ (11,489,912) (24,124,287) (23,363,401) (7,445,015) (19,222,816)
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in cash.............. (756,789) 2,636 93,952 6,899,242 6,859,680
Cash, at beginning of year................... 909,934 153,145 155,781 155,781 249,733
------------ ------------ ------------ ------------ ------------
Cash, at end of year......................... $ 153,145 $ 155,781 $ 249,733 $ 7,055,023 $ 7,109,413
============ ============ ============ ============ ============
</TABLE>

See accompanying notes to financial statements.

F-78
<PAGE> 400

OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Whiteco Industries, Inc. ("Whiteco") has entered into an agreement to sell
substantially all of the assets and certain liabilities of its Outdoor
Advertising Division (the "Division"). The Division owns and operates outdoor
advertising signs throughout the United States.

During the periods covered by the financial statements, the Division was
conducted as an integral part of Whiteco's overall operations and separate
financial statements were not prepared. These financial statements have been
prepared from Whiteco's historical accounting records. Corporate overhead
expenses are actual expenses incurred by the Division. The Division operated
independently from Whiteco Industries, Inc. However, the expenses incurred by
the Division for corporate overhead may not necessarily be indicative of
expenses that would have been incurred had the Division been operated as a
separate entity.

Interim Financial Statements

The financial information as of September 30, 1998 and with respect to the
nine months ended September 30, 1997 and 1998 is unaudited. In the opinion of
management, the financial statements contain all adjustments consisting of
normal recurring accruals, necessary for the fair presentation of the results
for such periods. The information is not necessarily indicative of the results
of operations to be expected for the fiscal year end.

Contracts and Revenue Recognition

Outdoor advertising signs are contracted to customers under individual
advertising contracts that primarily run from one month to five years. Revenue
is recognized ratably over the life of the contract. Costs associated with the
outdoor advertising operations, including contract costs and land rental, are
expensed over the related contract term.

Prepaid Sign Costs and Other Sign Costs

Prepaid sign costs and other sign costs are primarily land rental payments
relating to future periods. Amortization on these assets was $1,020,942,
$1,075,827 and $939,708 for the years ended December 31, 1995, 1996 and 1997,
and $223,975 and $437,256 for the nine months ended September 30, 1997 and 1998,
respectively.

Property and Equipment

LAND, BUILDINGS AND IMPROVEMENTS AND EQUIPMENT

Land, buildings and improvements and equipment are carried at cost,
including interest charges capitalized during construction. Depreciation on
these assets is computed over various lives under the straight-line method and
amounted to $767,872, $911,890 and $1,092,869 for the years ended December 31,
1995, 1996 and 1997 and $957,510 and $1,113,288 for the nine months ended
September 30, 1997 and 1998, respectively.

ADVERTISING SIGNS

Advertising sign structures are depreciated by the straight-line method
over lives principally from eight to twelve years. Depreciation of advertising
signs was $6,886,390, $8,514,127 and $9,492,833 for the years ended

F-79
<PAGE> 401
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1995, 1996 and 1997, and $7,050,698 and $7,209,722 for the nine
months ended September 30, 1997 and 1998, respectively.

Income Taxes

The Division is part of Whiteco Industries, Inc. which is an "S"
corporation and, as such, federal and most state income taxes are the
responsibility of the stockholder and therefore not reflected on the Division's
financial statements.

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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

2. LEASES

The Division leases office facilities and property under various operating
leases. The Division's primary office premises are leased from a partnership in
which Whiteco Industries, Inc. is the general partner. Annual minimum rental
payments under leases that have an initial or remaining term in excess of one
year at December 31, 1997 are as follows:

<TABLE>
<CAPTION>
RELATED
YEAR PARTY OTHER TOTAL
---- -------- -------- ----------
<S> <C> <C> <C>
1998................................................ $224,000 $270,000 $ 494,000
1999................................................ 224,000 131,000 355,000
2000................................................ 224,000 130,000 354,000
2001................................................ 224,000 131,000 355,000
2002................................................ 224,000 131,000 355,000
Thereafter.......................................... 56,000 962,000 1,018,000
</TABLE>

Total lease expense was approximately $675,000, $646,000 and $665,000 for
the years ended December 31, 1995, 1996 and 1997, and $494,000 and $509,000 for
the nine months ended September 30, 1997 and 1998, respectively. Related party
lease expense was $254,000, $230,000 and $117,000 for the years ended December
31, 1995, 1996 and 1997, and $172,000 and $176,000 for the nine months ended
September 30, 1997 and 1998, respectively.

3. RETIREMENT SAVINGS PLAN

The Division is a part of Whiteco Industries, Inc. ("Whiteco") who
maintains a qualified plan under Section 401(k) of the Internal Revenue Code.
This plan is available for all employees who have completed one year or more of
continuous service. The plan permits employees to contribute up to 15% of their
annual compensation. The plan allows for discretionary Whiteco contributions.
Currently, Whiteco matches 20% of the employees' contributions, to a maximum of
6% of earnings, and also makes a 1% quarterly matching contribution.
Contributions were $154,160, $171,270 and $177,100 for the years ended December
31, 1995, 1996 and 1997, and $135,000 and $186,432 for the nine months ended
September 30, 1997 and 1998, respectively.

F-80
<PAGE> 402
OUTDOOR ADVERTISING DIVISION OF
WHITECO INDUSTRIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. MANAGEMENT AGREEMENT

In October 1984, the Division entered into an agreement with Metro
Management Associates (the "Partnership"), a partnership in which several
partners are employees of Whiteco, for the management and operation of
approximately 540 outdoor advertising signs located in Indiana, Texas, Rhode
Island, Missouri, Ohio, Florida, Illinois, Kentucky, Pennsylvania and Virginia.
All revenue and operating expenses related to the management and operation of
the Partnership's outdoor advertising signs are included in the Division's
results of operations. The Division is required to pay a profit participation
fee to the Partnership which approximates the operating profit of the managed
assets and is based upon a fixed monthly fee and a variable fee based upon
revenue. On August 31, 1998, the Partnership entered into an agreement to sell
substantially all of the assets and certain specified liabilities of the
Partnership to Chancellor Media Corporation. The management agreement between
the Division and the Partnership will be terminated upon consummation of the
acquisition by Chancellor Media Corporation.

5. SUBSEQUENT EVENT

On August 31, 1998, Whiteco Industries, Inc. entered into an agreement to
sell substantially all of the assets and certain specified liabilities of the
Division to Chancellor Media Corporation.

F-81
<PAGE> 403

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Capstar Broadcasting Corporation

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Capstar Broadcasting Corporation and its subsidiaries at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. 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. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Austin, Texas
February 26, 1999, except as to Note 3,
which is as of March 15, 1999

F-82
<PAGE> 404

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 70,059 $ 17,117
Accounts receivable, net of allowance for doubtful
accounts of $2,889 and $8,352, respectively............ 40,350 112,846
Prepaid expenses and other current assets................. 4,285 20,121
---------- ----------
Total current assets.............................. 114,694 150,084
Property and equipment, net................................. 106,717 248,920
Intangibles and other, net.................................. 881,545 4,240,378
Other non-current assets.................................... 18,500 23,620
---------- ----------
Total assets...................................... $1,121,456 $4,663,002
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 1,388 $ 29,834
Accounts payable.......................................... 13,641 15,387
Accrued liabilities....................................... 16,826 68,269
Income taxes payable...................................... 2,417 30,471
---------- ----------
Total current liabilities......................... 34,272 143,961
Long-term debt, net of current portion.................... 593,184 1,748,755
Deferred income taxes..................................... 160,422 1,163,156
---------- ----------
Total liabilities................................. 787,878 3,055,872
Commitments and contingencies (Note 15)
Redeemable preferred stock of subsidiaries:
Capstar Broadcasting Partners, Inc., $.01 par value,
10,000 shares authorized, 1,000 and 1,196 shares issued
and outstanding respectively, aggregate liquidation
preference of $106,560 and $118,460 respectively....... 101,493 113,699
Capstar Communications, Inc., Series E Cumulative
Exchangeable Preferred Stock, $.01 par value, 4,150
shares authorized, 1,266 shares issued and outstanding,
aggregate liquidation preference of $133,944........... -- 148,669
Stockholders' equity:
Preferred stock, $.10 par value, 1,000 shares
authorized, none issued............................... -- --
Common stock, Class A, voting $.01 par value, 750,000
shares authorized, 2,579 and 33,986 shares issued and
outstanding, respectively............................. 26 340
Common stock, Class B, nonvoting, $.01 par value,
150,000 shares authorized, 4,818 and 6,082 shares
issued and outstanding, respectively.................. 48 61
Common stock, Class C, voting, $.01 par value, 150,000
shares authorized, 22,812 and 67,538 shares issued and
outstanding, respectively............................. 228 675
Additional paid-in capital............................. 291,324 1,503,201
Stock subscriptions receivable......................... (4,374) (2,694)
Unearned compensation.................................. -- (4,893)
Accumulated deficit.................................... (55,167) (151,928)
---------- ----------
Total stockholders' equity........................ 232,085 1,344,762
---------- ----------
Total liabilities and stockholders' equity........ $1,121,456 $4,663,002
========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-83
<PAGE> 405

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Gross broadcast revenue.................................... $ 47,200 $189,820 $568,050
Less agency commissions.................................... 4,334 14,375 50,583
-------- -------- --------
Net broadcast revenue.................................... 42,866 175,445 517,467
-------- -------- --------
Operating expenses:
Programming, technical and news.......................... 9,313 43,073 94,019
Sales and promotion...................................... 12,808 48,156 137,632
General and administrative............................... 8,360 30,906 72,914
Corporate expenses......................................... 2,523 14,221 23,678
Corporate expenses -- noncash compensation................. 6,176 10,575 21,260
LMA fees................................................... 834 2,519 4,103
Depreciation and amortization.............................. 4,141 26,415 96,207
Merger, nonrecurring and systems development expense....... -- 4,729 12,970
-------- -------- --------
Operating income (loss).................................... (1,289) (5,149) 54,684
Other income (expense):
Interest expense......................................... (8,907) (47,012) (121,145)
Interest income.......................................... 34 4,572 3,423
Loss on sale of broadcasting property.................... -- (908) --
Loss on investments in limited liability companies....... -- -- (28,565)
Other.................................................... (929) -- (183)
-------- -------- --------
Loss before benefit for income taxes, dividends and
accretion on preferred stock of subsidiaries and
extraordinary item....................................... (11,091) (48,497) (91,786)
Benefit for income taxes................................... 322 11,720 24,317
Dividends and accretion on preferred stock of
subsidiaries............................................. -- 6,560 21,987
-------- -------- --------
Loss before extraordinary item............................. (10,769) (43,337) (89,456)
Extraordinary loss on early extinguishment of debt, net of
tax benefit of $707, $1,473, and $3,282, respectively.... 1,188 2,403 7,305
-------- -------- --------
Net loss................................................... (11,957) (45,740) (96,761)
Dividends, accretion and redemption of preferred stocks.... 1,350 7,071 --
-------- -------- --------
Net loss attributable to common stock...................... $(13,307) $(52,811) $(96,761)
======== ======== ========
Basic and diluted loss per common share:
Before extraordinary loss................................ $ (1.37) $ (1.98) $ (1.02)
Extraordinary loss....................................... (0.13) (0.09) (0.08)
-------- -------- --------
Net loss.............................................. $ (1.50) $ (2.07) $ (1.10)
======== ======== ========
Weighted average common shares outstanding................. 8,880 25,455 87,678
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements

F-84
<PAGE> 406

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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, 1996......... 1 $ 1 4 $ 1 1 $-- -- $--
Issuance of Common stock.......... -- -- -- -- -- -- -- --
Issuance of Class A Common
stock........................... -- -- -- -- -- -- -- --
Issuance of Class B Common
stock........................... -- -- -- -- -- -- -- --
Issuance of Class C Common
stock........................... -- -- -- -- -- -- -- 1
Conversion of Common stock to
Class A Common stock............ (1) -- 1 -- -- -- -- --
Conversion of Class A and B Common
stock to Common stock........... 1 -- -- -- (1) -- -- --
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 1 5 1 -- -- -- 1
GULFSTAR COMMUNICATIONS, INC.:
Issuance of Common stock.......... -- -- -- -- -- -- -- --
Conversion of Class A Common stock
to Class C Common stock......... -- -- (4) -- -- -- 4 --
Conversion of Class C Common stock
to Class A Common stock......... -- -- 1 -- -- -- (1) --
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) (1) (2) (1) -- -- (3) (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....... -- -- -- -- -- -- -- --
Initial public offering, net of
expenses....................... -- -- -- -- -- -- -- --
Other issuances of common
stock.......................... -- -- -- -- -- -- -- --
Repurchase of common stock...... -- -- -- -- -- -- -- --
Conversion of Class C Common
stock to Class A Common
stock.......................... -- -- -- -- -- -- -- --
Conversion of Class B Common
stock to Class C Common
stock.......................... -- -- -- -- -- -- -- --
Unearned compensation related to
shares to be issued to
seller......................... -- -- -- -- -- -- -- --
Unearned compensation related to
granting of employee stock
options........................ -- -- -- -- -- -- -- --
Compensation expense............ -- -- -- -- -- -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Payments received on Stock
subscriptions receivable....... -- -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- -- --
-- --- -- --- -- --- -- ---
Balance at December 31, 1998....... -- $-- -- $-- -- $-- -- $--
== === == === == === == ===

<CAPTION>
GULFSTAR COMMUNICATIONS, INC.
-----------------------------------------

ADDITIONAL STOCK
PAID-IN SUBSCRIPTIONS UNEARNED
CAPITAL RECEIVABLE COMPENSATION
---------- ------------- ------------
<S> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1996......... $ 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....... -- -- --
Initial public offering, net of
expenses....................... -- -- --
Other issuances of common
stock.......................... -- -- --
Repurchase of common stock...... -- -- --
Conversion of Class C Common
stock to Class A Common
stock.......................... -- -- --
Conversion of Class B Common
stock to Class C Common
stock.......................... -- -- --
Unearned compensation related to
shares to be issued to
seller......................... -- -- --
Unearned compensation related to
granting of employee stock
options........................ -- --
Compensation expense............ -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- --
Payments received on Stock
subscriptions receivable....... -- -- --
Net loss........................ -- -- --
-------- ------- -------
Balance at December 31, 1998....... $ -- $ -- $ --
======== ======= =======
</TABLE>

F-85
<PAGE> 407
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(THOUSANDS, EXCEPT PER SHARE AMOUNTS) -- (CONTINUED)
<TABLE>
<CAPTION>
CAPSTAR BROADCASTING CORPORATION
*(CAPSTAR BROADCASTING PARTNERS, INC. THROUGH JUNE 20, 1997)
---------------------------------------------------------
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK
----------------- ----------------- -----------------
NUMBER OF PAR NUMBER OF PAR NUMBER OF PAR
SHARES VALUE SHARES VALUE SHARES VALUE
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1996....... -- $ -- -- $ -- -- $ --
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......... 9,416 94 -- -- -- --
Issuance of warrants............. -- -- -- -- -- --
Net loss......................... -- -- -- -- -- --
------- ----- ------ ---- ------ ----
Balance at December 31, 1996...... 9,416 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........ 3,824 38 1,818 18 -- --
Repurchase of Common stock....... (18) -- -- -- -- --
Conversion of Class B Common
stock to Class A Common
stock.......................... 1,818 18 (1,818) (18) -- --
Compensation expense............. -- -- -- -- -- --
Elimination of Capstar
Broadcasting Partners, Inc.
Common stock................... (15,040) (150) -- -- -- --
Issuance of Common stock......... 960 10 2,656 27 18,187 182
Repurchase of Common stock....... (119) (1) -- -- -- --
Issuance of shares in connection
with merger.................... 1,738 17 2,162 21 4,625 46
Redemption of Redeemable
preferred stock................ -- -- -- -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- -- -- -- --
Payments received on stock
subscriptions receivable....... -- -- -- -- -- --
Net loss......................... -- -- -- -- -- --
------- ----- ------ ---- ------ ----
Balance at December 31, 1997...... 2,579 26 4,818 48 22,812 228
Initial public offering, net of
expenses....................... 31,000 310 -- -- -- --
Other issuances of common
stock.......................... 172 2 2,464 25 43,797 438
Repurchase of common stock....... (36) (1) -- -- -- --
Conversion of Class C Common
stock to Class A Common
stock.......................... 271 3 -- -- (271) (3)
Conversion of Class B Common
stock to Class C Common
stock.......................... -- -- (1,200) (12) 1,200 12
Unearned compensation related to
shares to be issued to
seller......................... -- -- -- -- -- --
Unearned compensation related to
granting of employee stock
options........................ -- -- -- -- -- --
Compensation expense............. -- -- -- -- -- --
Accrued interest on Stock
subscriptions receivable....... -- -- -- -- -- --
Payments received on Stock
subscriptions receivable....... -- -- -- -- -- --
Net loss......................... -- -- -- -- -- --
------- ----- ------ ---- ------ ----
Balance at December 31, 1998...... 33,986 $ 340 6,082 $ 61 67,538 $675
======= ===== ====== ==== ====== ====

<CAPTION>
CAPSTAR BROADCASTING CORPORATION
*(CAPSTAR BROADCASTING PARTNERS, INC. THROUGH JUNE 20, 1997)
-----------------------------------------

RETAINED
ADDITIONAL STOCK EARNINGS TOTAL
PAID-IN SUBSCRIPTIONS UNEARNED (ACCUMULATED STOCKHOLDERS'
CAPITAL RECEIVABLE COMPENSATION DEFICIT) EQUITY
---------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
GULFSTAR COMMUNICATIONS, INC.:
Balance at January 1, 1996....... $ -- $ -- $ -- $ 2,530 $ 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......... 94,061 -- -- -- 94,155
Issuance of warrants............. 744 -- -- -- 744
Net loss......................... -- -- -- (11,957) (11,957)
---------- ------- ------- --------- ----------
Balance at December 31, 1996...... 94,805 -- -- (9,427) 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........ 61,942 (1,596) -- -- 60,402
Repurchase of Common stock....... (175) -- -- -- (175)
Conversion of Class B Common
stock to Class A Common
stock.......................... -- -- -- -- --
Compensation expense............. 1,825 -- -- -- 1,825
Elimination of Capstar
Broadcasting Partners, Inc.
Common stock................... 150 -- -- -- --
Issuance of Common stock......... 89,570 (550) -- -- 89,239
Repurchase of Common stock....... (764) -- -- -- (765)
Issuance of shares in connection
with merger.................... 43,823 (2,485) -- -- 31,443
Redemption of Redeemable
preferred stock................ -- -- -- -- (5,378)
Accrued interest on Stock
subscriptions receivable....... 148 (148) -- -- --
Payments received on stock
subscriptions receivable....... -- 405 -- -- 405
Net loss......................... -- -- -- (45,740) (45,740)
---------- ------- ------- --------- ----------
Balance at December 31, 1997...... 291,324 (4,374) -- (55,167) 232,085
Initial public offering, net of
expenses....................... 550,998 -- -- -- 551,308
Other issuances of common
stock.......................... 635,024 -- -- -- 635,489
Repurchase of common stock....... (483) -- -- -- (484)
Conversion of Class C Common
stock to Class A Common
stock.......................... -- -- -- -- --
Conversion of Class B Common
stock to Class C Common
stock.......................... -- -- -- -- --
Unearned compensation related to
shares to be issued to
seller......................... 5,428 -- (5,428) -- --
Unearned compensation related to
granting of employee stock
options........................ 878 -- (878) -- --
Compensation expense............. 19,847 -- 1,413 -- 21,260
Accrued interest on Stock
subscriptions receivable....... 185 (185) -- -- --
Payments received on Stock
subscriptions receivable....... -- 1,865 -- -- 1,865
Net loss......................... -- -- -- (96,761) (96,761)
---------- ------- ------- --------- ----------
Balance at December 31, 1998...... $1,503,201 $(2,694) $(4,893) $(151,928) $1,344,762
========== ======= ======= ========= ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-86
<PAGE> 408

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (11,957) $ (45,740) $ (96,761)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Loss on early extinguishment of debt................ 1,188 2,403 7,305
Depreciation and amortization....................... 4,141 26,415 96,207
Noncash interest.................................... 2,626 24,047 23,338
Deferred income taxes............................... 547 (12,198) (42,713)
Noncash compensation expense........................ 6,176 10,575 21,260
Write-off of pending acquisition costs.............. 105 -- --
Write-down of investments in limited liability
companies......................................... -- -- 28,565
Provision for uncollectible accounts receivable..... 661 2,044 5,916
Dividends and accretion on preferred stock of
subsidiary........................................ -- 6,560 21,987
Noncash interest income............................. -- (755) --
Loss on sale of broadcasting property............... -- 908 --
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable............................... (5,331) (12,029) (1,683)
Prepaid expenses and other current assets......... (1,002) 252 (1,615)
Accounts payable and accrued expenses............. 507 1,800 (2,639)
Income taxes payable.............................. -- 2,417 (67,229)
--------- --------- -----------
Net cash provided by (used in) operating
activities................................... (2,339) 6,699 (8,062)
--------- --------- -----------
Cash flows from investing activities:
Proceeds from sale of broadcasting property............ -- 35,932 229,180
Purchase of property and equipment..................... (2,478) (10,020) (44,886)
Payments for acquisitions, net of cash acquired........ (149,612) (505,375) (1,675,558)
Payments for pending acquisitions...................... (3,342) (6,895) (18,090)
Income tax liability indemnity payments................ -- -- 92,968
Other investing activities, net........................ (147) (644) (3,812)
--------- --------- -----------
Net cash used in investing activities.......... (155,579) (487,002) (1,420,198)
--------- --------- -----------
Cash flows from financing activities:
Proceeds from long-term debt and credit facilities..... 64,647 556,902 1,324,500
Repayment of long-term debt and credit facilities...... (13,210) (200,249) (983,758)
Payments of financing related costs.................... (2,936) (25,169) (8,887)
Net proceeds from issuance of common stock............. 94,155 145,149 1,186,797
Net proceeds from issuance of preferred stock.......... 20,979 95,071 --
Net proceeds from issuance of warrants................. 3,884 -- --
Payments on subscribed stock........................... -- -- 1,865
Redemption of preferred stock.......................... -- (30,223) (135,207)
Purchase of common stock............................... -- (940) (484)
Preferred stock dividends.............................. -- -- (9,508)
--------- --------- -----------
Net cash provided by financing activities...... 167,519 540,541 1,375,318
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents..... 9,601 60,238 (52,942)
Cash and cash equivalents at beginning of period......... 220 9,821 70,059
--------- --------- -----------
Cash and cash equivalents at end of period............... $ 9,821 $ 70,059 $ 17,117
========= ========= ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-87
<PAGE> 409

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 affiliates, and its direct and indirect wholly-owned subsidiaries
(collectively, "the Company") operate in a single reportable 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, 1998, the Company owned and operated, provided programming to or
sold advertising on behalf of 220 FM stations and 97 AM stations located in 78
markets.

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 the common equity
of Capstar Partners and Capstar Partners owned 100% of the common equity of
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 on the relative value of the Company and Former GulfStar, principally
determined by utilizing projected broadcast cash flows for the year ended
December 31, 1998. As a result of the merger, Former 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-88
<PAGE> 410
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Separate results of operations of the combining entities to the date of the
merger are as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Net broadcast revenue:
Capstar Broadcasting............................... $ 10,303 $ 41,862
GulfStar........................................... 32,563 23,294
-------- --------
$ 42,866 $ 65,156
======== ========
Extraordinary item:
Capstar Broadcasting............................... $ -- $ 851
GulfStar........................................... 1,188 --
-------- --------
$ 1,188 $ 851
======== ========
Net loss:
Capstar Broadcasting............................... $ (3,757) $ (7,156)
GulfStar........................................... (8,200) (8,842)
-------- --------
$(11,957) $(15,998)
======== ========
</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 10 3/4% Senior Subordinated Notes Due 2006 (the "10 3/4% CCI Notes")
and the 11 3/8% Senior Subordinated Notes Due 2000 (the "11 3/8% CCI Notes") are
guaranteed by every direct and indirect subsidiary of Capstar Communications,
Inc. ("CCI"). The guarantees by the guarantor subsidiaries are full,
unconditional, and joint and several. All of the guarantor subsidiaries are
wholly-owned. CCI 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.

Cash Equivalents

For purposes of the accompanying consolidated statement of cash flows, the
Company considers highly liquid investments with maturities at date of purchase
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 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.

F-89
<PAGE> 411
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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, 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 $2,936, $25,169 and $8,887 of new
financing costs were incurred for the years ended December 31, 1996, 1997 and
1998, respectively. Deferred financing costs are amortized by the interest
method over the life of the related debt. Accumulated amortization related to
deferred financing costs at December 31, 1997 and 1998 was approximately $1,209
and $2,366, 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.

Exchange of Radio Stations

The Company records the exchange of radio stations in accordance with APB
Opinion No. 16, "Business Combinations". The net book value of the station given
up is removed from the accounts and the station received is recorded at fair
value, with any resulting gain or loss included in results of operations.

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

F-90
<PAGE> 412
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Income (Loss) Per Share

The Company computes earnings per share ("EPS") under the provisions of
SFAS No. 128 which establishes standards for computing and presenting earnings
per share.

At December 31, 1996, 1997, and 1998, the following options and warrants to
purchase shares of common stock were outstanding, but were excluded from the
computation of diluted earnings per share as their inclusion would be
anti-dilutive given the Company's net loss:

<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Number of options and warrants............................. 1,304 3,189 6,695
Weighted-average exercise price............................ $13.14 $13.58 $15.71
</TABLE>

Advertising Costs

The Company incurs various marketing and promotional costs to add and
maintain listenership. These are expensed as incurred and totaled approximately
$2,668, $5,731 and $27,990 for the years ended December 31, 1996, 1997 and 1998,
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 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.

F-91
<PAGE> 413
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Uncertainties and Use of Estimates and Assumptions

The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission ("FCC"). 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.

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 FCC under the Communications Act of 1934, as amended.

Segment Information

In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 superseded SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect results of operations or financial position but did
affect the disclosure of segment information.

New Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This pronouncement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management does not believe the implementation of
this accounting pronouncement will have a material effect on its consolidated
financial statements.

Reclassifications

Certain amounts in 1996 and 1997 have been reclassified to conform to the
1998 presentation.

3. CHANCELLOR MERGER AGREEMENT

On August 26, 1998, Capstar Broadcasting and Chancellor Media Corporation
("Chancellor Media"), an affiliate of the Company, entered into an agreement to
merge (the "Chancellor Merger") in a stock-for-stock transaction. Under the
merger agreement:

- Chancellor Media will acquire Capstar Broadcasting in a reverse merger in
which Capstar Broadcasting will be renamed Chancellor Media Corporation;

- each share of Class A Common Stock and Class C Common Stock will
represent 0.4955 shares of voting common stock in the combined entity;

- each share of Class B Common Stock will represent 0.4955 shares of
nonvoting common stock of the combined entity;

- each share of Chancellor Media common stock will represent one share of
the combined entity; and
F-92
<PAGE> 414
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

- each share of Chancellor Media preferred stock will represent one share
of preferred stock of the combined entity.

The completion of the merger depends upon the satisfaction of a number of
conditions, including the following:

- stockholder approval of both Capstar Broadcasting and Chancellor Media;

- the expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which
waiting period has terminated;

- the receipt of regulatory approval from the FCC, which regulatory
approval has been received;

- the consent of the lenders under the Capstar Broadcasting credit facility
and Chancellor Media's credit facility; and

- other customary conditions.

There can be no assurance that all of the conditions to the merger will be
satisfied. Either company may waive compliance with the conditions at its
discretion if permitted by law.

On September 9, 1998, Capstar Broadcasting was notified of an action filed
on behalf of all owners of securities of Chancellor Media against Chancellor
Media, Hicks Muse and the individual directors of Hicks Muse in the Court of
Chancery of the State of Delaware in and for New Castle County, Delaware. While
the complaint does not name Capstar Broadcasting as a defendant, the complaint
alleges that Chancellor Media and its directors breached their duties to the
alleged class by entering into an "overly generous offer for Capstar assets."
The action is relevant to Capstar Broadcasting because inter alia, the plaintiff
seeks an injunction prohibiting the proposed Chancellor Merger with Capstar
Broadcasting. As Capstar Broadcasting is not a defendant in this action, Capstar
Broadcasting has no obligation to appear or participate.

4. INITIAL PUBLIC OFFERING BY CAPSTAR BROADCASTING

On May 29, 1998, Capstar Broadcasting completed an initial public offering
(the "Offering") in which Capstar Broadcasting sold 31,000 shares of its Class A
Common Stock at $19.00 per share for net proceeds to Capstar Broadcasting of
$551,308 after deducting underwriting discounts and commissions and offering
expenses of $37,692. The shares sold by Capstar Broadcasting represented
approximately 28.8% of the outstanding shares of Capstar Broadcasting on May 29,
1998. Capstar Broadcasting contributed the net proceeds from the Offering to
Capstar Partners which then contributed the net proceeds from the Offering to
Capstar Radio. Capstar Radio used this contribution to fund a portion of the
acquisition of SFX Broadcasting, Inc., a Delaware corporation ("SFX"), as
discussed in Note 5 below.

5. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES

SFX Acquisition and Related Transactions

On May 29, 1998, SBI Holding Corporation, a Delaware corporation ("SFX
Parent"), acquired SFX, which has been renamed CCI. The acquisition was effected
through the merger (the "SFX Merger") of SBI Radio Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of SFX Parent ("Sub"), with
and into SFX, with SFX as the surviving corporation. The acquisition of SFX by
SFX Parent resulted in a change of control of SFX. As a result of the SFX
Merger, SFX became an indirect wholly-owned subsidiary of Capstar Radio. The
total consideration paid by the Company for SFX was approximately $1,300,000
(the "SFX Merger Consideration"), including direct costs of the acquisition.
Consummation of the SFX Merger and related transactions increased the Company's
portfolio of stations by 81 owned and

F-93
<PAGE> 415
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

operated radio stations (60 FM and 21 AM) and two radio stations on which the
Company sells commercial time.

The SFX Merger and other related transactions, including (i) certain
station acquisitions and dispositions completed contemporaneously with the SFX
Merger (as discussed below), (ii) the repayment of outstanding indebtedness of
approximately $313,000 of SFX under the existing credit facility of SFX, (iii)
the redemption of approximately $154,000 aggregate principal amount of 10 3/4%
CCI Notes (as discussed in Note 10), and (iv) the redemption of approximately
$119,600 aggregate liquidation preference of CCI's 12 5/8% Series E Cumulative
Exchangeable Preferred Stock, par value $.01 per share ("CCI Series E Preferred
Stock") (as discussed in Note 12), were financed with (A) the net proceeds from
the Offering, (B) borrowings of $590,600 (the "Capstar Loan") under the Capstar
Credit Facility (as defined in Note 10), (C) borrowings of $150,000 from
Chancellor Media, and (D) net proceeds of approximately $221,429 from sales of
certain assets.

On February 20, 1998, Capstar Broadcasting and Chancellor Media entered
into a Letter Agreement (the "Chancellor Exchange Agreement") pursuant to which
Capstar Broadcasting agreed to exchange 11 SFX stations in the Dallas, Houston,
San Diego and Pittsburgh markets ("Chancellor Exchange Stations") having an
aggregate deemed market value of $637,500 for certain stations to be acquired by
Chancellor Media during the three-year period ending February 20, 2001 (the
"Exchange Period"). SFX station KODA-FM, which is a Chancellor Exchange Station,
was exchanged for certain radio stations in the Austin, Texas and the
Jacksonville, Florida markets concurrently with the consummation of the SFX
Merger. The remaining Chancellor Exchange Stations will be exchanged for
mid-sized market radio stations to be identified by Capstar Broadcasting and
paid for by Chancellor Media. Capstar Broadcasting and Chancellor Media intend
for the exchange transactions to qualify as like-kind exchanges under Section
1031 of the Internal Revenue Code of 1986, as amended (the "Code"). Capstar
Broadcasting, however, bears all risks related to the tax treatment of the
exchanges. Capstar Broadcasting 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. Concurrently with the consummation of the SFX Merger, Chancellor
Media began providing services to the Chancellor Exchange Stations (other than
KODA-FM, which was acquired, via an exchange of radio stations by Chancellor
Media) pursuant to separate local marketing agreements ("LMAs") until such
stations are exchanged. Chancellor Media retains the advertising revenues it
generates while it provides services to the Chancellor Exchange Stations under
such LMAs. The LMA fees earned by the Company will decrease as the Chancellor
Exchange Stations are exchanged. During the pendency of the Chancellor Merger,
the Company does not anticipate effecting any exchanges with Chancellor Media.

On May 21, 1998, SFX completed the acquisition of three radio stations (two
FM and one AM) in the Nashville, Tennessee market from Sinclair Broadcasting
Group for an aggregate purchase price of approximately $35,000 in cash (the
"Nashville Purchase Price"). SFX funded the Nashville Purchase Price with excess
cash on hand.

On May 29, 1998, CCI exchanged station KODA-FM in Houston, Texas for
Chancellor Media radio stations WAPE-FM and WFYV-FM in Jacksonville, Florida and
approximately $90,250 in cash (the "KODA Exchange"). In an exchange under
Section 1031 of the Code, the indirect, wholly-owned subsidiaries of CCI,
through a qualified intermediary, used the $90,250 in cash received from
Chancellor Media to acquire radio stations KASE-FM, KVET-AM and KVET-FM in
Austin, Texas. The deemed value of the KODA Exchange was $143,250.

F-94
<PAGE> 416
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of four radio stations
(three FM and one AM) in the Greenville, South Carolina market for approximately
$35,000 in cash to Clear Channel Radio, Inc.

On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company assigned the assets of four radio stations (two FM and
two AM) in the Fairfield, Connecticut market with an aggregate fair market value
at such date of approximately $15,000 to a trust, whose trustee is Henry M.
Rivera (the "Trustee") and whose beneficiary is Capstar Broadcasting. The
Trustee is currently attempting to sell the stations to a third party. Upon a
sale, the Trustee will distribute the proceeds to the Company.

On May 29, 1998, due to governmental restrictions on multiple station
ownership, CCI completed the sale of the assets of one FM radio station in the
Daytona Beach, Florida market for consideration of approximately $11,500 in cash
to Clear Channel Metroplex, Inc. and Clear Channel Metroplex Licensee, Inc.

On May 29, 1998, due to governmental restrictions on multiple station
ownership, CCI completed the sale of the assets of four radio stations (three FM
and one AM) in the Long Island, New York market for an aggregate sale price of
$46,000 in cash to Cox Radio, Inc.

On May 29, 1998, due to governmental restrictions on multiple station
ownership, CCI completed the sale of the assets of one FM radio station in the
Houston, Texas market for $54,000 in cash to HBC Houston, Inc. and HBC Houston
License Corporation. Pursuant to an agreement with Chancellor Media, CCI paid
50% of the sale proceeds in excess of $50,000, approximately $1,730, to
Chancellor Media.

Other Acquisitions and Dispositions

In addition to the SFX Merger and other related transactions described
above, during the years ended December 31, 1996, 1997 and 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.

F-95
<PAGE> 417
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

All consideration paid for the acquisitions scheduled below consisted
solely of cash, notes and the exchange of certain assets except where common
stock was issued as listed. Common stock was valued at the estimated fair value
at the date the terms of the acquisitions were agreed to and announced.

F-96
<PAGE> 418
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
STATIONS
ACQUIRED AMOUNT
--------- DATE OF NUMBER OF ASSIGNED
TRANSACTION FM AM ACQUISITION PURCHASE OF COST SHARES ISSUED PER SHARE
----------- --- --- ----------- ----------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1997:
Tippie Communications(b)...... 1 -- January Assets $ 2,490 -- --
South Plains
Broadcasting(b)............. 1 1 February Assets 3,166 -- --
J. Thomas Development(b)...... 3 1 February Assets 6,292 -- --
Osborn Communications......... 12 6 February Stock 102,923 163.636(a) $ 11
Noalmark(b)................... 2 -- March Assets 11,471 -- --
Space Coast: EZY/Roper/City... 3 2 April Assets 12,038 -- --
Taylor Communications......... 1 1 April Assets 1,308 -- --
Ft. Smith(b).................. 1 1 May Assets 3,456 -- --
Miller Broadcasting(b)........ 2 -- May Stock 4,967 -- --
Dixie Broadcasting............ 1 2 May Stock 23,442 -- --
Cavalier Communications....... 4 1 July Assets 8,267 -- --
Community Pacific............. 6 5 July Assets 35,907 -- --
Stephens Radio(b)............. 1 -- July Stock 2,647 -- --
McForhun/Livingston........... 1 1 August Assets 7,968 -- --
Benchmark Communications...... 20 10 August Assets 192,128 157.895(a) $13.30
Emerald City Radio Partners... 1 -- August Assets 10,024 -- --
Madison Radio Group........... 4 2 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........... 2 1 October Assets 32,606 -- --
KJEM-FM....................... 1 -- October Assets 1,986 -- --
COMCO Broadcasting............ 4 2 November Assets 7,160 -- --
----------
$ 528,667
Acquisition of GulfStar
minority interest........... July Stock 31,695 2,383.093(a) $13.30
----------
$ 560,362
==========
</TABLE>

F-97
<PAGE> 419
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
STATIONS
ACQUIRED AMOUNT
--------- DATE OF NUMBER OF ASSIGNED
TRANSACTION FM AM ACQUISITION PURCHASE OF COST SHARES ISSUED PER SHARE
----------- --- --- ----------- ----------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1998:
Knight Radio, Inc. and
Affiliates.................. 5 3 January Assets 66,180 -- --
Quass Broadcasting Company.... 2 1 January Stock 16,281 -- --
East Penn Broadcasting,
Inc. ....................... -- 1 January Assets 2,010 -- --
Patterson Broadcasting,
Inc......................... 25 14 January Stock 227,186 -- --
Commonwealth Broadcasting of
Arizona, L.L.C. ............ 2 1 February Assets 5,514 -- --
Brantly Broadcast
Associates.................. 1 -- February Assets 1,735 -- --
KOSO, Inc. ................... 1 -- April Assets 8,472 -- --
Americom II and Americom Las
Vegas Limited Partnership... 3 1 April Assets 26,662 -- --
KDOS, Inc. ................... 1 1 April Assets 3,532 -- --
Grant Radio Group............. -- 1 May Assets 3,440 -- --
SFX Merger.................... 60 21 May Stock 1,279,656 -- --
Class Act of Texas, Inc. ..... 1 1 June Assets 1,068 -- --
KRNA, Inc. ................... 1 -- June Assets 6,398 -- --
The University of Alaska...... 1 -- June Assets 221 -- --
CBS Radio, Inc. .............. 2 2 July Assets 6,505 -- --
Watertown Radio Associates
Limited Partnership and Lake
Champlain Radio
Corporation................. 2 -- July Assets 5,923 -- --
Jacor Broadcasting
Corporation................. -- 1 August Assets 5,000 -- --
Ogallala Broadcasting
Company..................... 2 1 September Assets 4,100 -- --
Boswell Broadcasting
Incorporated................ 1 -- September Assets 11,750 -- --
Foley Broadcasting, LP........ 1 -- October Assets 2,755 -- --
Jim Gibbons Radio, Inc........ 1 1 October Stock 21,226 -- --
SunGroup, Inc. ............... 1 -- October Assets 5,838 -- --
----------
$1,711,452
==========
</TABLE>

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

(a) Common Stock

(b) Acquired by GulfStar prior to the GulfStar acquisition by the Company

Additionally, in April 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 $15,000 in cash and approximately $500 in
acquisition costs. Pursuant to the asset purchase agreement, Capstar
Broadcasting will issue 286 shares of Class A Common Stock, upon the
satisfaction of certain conditions contained in the asset purchase agreement.

F-98
<PAGE> 420
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The acquisitions are summarized in the aggregate by period as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
-------- -------- -----------
<S> <C> <C> <C>
Consideration:
Cash and notes................................... $153,050 $493,353 $ 1,612,052
Common stock (0.233 Former GulfStar shares and
2,705 shares in 1996 and 1997,
respectively)................................. 276 35,595 --
Acquisition costs................................ 9,251 31,414 78,218
Exchange of assets............................... 471 -- 21,182
-------- -------- -----------
Total.................................... $163,048 $560,362 $ 1,711,452
======== ======== ===========
Assets acquired and liabilities assumed:
Cash............................................. $ 6,120 $ 12,297 $ 20,161
Accounts receivable.............................. 9,020 14,657 88,894
Prepaid expenses and other....................... 590 2,853 96,352
Property and equipment........................... 23,471 76,050 131,420
Intangible assets................................ 290,243 578,137 3,657,443
Other assets..................................... 704 1,051 224
Accounts payable................................. (5,811) (7,843) (11,967)
Accrued liabilities.............................. (882) (5,242) (125,612)
Long-term debt................................... (82,706) (20,711) (812,509)
Preferred stock.................................. -- -- (283,605)
Capital lease obligations........................ (127) (465) (619)
Deferred income taxes............................ (77,574) (90,422) (1,048,730)
-------- -------- -----------
Total.................................... $163,048 $560,362 $ 1,711,452
======== ======== ===========
</TABLE>

In addition to the SFX Merger and other related transactions described
above, during the years ended December 31, 1997 and 1998, the Company sold or
otherwise disposed of radio stations and related broadcasting property and
equipment as follows:

<TABLE>
<CAPTION>
STATIONS
DISPOSED
----------- DATE OF
TRANSACTION FM AM DISPOSITION SALE OF SALES PRICE
----------- --- --- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
1997
Osborn Ft. Myers................... 2 1 April Assets $11,000
Bryan Broadcasting Operating
Company, Inc.................... 1 1 September Stock 600
BBR, LLC........................... 1 -- September Assets 40,000
Chinook Concert Broadcasters....... -- 1 November Assets 135
1998:
Clear Channel Radio, Inc........... 1 1 January Assets 29,000
Clear Channel Radio, Inc........... 2 2 February Assets 20,000
SWJDR, Corp........................ 1 -- February Assets 3,335
Westchester Radio, LLC............. 2 1 April Assets 35,103
Americom Las Vegas Limited
Partnership..................... 2 1 April Assets 4,432
Cumulus Broadcasting, Inc.......... 2 -- July Assets 7,750
Jacor Broadcasting Corporation..... -- 1 August Assets 5,000
Boswell Broadcasting
Incorporated.................... 1 -- September Assets 11,750
</TABLE>

F-99
<PAGE> 421
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following unaudited pro forma summary presents the consolidated results
of operations for the years ended December 31, 1997 and 1998 as if the
acquisitions and dispositions completed as of December 31, 1998 had occurred on
January 1, 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
YEAR ENDED DECEMBER 31
-----------------------
1997 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net broadcast revenue................................. $ 570,944 $ 637,774
Loss before extraordinary item........................ (139,438) (149,158)
Net loss.............................................. (141,841) (156,463)
Net loss attributable to common stock................. (148,912) (156,463)
Basic and diluted loss per common share............... (1.70) (1.78)
</TABLE>

Subsequent to December 31, 1998, the Company acquired 11 FM and 3 AM radio
stations and related broadcast equipment through two acquisitions for aggregate
consideration of approximately $13,600. The acquisitions were funded primarily
through cash on hand. The Company previously operated all 14 of these stations
under either LMA's or JSA's.

On July 23, 1998, the Company agreed to acquire Triathlon Broadcasting
Company ("Triathlon"; Nasdaq: TBCOA, TBCOL) in a transaction valued at
approximately $190,000. The Company will pay approximately $130,000 in cash to
acquire all of the outstanding shares of common and preferred stock of Triathlon
and will assume approximately $60,000 of debt. Triathlon owns and operates or
programs 32 stations in six markets: Wichita, Kansas (4 FM and 2 AM); Colorado
Springs, Colorado (2 FM/2 AM); Lincoln, Nebraska (4 FM); Omaha, Nebraska (3 FM/1
AM); Spokane, Washington (5 FM/3 AM); and Tri-Cities, Washington (4 FM/2 AM).
Triathlon also owns Pinnacle Sports Productions, L.L.C., a regional sports
network that controls the rights to University of Nebraska football and other
sports events.

The Company has entered into numerous agreements, including the Triathlon
agreement discussed above, to acquire additional radio stations (28 FM and 11
AM) and related broadcast equipment for aggregate consideration of approximately
$228,000. The Company currently operates 13 of these stations under either LMA's
or JSA's.

In December 1998, an affiliate of the Company agreed to purchase the assets
of LAN International, Inc.'s business of developing, marketing, selling,
licensing and servicing specialized computer systems and software for use in the
radio and television industry. The purchase price of the acquisition is up to
$27,000 of which $15,000 will be due at the closing of the transaction. The
remaining $12,000 will be due to LAN International if the business meets certain
post-closing financial goals. The Company expects to complete the acquisition in
May 1999.

The Company has also entered into agreements for the disposition of 2 FM
and 5 AM stations for aggregate consideration of approximately $15,500. The
carrying value of net assets to be sold related to these stations approximated
the contract sales price.

F-100
<PAGE> 422
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ -------
<S> <C> <C>
Barter receivable.......................................... $1,983 $ 6,972
Prepaid expenses........................................... 1,318 5,312
Computer hardware inventory................................ -- 3,024
Other...................................................... 984 4,813
------ -------
$4,285 $20,121
====== =======
</TABLE>

7. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DEPRECIABLE DECEMBER 31,
DEPRECIATION LIFE --------------------
METHOD (YEARS) 1997 1998
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
Buildings and improvements........ Straight-line 5-20 $ 17,006 $ 49,710
Broadcasting and other Straight-line 3-20 85,481 206,815
equipment.......................
Equipment under capital lease Straight-line 3-5 1,356 1,012
obligations.....................
-------- --------
103,843 257,537
Accumulated depreciation and (10,336) (27,912)
amortization....................
-------- --------
93,507 229,625
Land.............................. 13,210 19,295
-------- --------
$106,717 $248,920
======== ========
</TABLE>

Depreciation and amortization expense for the years ended December 31,
1996, 1997 and 1998 was approximately $1,535, $8,137 and $18,559, respectively.

F-101
<PAGE> 423
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8. INTANGIBLES

Intangibles consists of the following:

<TABLE>
<CAPTION>
AMORTIZABLE DECEMBER 31,
AMORTIZATION LIFE ----------------------
METHOD (YEARS) 1997 1998
--------------- ----------- -------- ----------
<S> <C> <C> <C> <C>
FCC licenses................. Straight-line 40 $840,374 $4,227,180
Goodwill..................... Straight-line 40 26,576 28,868
Noncompete agreements........ Straight-line 1-3 6,115 17,052
Deferred financing costs..... Interest Method -- 21,358 26,437
Other........................ Straight-line 3-5 7,076 21,792
-------- ----------
901,499 4,321,329
Less accumulated
amortization............... (25,888) (99,041)
-------- ----------
875,611 4,222,288
Pending acquisition costs.... 5,934 18,090
-------- ----------
$881,545 $4,240,378
======== ==========
</TABLE>

Amortization expense of intangible assets for the years ended December 31,
1996, 1997 and 1998 was approximately $2,606, $18,278 and $77,648, respectively.

9. ACCRUED LIABILITIES:

Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Accrued compensation...................................... $ 4,252 $ 3,657
Accrued acquisition costs................................. 5,284 9,714
Accrued interest.......................................... 960 27,843
Accrued commissions....................................... 2,403 9,865
Barter payable............................................ 1,082 5,329
Accrued music license fees................................ 437 1,939
Accrued health insurance.................................. 304 1,597
401(k) withholdings....................................... 421 1,000
Accrued property taxes.................................... 397 810
Other..................................................... 1,286 6,515
------- -------
$16,826 $68,269
======= =======
</TABLE>

F-102
<PAGE> 424
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- ----------
<S> <C> <C>
Capstar Credit Facility..................................... $141,700 $ 909,000
12 3/4% Capstar Partners Notes, $277,000 principal,
including unamortized discount of $110,009 and $87,956,
respectively.............................................. 166,991 189,044
9 1/4% Capstar Radio Notes, $200,000 principal, including
unamortized discount of $762 and $711, respectively....... 199,238 199,289
13 1/4% Capstar Radio Notes................................. 79,816 --
Chancellor Note (due to an affiliate)....................... -- 150,000
10 3/4% CCI Notes, $294,134 principal, including unamortized
premium of $29,339........................................ -- 323,473
11 3/8% CCI Notes........................................... -- 566
Capital lease obligations and other notes payable at various
interest rates............................................ 6,827 7,217
-------- ----------
594,572 1,778,589
Less current portion........................................ (1,388) (29,834)
-------- ----------
$593,184 $1,748,755
======== ==========
</TABLE>

Credit Facility

In connection with the SFX Merger, Capstar Radio, as the borrower, entered
into a new credit agreement, dated as of May 29, 1998, as amended (the "Capstar
Credit Facility"), with Capstar Broadcasting, Capstar Partners, and the
financial institutions party thereto. The Capstar Credit Facility consists of a
$500,000 revolving loan, a $450,000 term loan facility (the "A Term Loan") and a
$400,000 term loan (the "B Term Loan"). The Capstar Credit Facility also
contains mechanisms that permit Capstar Radio to request additional term loans
and revolving credit loans in an aggregate amount up to $550,000; provided,
however, that all such additional loans are subject to future commitment
availability and approval from the banks and are not currently available under
the Capstar Credit Facility. The revolving loan matures on November 30, 2004.
The A Term Loan provides for scheduled loan repayments from August 31, 1999 to
November 30, 2004. The B Term Loan provides for scheduled loan repayments from
August 31, 1998 to May 31, 2005. Up to $150,000 of the revolving loan commitment
is available to Capstar Radio for the issuance of letters of credit. As of
December 31, 1998, $428,955 was available for borrowing under the Capstar Credit
Facility due to an outstanding balance of $909,000 and letters of credit of
$10,045, subject to financial covenants contained in the credit facility and the
indentures that govern the indebtedness of Capstar Broadcasting's subsidiaries.
Due to the Company replacing its previous credit facility with the Capstar
Credit Facility, an extraordinary loss, net of tax, of approximately $2,487 was
recognized in the second quarter of 1998.

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, 1998 was 7.66%. Capstar
Radio pays fees ranging from 0.25% 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 Capstar 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
F-103
<PAGE> 425
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

asset sales, issue additional stock, make capital expenditures and enter new
lines of business. The Capstar Credit Facility limits the ability of Capstar
Radio and its subsidiaries to make additional acquisitions in excess of $200,000
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 Capstar 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 and minimum consolidated EBITDA
to consolidated net cash interest expense.

Capstar Radio has collateralized the Capstar Credit Facility by granting a
first priority perfected pledge of Capstar Radio's assets, including the capital
stock of its subsidiaries, excluding the assets of CCI. Capstar Partners,
Capstar Broadcasting and all of the direct and indirect subsidiaries of Capstar
Partners (other than CCI) have guaranteed the Capstar Credit Facility and have
collateralized their guarantees by granting a first priority perfected pledge of
substantially all of their assets.

12 3/4% 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
discount notes issued on February 20, 1997 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 "12 3/4%
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 12 3/4% Capstar
Partners Notes are identical in all material respects to the discount notes
issued on February 20, 1997. The 12 3/4% Capstar Partners Notes are
uncollateralized, 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 Partners Notes
prior to February 1, 2002. Thereafter, interest on the 12 3/4% 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 and the effective interest rate of the 12 3/4% Capstar Partners
Notes is 12 3/4% and 12.42%, respectively, (computed on a semi-annual bond
equivalent basis), calculated from February 20, 1997.

The 12 3/4% 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 12 3/4% 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 12 3/4% Capstar Partners Note Indenture),
the holders of the 12 3/4% Capstar Partners Notes have the right to require
Capstar Partners to purchase all or a portion of the 12 3/4% 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 12 3/4% 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.

9 1/4% 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 "9 1/4% Capstar Radio Notes"), which were registered under the
Securities

F-104
<PAGE> 426
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Act of 1933, for all of the outstanding notes issued on June 17, 1997. The
9 1/4% Capstar Radio Notes are general uncollateralized obligations of Capstar
Radio and are subordinated to all senior indebtedness of Capstar Radio. The
9 1/4% 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 9 1/4% 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
9 1/4% Capstar Radio Notes indenture), the holders of the 9 1/4% Capstar Radio
Notes have the right to require Capstar Radio to purchase all or a portion of
the 9 1/4% Capstar Radio Notes at a price equal to 101% plus accrued and unpaid
interest. The 9 1/4% 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.
The effective interest rate of the 9 1/4% Capstar Radio Notes is 10.29%,
calculated from June 17, 1997.

13 1/4% Capstar Radio Notes

On March 30, 1998, Capstar Radio announced an offer to purchase for cash
any and all of its $76,808 aggregate principal amount of 13 1/4% Senior
Subordinated Notes due 2003 (the "13 1/4% Capstar Radio Notes"). On April 28,
1998, Capstar Radio purchased all of the outstanding 13 1/4% Capstar Radio Notes
for an aggregate purchase price of $90,200 including a $10,700 purchase premium
and $2,700 of accrued interest, resulting in an extraordinary loss of
approximately $4,818, net of tax, which was recognized in the second quarter of
1998.

Chancellor Note

In connection with the SFX Merger, Capstar Broadcasting borrowed $150,000
from Chancellor Media evidenced by a note (the "Chancellor Note"). The
Chancellor Note bears interest at a rate of 12% per annum (subject to increase
in certain circumstances), payable quarterly, of which 5/6 is payable in cash
and 1/6 is, at Capstar Broadcasting's option, either payable in cash or added to
the principal amount of the Chancellor Note. In addition, Capstar Broadcasting
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 Capstar Broadcasting
elects to pay interest when due, quarterly interest payments will equal $4,500,
payable until maturity. In 1998, Capstar Broadcasting did not elect to defer any
portion of the interest due, and paid approximately $10.6 million to Chancellor
Media. The Chancellor Note will mature on the twentieth anniversary of the date
of issuance, provided that Capstar Broadcasting may prepay all or part of the
outstanding principal balance and, in certain circumstances, Chancellor Media
has the right to require Capstar Broadcasting to prepay part of the outstanding
principal balance. The common stock of Capstar Partners was pledged by Capstar
Broadcasting on a first priority basis to Chancellor Media as collateral for the
Chancellor Note.

10 3/4% CCI Notes and 11 3/8% CCI Notes

After the consummation of the SFX Merger, CCI remained liable for the
$450,000 in aggregate principal amount of the 10 3/4% CCI Notes. Interest is
payable semi-annually on May 15 and November 15 of each year until maturity on
May 15, 2006. The notes are uncollateralized obligations of CCI and are
subordinate to all senior debt of CCI. The effective interest rate of the
10 3/4% CCI Notes is 9.11%.

On July 3, 1998, pursuant to the terms of the indenture governing the
10 3/4% CCI Notes, CCI redeemed $154,000 aggregate principal amount of the
10 3/4% CCI Notes for an aggregate purchase price of $172,800

F-105
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CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

including a $16,600 redemption premium and $2,200 of accrued interest. (The
carrying value of the 10 3/4% CCI Notes approximated their fair value at the
date of the SFX Merger).

The SFX Merger resulted in a change of control under the indenture
governing the 10 3/4% CCI Notes and the 11 3/8% CCI Notes. Pursuant to a change
of control offer to acquire all of the outstanding 10 3/4% CCI Notes and 11 3/8%
CCI Notes, each of which commenced on June 8, 1998, CCI purchased on July 10,
1998 $1,866 aggregate principal amount of the 10 3/4% CCI Notes for an aggregate
purchase price of $1,915, including an $18 purchase premium and $31 of accrued
interest. (The carrying value of the 10 3/4% CCI Notes approximated their fair
value at the date of the SFX Merger). No 11 3/8% CCI Notes were tendered for
repurchase.

The 10 3/4% CCI Notes indenture contains restrictive provisions that, among
other things, limit the ability of CCI 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.
Substantially all of the assets of CCI are restricted.

The 10 3/4% CCI Notes and 11 3/8% CCI Notes are guaranteed by every direct
and indirect subsidiary of CCI. The guarantees by the guarantor subsidiaries are
full, unconditional, and joint and several. All of the guarantor subsidiaries
are wholly-owned. CCI is a holding company with no assets, liabilities or
operations other than its investment in its subsidiaries.

Other

In January 1997, the Company entered into an interest rate swap agreement
designated as a partial hedge of the Company's portfolio of variable rate debt.
The purpose of the swap is to reduce certain exposures to interest rate
fluctuations. At December 31, 1998, this interest rate swap had a notional
amount of $26,000, and a portfolio of a variable rate debt outstanding in the
amount of $909,000. Under this agreement the Company is receiving a
weighted-average variable rate equal to LIBOR and paying a weighted-average
fixed interest rate of 6.34%. The weighted-average LIBOR rate applicable to this
agreement was 5.07% at December 31, 1998. Interest expense was increased by $124
and $170 for 1997 and 1998, respectively. Notional amounts do not quantify risk
or represent assets or liabilities of the Company, but are used in the
determination of cash settlements under the agreements. The interest rate swap
agreement matures on January 31, 2000.

In conjunction with the merger with Former GulfStar, the Company paid off
the then outstanding Former GulfStar credit facility. As a result, the company
recognized an extraordinary charge relating to the payoff of approximately
$2,403, net of income tax benefit, of unamortized deferred financing costs.

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 relating to the write-off of approximately
$1,188, net of income tax benefit, of unamortized deferred financing costs.

F-106
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CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The scheduled maturities of the Company's outstanding long-term debt at
December 31, 1998 for each of the next five years and thereafter are as follows:

<TABLE>
<S> <C>
1999........................................................ $ 29,834
2000........................................................ 63,929
2001........................................................ 71,895
2002........................................................ 82,927
2003........................................................ 182,195
Thereafter.................................................. 1,347,809
----------
$1,778,589
==========
</TABLE>

11. 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 fund 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.

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 if 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.

12. REDEEMABLE PREFERRED STOCK:

Capstar Partners

On June 17, 1997, Capstar Partners issued 1,000 shares of its cumulative
(after July 1, 2002) par value $.01 per share 12% Capstar Partners 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

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CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Partners exchanged its 12% Capstar Partners Preferred Stock (the "12% Capstar
Partners Preferred Stock"), which was registered under the Securities Act, for
all of the outstanding 12% Capstar Partners Preferred Stock previously issued on
June 17, 1997. Capstar Partners has authorized 10,000 shares of the 12% Capstar
Partners Preferred Stock. 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 liquidation
preference, or $12.00, 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 12% Capstar Partners Preferred
Stock. The liquidation preference of the 12% Capstar Partners Preferred Stock is
$100.00 per share. The 12% Capstar Partners 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 12% Capstar
Partners 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 12% Capstar Partners 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 12% Capstar
Partners 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 12% Capstar Partners 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. In 1997 and 1998, Capstar Partners exercised this
option by paying $6,467 and $13,157 of dividends-in-kind. Through December 31,
1998, cash dividends of approximately $2 have been paid to fractional
shareholders. At December 31, 1998, Capstar Partners had no accrued dividends
outstanding.

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

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 12% Capstar Partners 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 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

F-108
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CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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 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.

CCI

All 2,392 shares of CCI Series E Preferred Stock remained outstanding after
the consummation of the SFX Merger. Dividends on the CCI Series E 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 CCI's option, on any dividend payment date occurring
on or before January 15, 2002, either in cash or in additional shares of CCI
Series E Preferred Stock having a liquidation preference equal to the amount of
such dividend. In 1998, CCI paid $7,517 of dividends in the form of new shares
and $1 in cash dividends. At December 31, 1998, CCI had $7,327 recorded in
accrued dividends.

The Certificate of Designation contains restrictive provisions that, among
other things, limit the ability of CCI 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.
Substantially all of the assets of CCI are restricted.

Subject to certain conditions, the shares of the CCI Series E Preferred
Stock are exchangeable in whole or in part, on a pro rata basis, at the option
of CCI, on any dividend payment date, for CCI's 12 5/8% Senior Subordinated
Exchangeable Debentures due 2006 ("CCI Exchange Notes"), provided that
immediately after giving effect to any partial exchange, there shall be
outstanding CCI Series E Preferred Stock with an aggregate liquidation
preference of not less than $50,000 and not less than $50,000 in aggregate
principal amount of CCI Exchange Notes. CCI is required, subject to certain
conditions, to redeem all of the CCI Series E Preferred Stock outstanding on
October 31, 2006.

On July 3, 1998, pursuant to the terms of the Certificate of Designation
that governs the CCI Series E Preferred Stock (the "CCI Certificate of
Designation"), CCI redeemed $119,600 aggregate liquidation preference, or 1,196
shares, of the CCI Series E Preferred stock for an aggregate purchase price of
$141,700, including a $15,100 redemption premium and $7,000 of accrued
dividends. (The carrying value of the CCI Exchange Notes approximated their fair
value at the date of the SFX Merger.)

The SFX Merger resulted in a change of control under the CCI Certificate of
Designation. Pursuant to change of control offers to acquire all of the
outstanding CCI Series E Preferred Stock, which commenced on June 8, 1998, CCI
Purchased on July 10, 1998 $500 aggregate liquidation preference, or 5 shares,
of the CCI Series E Preferred Stock for an aggregate purchase price of $536,
including a $5 purchase premium and $31 of accrued dividends. (The carrying
value of the CCI Exchange Notes approximated their fair value at the date of the
SFX Merger.)

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 shares of Former GulfStar's common stock at a rate of $.01 per
share.

F-109
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CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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.

13. NONCASH COMPENSATION EXPENSE:

Warrants

During 1996 and 1997, the Company issued warrants to the Company's Chief
Executive Officer ("CEO"). In April 1998, Capstar Broadcasting (i) amended and
restated these warrants which give the holder to the right to purchase up to
1,508 shares of Class C Common Stock at exercise prices ranging from $14.40 to
$18.10 per share, (ii) granted two additional warrants to the CEO to purchase up
to 188 shares and 500 shares of Class C Common stock at an exercise price of
$17.10 and $14.00 per share, respectively, and (iii) granted warrants to two
other executive officers of Capstar Broadcasting to purchase up to an aggregate
of 300 shares of Class A Common Stock at an exercise price of $14.00 per share.
In July, 1998, a director of Capstar Broadcasting was granted a warrant to
purchase 200 shares of Class A Common Stock at an exercise price of $14.00 per
share. The warrants expire ten years or less from the date of issue depending on
the warrant agreement. Certain of the warrants can be exercised at any time
prior to the expiration date. The remaining warrants cannot be exercised prior
to a triggering event. Depending on the warrant agreement, the warrant will not
be exercisable until (i) June 30, 2001 or immediately preceding a sale of the
Company (as defined by the warrant agreement) or (2) 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.

The terms of certain of these warrants give rise to variable treatment for
accounting purposes. In accordance with Accounting Principles Board ("APB")
Opinion No. 25, compensation expense is measured at each reporting period and
recognized based on the specific terms of the warrants. The Company recognized
noncash compensation of approximately $744, $1,825 and $8,546 in 1996, 1997 and
1998, respectively.

With the exception of the warrant to purchase 500 shares at $14.00 which
was granted to the CEO, upon consummation of the merger with Chancellor Media,
each warrant will fully vest and be exercisable.

A rollforward of the warrant activity has been included in the equity
instruments tables below.

Stock Subscriptions

Former GulfStar issued approximately 1.6 million shares of common stock
since 1994 for prices ranging from $0.62 to $8.04 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, $8,750 and $11,217 in 1996, 1997 and 1998, 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

F-110
<PAGE> 432
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

underlying securities purchase agreement. Such rights expired during 1997 upon
the merger of Former GulfStar and the Company.

In conjunction with the acquisition of Former GulfStar by Capstar
Broadcasting in July 1997, all of Former GulfStar's then outstanding common
stock and stock subscriptions were exchanged for Capstar Broadcasting common
stock and stock subscriptions.

Stock Options

In 1998, the Company adopted the 1998 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, 1998, an aggregate of 4,700 shares was approved for
issuance under the Plan. 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 2008. Generally, 20% of each option is exercisable
one year after the grant and an additional 1/60 becomes exercisable each month
thereafter.

The Plan has been amended to provide that, upon the consummation of the
merger with Chancellor Media, with respect to any outstanding options, if on or
before the second anniversary of the consummation of the merger, the employment
of an optionee is terminated (other than for cause, voluntary resignation, death
or disability) or an optionee resigns after a material diminution of their
duties, the optionee's options will vest in full and the options may be
exercised until the termination of the option.

In April 1998, the Company granted 585 options at an exercise price of
$17.50. Accordingly, the Company recorded unearned compensation of $878 for the
difference between $17.50 and the initial public offering price of $19.00. The
unearned compensation is being expensed ratably over the five year vesting
period.

F-111
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CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Equity Instrument Tables

A summary of the status of Capstar Broadcasting's equity instrument (option
and warrant) activity and related information follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1997 1998
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year..... -- $ -- 1,304 $13.14 3,189 $13.58
Granted.............................. 1,304 13.14 2,067 13.45 3,798 17.36
Exercised or forfeited............... -- -- -- -- 137 12.89
Cancelled............................ -- -- 182 9.02 155 14.84
------ ------ ------ ------ ------ ------
Outstanding at end of year........... 1,304 $13.14 3,189 $13.58 6,695 $15.71
====== ====== ======
Equity instruments exercisable at end
of year............................ 744 1,139 1,664
====== ====== ======
Weighted-average grant-date fair
value of equity instruments granted
equal to market value at date of
grant.............................. $ 4.92 $ 8.38 $14.97
====== ====== ======
Weighted average grant date fair
value of equity instruments granted
greater than market value at date
of grant........................... $ 5.41 $ 5.93 $ 6.60
====== ====== ======
Weighted average grant-date fair
value of equity instruments granted
less than market value at date of
grant.............................. $ -- $ -- $12.87
====== ====== ======
</TABLE>

As required by SFAS No. 123, pro forma information regarding net loss has
been determined as if the Company had accounted for its equity instruments under
the fair value method. The fair value for these equity instruments was estimated
as of the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1996, 1997 and 1998, respectively;
risk free interest rates of 5.84%, 6.16% and 5.41%; no dividend; volatility
factors of the expected market price of the company's common stock of 68.15%;
and weighted-average expected lives of the options of three and five years.

For purposes of pro forma disclosures, the estimated fair value of the
equity instruments 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

F-112
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CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

may be reflected in the amounts. Had the Company adopted the cost provision of
SFAS No. 123 net loss for 1996, 1997 and 1998 would approximate the pro forma
amounts below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Net loss:
As reported....................................... $(11,957) $(45,740) $ (96,761)
Pro forma......................................... (16,697) (51,095) (107,634)
Net loss attributable to common stock:
As reported....................................... (13,307) (52,811) (96,761)
Pro forma......................................... (18,047) (58,166) (107,634)
Basic and diluted loss per common share:
As reported....................................... (1.50) (2.07) (1.10)
Pro forma......................................... (2.03) (2.29) (1.23)
</TABLE>

The following table summarizes information about Capstar Broadcasting's
equity instruments outstanding at December 31, 1998:

<TABLE>
<CAPTION>
EQUITY INSTRUMENTS OUTSTANDING
--------------------------------------------------------------------
WEIGHTED- NUMBER EXERCISABLE
NUMBER AVERAGE WEIGHTED EXERCISABLE WEIGHTED
OUTSTANDING AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1998 LIFE PRICE 1998 PRICE
------------------------ -------------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 7.10 - 7.10....................... 47(1) 3.2 $ 7.10 23 $ 7.10
10.00 - 10.00...................... 240 7.9 10.00 157 10.00
11.00 - 11.00...................... 437 4.1 11.00 255 11.00
13.30 - 13.30...................... 729 4.7 13.30 182 13.30
14.00 - 14.00...................... 1,000 4.4 14.00 -- --
14.40 - 14.40...................... 930 7.8 14.40 744 14.40
15.40 - 15.40...................... 255 8.1 15.40 204 15.40
17.10 - 17.10...................... 188 9.3 17.10 -- 17.10
17.50 - 17.50...................... 557 5.5 17.50 -- --
18.10 - 18.10...................... 323 8.5 18.10 99 18.10
19.00 - 19.00...................... 1,989 5.9 19.00 -- --
----- --- ------ ----- ------
6,695 5.8 $15.71 1,664 $13.58
===== =====
</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.

F-113
<PAGE> 435
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

14. INCOME TAXES:

All of the Company's revenues were generated in the United States. The
components of the benefit for income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................... $(1,112) $ 162 $ 11,396
State............................................. 243 316 7,000
Deferred:
Federal........................................... 503 (11,168) (37,266)
State............................................. 44 (1,030) (5,447)
------- -------- --------
Total benefit............................. $ (322) $(11,720) $(24,317)
======= ======== ========
</TABLE>

Approximately $707, $1,473 and $3,282 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, 1997 and 1998, respectively. For purposes of the foregoing components
of benefit for income taxes, such intra-period allocation is treated to have
affected the deferred components.

Income tax benefit differs from the amount computed by applying the federal
statutory income tax rate of 35% to loss before income taxes and extraordinary
items for the following reasons:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
U.S. federal income tax at statutory rate........... $(3,882) $(16,965) $(32,125)
State income taxes, net of federal benefit.......... 189 (1,478) 1,009
Nondeductible compensation expense.................. 1,847 3,325 3,955
Other items, primarily nondeductible expenses and
deferred tax adjustments.......................... 1,524 3,398 2,844
------- -------- --------
$ (322) $(11,720) $(24,317)
======= ======== ========
</TABLE>

The net deferred tax liability consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
-------- ----------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment and intangible asset basis
differences and related depreciation and
amortization.................................... $198,025 $1,238,862
Deferred tax assets:
Miscellaneous...................................... 4,307 9,269
Unamortized discount on long-term debt............. 8,150 26,614
Net operating loss carryforwards................... 32,351 49,884
-------- ----------
Total deferred tax assets.................. 44,808 85,767
Valuation allowance for deferred tax assets........ (7,205) (10,061)
-------- ----------
Net deferred tax asset..................... 37,603 75,706
-------- ----------
Net deferred tax liability................. $160,422 $1,163,156
======== ==========
</TABLE>

F-114
<PAGE> 436
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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, 1998 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, 1998, the Company had net operating loss carryforwards of
approximately $131,000, including approximately $94,300 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 2018. 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, 1998.

15. COMMITMENTS AND CONTINGENCIES:

Guarantees of Indebtedness

As of December 31, 1998, the Company had guaranteed the indebtedness of
limited liability companies in the amount of $51,904. 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. Through December 31, 1998, the Company has
performed as guarantor on these notes paying $3,402.

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 and $2,260 for the
years ended December 31, 1997 and 1998, respectively.

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 $913, $2,490 and $8,468 for the years
ended December 31, 1996, 1997 and 1998, respectively.

F-115
<PAGE> 437
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Future minimum payments under noncancelable operating leases are as
follows:

<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1999........................................................ $16,289
2000........................................................ 11,794
2001........................................................ 7,640
2002........................................................ 6,276
2003........................................................ 4,810
Thereafter.................................................. 15,980
-------
Total minimum lease payments...................... $62,789
=======
</TABLE>

Employment Agreements

The Company has employment agreements with its executive officers and other
key employees, the terms of which expire at various times through December 2003.
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, 1998, excluding bonuses, was approximately $46,049.

Legal

On July 13, 1998, Noddings Investment Group, Inc. and Noddings Warrant
Limited Partnership filed Civil Action No. 16538 in the Court of Chancery of the
State of Delaware in and for New Castle County against Capstar Communications.
Noddings alleges that Capstar Communications breached a warrant agreement that
Noddings contends requires Capstar Communications to permit Noddings to exercise
warrants in exchange for cash and shares of stock of SFX Entertainment.
Specifically, Noddings alleges that Capstar Communications has violated the
warrant agreement by permitting Noddings to receive cash in exchange for its
warrants, but refusing to convey shares of stock of SFX Entertainment. In
addition to suing on its own behalf, Noddings is seeking to prosecute the action
on behalf of a putative class comprised of all persons who owned equivalent
warrants on April 21, 1998, (the date immediately following the record date of
the distribution of stock of SFX Entertainment to holders of the stock of SFX)
and their transferees and successors in interest. Noddings has requested that
the court:

- declare that on the exercise of its warrants Capstar Communications
transmit to plaintiffs and members of the class that it seeks to
represent $22.3725 in cash per warrant and 0.2983 shares of common stock
of SFX Entertainment per warrant;

- in the alternative, award plaintiffs and members of the putative class
monetary damages in an amount to be determined at trial; and

- award costs and attorneys' fees.

In March 1999, the court issued an opinion dismissing two of Nodding's
counts and granting summary judgment in favor of Noddings on one count. The
court held that Noddings is entitled to 0.2983 shares of SFX Entertainment stock
per warrant. Capstar Communication intends to continue to defend this action
through a motion for reargument and if necessary an appeal.

F-116
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CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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.

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 $516, $2,658 and $8,079 for self-insurance costs for the years
ended December 31, 1996, 1997 and 1998, respectively.

16. RELATED PARTY TRANSACTIONS:

Monitoring and Oversight Agreements

The Company has entered into monitoring and oversight agreements (the
"Monitoring and Oversight Agreements") 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. For the years ended December 31,
1996, 1997 and 1998, the Company incurred $21, $378 and $819 respectively,
relating to the Monitoring and Oversight Agreements.

The Monitoring and Oversight Agreements make 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, until consummation
of the Chancellor Merger, 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 Chancellor Merger Agreement provides that upon the
consummation of the Chancellor Merger, the Monitoring and Oversight Agreements
will be terminated, and in consideration therefore, the Company shall make a
one-time cash payment of $14,202 to Hicks Muse Partners on the date of closing.

Financial Advisory Agreements

The Company is a party to financial advisory agreements (the "Financial
Advisory Agreements") with Hicks Muse Partners. Pursuant to the Financial
Advisory Agreements, Hicks Muse Partners is entitled to receive a fee equal to
1.5% of the transaction value (as defined in the Financial Advisory Agreements)
for each add-on transaction (as defined) in which the Company or any of its
subsidiaries is involved.

Pursuant to the Financial Advisory Agreements, 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 Agreements. 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. For the years ended December 31,
1996, 1997 and 1998, the Company incurred financial advisory fees in the amount
of approximately $5,654, $10,586 and $49,473, respectively. The Chancellor
Merger Agreement provides that upon the consummation of the Chancellor Merger,
the Company shall make

F-117
<PAGE> 439
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

a cash payment of $17,500 to Hicks Muse Partners on the date of closing in
satisfaction of its services performed under the Financial Advisory Agreements
in connection with the Chancellor Merger.

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 which was acquired by Chancellor
Media in October of 1997. Since Chancellor Media's acquisition of Katz, the
Company expensed approximately $400 and $4,400, for media representation
services from Katz in 1997 and 1998, respectively. At December 31, 1997 and
1998, the Company had an accrued liability to Katz of approximately $700 and
$3,400, respectively. Also, at December 31, 1998, the Company had a receivable
of approximately $2,200 from Katz.

In 1998, the Company entered into an agreement with The AMFM Radio
Networks, a wholly-owned subsidiary of Chancellor Media. The AMFM Radio Networks
sells airtime of the Company's participating radio stations to national
advertisers, for which the Company receives revenue share. For the year ended
December 31, 1998, the Company recorded $8,257 in related revenue. At December
31, 1998, the Company had a receivable of approximately $1,500 from The AMFM
Radio Networks.

As stated in Note 5, in 1998, the Company began earning LMA revenue from
Chancellor Media under the Chancellor Exchange Agreement. For the year ended
December 31, 1998, the Company earned LMA fees of approximately $28,800 from the
Chancellor Exchange Stations.

As stated in Note 10, in 1998 the Company borrowed $150,000 from Chancellor
Media. For the year ended December 31, 1998, the Company incurred approximately
$10,600 in interest expense.

Former GulfStar

On April 16, 1996, Former GulfStar acquired all of the outstanding capital
stock of Sonance Communications, Inc. ("Sonance") in exchange for 0.542 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.

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

F-118
<PAGE> 440
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

at December 31, 1997 and 1998. 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>
1997 1998
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Long-term debt -- 12 3/4% Capstar
Partners Notes, 9 1/4% and 13 1/4%
Capstar Radio Notes, 10 3/4% CCI
Notes and 11 3/8% CCI Notes.......... $(446,044) $(494,596) $(712,372) $(758,417)
Interest rate swap..................... -- (320) -- (412)
Redeemable preferred stock............. (101,493) (116,000) (262,368) (289,860)
</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 12 3/4% Capstar
Partners Notes, 9 1/4% and 13 1/4% Capstar Radio Notes, 10 3/4% CCI Notes
and 11 3/8% CCI 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.

Interest rate swap: 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: The fair value is estimated based on
quoted market prices.

18. MERGER, NONRECURRING AND SYSTEMS DEVELOPMENT EXPENSE

The Company recorded merger, nonrecurring and systems development expense
of $12,970 in 1998 which consisted of (i) $8,105 of investment banking, legal
and other expense related to the pending Chancellor Merger, (ii) $2,095 of
expense, primarily legal, accounting and severance costs associated with
acquisitions and legal reorganization, (iii) $1,422 consisting primarily of
startup costs associated with the Company's sales training initiative and (iv)
$1,348 of current state assessment, business process reengineering and training
expense incurred in connection with the Company's development of a new traffic
system.

The Company recorded merger, nonrecurring and systems development expense
of $4,729 in 1997 which consisted of investment banking, legal and transaction
fees related to the GulfStar Merger.

19. LOSS ON INVESTMENTS IN LIMITED LIABILITY COMPANIES

In 1998 the Company incurred a loss of $28,565 on investments in Limited
Liability Companies ("LLCs") comprised of (i) write-downs of notes receivable
from the LLCs and (ii) certain performance obligations under the LLCs' borrowing
arrangements for which the Company acts as guarantor.

20. SEGMENT INFORMATION

F-119
<PAGE> 441
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Radio is the Company's only reportable segment. Operating segments categorized
as "Other" include results of insignificant operations and income and expense
not allocated to reportable segments.

The accounting policies of the reportable segment are the same as those
described in the "Summary of Significant Accounting Policies." The Company
evaluates the performance of its operating segments and allocates resources to
them based on their net revenue and broadcast cash flow ("BCF") which consists
of operating income before merger, nonrecurring and systems development expense;
depreciation, amortization, LMA fees, noncash compensation expense, and
corporate expenses.

The Company has developed an operating structure designed to manage a large
and growing number of radio stations throughout the United States. The Radio
segment is operationally organized into six regions.

The table below presents information about the reportable and "Other"
operating segments. The prior years' segment information has been restated to
conform with the current year's presentation. Segment data includes intersegment
revenues.

<TABLE>
<CAPTION>
RADIO OTHER TOTAL
-------- ------- --------
<S> <C> <C> <C>
1996:
Net revenue......................................... $ 42,866 $ -- $ 42,866
BCF................................................. 12,385 -- 12,385
1997:
Net revenue......................................... 155,939 19,506 175,445
BCF................................................. 50,248 3,062 53,310
1998:
Net revenue......................................... 492,053 32,851 524,904
BCF................................................. 208,945 6,680 215,625
</TABLE>

A reconciliation of total segment net revenue to total consolidated net
revenue and of total segment BCF to total consolidated loss before benefit for
income taxes and extraordinary item, for the years ended December 31, 1996, 1997
and 1998 is as follows:

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
NET REVENUE
Total segment net revenue........................... $ 42,866 $175,445 $ 524,904
Elimination of intersegment net revenue............. -- -- (7,437)
-------- -------- ---------
Consolidated net revenue.................. $ 42,866 $175,445 $ 517,467
======== ======== =========
BCF
Total BCF for reportable segments................... $ 12,385 $ 53,310 $ 215,625
Corporate Expenses.................................. (2,523) (14,221) (23,678)
Corporate expenses -- noncash compensation.......... (6,176) (10,575) (21,260)
LMA fees............................................ (834) (2,519) (4,103)
Depreciation and Amortization....................... (4,141) (26,415) (96,207)
Merger, nonrecurring and other expense.............. -- (4,729) (12,970)
Nonoperating expenses............................... (9,802) (43,348) (146,470)
Intercompany profit................................. -- -- (2,723)
-------- -------- ---------
Consolidated loss before benefit for
income taxes, dividends and accretion on
preferred stock of subsidiary and
extraordinary item...................... $(11,091) $(48,497) $ (91,786)
======== ======== =========
</TABLE>

F-120
<PAGE> 442
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

21. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
1997:
Net revenues................................. $ 25,102 $ 40,054 $ 51,247 $ 59,041
Operating income (loss)...................... (2,021) (4,163) 3,745 (1,445)
Loss before extraordinary item............... (7,605) (7,629) (14,390) (11,813)
Net loss..................................... (8,203) (7,629) (15,832) (11,923)
Net loss attributable to common stock........ (8,997) (8,518) (21,211) (11,923)
Basic and diluted loss per common share:
Before extraordinary loss................. (0.44) (0.38) (0.67) (0.38)
Extraordinary loss........................ (0.03) -- (0.05) (.01)
Net loss.................................. $ (0.47) $ (0.38) $ (0.72) $ (0.39)
Weighted average common shares
outstanding............................. 19,288 22,493 29,581 30,209
1998:
Net revenues................................. $ 64,075 $111,922 $161,906 $179,564
Operating income (loss)...................... (16,138) 12,633 44,781 13,408
Loss before extraordinary item............... (29,805) (13,590) (20,745) (25,316)
Net loss..................................... (29,805) (20,895) (20,745) (25,316)
Net loss attributable to common stock........ (29,805) (20,895) (20,745) (25,316)
Basic and diluted loss per common share:
Before extraordinary loss................. (0.65) (0.16) (0.19) (0.24)
Extraordinary loss........................ -- (0.08) -- --
Net loss.................................. $ (0.65) $ (0.24) $ (0.19) $ (0.24)
Weighted average common shares outstanding... 46,131 88,499 107,591 107,596
</TABLE>

22. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Cash paid during the period for:
Interest............................................... $7,558 $22,869 $79,064
Income taxes........................................... 999 230 84,218
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 -- 21,182
Dividends and accretion on preferred stock............. 1,350 7,071 --
Notes receivable and accrued interest taken in
connection with subscribed stock.................... 1,757 2,725 --
Financed or accrued acquisition costs.................. 6,569 7,095 4,430
</TABLE>

F-121
<PAGE> 443

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 17,117 $ 12,583
Accounts receivable, net of allowance for doubtful
accounts of $8,352 and $8,085, respectively............. 112,846 91,900
Prepaid expenses and other current assets................. 20,121 23,474
---------- ----------
Total current assets............................... 150,084 127,957
Property and equipment, net................................. 248,920 252,004
Intangibles and other, net.................................. 4,240,378 4,210,887
Other non-current assets.................................... 23,620 37,837
---------- ----------
Total assets....................................... $4,663,002 $4,628,685
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt......................... $ 29,834 $ 39,891
Accounts payable.......................................... 15,387 14,240
Accrued liabilities....................................... 68,269 68,048
Income taxes payable...................................... 30,471 3,572
---------- ----------
Total current liabilities.......................... 143,961 125,751
Long-term debt, net of current portion.................... 1,748,755 1,769,923
Deferred income taxes..................................... 1,163,156 1,149,563
---------- ----------
Total liabilities.................................. 3,055,872 3,045,237
Commitments and contingencies
Redeemable preferred stock of subsidiaries:
Capstar Broadcasting Partners, Inc., $.01 par value,
10,000 shares authorized, 1,196 shares issued and
outstanding, aggregate liquidation preference of
$119,624 and $123,212, respectively..................... 113,699 116,756
Capstar Communications, Inc., Series E Cumulative
Exchangeable Preferred Stock, $.01 par value, 4,150
shares authorized, 1,266 and 1,346 shares issued and
outstanding, respectively, aggregate liquidation
preference of $133,944 and $138,150, respectively....... 148,669 152,511
Stockholders' equity:
Preferred stock, $.10 par value, 1,000 shares authorized,
none issued............................................. -- --
Common stock, Class A, voting $.01 par value, 750,000
shares authorized, 33,986 and 33,997 shares issued and
outstanding, respectively............................... 340 340
Common stock, Class B, nonvoting, $.01 par value, 150,000
shares authorized, 6,082 shares issued and
outstanding............................................. 61 61
Common stock, Class C, voting, $.01 par value, 150,000
shares authorized, 67,538 shares issued and
outstanding............................................. 675 675
Additional paid-in capital................................ 1,503,201 1,504,144
Stock subscriptions receivable............................ (2,694) (2,773)
Unearned compensation..................................... (4,893) (4,397)
Accumulated deficit....................................... (151,928) (183,869)
---------- ----------
Total stockholders' equity......................... 1,344,762 1,314,181
---------- ----------
Total liabilities and stockholders' equity......... $4,663,002 $4,628,685
========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-122
<PAGE> 444

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Gross broadcast revenue..................................... $ 70,086 $155,721
Less agency commissions..................................... (6,011) (13,716)
-------- --------
Net broadcast revenue....................................... 64,075 142,005
-------- --------
Operating expenses:
Programming, technical and news........................... 15,780 29,855
Sales and promotion....................................... 18,009 39,059
General and administrative................................ 13,971 23,272
Corporate expenses.......................................... 3,757 6,306
Corporate expenses -- noncash compensation.................. 15,793 2,002
LMA fees.................................................... 1,871 319
Depreciation and amortization............................... 11,032 36,439
Merger, nonrecurring and systems development expense........ -- 2,548
-------- --------
Operating income (loss)..................................... (16,138) 2,205
Other income (expense):
Interest expense.......................................... (15,897) (40,958)
Interest income........................................... 454 216
Other..................................................... (134) (145)
-------- --------
Loss before benefit for income taxes and dividends and
accretion on preferred stock of subsidiaries.............. (31,715) (38,682)
Benefit for income taxes.................................... 4,962 13,640
Dividends and accretion on preferred stock of
subsidiaries.............................................. 3,052 6,899
-------- --------
Net loss.................................................... $(29,805) $(31,941)
======== ========
Basic and diluted loss per common share:
Net loss.................................................. $ (0.65) $ (0.30)
======== ========
Weighted average common shares outstanding.................. 46,131 107,610
======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-123
<PAGE> 445

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities............. $ (1,029) $ (5,937)
--------- --------
Cash flows from investing activities:
Proceeds from sale of broadcasting property............... 52,335 --
Purchase of property and equipment........................ (4,162) (11,788)
Payments for acquisitions, net of cash acquired........... (307,391) (14,714)
Payments for pending acquisitions......................... (8,138) (2,036)
Other investing activities, net........................... (353) 4,072
--------- --------
Net cash used in investing activities............. (267,709) (24,466)
--------- --------
Cash flows from financing activities:
Proceeds from long-term debt and credit facilities........ 105,600 61,000
Repayment of long-term debt and credit facilities......... (248,256) (34,928)
Payments of financing related costs....................... -- (330)
Net proceeds from issuance of common stock................ 556,631 127
Payments on subscribed stock.............................. 1,562 --
Purchase of common stock.................................. (484) --
--------- --------
Net cash provided by financing activities......... 415,053 25,869
--------- --------
Net increase (decrease) in cash and cash equivalents........ 146,315 (4,534)
Cash and cash equivalents at beginning of period............ 70,059 17,117
--------- --------
Cash and cash equivalents at end of period.................. $ 216,374 $ 12,583
========= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-124
<PAGE> 446

CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

Information with respect to the three month periods ended March 31, 1998
and 1999 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, the unaudited interim consolidated
financial statements contain all adjustments considered necessary for a fair
presentation. Operating results for the three month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999, or for any other interim period. For further
information, refer to the consolidated financial statements and footnotes
thereto for the year ended December 31, 1998 for Capstar Broadcasting included
in the Form 10-K of Capstar Broadcasting (Commission File No. 001-14107).

The consolidated financial statements include the accounts of Capstar
Broadcasting, and its direct and indirect wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

NOTE 2 -- INCOME (LOSS) PER SHARE

Capstar Broadcasting computes earnings per share ("EPS") under the
provisions of SFAS No. 128 which establishes standards for computing and
presenting EPS.

At March 31, 1998 and 1999, Capstar Broadcasting had 3,129 and 6,731
options and warrants to purchase common shares outstanding, respectively. These
options and warrants were excluded from the computation of diluted earnings per
share as their inclusion would be anti-dilutive given Capstar Broadcasting's net
loss.

NOTE 3 -- CHANCELLOR MERGER AGREEMENT

On August 26, 1998, Capstar Broadcasting and Chancellor Media Corporation
("Chancellor Media"), an affiliate of Capstar Broadcasting, entered into a
merger agreement (the merger agreement was subsequently amended and restated
effective April 29, 1999). Under the merger agreement:

- Chancellor Media will acquire Capstar Broadcasting in a merger between a
wholly-owned subsidiary of Chancellor Media and Capstar Broadcasting,
with Capstar Broadcasting surviving the merger as a wholly-owned
subsidiary of Chancellor Media;

- each share of Class A Common Stock, Class B Common Stock and Class C
Common Stock will represent 0.4955 shares of common stock in Chancellor
Media;

- each Capstar Broadcasting stock option and warrant that is outstanding
and unexercised immediately prior to the merger will be assumed by
Chancellor Media and will thereafter be an option or warrant to acquire
0.4955 shares of common stock of Chancellor Media;

- each share of Chancellor Media common stock will remain equal to one
share of Chancellor Media common stock; and

- each share of Chancellor Media preferred stock will remain equal to one
share of Chancellor preferred stock.

F-125
<PAGE> 447
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The completion of the merger depends on the satisfaction of a number of
conditions. There can be no assurance that all of the conditions to the merger
will be satisfied. Either company may waive compliance with the conditions at
its discretion if permitted by law.

NOTE 4 -- RECENT ACCOUNTING PRONOUNCEMENT

NOTE 5 -- ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES

During the three months ended March 31, 1999, Capstar Broadcasting acquired
11 FM and 3 AM radio stations and related broadcast equipment through several
acquisitions, 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 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.

Acquisition activity during the three months ended March 31, 1999 was as
follows. All consideration paid for the acquisitions scheduled below consisted
solely of cash.

<TABLE>
<CAPTION>
STATIONS
ACQUIRED
---------
TRANSACTION FM AM DATE OF ACQUISITION PURCHASE OF COST
- ----------- --- --- ------------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Appalachian Broadcasting Company,
Inc................................... 1 -- February 1999 Assets $ 1,056
Noalmark Broadcasting Corp.............. 1 1 March 1999 Assets 3,395
Champion Broadcasting Corporation....... 9 2 March 1999 Assets 12,539
-------
$16,990
=======
</TABLE>

The acquisitions during the three months ended March 31, 1999 are
summarized in the aggregate as follows:

<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED
MARCH 31,
1999
------------
<S> <C>
Consideration:
Cash................................................. $15,522
Acquisition costs.................................... 1,468
-------
Total........................................ $16,990
=======
Assets acquired:
Property and equipment............................... $ 4,639
Intangible assets.................................... 12,351
-------
Total........................................ $16,990
=======
</TABLE>

F-126
<PAGE> 448
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

On March 18, 1999, Capstar Broadcasting contributed to Muzak Holdings LLC
("Muzak Holdings") Capstar Broadcasting's Muzak affiliate territories in
Atlanta, Albany and Macon, Georgia and Ft. Myers, Florida in exchange for voting
membership units in Muzak Holdings. On May 3, 1999, Capstar Broadcasting
contributed to Muzak Holdings its Muzak affiliate territory located in Omaha,
Nebraska that Capstar Broadcasting acquired from Triathlon Broadcasting Company
on April 30, 1999, in exchange for additional voting membership units in Muzak
Holdings. The value of the membership units in Muzak Holdings that Capstar
Broadcasting then held was approximately $20,500, subject to a working capital
adjustment to be finalized. The investment in Muzak Holdings represents the book
value of the net assets contributed, which approximates fair market value. Upon
completion of the contribution of the Omaha affiliate territory, Capstar
Broadcasting then held approximately 22.87% of the then outstanding voting power
of Muzak Holdings.

The following unaudited proforma summary presents the consolidated results
of operations for the three months ended March 31, 1998 and 1999 as if all the
acquisitions and dispositions completed through March 31, 1999 had occurred at
the beginning of 1998. 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>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Net revenue................................................. $125,562 $139,371
======== ========
Net loss.................................................... (56,303) (33,839)
======== ========
Basic and diluted loss per common share..................... (0.52) (0.31)
======== ========
</TABLE>

Subsequent to March 31, 1999, Capstar Broadcasting acquired 22 FM and 10 AM
radio stations and related broadcast equipment through the acquisition of
Triathlon Broadcasting Company ("Triathlon") for aggregate consideration in cash
of approximately $201,000. This acquisition was funded with borrowings from the
Company's credit facility. In order to consummate the acquisition of Triathlon,
Capstar Broadcasting was required to dispose of certain radio stations in the
Colorado Springs, Colorado, Spokane, Washington and Wichita, Kansas markets.
Therefore, concurrently with the acquisition of Triathlon, Capstar Broadcasting
sold 1 FM and 3 AM radio stations (all of which were owned by Triathlon) in the
Colorado Springs and Spokane markets to Citadel Broadcasting Company ("Citadel")
for $10,000 in cash and exchanged radio station KSPZ-FM for KKLI-FM in the
Colorado Springs market with Citadel. In addition, Capstar Broadcasting placed 2
FM and 3 AM radio stations from the Wichita market (one of which was an existing
Capstar Broadcasting AM station) into trust pending the sale of the stations. As
a result of the above transactions, Capstar Broadcasting added 19 FM and 5 AM
radio stations in six markets to its portfolio of radio stations.

Subsequent to March 31, 1999, Capstar Broadcasting disposed of one AM
station and related broadcast equipment for approximately $500 in cash.

Additionally, Capstar Broadcasting has entered into the following;

- one agreement to acquire two additional FM stations in Harrisburg,
Pennsylvania for approximately $12,750;

- one agreement to dispose of one AM station for approximately $500; and

- an agreement to acquire the software development business of LAN
International, Inc.

Upon completion of the pending transactions, Capstar Broadcasting will own
and operate 340 stations in primarily mid-sized markets located throughout the
United States. Consummation of each of the pending
F-127
<PAGE> 449
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

transactions is subject to numerous conditions, including governmental
approvals. Accordingly, the actual date of consummation of each of the pending
transactions may vary from the anticipated closing dates. No assurances can be
given that any or all of the pending transactions will be consummated or that,
if completed, they will be successful.

NOTE 6 -- COMMITMENTS AND CONTINGENCIES

On July 13, 1998, Noddings Investment Group, Inc. and Noddings Warrant
Limited Partnership filed Civil Action No. 16538 in the Court of Chancery of the
State of Delaware in and for New Castle County against Capstar Communications.
Noddings alleges that Capstar Communications breached a warrant agreement that
Noddings contends requires Capstar Communications to permit Noddings to exercise
warrants in exchange for cash and shares of stock of SFX Entertainment, Inc.
Specifically, Noddings alleges that Capstar Communications, has violated the
warrant agreement by permitting Noddings to receive cash in exchange for its
warrants, but refusing to convey shares of stock of SFX Entertainment. In
addition to suing on its own behalf, Noddings is seeking to prosecute the action
on behalf of a putative class comprised of all persons who owned equivalent
warrants on April 21, 1998 (the date immediately following the record date of
the distribution of stock of SFX Entertainment to holders of the stock of SFX)
and their transferees and successors in interest. Noddings has requested that
the Court:

- in the alternative, award plaintiffs and members of the putative class
monetary damages in an amount to be determined at trial, and

- award costs and attorneys' fees.

In March 1999, the court issued an opinion dismissing two of Noddings' counts
and granted summary judgment in favor of Noddings on one count. The court held
that Noddings is entitled to 0.2983 shares of SFX Entertainment, Inc. stock per
warrant. Both parties have filed a notice of appeal.

On July 24, 1998 in connection with the acquisition of Triathlon
Broadcasting Company, Capstar Broadcasting was notified of an action filed on
behalf of all holders of depository shares of Triathlon against Triathlon, its
directors, and Capstar Broadcasting. The action was filed in the Court of
Chancery of the State of Delaware in and for New Castle County, Delaware. The
complaint alleges that Triathlon and its directors breached their fiduciary
duties to the class of depository shareholders by agreeing to a transaction with
Capstar Broadcasting that allegedly favored the Class A common shareholders of
Triathlon at the expense of the depository shareholders. Capstar Broadcasting is
accused of knowingly aiding and abetting the breaches of fiduciary duties
allegedly committed by the other defendants. The complaint seeks to have the
action certified as a class action and seeks to enjoin the Triathlon acquisition
or, in the alternative, seeks monitory damages in an unspecified amount. On
February 12, 1999, the parties signed a Memorandum of Understanding that
provides for the settlement of the lawsuit. The amount of the settlement will
equal $0.11 additional consideration for each depository share owned by any
class member at the effective time of the Triathlon acquisition. Capstar
Broadcasting also agreed not to oppose plaintiff's counsel's application for
attorney's fees and expenses in the aggregate amount of $150. The proposed
settlement is contingent upon a confirmatory discovery by the plaintiff,
executive of a definitive settlement agreement and court approval.

F-128
<PAGE> 450
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Capstar Broadcasting 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 Capstar Broadcasting.

NOTE -- SEGMENT INFORMATION

In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The Company is engaged principally in
one line of business-ownership and management of radio broadcast stations
("Radio") which represents more than 95% of consolidated net revenue. Radio is
the Company's only reportable segment. Operating segments categorized as "Other"
include results of insignificant operations and income and expense not allocated
to reportable segments.

The Company evaluates the performance of its operating segments and
allocates resources to them based on their net revenue and broadcast cash flow
("BCF") which consists of operating income before merger, nonrecurring and
systems development expense; depreciation, amortization, LMA fees, non-cash
compensation expense, and corporate expenses.

The table below presents information about the reportable and "Other"
operating segments. The prior period's segment information has been restated to
conform with the current period's presentation. For the three months ended March
31, 1998 and 1999, segment data includes intersegment revenues.

<TABLE>
<CAPTION>
RADIO OTHER TOTAL
-------- ------ --------
<S> <C> <C> <C>
1998:
Net revenue............................................... $ 60,844 $3,231 $ 64,075
BCF....................................................... 16,099 216 16,315
1999:
Net revenue............................................... 137,266 6,332 143,598
BCF....................................................... 50,719 (508) 50,211
</TABLE>

A reconciliation of total segment net revenue to total consolidated net
revenue and of total segment BCF to total consolidated loss before benefit for
income taxes and extraordinary item, for the three months ended March 31, 1998
and 1999 is as follows:

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
NET REVENUE
Total segment net revenue................................... $ 64,075 $143,598
Elimination of intersegment net revenue..................... -- (1,593)
-------- --------
Consolidated net revenue.................................. $ 64,075 $142,005
======== ========
</TABLE>

F-129
<PAGE> 451
CAPSTAR BROADCASTING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
BCF
Total BCF for reportable segments........................... $ 16,315 $ 50,211
Corporate Expenses.......................................... (3,757) (6,306)
Corporate expenses -- noncash compensation.................. (15,793) (2,002)
LMA fees.................................................... (1,871) (319)
Depreciation and Amortization............................... (11,032) (36,439)
Merger, nonrecurring and other expense...................... -- (2,548)
Nonoperating expenses....................................... (15,577) (40,887)
Intercompany profit......................................... -- (392)
-------- --------
Consolidated loss before income taxes and dividends and
accretion on preferred stock of subsidiaries.............. $(31,715) $(38,682)
======== ========
</TABLE>

F-130
<PAGE> 452

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-131
<PAGE> 453

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-132
<PAGE> 454

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-133
<PAGE> 455

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-134
<PAGE> 456
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-135
<PAGE> 457
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-136
<PAGE> 458
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-137
<PAGE> 459
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-138
<PAGE> 460
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-139
<PAGE> 461
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-140
<PAGE> 462

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Martin Media:

We have audited the accompanying balance sheets of Martin Media (a
California limited partnership) as of December 31, 1997 and 1996 and the related
statements of operations, partners' capital (deficit), and cash flows for each
of the three years in the period ended December 31, 1997. 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 audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martin Media, as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Bakersfield, California
February 13, 1998

F-141
<PAGE> 463

MARTIN MEDIA

BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

ASSETS

<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Current Assets
Cash and equivalents...................................... $ 23,254 $ 2,661,610
Trade accounts receivable, net of allowance for doubtful
accounts of $142,515 and $100,000 as of December 31,
1997 and 1996, respectively............................ 5,658,379 4,726,301
Current maturities of long-term notes receivable, limited
partners............................................... 136,030 132,956
Other receivables......................................... 113,514 100,892
Inventories, raw materials................................ 520,725 209,323
Prepaid expenses.......................................... 1,566,582 1,085,324
------------ -----------
Total current assets.............................. 8,018,484 8,916,406
------------ -----------
Long-Term Notes Receivable, limited partners, less current
maturities................................................ 281,279 317,309
Property and Equipment, net of accumulated depreciation..... 74,863,597 52,367,653
Intangible Assets, net of accumulated amortization.......... 58,446,919 15,872,530
Deposit on purchase option.................................. 463,800 --
------------ -----------
$142,074,079 $77,473,898
============ ===========

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

Current Liabilities
Current maturities of long-term debt...................... $ 3,690,436 $ 5,339,365
Current maturities of capital lease obligations........... 214,380 135,586
Accounts payable.......................................... 627,590 928,712
Accrued expenses.......................................... 8,112,132 1,569,048
Unearned income........................................... 219,022 112,961
------------ -----------
Total current liabilities......................... 12,863,560 8,085,672
------------ -----------
Long-Term Liabilities
Long-term debt, less current maturities................... 109,232,810 66,752,424
Capital lease obligations, less current maturities........ 447,865 662,245
------------ -----------
Total long-term liabilities....................... 109,680,675 67,414,669
------------ -----------
Commitments (Note 10)
Mandatorily Redeemable
Preferred partnership units............................... 25,000,000 --
------------ -----------
Partners' Capital (Deficit)................................. (5,470,156) 1,973,557
------------ -----------
$142,074,079 $77,473,898
============ ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-142
<PAGE> 464

MARTIN MEDIA

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income................................................ $48,106,851 $42,359,472 $33,732,821
Cost of sales......................................... 6,091,333 5,745,308 4,459,240
----------- ----------- -----------
Gross profit................................ 42,015,518 36,614,164 29,273,581
Managers' controlled operating expenses............... 21,201,914 20,929,536 16,861,406
----------- ----------- -----------
Income from managers' operations............ 20,813,604 15,684,628 12,412,175
----------- ----------- -----------
Other operating expenses:
Depreciation and amortization....................... 9,282,574 5,364,835 3,339,377
Management fees..................................... 1,937,326 1,277,431 1,111,350
Refinance and acquisition........................... 9,644,819 3,822,894 --
----------- ----------- -----------
20,864,719 10,465,160 4,450,727
----------- ----------- -----------
Operating income (loss)..................... (51,115) 5,219,468 7,961,448
----------- ----------- -----------
Nonoperating income (expenses):
Interest income..................................... 66,260 96,103 116,154
Interest expense.................................... (8,023,704) (6,022,001) (5,030,100)
Miscellaneous income................................ 1,077,184 252,653 283,597
Miscellaneous expense............................... -- (11,437) (92,682)
Loss on disposal of assets.......................... (512,338) (458,464) (378,358)
----------- ----------- -----------
(7,392,598) (6,143,146) (5,101,389)
----------- ----------- -----------
Net income (loss)........................... $(7,443,713) $ (923,678) $ 2,860,059
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-143
<PAGE> 465

MARTIN MEDIA
(A CALIFORNIA LIMITED PARTNERSHIP)

STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year............................ $ 1,973,557 $ 3,184,665 $ 822,406
Issuance of partnership units....................... -- 5,300,000 --
Redemption of partnership units..................... -- (5,260,230) --
Distributions....................................... -- (327,200) (497,800)
Net income (loss)................................... (7,443,713) (923,678) 2,860,059
----------- ----------- -----------
Balance, end of year.................................. $(5,470,156) $ 1,973,557 $ 3,184,665
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-144
<PAGE> 466

MARTIN MEDIA

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ (7,443,713) $ (923,678) $ 2,860,059
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................ 9,282,574 5,364,835 3,339,377
Loss on disposal of assets................... 512,338 458,464 378,358
Changes in operating assets and liabilities
(exclusive of acquisitions):
Increase in accounts receivable........... (932,078) (1,047,834) 223,315
Increase in other receivables............. (12,622) (72,759) 24,091
(Increase) decrease in inventories, raw
materials............................... (311,402) 105,466 35,645
Increase in prepaid expenses.............. (481,258) (136,610) 53,372
Decrease in accounts payable.............. (301,122) (7,055) (195,463)
Increase in accrued expenses.............. 6,543,084 793,490 24,624
Increase in unearned income............... 106,061 84,915 (14,020)
------------ ------------ -----------
Net cash provided by operating
activities.............................. 6,961,862 4,619,234 6,729,358
------------ ------------ -----------
Cash flows from investing activities:
Principal payments on notes receivable............ 32,956 374,740 20,692
Issuance of notes receivable...................... -- (400,000) --
Proceeds from sale of property and equipment...... 49,460 63,801 79,236
Cash paid for acquisitions........................ (67,164,295) (17,200,000) (1,575,000)
Capital expenditures.............................. (7,750,411) (7,114,708) (1,762,978)
Proceeds from sale of investment.................. -- -- 970,482
Purchase option deposit........................... (463,800) -- --
------------ ------------ -----------
Net cash used in investing activities..... (75,296,090) (24,276,167) (2,267,568)
------------ ------------ -----------
Cash flows from financing activities:
Net (payments)/borrowings on line-of-credit....... -- (1,395,052) 601,324
Proceeds from issuance of long-term debt.......... 41,014,131 75,915,869 1,006,400
Principal payments on long-term debt.............. (318,259) (57,059,619) (3,522,394)
Distributions to partners......................... -- (327,200) (497,800)
Redemption of partnership units................... -- (5,260,230) --
Issuance of mandatorily redeemable preferred
partnership units.............................. 25,000,000 -- --
Issuance of partnership units..................... -- 5,000,000 --
------------ ------------ -----------
Net cash provided (used) by financing
activities.............................. 65,695,872 16,873,768 (2,412,470)
------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents....................................... (2,638,356) (2,783,165) 2,049,320
Cash and cash equivalents at beginning of year...... 2,661,610 5,444,775 3,395,455
------------ ------------ -----------
Cash and cash equivalents at end of year............ $ 23,254 $ 2,661,610 $ 5,444,775
============ ============ ===========
Supplemental disclosures of cash flow
information:
Interest paid................................ $ 8,085,486 $ 6,357,207 $ 5,036,375
============ ============ ===========
Income taxes paid............................ $ -- $ 7,349 $ 800
============ ============ ===========
</TABLE>

Supplemental disclosures of noncash investing and financing activities:

During the year ended December 31, 1997 long-term debt in the amount
of $84,845,560 was refinanced.

During the year ended December 31, 1996 long-term debt in the amount
of $1,684,215 was incurred to purchase fixed assets and intangible assets.

During the year ended December 31, 1996 notes receivables to
shareholders in the amount of $300,000 were issued for partnership units.

During the year ended December 31, 1995 long-term debt in the amount
of $318,900 was incurred to purchase sign structures.

The accompanying notes are an integral part of these statements.

F-145
<PAGE> 467

MARTIN MEDIA

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of business

Martin Media, a California limited partnership (the Company), was formed in
December, 1984 and operated under the name of Colorado River Markets until
August, 1991. The Company has operating divisions located in Pennsylvania, Ohio,
Connecticut, Washington, D.C., Arizona and Nevada.

The Company owns and leases billboards on a contractual basis nationwide
for the purpose of providing outdoor advertising services. The Company extends
credit in the form of accounts receivable on a short-term basis to businesses
and advertisers doing business in the above noted areas.

Significant accounting policies

Basis of accounting

The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.

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,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less.

Inventories, raw materials

Inventories are stated at the lower of cost or market using the first in,
first out (FIFO) cost method.

Property and equipment

Property and equipment are stated at cost and depreciated over estimated
useful lives primarily using the straight-line method. Repairs and maintenance
and small equipment purchases are expensed as incurred. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Estimated useful lives are as follows:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 15-31
Posters..................................................... 25
Bulletins................................................... 25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Auto and trucks............................................. 5-7
</TABLE>

F-146
<PAGE> 468
MARTIN MEDIA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income taxes

Under provision of the Internal Revenue Code and the respective state
Taxation Codes, partnerships are not subject to income taxes; any income or loss
realized is taxed to the individual partners. Certain states do impose a minimum
tax (franchise fee).

Intangible assets

Covenants not to compete are recorded at cost and are amortized using the
straight-line method over the contractual period specified.

Organization costs, advertising rights, permits and licenses, acquisition
fees, lease rights and goodwill are recorded at cost and are amortized using the
straight-line method over five years.

Loan fees are amortized over the life of the loan to which they are
associated.

Profit sharing plan

The Company adopted a profit sharing plan which is a qualified pension
trust under Section 401(k) of the Internal Revenue Code. All full-time employees
with twelve months of service who are 18 years old or older are eligible to
participate. Each employee may voluntarily contribute up to the lesser of 15% of
their pay or $9,500. The Company has made no contributions to the plan.

Fair value of financial instruments

The carrying amount of the long-term debt approximates fair value.

Reclassifications

Certain prior year amounts have been reclassified to conform with the
current year presentation.

2. LONG-TERM NOTES RECEIVABLE, LIMITED PARTNERS

Notes receivable, limited partners at December 31, 1997 and 1996 consisted
of the following:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Barry Heffner, Manager of Pittsburgh Division, prime plus
2%, collateralized by subscription of one unit of Martin
Media, payable $717 per month including interest, due
September 27, 2001........................................ $ 18,758 $ 25,036
Mary Ellen Coleman, Manager of Scranton Division, prime plus
2%, collateralized by subscription of one unit of Martin
Media, payable $717 per month including interest, due
September 27, 2001........................................ 18,975 25,229
Brent Baer, Manager of Washington D.C. Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
Thomas Jones, Manager of Las Vegas Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
David Lamberger, National Sales Manager, 8%, collateralized
by 1/4 of one partnership unit, payable $838 per month
including interest, due December 28, 2001................. 69,894 75,000
</TABLE>

F-147
<PAGE> 469
MARTIN MEDIA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Lynn Terlaga, Manager of Hartford Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... $ 69,894 $ 75,000
David Weyrich, 10%, unsecured, payable $833 per month
interest only, due November 27, 1997, paid in full
subsequent to December 31, 1997........................... 100,000 100,000
-------- --------
417,309 450,265
Less current maturities..................................... 136,030 132,956
-------- --------
$281,279 $317,309
======== ========
</TABLE>

Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.

NOTE 3. ACQUISITIONS

During 1997, the Company purchased substantially all the assets and assumed
certain liabilities of three outdoor advertising companies; during 1996, the
Company purchased substantially all of the assets and assumed certain
liabilities of one outdoor advertising company and exchanged partnership
interests and other consideration for substantially all of the assets, and
assumed certain liabilities, for another outdoor advertising company (the
"Exchange"). Funds used to make the acquisitions and facilitate the Exchange
were provided through the Company's credit facility. The majority of the
intangible assets acquired through the acquisitions and Exchange are being
amortized over a five year period. See Note 10 for acquisitions included above
which were acquired from a related party. Acquisitions during 1995 were not
significant.

The acquisitions were accounted for using the purchase method of accounting
and the purchase price was allocated to the various tangible and intangible
assets acquired. For the Exchange, the Company recorded the assets acquired and
liabilities assumed based on the fair value of the partnership interests
granted. Accordingly, the results of operations for the acquisitions, and the
Exchange, have been included in the results of the Company from the respective
effective dates.

A summary of the cash consideration and allocation of the purchase price as
of the acquisition dates are as follows:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Fair value of tangible assets acquired..................... $20,293,392 $ 8,420,000
Fair value of intangible assets acquired................... 46,870,903 11,870,455
Liabilities assumed........................................ -- (2,790,455)
Book value of partnership interests granted................ -- (300,000)
----------- -----------
Cash paid.................................................. $67,164,295 $17,200,000
=========== ===========
</TABLE>

Of the cash paid in 1996, approximately $5 million was utilized to redeem
existing partnership units in connection with the Exchange.

F-148
<PAGE> 470
MARTIN MEDIA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PREPAID EXPENSES

Prepaid expenses at December 31, 1997 and 1996 consisted of the following:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Leases...................................................... $1,279,243 $ 903,154
Insurance................................................... 41,541 32,545
Other....................................................... 196,064 124,726
Deposits.................................................... 49,734 24,899
---------- ----------
$1,566,582 $1,085,324
========== ==========
</TABLE>

5. PROPERTY AND EQUIPMENT

Major classes of property and equipment and accumulated depreciation at
December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land....................................................... $10,578,202 $ 936,954
Buildings and improvements................................. 5,349,404 218,947
Posters.................................................... 26,855,790 25,114,090
Bulletins.................................................. 44,189,355 36,314,244
Shop equipment............................................. 722,278 519,319
Office furniture and equipment............................. 649,696 449,391
Autos and trucks........................................... 1,951,625 1,662,820
Construction in process.................................... 402,892 215,744
----------- -----------
90,699,242 65,431,509
Less accumulated depreciation.............................. 15,835,645 13,063,856
----------- -----------
$74,863,597 $52,367,653
=========== ===========
</TABLE>

See Note 7 for collateralization of property and equipment.

Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $2,943,826, $2,624,212 and $2,392,186.

During the years ended December 31, 1997, 1996 and 1995, the Company took
down a number of boards located in the Pittsburgh, Scranton, Hartford, Las Vegas
and Cincinnati divisions. These disposals were initiated by management due to
high operating costs and/or high site lease costs, which resulted in marginal
operating results. Losses on board disposals amounted to $515,056, $440,746 and
$418,957 in the years ended December 31, 1997, 1996 and 1995.

F-149
<PAGE> 471
MARTIN MEDIA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. INTANGIBLE ASSETS

Intangible assets and accumulated amortization at December 31, 1997 and
1996 are as follows:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Organization costs......................................... $ 1,238,376 $ 1,238,376
Covenants not to compete................................... 2,452,096 2,452,096
Advertising rights......................................... 2,925,800 1,291,338
Permits and licenses....................................... 10,705,122 2,547,274
Lease rights............................................... 14,307,733 11,970,722
Goodwill................................................... 33,979,535 220,453
Acquisition fees........................................... 3,718,759 1,053,423
Loan fees.................................................. 359,398 1,577,500
----------- -----------
69,686,819 22,351,182
Less accumulated amortization.............................. 11,239,900 6,478,652
----------- -----------
$58,446,919 $15,872,530
=========== ===========
</TABLE>

See Note 7 for collateralization of intangible assets.

Amortization expense for the years ended December 31, 1997, 1996 and 1995
was $6,338,748, $2,740,623 and $947,191.

7. LONG-TERM DEBT

Long-term debt at December 31, 1997 and 1996 consisted of the following:

<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Term A loan, interest at LIBOR plus 2%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due June 2004**......................................... $ 60,000,000 $ --
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Term B loan, interest at LIBOR plus 2.25%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due December 2005**..................................... 35,000,000 --
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Revolving Line of Credit, interest ranging
from prime plus 2% LIBOR plus 2.75%, collateralized by
accounts receivable, inventory, sign structures, and
intangible assets, payable quarterly, due June 2004**... 17,300,000 --
Jackson Poster Advertising, 8%, collateralized by sign
structures, payable $912 per month including interest,
due December 2000....................................... 29,124 37,381
Dominion Signs, 8%, collateralized by sign structures and
personally guaranteed by E. Thomas Martin, payable
$68,475 plus interest annually, due August 1999......... 136,950 205,425
Elaine Perlroth, 7%, collateralized by mortgage, payable
$989 monthly including interest, due November 2008...... 90,381 95,715
</TABLE>

F-150
<PAGE> 472
MARTIN MEDIA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Ronco Media, non-interest bearing, uncollateralized,
payable $3,000 monthly, due April 2001.................. $ 120,000 $ 156,000
Ronald Rieger, non-interest bearing, uncollateralized,
payable $167 monthly, due July 2001..................... 6,667 8,667
Rose Marie Rieger, non-interest bearing, uncollateralized,
payable $167 monthly, due April 2001.................... 6,667 8,667
Daniel H. Bradley, non-interest bearing, uncollateralized,
payable $1,667 monthly, due April 2001.................. 66,667 86,667
Pamela Lynn Rieger, non-interest bearing,
uncollateralized, payable $1,667 monthly, due April
2001.................................................... 66,667 86,667
Kory William Rieger, non-interest bearing,
uncollateralized, payable $1,667 monthly, due April
2001.................................................... 66,667 86,667
Rembrandt Outdoor Services, non-interest bearing,
uncollateralized, payable $608 monthly, due July 2001... 33,456 34,065
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Term A Loan, interest at LIBOR plus 2.5%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due March 2003**........................................ -- 40,000,000
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Term B Loan, interest at LIBOR plus 3%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due December 2004**..................................... -- 15,000,000
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Revolving Line of Credit, interest ranging
from prime plus 1.25% to LIBOR plus 2.50%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable annually, due
March 2003**............................................ -- 16,285,868
------------ -----------
112,923,246 72,091,789
Less current maturities................................... 3,690,436 5,339,365
------------ -----------
$109,232,810 $66,752,424
============ ===========
</TABLE>

Aggregate maturities of long-term debt at December 31, 1997 were as
follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998........................................................ $ 3,690,436
1999........................................................ 7,691,592
2000........................................................ 13,124,365
2001........................................................ 14,545,258
2002........................................................ 15,007,561
Thereafter.................................................. 58,864,034
------------
$112,923,246
============
</TABLE>

F-151
<PAGE> 473
MARTIN MEDIA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

** Loan has varying interest rates based on Company performance and indexes
found in Credit Agreement dated July 31, 1997. At December 31, 1997 effective
interest rates ranged from 7.1875% to 8.5%.

The Company has entered into interest rate caps primarily to protect
against rising interest exposure of its floating rate long-term debt. The
difference to be paid or received on the cap is included in interest expense as
payments are made or received. At December 31, 1997, the Company had outstanding
interest rate cap agreements with two commercial bank, having a total notional
principal amount of $135,000,000. This agreement effectively changes the
Company's interest exposure on up to $135,000,000 of floating rate debt to a
fixed 6.5% with a floor of 5.5%. The interest rate cap agreements mature
September 1998 ($35,000,000) and September 2000 ($100,000,000).

During 1997, the Company sold an interest rate floor for a gain of
$440,000. This gain is included in other income.

The counterparties to the Company's derivative financial instrument
contract are substantial and creditworthy commercial banks which are recognized
market makers. Neither the risks of counterparty nonperformance nor the economic
consequence of counterparty nonperformance associated with these contracts were
considered by the Company to be material.

Interest expense consists of interest on notes payable and the cost
associated with the purchased of the interest rate cap instrument.

Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.

LIBOR rate was 5.9% and 6.5% at December 31, 1997 and 1996, respectively.

8. LONG-TERM CAPITAL LEASE OBLIGATIONS

The Company leases certain sign structures with lease terms through July
2000. Obligations under capital leases have been recorded in the accompanying
financial statements at the discounted present value of future minimum lease
payments. The cost and accumulated amortization for such equipment as of
December 31, 1997 was $1,029,200 and $58,321, respectively. Amortization
included in depreciation expense for the year ended December 31, 1997 was
$41,168. Interest paid on these leases was $130,118 for the year ended December
31, 1997.

The future minimum lease payments under these capital leases and the net
present value of the future minimum lease payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31:
- ------------
<S> <C>
1998........................................................ $316,628
1999........................................................ 399,627
2000........................................................ 113,280
--------
Total future minimum lease payments......................... 829,535
Less amount representing interest........................... 167,290
--------
Present value of future minimum lease payment............... 662,245
Less current portion........................................ 214,380
--------
Long-term portion........................................... $447,865
========
</TABLE>

F-152
<PAGE> 474
MARTIN MEDIA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. RELATED PARTY TRANSACTIONS

Transactions occurring between the Company and a related party, which are
not presented elsewhere in these financial statements, are as follows:

Martin and MacFarlane, Inc., a California Corporation (M&M, Inc.), which
has stockholders who are also partners in the Company, performed substantially
all administrative functions for the partnership during the year ended December
31, 1995 and January 1996. Beginning February 1, 1996, administrative functions
were performed by MW Sign Co., the general partner. The partnership pays
management fees approximating 3% of gross revenue, refinancing fees of 4% of all
debt refinanced and acquisition fees of 4% of the purchased price of acquired
companies. On January 1, 1997, management fees increased to 4% of gross revenue.
Total fees paid to M&M, Inc. for the years ended December 31, 1997 and 1996
amounted to $-0- and $78,263, respectively. Total fees paid/accrued to MW Sign
Co. for the years ended December 31, 1997 and 1996 amounted to $11,231,815 and
$5,050,039. Total fees paid to M&M, Inc. and MW Sign Co. for the year ended
December 31, 1995 amounted to $1,111,350.

10. COMMITMENTS

Leases

The Company leases land, buildings, and equipment in connection with its
outdoor advertising business under operating leases. The leasing of land relates
to the posters and bulletins. The Company also leases property, equipment and
buildings to house and support division administrative and field offices.

Future minimum lease payments under cancelable and noncancelable leases at
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING POSTERS,
DECEMBER 31, BULLETINS BUILDINGS TOTAL
- ------------ ---------- ---------- ----------
<S> <C> <C> <C>
1998............................................. $1,199,353 $ 229,539 $1,428,892
1999............................................. 1,219,818 205,164 1,424,982
2000............................................. 1,244,566 193,264 1,437,830
2001............................................. 1,270,536 183,836 1,454,372
2002............................................. 1,295,506 173,628 1,469,134
Thereafter....................................... 1,670,042 289,380 1,959,422
---------- ---------- ----------
$7,899,821 $1,274,811 $9,174,632
========== ========== ==========
</TABLE>

Certain of the Company's noncancelable lease payments are based on a
percentage of revenue generated from the poster or bulletin rather than having a
minimum rental. The percentage of rent ranges from 15% to 20% of revenue. An
estimate of the future payments under these leases has been included in the
above table under posters, bulletins. Historically, rental payments under these
leases have approximated $1,180,000 annually.

Lease expense for the years ended December 31, 1997, 1996 and 1995 was as
follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Land for posters and bulletins................... $8,042,746 $6,817,196 $5,226,956
Buildings........................................ 518,306 549,069 406,277
Equipment, other................................. 27,041 28,198 31,881
---------- ---------- ----------
$8,588,093 $7,394,463 $5,665,114
========== ========== ==========
</TABLE>

F-153
<PAGE> 475
MARTIN MEDIA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Acquisition, purchase and purchase option

On July 31, 1997 the Company entered into an agreement with Martin &
MacFarlane, Inc. (related party), relative to an agreement Martin & MacFarlane,
Inc. had with another company to purchase certain assets, to acquire certain
assets including sign structures, equipment, and related intangibles located in
the Las Vegas and Colorado River markets for a total purchase price of
$14,350,400. This purchase agreement has two segments, the first of which
provided for the purchase of assets during the year ending December 31, 1997 for
$11,273,400. The second segment of the agreement provides an option to the
Company to purchase additional assets for $3,077,000. Upon execution of the
option agreement, the Company deposited $463,800 in good faith with Martin &
MacFarlane, Inc. The option agreement can only be exercised upon Martin &
MacFarlane, Inc. exercising its option to purchase those assets and other assets
it has under option with the seller; the option agreement expires October 1,
1998.

Preferred partnership units

On December 23, 1997, the Company entered into an agreement to sell
preferred limited partnership units (PPU's), warrants and warrant units to a
select group of purchasers. The Company issued 25,000 PPU's at $1,000 each
($25,000,000), calling for the holders of the PPU's to receive an initial 14%
preferred rate of return, which escalates on certain dates to a maximum of 20%.
The Company can redeem PPU's for 102% of the PPU's capital account amount until
September 23, 1998 and thereafter for 100% of the PPU's capital account amount.
The Company is obligated under the agreement to redeem all outstanding PPU's on
December 23, 2006. Warrants to purchase additional PPU's, based upon terms of
the agreement, shall be issuable upon the 270th day following the purchase date
(December 23, 1997) and quarterly thereafter, if any PPU's shall then be
outstanding.

Credit facilities

On December 23, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce in which their Term B loan maximum borrowing limit was
increased to $40,000,000. As of December 31, 1997, the Company had $5,000,000
available under the term of the loan.

On July 31, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce, as administrative agent for Lenders under the credit
agreement dated July 31, 1997. Under the terms of this agreement, Swing Loan is
available in the amount of $5,000,000. As of December 31, 1997, the Company's
outstanding obligation was $-0-.

11. SUBSEQUENT EVENTS

Subsequent to December 31, 1997, the Company acquired substantially all of
the assets and assumed certain liabilities of three outdoor advertising
companies at an aggregate purchase price of $18,350,000. Funds used to make the
purchase were provided through the Company's credit facility.

F-154
<PAGE> 476

MARTIN MEDIA

STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Income...................................................... $29,335,986 $22,639,673
Cost of sales............................................... 3,554,778 2,860,922
----------- -----------
Gross profit...................................... 25,781,208 19,778,751
Managers' controlled operating expenses..................... 11,498,736 10,024,800
----------- -----------
Income from managers' operations.................. 14,282,472 9,753,951
----------- -----------
Other operating expenses:
Depreciation and amortization............................. 4,935,039 3,192,484
Management fees........................................... 1,465,200 1,332,688
Refinance and acquisition................................. 324,477 59,665
----------- -----------
6,724,716 4,584,837
----------- -----------
Operating income.................................. 7,557,756 5,169,114
----------- -----------
Nonoperating income (expenses):
Interest income........................................... 17,234 36,266
Interest expense.......................................... (7,056,690) (2,952,027)
----------- -----------
(7,039,456) (2,915,761)
----------- -----------
Net income........................................ $ 518,300 $ 2,253,353
=========== ===========
</TABLE>

The accompanying note is an integral part of these statements.

F-155
<PAGE> 477

MARTIN MEDIA

STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)

<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 518,300 $ 2,253,353
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 4,935,039 3,192,484
Changes in operating assets and liabilities (exclusive
of acquisitions):
Increase in accounts receivable...................... (1,467,442) (579,923)
Decrease (increase) in other receivables............. 28,509 (339,238)
Increase in inventories, raw materials............... (755,168) (775,387)
Increase in prepaid expenses......................... (355,358) (241,092)
Decrease in accounts payable......................... (196,683) (13,949)
Decrease in accrued expenses......................... (4,717,062) (693,027)
------------ -----------
Net cash provided (used) by operating
activities..................................... (2,009,865) 2,803,221
------------ -----------
Cash flows from investing activities:
Decrease in notes receivable.............................. 17,492 450,569
Cash paid for acquisitions................................ (15,453,324) (1,863,034)
Capital expenditures...................................... (9,522,314) (4,521,138)
------------ -----------
Net cash used in investing activities............. (24,958,146) (5,933,603)
------------ -----------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 25,450,460 956,013
Distributions to partners................................. 1,387,288 (37,565)
------------ -----------
Net cash provided by investing activities......... 26,837,748 918,448
------------ -----------
Net decrease in cash........................................ (130,263) (2,211,934)
Cash at beginning of year................................... 23,254 2,361,610
------------ -----------
Cash at end of period....................................... $ (107,009) $ 149,676
============ ===========
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 5,313,150 $ 2,952,027
============ ===========
</TABLE>

The accompanying note is an integral part of these statements.

F-156
<PAGE> 478

MARTIN MEDIA

NOTE TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial information with respect to the six months ended June 30,
1998 and 1997 is unaudited. In the opinion of management, the financial
statements contain all adjustments consisting of normal recurring accruals,
necessary for the fair presentation of the results for such periods. The
information is not necessarily indicative of the results of operations to be
expected for the fiscal year end.

F-157
<PAGE> 479

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
Martin & MacFarlane, Inc.:

We have audited the accompanying balance sheets of Martin & MacFarlane,
Inc. (a California corporation) as of December 31, 1997 and 1996, and the
related statements of income, retained earnings and cash flows for each of the
two years in the period ended December 31, 1997 and six months in the period
ended December 31, 1995. 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.

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 financial statements referred to above present fairly,
in all material respects, the financial position of Martin & MacFarlane, Inc. as
of December 31, 1997 and 1996 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1997 and six
months in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Bakersfield, California
February 13, 1998

F-158
<PAGE> 480

MARTIN & MACFARLANE, INC.

BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

ASSETS

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current Assets
Cash and equivalents...................................... $ 138,294 $ 10,519
Trade accounts receivable, less allowance for doubtful
accounts of $96,051 and $100,000 at December 31, 1997
and 1996............................................... 2,973,646 1,836,944
Current maturity of note receivable....................... 6,856 6,206
Other receivables......................................... 78,723 331,419
Inventories............................................... 1,764,872 1,104,190
Prepaid expenses.......................................... 928,416 565,971
Current deferred income taxes............................. 1,441 1,500
----------- -----------
5,892,248 3,856,749
----------- -----------
Note Receivable............................................. 24,381 31,083
Property and Equipment, net of accumulated depreciation..... 23,527,457 20,187,460
Intangible Assets, net of accumulated amortization.......... 11,053,092 3,007,566
Other Assets
Deposits.................................................. 24,197 22,047
Deposit on Purchase Option................................ 5,536,200 --
----------- -----------
5,560,397 22,047
----------- -----------
$46,057,575 $27,104,905
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft............................................ $ 166,083 $ 523,360
Current maturities of long-term debt...................... 690,718 7,460,727
Note payable, bank........................................ -- 800,000
Accounts payable.......................................... 543,648 465,372
Accrued expenses.......................................... 391,069 444,798
Distributions payable..................................... 61,832 61,658
Unearned income........................................... 506,348 84,530
Income taxes payable...................................... 6,408 33,205
----------- -----------
2,366,106 9,873,650
----------- -----------
Long-Term Debt, less current maturities..................... 36,041,494 6,835,699
----------- -----------
Deferred Income Taxes....................................... 102,375 111,008
----------- -----------
Commitments (Note 13)
Stockholders' Equity
Common stock, no par or stated value, authorized 150,000
shares, issued and outstanding 82,443 shares, stated
at..................................................... 1,113,070 1,113,070
Retained earnings......................................... 6,434,530 9,171,478
----------- -----------
7,547,600 10,284,548
----------- -----------
$46,057,575 $27,104,905
=========== ===========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-159
<PAGE> 481

MARTIN & MACFARLANE, INC.

STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Revenues............................................... $22,535,117 $16,994,368 $8,311,295
Cost of sales.......................................... 2,476,991 2,155,013 1,065,709
----------- ----------- ----------
Gross profit................................. 20,058,126 14,839,355 7,245,586
Managers' controlled operating expenses................ 11,318,791 9,534,848 4,982,152
----------- ----------- ----------
Income from managers' operations............. 8,739,335 5,304,507 2,263,434
----------- ----------- ----------
Other operating expenses
Depreciation and amortization expense................ 2,902,472 1,316,520 575,291
Management fees...................................... 2,210,351 472,931 --
Refinance and acquisitions........................... 884,083 85,175 --
----------- ----------- ----------
5,996,906 1,874,626 575,291
----------- ----------- ----------
Operating income............................. 2,742,429 3,429,881 1,688,143
----------- ----------- ----------
Other income (expense)
Interest income...................................... 15,302 9,773 --
Interest expense..................................... (2,537,908) (1,115,772) (552,412)
Other income......................................... 414,138 117,025 125,286
Loss on disposition of assets........................ (207,372) (136,875) (1,744)
----------- ----------- ----------
(2,315,840) (1,125,849) (428,870)
----------- ----------- ----------
Income before income taxes............................. 426,589 2,304,032 1,259,273
Income tax (expense) benefit........................... (23,458) (57,653) 2,972,317
----------- ----------- ----------
Net income................................... $ 403,131 $ 2,246,379 $4,231,590
=========== =========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-160
<PAGE> 482

MARTIN & MACFARLANE, INC.

STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Balance, beginning of period........................... $ 9,171,478 $ 8,526,046 $4,418,120
Net income........................................... 403,131 2,246,379 4,231,590
Dividends............................................ (3,140,079) (1,600,947) (123,664)
----------- ----------- ----------
Balance, end of period................................. $ 6,434,530 $ 9,171,478 $8,526,046
=========== =========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-161
<PAGE> 483

MARTIN & MACFARLANE, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995

<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 403,131 $ 2,246,379 $ 4,231,590
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 2,902,472 1,316,520 575,291
Loss on disposition of assets................... 207,372 136,875 1,744
Changes in operating assets and liabilities
(exclusive of acquisitions):
Increase in accounts receivable................. (1,136,702) (410,142) 119,579
(Increase) decrease in other receivables........ 252,697 (312,755) 59,985
Increase in inventory........................... (660,682) (220,401) (115,754)
Increase in prepaid expenses.................... (362,445) (135,739) 200,316
Decrease in deferred income tax asset........... 59 -- --
(Increase) decrease in other
assets -- deposits............................ (2,150) (5,000) 3,124
Increase (decrease) in bank overdraft........... (357,277) 523,360 --
Increase (decrease) in accounts payable......... 78,276 (60,260) (126,935)
Increase (decrease) in accrued expenses......... (53,555) 169,057 (8,073)
Increase (decrease) in unearned income.......... 421,818 1,185 (73,536)
Increase (decrease) in income taxes payable..... (26,797) 9,835 (868,116)
Increase (decrease) in deferred income taxes.... (8,633) 7,826 (2,961,731)
------------ ----------- -----------
Net cash provided by operating
activities............................... 1,657,584 3,266,740 1,037,484
------------ ----------- -----------
Cash flows from investing activities:
Increase in purchase option deposit................ (5,536,200) -- --
Proceeds from certificates of deposit.............. -- -- 200,000
Proceeds from sale of investments.................. -- 11,859 --
Proceeds from sale of property and equipment....... 107,400 217,320 14,082
Cash paid for acquisitions......................... (10,723,930) (5,849,000) (240,000)
Capital expenditures............................... (2,646,168) (748,741) (201,925)
Issuance of notes receivable....................... -- (38,901) (50,000)
Principal payments on notes receivable............. 6,052 1,612 --
Principal payments on notes receivable,
shareholder..................................... -- 50,000 --
------------ ----------- -----------
Net cash used in investing activities...... (18,792,846) (6,355,851) (277,843)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable........................ 21,459,216 5,500,000 809,400
Net (payments) borrowings on line of credit........ (950,000) 800,000 (50,000)
Principal payments on notes payable................ (106,100) (1,975,159) (1,677,500)
Distributions to shareholders...................... (3,140,079) (1,600,947) (123,664)
------------ ----------- -----------
Net cash provided by (used in) financing
activities............................... 17,263,037 2,723,894 (1,041,764)
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 127,775 (365,217) (282,123)
Cash and cash equivalents at beginning of year....... 10,519 375,736 657,859
------------ ----------- -----------
Cash and cash equivalents at end of year............. $ 138,294 $ 10,519 $ 375,736
============ =========== ===========
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 2,634,036 $ 1,093,501 $ 563,494
============ =========== ===========
Payment of income taxes............................ $ 50,255 $ 47,818 $ 857,530
============ =========== ===========
</TABLE>

Supplemental disclosures of non cash financing activities:

During the year ended December 31, 1997 long term debt in the amount
of $18,245,035 was refinanced.

The accompanying notes are an integral part of these statements.

F-162
<PAGE> 484

MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of business

Martin & MacFarlane, Inc. (the Company) was incorporated December 2, 1971.
The Company owns, leases, and manages billboards on a contractual basis
nationwide for the purpose of providing outdoor advertising services. The
Company also owns and operates a small winery located in Paso Robles,
California. The Company extends short-term credit in the form of accounts
receivable to businesses and advertisers doing business in the above noted
areas.

Significant accounting policies

BASIS OF ACCOUNTING

The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.

CHANGE IN ACCOUNTING PERIOD

Pursuant to the adoption by the Company of S Corporation status for income
tax purposes, the Company changed from a fiscal year end to a calendar year end
for the period ending December 31, 1995, as required by the Internal Revenue
Service, to coincide with shareholders' tax year end. Therefore, the reporting
periods for the financial statements cover the years ended December 31, 1997 and
1996 and six month period ended December 31, 1995.

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, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less. Throughout the
year, the Company may have amounts in banks in excess of federally insured
limits and as of December 31, 1997, the Company held funds in one financial
institution in excess of federally insured limits in the amount of $115,360.

INVENTORY

Inventory is valued at the lower of cost or market. Valuation is determined
using the first-in, first-out method.

PROPERTY AND EQUIPMENT

F-163
<PAGE> 485
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Expenditures which significantly increase asset values or extend useful lives
are capitalized. Estimated useful lives in years are as follows:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 15-31
Posters..................................................... 7-25
Bulletins................................................... 7-25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Autos and trucks............................................ 3-7
Irrigation equipment........................................ 7-30
Vineyards................................................... 10-25
</TABLE>

INTANGIBLE ASSETS

Goodwill is amortized using the straight-line method over primarily five
year periods.

Covenants not to compete are amortized using the straight-line method over
the contractual period specified, which ranges from five to ten years.

Advertising rights, permits and licenses, and lease rights are amortized
using the straight-line method over five years.

INCOME TAXES

Effective July 1, 1995, the Company's shareholders elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under such
election, the shareholders of an "S" Corporation are taxed individually on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income tax has been included in these financial
statements. State income taxes are provided based on statutory rates. State
income taxes currently payable and deferred relate primarily to temporary
differences from the use of accelerated methods of depreciation and the direct
write-off method of accounting for bad debts.

PROFIT SHARING PLAN

The Company adopted a profit sharing plan which is a qualified pension
trust under Section 401(k) of the Internal Revenue Code. All full time employees
with twelve months of service who are 19 year old or older are eligible to
participate. Each employee may voluntarily contribute up to the lesser of 15% of
their pay or $9,500. The Company has made no matching contributions to the plan.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the long-term debt approximates fair value.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform with the
current year presentation.

2. ACQUISITIONS

During 1997, the Company purchased substantially all of the assets and
assumed certain liabilities of three outdoor advertising companies; during 1996,
the Company purchased substantially all of the assets and assumed certain
liabilities of four outdoor advertising companies. Concurrently with one of the
1996

F-164
<PAGE> 486
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

acquisitions, the Company exchanged the assets acquired and liabilities assumed
for similar assets and liabilities of another outdoor advertising company to
enable the Company to expand its existing market share in that locality. The
exchange was recorded at the fair market value of the assets acquired. Funds
used to make the acquisitions were provided through the Company's credit
facility. The majority of the intangible assets acquired are being amortized
over a five year period. See Note 13 for acquisitions included above, which also
includes a related party.

The acquisitions were accounted for using the purchase method of accounting
and the purchase price was allocated to the various tangible and intangible
assets acquired. Accordingly, the results of operations for the various
acquisitions have been included in the results of the Company from the
respective effective dates.

A summary of the cash consideration and allocation of the purchase price as
of the acquisition dates are as follows:

<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Fair value of tangible assets acquired...................... $ 2,756,703 $3,302,000
Fair value of intangible assets acquired.................... 9,199,897 2,597,000
Liabilities assumed......................................... (1,232,670) (50,000)
----------- ----------
Cash paid................................................... $10,723,930 $5,849,000
=========== ==========
</TABLE>

3. NOTE RECEIVABLE

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Ferguson Henderson Investments, 10%, secured by real
property, payable $806 monthly, due November 10, 2001..... $31,237 $37,289
Less current maturity....................................... 6,856 6,206
------- -------
$24,381 $31,083
======= =======
</TABLE>

4. INVENTORIES

Inventories are as follows at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw material................................................ $ 244,328 $ 139,309
Winery:
Materials and grape production costs...................... 198,033 138,266
In process................................................ 746,996 494,817
Finished goods............................................ 529,953 299,240
Tasting room, miscellaneous and resale.................... 45,562 32,558
---------- ----------
$1,764,872 $1,104,190
========== ==========
</TABLE>

5. PREPAID EXPENSES

Prepaid expenses consist of the following at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Leases...................................................... $798,887 $505,539
Insurance................................................... 15,256 13,258
Miscellaneous............................................... 114,273 47,174
-------- --------
$928,416 $565,971
======== ========
</TABLE>

F-165
<PAGE> 487
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. PROPERTY AND EQUIPMENT

Major classes of property and equipment and accumulated depreciation are as
follows at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Outdoor Advertising
Buildings and improvements............................... $ 870,719 $ 593,537
Posters.................................................. 8,072,315 7,510,907
Bulletins................................................ 18,486,149 15,656,034
Shop equipment........................................... 458,691 329,493
Office furniture and equipment........................... 224,069 211,215
Autos and trucks......................................... 1,414,986 1,268,485
Land..................................................... 838,807 571,107
Construction in process, boards.......................... 363,913 178,736
----------- -----------
30,729,649 26,319,514
Less accumulated depreciation............................ 9,497,838 8,334,374
----------- -----------
21,231,811 17,985,140
----------- -----------
Winery
Buildings and improvements............................... $ 864,672 $ 844,850
Irrigation and wells..................................... 45,752 45,752
Vineyards................................................ 316,981 278,219
Landscaping.............................................. 26,194 26,194
Auto..................................................... 23,800 19,500
Vineyard equipment....................................... 129,356 125,502
Winery equipment......................................... 859,375 707,482
Office furniture and equipment........................... 50,349 40,749
Land..................................................... 376,133 376,133
----------- -----------
2,692,612 2,464,381
Less accumulated depreciation............................ 992,798 873,402
----------- -----------
1,699,814 1,590,979
----------- -----------
Corporate
Buildings and improvements............................... $ 699,474 $ 689,293
Office furniture and equipment........................... 18,647 18,647
Land..................................................... 41,448 42,783
----------- -----------
759,569 750,723
Less accumulated depreciation............................ 163,737 139,382
----------- -----------
595,832 611,341
----------- -----------
$23,527,457 $20,187,460
=========== ===========
</TABLE>

Depreciation expense for the years ended December 31, 1997 and 1996 and the
six months ended December 31, 1995 was $1,468,013, $1,086,108, and $522,293,
respectively.

F-166
<PAGE> 488
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. INTANGIBLE ASSETS

Intangible assets and accumulated amortization are as follows at December
31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Loans fees.................................................. $ 278,750 $ --
Goodwill.................................................... 5,339,883 438,965
Covenants not to compete.................................... 353,079 203,079
Advertising rights.......................................... 1,553,639 708,100
Permits and licenses........................................ 2,365,719 377,567
Lease rights................................................ 3,193,624 1,877,001
----------- ----------
13,084,694 3,604,712
Less accumulated amortization............................... 2,031,602 597,146
----------- ----------
$11,053,092 $3,007,566
=========== ==========
</TABLE>

Amortization expense for the years ended December 31, 1997 and 1996 and the
six months ended December 31, 1995 was $1,434,459, $230,412, and $52,998,
respectively.

8. LONG-TERM DEBT

Long-term debt consists of the following at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Term A loan, interest at LIBOR plus 2.75%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due June 2004**......................................... $30,000,000 $ --
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Revolving Line of Credit, interest ranging
from prime plus 2% or LIBOR plus 2.75%, collateralized
by accounts receivable, inventory, sign structures, and
intangible assets, payable quarterly, due June 2004**... 3,400,000 --
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Swing Loan, interest ranging from prime plus
2% or LIBOR plus 2.75%, collateralized by accounts
receivable, inventory, sign structures, and intangible
assets, payable at termination date, due June 2004**.... 1,455,565 --
Palmer Outdoor Advertising, Inc., 10.5%, collateralized by
sign structures, equipment, and inventory, payable
$10,266 monthly including interest, due January 2002.... 406,349 --
Anthony E. and Laverne L. Brum, 7%, collateralized by deed
of trust, payable $1,742 monthly including interest, due
August 2004............................................. 111,067 --
American Commercial Bank, 8%, collateralized by vehicle,
payable $394 monthly including interest, due March
2001.................................................... 13,443 --
</TABLE>

F-167
<PAGE> 489
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
American Commercial Bank, 8%, collateralized by vehicle,
payable $474 monthly including interest, due March
2001.................................................... 16,176 --
William H. and Jannette L. Kunz, 12.25%, uncollateralized,
payable $6,631 monthly including interest, due May
2010.................................................... 505,043 --
LarMark, Inc., non-interest bearing, unsecured, due
January 1998............................................ 425,000 --
Virgil and Ruth Rose, 7%, collateralized by deed of trust,
payable $931 monthly including interest, due February
2026.................................................... 137,315 138,822
Paragon Outdoor Advertising, non-interest bearing,
uncollateralized, payable $608 monthly, due July 2001... 26,157 33,456
Gaechter Outdoor Advertising, non-interest bearing,
uncollateralized, payable in decreasing annual
installments ranging from $28,000 to $21,600, due August
2001.................................................... 96,000 124,000
Ken Lyons and Michael Burkett, non-interest bearing,
uncollateralized, payable $710 monthly, due May 2001.... 29,097 37,613
Pesenti Winery, noninterest bearing, collateralized by
sign structure, payable $1,500 per year, due December
2003.................................................... 9,000 10,500
Advanced Outdoor, noninterest bearing, collateralized by
sign structures, payable $9,500 per month, due December
1998.................................................... 102,000 214,000
Antelope Valley Bank, 8.5%, collateralized by vehicle,
payable $466 monthly including interest, payable August
2001.................................................... -- 21,471
Don Enger and Clayton Enger, 8.5%, collateralized by deed
of trust, payable $256 monthly including interest, due
July 2001............................................... -- 11,648
Massachusetts Mutual Life Insurance Co., 11.05%,
unsecured, payable $500,000 per year beginning November
11, 1994, interest payable quarterly, due November
1999.................................................... -- 1,500,000
Massachusetts Mutual Life Insurance Co., 10.9%, unsecured,
payable $687,500 per year, interest payable quarterly,
due August 1999......................................... -- 2,062,500
Massachusetts Mutual Life Insurance Company, 11.55%,
unsecured, payable $500,000 per year beginning June 1,
1996, interest payable quarterly, due June 2002......... -- 3,000,000
Bank of Santa Maria, interest at prime plus 2.5%,
collateralized by deed of trust, payable $1,188 per
month including interest, due May 2002.................. -- 119,695
Bank of Santa Maria, 9.5%, collateralized by vehicle,
payable $1,168 per month including interest, due August
1997.................................................... -- 4,244
Alta and Fred Higginbotham, 8%, collateralized by deed of
trust, payable $150 per month, due January 2000......... -- 6,771
Estates Trust, Inc., 9%, collateralized by deed of trust
and personally guaranteed by E. Thomas Martin, payable
$862 per month including interest, due October 2009..... -- 78,578
</TABLE>

F-168
<PAGE> 490
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Barbara Lehmann, 10%, collateralized by deed of trust,
interest payable monthly, due March 1998................ -- 20,000
Christine and Alice Henderson, 9%, collateralized by deed
of trust, payable $805 per month including interest, due
April 2011.............................................. -- 96,034
Central Coast Federal Land Bank, 7.5%, collateralized by
winery deed of trust, products and crops inventory and
accounts receivable, payable $7,126 per month including
interest, due November 2015............................. -- 797,081
Central Coast Production Credit Association, 9.75%,
collateralized by winery accounts receivable and
inventory, interest payable quarterly, due January
1999.................................................... -- 150,000
Canadian Imperial Bank of Commerce, interest at LIBOR plus
2.5%, collateralized by the Amarillo Division's accounts
receivable, inventory, sign structures and intangible
assets and personally guaranteed by E. Thomas Martin and
David Weyrich, interest payable monthly, due May
1997**.................................................. -- 5,500,000
Central Coast Production Credit Association, interest at
prime plus 1.5%, collateralized by winery equipment,
payable $5,590 monthly including interest, due August
2000.................................................... -- 198,165
Homer Hensley and Rick Hensley, 8.5%, collateralized by
deed of trust, payable $1,231 monthly including
interest, due January 2001.............................. -- 50,813
Paragon Outdoor Advertising, 8%, collateralized by sign
structures, payable $2,636 monthly including interest,
due July 2001........................................... -- 121,035
----------- -----------
36,732,212 14,296,426
Less current maturities................................... 690,718 7,460,727
----------- -----------
$36,041,494 $ 6,835,699
=========== ===========
</TABLE>

Aggregate maturities of long-term debt at December 31, 1997 are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998........................................................ $ 690,718
1999........................................................ 5,676,502
2000........................................................ 6,189,260
2001........................................................ 6,937,451
2002........................................................ 10,084,059
Thereafter.................................................. 7,154,222
-----------
$36,732,212
===========
</TABLE>

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

** Loan has varying interest rates based on Company performance and indexes
found in the Credit Agreement dated July 31, 1997. At December 31, 1997 the
effective interest rates ranged from 7.1875% to 8.5%.

The Company has entered into an interest rate cap primarily to protect
against rising interest exposure of its floating rate long-term debt. The
difference to be paid or received on the cap is included in interest expense

F-169
<PAGE> 491
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

as payments are made or received. At December 31, 1997, the Company had
outstanding interest rate cap agreements with two commercial banks having a
total notional principal amount of $50,000,000. This agreement effectively
changes the Company's interest exposure on $50,000,000 of floating rate debt to
a fixed 6.5% with a floor of 5.5%. The interest rate cap agreement matures
September 18, 2000.

During 1997, the Company sold an interest rate floor for a gain of
$220,000. This gain is included in other income.

Interest expense consists of interest on notes payable, management fees and
the cost associated with the purchase of the interest rate cap instrument.

Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.

LIBOR rate was 5.938% and 5.625% at December 31, 1997 and 1996,
respectively.

9. NOTE PAYABLE, BANK

Note payable, bank is as follows at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
---- --------
<S> <C> <C>
Heritage Oaks Bank, interest at prime plus .5%,
uncollateralized, interest payable monthly, due May
1997...................................................... $ -- $800,000
==== ========
</TABLE>

Prime rate was 8.25% at December 31, 1996.

10. DISTRIBUTIONS

In January, May, August, and October 1997 and January, May, August, and
October 1996 and in July and October 1995, the Company declared a $.75 per share
cash distribution for 82,443 shares outstanding. At December 31, 1997 and 1996,
$61,832 and $61,658 were payable January 1, 1998 and 1997, respectively.
Subsequent to conversion of the Company to an S-corporation, effective July 1,
1995, the Company began making distributions equal to approximately 49% of
estimated taxable income to its' shareholders to cover their tax liabilities.
Distributions during the year ended December 31, 1997, amounted to $3,140,079,
including a $2,000,000 special distribution occurring as a result of an
acquisition. Distributions during the year ended December 31, 1996, related to
1995 and 1996 taxable income, amounted to $1,353,618.

11. DEFERRED INCOME TAXES

For state tax purposes, the applicable states do recognize "S" Corporation
status; however, they still impose a tax at the corporate level, generally at a
rate significantly lower than the regular corporate rate. Deferred tax assets
and liabilities relate to temporary differences associated with state income
taxes.

Income tax expense (benefit) for the years ended December 31, 1997 and 1996
and six months ended June 30, 1995 consisted of the following:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -----------
<S> <C> <C> <C>
Current.............................................. $23,458 $49,827 $ 24,170
Deferred............................................. -- 7,826 (2,996,487)
------- ------- -----------
Income tax expense (benefit)......................... $23,458 $57,653 $(2,972,317)
======= ======= ===========
</TABLE>

F-170
<PAGE> 492
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Components of deferred income tax balances at December 31, 1997 and 1996
consisted of:

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current deferred tax assets................................. $ 1,441 $ 1,500
======== ========
Long-term deferred tax liabilities.......................... $102,375 $111,008
======== ========
</TABLE>

Deferred income taxes arise primarily from temporary differences due to use
of accelerated depreciation methods for income tax purposes and the
straight-line method and the use of the allowance method of accounts receivable
for financial reporting purposes.

12. RELATED PARTY TRANSACTIONS

Through February 1, 1996 the Company provided management services to Martin
Media, a company having common shareholders/partners, at a rate approximating 3%
of Martin Media's gross revenue. Management fees of $78,263 were received by the
Company from Martin Media during the year ended December 31, 1996.

Subsequent to December 31, 1995, and effective February 1, 1996, the
Company divested itself of all management and administrative employees and
contracted with M.W. Sign Company, a company wholly owned by E. Thomas Martin
and David Weyrich, to provide the Company with management services at 3% of
gross revenue. As of January 1, 1997, management fees increased to 4% of gross
revenue. Management fees of $895,281 and $472,931 were paid to M.W. Sign Company
during the years ended December 31, 1997 and 1996, respectively.

13. COMMITMENTS

Leases:

The Company leases land in connection with its outdoor advertising posters
and panels as well as for office and yard space. The Company also leases office
and shop buildings which are located in different geographic areas within the
various divisions. A portion of these are long-term leases.

Lease expense for the years ended December 31, 1997 and 1996 and six months
ended December 31, 1995 was $4,748,420, $2,333,218 and $1,064,875, respectively.

Future minimum lease payments under noncancellable leases at December 31,
1997 are as follows:

<TABLE>
<CAPTION>
POSTERS,
YEARS ENDING DECEMBER 31, BUILDINGS BULLETINS TOTAL
- ------------------------- --------- ---------- ----------
<S> <C> <C> <C>
1998.............................................. $ 19,533 $ 162,400 $ 181,933
1999.............................................. 19,944 162,400 182,344
2000.............................................. 19,944 162,400 182,344
2001.............................................. 21,285 162,400 183,685
2002.............................................. 21,732 162,400 184,132
Thereafter........................................ 48,897 454,400 503,297
-------- ---------- ----------
$151,335 $1,266,400 $1,417,735
======== ========== ==========
</TABLE>

On August 1, 1995, the Company entered into a lease with Outdoor Systems
Company of Kansas City. Under the terms of the lease Outdoor Systems leased 87
outdoor advertising structures from the Company for $12,500 per month. The
agreement terminated December 31, 1997.

F-171
<PAGE> 493
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Acquisition, purchase and sales options

On July 31, 1997, the Company entered into an agreement with another
company to acquire certain assets, including sign structures, equipment, and
related intangibles located in Nevada, Arizona, and California for a total
purchase price of $60,000,000. This purchase agreement has two segments, the
first of which provided for the purchase of assets totaling $20,500,000.
Simultaneously, and as part of the master agreement, the Company entered into an
agreement with Martin Media (related party) to sell them those assets located in
their geographical service area, primarily the Las Vegas and Colorado River
markets, for $11,273,400. The Company's net acquisition price under the first
segment of the agreement was $9,226,600.

The second segment of the agreement provides an option for the Company to
purchase additional assets for $39,500,000. As part of this transaction, the
Company has also provided Martin Media with an option to purchase the assets
located in the Las Vegas and Colorado River markets for $3,077,000. The
Company's net acquisition price for assets to be received under the second
segment of the agreement will be $36,423,000.

Upon execution of the option agreement, the Company deposited $6,000,000 in
good faith with the seller. Similarly, Martin Media deposited $463,800 with the
Company resulting in a net deposit of $5,536,200. The option agreement expires
October 1, 1998. Should the Company not exercise the option, the seller holds an
option agreement whereby it can repurchase the assets originally sold to the
Company and assets owned by the Company in and around the Bakersfield area.

As part of the option agreement, the Company will manage those assets
covered by the option agreement. The payment for the use of these assets through
the option period will approximate $285,000 per month. Revenue earned through
the managed assets is subject to the 4% management fee paid to M.W. Sign, Inc.

Credit facility

On July 31, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce, as administrative agent for Lenders under the credit
agreement dated July 31, 1997. Under the terms of this agreement, the Term B
Loan is available to fund future acquisitions in the amount of $20,000,000. As
of December 31, 1997, the Company's outstanding obligation was $-0-.

14. SUBSEQUENT EVENTS

Subsequent to December 31, 1997, the Company acquired substantially all of
the assets and assumed certain liabilities of one outdoor advertising company at
an aggregate purchase price of $12,500,000. Funds used to make the purchase were
provided through the Company's existing credit facility.

F-172
<PAGE> 494

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Martin & MacFarlane, Inc.
Paso Robles, California

We have audited the accompanying balance sheet of Martin & MacFarlane, Inc.
as of June 30, 1995 and the related statements of income, retained earnings and
cash flows for the year then ended. These financial statements are the
responsibility of Martin & MacFarlane, Inc.'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 Martin & MacFarlane, Inc. as
of June 30, 1995 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

BARBICH LONGCRIER HOOPER & KING
ACCOUNTANCY CORPORATION

By: /s/ GEOFFREY B. KING, CPA
--------------------------------
Geoffrey B. King, CPA

Bakersfield, California
August 25, 1995

F-173
<PAGE> 495

MARTIN & MACFARLANE, INC.

BALANCE SHEET
JUNE 30, 1995

ASSETS

<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Current Assets
Cash and equivalents (Note 7)............................. $ 351,705
Restricted cash (Note 6).................................. 306,154
Certificates of deposit................................... 200,000
Investments............................................... 8,400
Trade accounts receivable, less allowance for doubtful
accounts of $100,000................................... 1,546,381
Other receivables......................................... 78,649
Inventories (Note 2)...................................... 768,035
Prepaid expenses (Note 3)................................. 630,548
Current deferred income taxes (Note 10)................... 145,554
-----------
4,035,426
-----------
Property and Equipment, net of accumulated depreciation
(Notes 4, 6 and 7)........................................ 16,872,469
-----------
Intangible Assets, net of accumulated amortization (Note
5)........................................................ 764,898
-----------
Other Assets................................................ 20,171
-----------
$21,692,964
===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt (Note 6)............. $ 1,848,465
Note payable, bank (Note 7)............................... 200,000
Accounts payable.......................................... 652,567
Accrued expenses.......................................... 319,021
Dividends payable (Note 9)................................ 26,451
Unearned income........................................... 156,881
Income taxes payable (Note 10)............................ 891,486
-----------
4,094,871
-----------
Long-Term Debt, less current maturities (Note 6)............ 8,857,936
-----------
Long-Term Deferred Income Taxes (Note 10)................... 3,208,967
-----------
Commitments (Note 13)
Stockholders' Equity
Common stock, no par or stated value, authorized 150,000
shares, issued and outstanding 82,443 shares (Note
9)..................................................... 1,113,070
Retained earnings......................................... 4,418,120
-----------
5,531,190
-----------
$21,692,964
===========
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-174
<PAGE> 496

MARTIN & MACFARLANE, INC.

STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1995

<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Revenues.................................................... $16,168,763
Cost of sales............................................... 2,045,552
-----------
Gross profit...................................... 14,123,211
Managers' controlled operating expenses..................... 10,070,408
-----------
Income from managers' operations.................. 4,052,803
-----------
Other operating expenses
Depreciation and amortization expense..................... 1,100,305
-----------
Operating income.................................. 2,952,498
-----------
Other income (expense)
Interest expense.......................................... (1,313,456)
Other income.............................................. 152,804
Gain on disposition of assets............................. 2,405,522
Employee separation expense............................... (269,803)
-----------
Income before income taxes.................................. 3,927,565
Income tax expense (Note 10)........................... 1,519,542
-----------
Net income........................................ $ 2,408,023
===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-175
<PAGE> 497

MARTIN & MACFARLANE, INC.

STATEMENT OF RETAINED EARNINGS
YEAR ENDED JUNE 30, 1995

<TABLE>
<CAPTION>
1995
----------
<S> <C>
Balance, beginning of year.................................. $2,195,593
Net income................................................ 2,408,023
Dividends (Note 9)........................................ (185,496)
----------
Balance, end of year........................................ $4,418,120
==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-176
<PAGE> 498

MARTIN & MACFARLANE, INC.

STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1995

<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 2,408,023
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,100,305
Gain on disposition of assets.......................... (2,405,522)
Increase in deferred income taxes...................... 469,749
Changes in operating assets and liabilities:
Increase in accounts receivable........................ (57,463)
Increase in other receivables.......................... (66,187)
Decrease in inventory.................................. 11,117
Decrease in prepaid expenses........................... 34,520
Increase in other assets............................... (9,065)
Increase in accounts payable........................... 5,887
Decrease in accrued liabilities........................ (176,570)
Increase in unearned income............................ 30,106
Increase in income taxes payable....................... 820,732
-----------
Net cash provided by operating activities......... 2,165,632
-----------
Cash flows from investing activities:
Proceeds from sale of investments......................... 5,000
Increase in certificates of deposit....................... (200,000)
Proceeds from sale of fixed assets........................ 2,656,384
Capital expenditures...................................... (736,258)
Construction of capital improvements...................... (281,102)
Principal payments on loans and notes receivable.......... 32,000
Purchase of intangible assets............................. (310,001)
-----------
Net cash provided by investing activities......... 1,166,023
-----------
Cash flows from financing activities:
Proceeds from notes payable............................... 1,007,317
Principal payments on notes payable....................... (3,946,286)
Dividends paid............................................ (185,496)
-----------
Net cash used in financing activities............. (3,124,465)
-----------
Net increase in cash and cash equivalents................... 207,190
Cash and cash equivalents at beginning of year.............. 450,669
-----------
Cash and cash equivalents at end of year.................... $ 657,859
===========
Unrestricted cash........................................... $ 351,705
Restricted cash............................................. 306,154
-----------
$ 657,859
===========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 1,339,278
===========
Payment of income taxes................................... $ 229,061
===========
</TABLE>

Schedule of noncash investing:

The Company entered into an exchange agreement with National Outdoor
Media (3M) during the year ended June 30, 1995. In accordance with the
terms of the exchange agreement, the Company traded boards in Kansas City,
Missouri to 3M in exchange for posters and bulletins in Bakersfield,
California and Kansas at a value of $1,033,850 and $2,614,150 cash.

The accompanying notes are an integral part of this statement.

F-177
<PAGE> 499

MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of business

Martin & MacFarlane, Inc. (the Company) was incorporated December 2, 1971.
The Company owns, leases, and manages billboards on a contractual basis
nationwide for the purpose of providing outdoor advertising services. The
Company also owns and operates a small winery located in Paso Robles,
California. The Company extends credit in the form of accounts receivable to
businesses and advertisers doing business in the above noted areas.

Significant accounting policies

BASIS OF ACCOUNTING

The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.

CASH AND CASH EQUIVALENTS

The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less. As of June 30,
1995, the Company held funds of $646,293 in one financial institution.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Bad debts are recognized under the allowance method of accounting which is
based on an average of actual write-offs in past years.

INVESTMENTS

Investments in marketable equity securities are carried at the lower of
cost or market. Decline in market values below cost, which are temporary in
nature, are not recognized as losses until the decline in value is deemed
permanent or until the security is sold.

INVENTORY

Inventory is valued at the lower of cost or market. Valuation is determined
using the first-in, first-out method.

F-178
<PAGE> 500
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated over estimated
useful lives on a straight-line or accelerated basis. Repairs and maintenance
and small equipment purchases are expensed as incurred. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Estimated useful lives in years are as follows:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 15-31
Posters..................................................... 7-25
Bulletins................................................... 7-25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Autos and trucks............................................ 3-7
Irrigation equipment........................................ 7-30
Vineyards................................................... 10-25
</TABLE>

INTANGIBLE ASSETS

Goodwill is recorded at cost and is amortized using the straight-line
method over a forty year period.

Covenants not to compete are recorded at cost and are amortized using the
straight-line method over the contractual period specified, which ranges from
five to ten years.

INCOME TAXES

Effective July 1, 1993, as required by professional standards, the Company
adopted Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Deferred income taxes are provided on timing differences between
financial statement and taxable incomes. Timing differences arise primarily from
the use of the accelerated methods of depreciation, the direct write-off method
of accounting for bad debts, and the carryforward of net operating losses for
income tax purposes. Determination of current or long-term status of the asset
or liability is based upon when the particular timing difference reverses.

2. INVENTORIES

Inventories are as follows at June 30, 1995:

<TABLE>
<CAPTION>
1995
--------
<S> <C>
Raw material................................................ $ 84,383
Winery:
Materials and grape production costs...................... 141,255
In process................................................ 162,669
Finished goods............................................ 359,060
Tasting room, miscellaneous and resale.................... 20,668
--------
$768,035
========
</TABLE>

F-179
<PAGE> 501
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PREPAID EXPENSES

Prepaid expenses consist of the following at June 30, 1995:

<TABLE>
<CAPTION>
1995
--------
<S> <C>
Leases...................................................... $519,079
Insurance................................................... 36,600
Miscellaneous............................................... 74,869
--------
$630,548
========
</TABLE>

4. PROPERTY AND EQUIPMENT

Major classes of property and equipment and accumulated depreciation are as
follows at June 30, 1995:

<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Outdoor Advertising
Buildings and improvements................................ $ 500,731
Posters................................................... 5,987,468
Bulletins................................................. 13,850,302
Shop equipment............................................ 278,749
Office furniture and equipment............................ 191,692
Autos and trucks.......................................... 1,063,156
Land...................................................... 414,472
Construction in process, boards........................... 69,038
-----------
22,355,608
Less accumulated depreciation............................. 7,105,290
-----------
15,250,318
-----------
Winery
Buildings and improvements................................ 664,515
Irrigation and wells...................................... 45,752
Vineyards................................................. 278,219
Landscaping............................................... 26,194
Auto...................................................... 19,500
Vineyard equipment........................................ 119,142
Winery equipment.......................................... 320,720
Office furniture and equipment............................ 37,604
Land...................................................... 206,133
-----------
1,717,779
Less accumulated depreciation............................. 755,093
-----------
962,686
-----------
</TABLE>

F-180
<PAGE> 502
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Corporate
Buildings and improvements................................ $ 654,970
Office furniture and equipment............................ 267,308
Land...................................................... 42,783
-----------
965,061
Less accumulated depreciation............................. 305,596
-----------
659,465
-----------
$16,872,469
===========
</TABLE>

Depreciation expense for the year ended June 30, 1995 was $1,021,709.

5. INTANGIBLES

Intangible assets and accumulated amortization are as follows at June 30,
1995:

<TABLE>
<CAPTION>
1995
----------
<S> <C>
Goodwill.................................................... $ 438,965
Covenants not to compete.................................... 69,000
Advertising rights.......................................... 136,100
Permits and licenses........................................ 168,567
Lease rights................................................ 335,001
----------
1,147,633
Less accumulated amortization............................... 382,735
----------
$ 764,898
==========
</TABLE>

Amortization expense for the year ended June 30, 1995 was $78,596.

6. RESTRICTED CASH

Restricted cash at June 30, 1995 consisted of the following:

<TABLE>
<CAPTION>
1995
--------
<S> <C>
Cash, interest bearing account, holdback account, held for
the mutual benefit of the Company and National Advertising
Company, by Chicago Title & Trust Company, until released
by joint order of the parties. Cash is to be released
within twelve months of the June 30, 1995 balance sheet
date. Cash subsequently received July 7, 1995............. $306,154
========
</TABLE>

F-181
<PAGE> 503
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT

Long-term debt consists of the following at June 30, 1995:

<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Federal Land Bank, 5.75% and 6.73%, at 1995 and 1994,
collateralized by first trust deed, payable $3,510 per
month including interest, due May 1, 2011................. $ 410,068
Massachusetts Mutual Life Insurance Co., 11.05%, unsecured,
payable $500,000 per year beginning November 11, 1994,
interest payable quarterly, due November 15, 1999......... 2,500,000
Massachusetts Mutual Life Insurance Co., 10.9%, unsecured,
payable $687,500 per year beginning August 15, 1992,
interest payable quarterly, due August 15, 1999........... 3,437,500
Massachusetts Mutual Life Insurance Company, 11.55%,
unsecured, payable $500,000 per year beginning June 1,
1995, interest payable quarterly, due June 1, 2002........ 3,500,000
Boatmen's First National Bank, interest at prime plus 1.5%,
collateralized by first deed of trust, payable $1,420 per
month including interest, due July 8, 2002................ 91,056
Citizens Bank of Paso Robles, interest at prime plus 2.5%,
collateralized by first trust deed, payable $1,188 per
month including interest, due May 13, 2002................ 124,134
Sierra Outdoor, 8%, collateralized by bulletins, payable
$940 per month including interest, due April 15, 1996..... 9,065
Citizens Bank of Paso Robles, interest at 9.5%,
collateralized by vehicle, payable $555 per month
including interest, due August 15, 1997................... 12,962
Citizens Bank of Paso Robles, interest at 9.5%,
collateralized by vehicle, payable $613 per month
including interest, due August 15, 1997................... 14,206
Alta and Fred Higginbotham, 8%, collateralized by deed of
trust, payable $150 per month, due January 1, 2000........ 8,544
Estates Trust, Inc., 9%, collateralized by deed of trust,
payable $862 per month including interest, due October 1,
2009...................................................... 82,916
Barbara Lehmann, 10%, collateralized by deed of trust,
interest payable monthly, due March 30, 1998.............. 20,000
Christine and Alice Henderson, 9%, collateralized by deed of
trust, payable $805 per month including interest, due
April 8, 2011............................................. 97,450
Pesenti Winery, non-interest bearing, collateralized by sign
structure, payable $1,500 per year, due December 15,
2003...................................................... 13,500
Advanced Outdoor, non-interest bearing, collateralized by
sign structures, payable $8,500 per month, due December
10, 1998.................................................. 357,000
Advanced Outdoor, non-interest bearing, collateralized by
sign structures, payable $1,000 per month, due October 1,
1997...................................................... 28,000
-----------
10,706,401
Less current maturities..................................... 1,848,465
-----------
$ 8,857,936
===========
</TABLE>

Prime rate was 9% at June 30, 1995.

F-182
<PAGE> 504
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Aggregate maturities of long-term debt at June 30, 1995 are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
JUNE 30,
------------
<S> <C>
1996........................................................ $ 1,848,465
1997........................................................ 1,853,095
1998........................................................ 1,850,465
1999........................................................ 1,775,319
2000........................................................ 1,728,146
Thereafter.................................................. 1,650,911
-----------
$10,706,401
===========
</TABLE>

8. NOTE PAYABLE, BANK

Note payable, bank is as follows at June 30, 1995:

<TABLE>
<CAPTION>
1995
--------
<S> <C>
Citizens Bank of Paso Robles, interest at 8.5%,
collateralized by certificate of deposit, annually
renewable on April 3, interest payable monthly, due April
3, 1996................................................... $200,000
========
</TABLE>

Prime rate was 9% at June 30, 1995.

9. DIVIDENDS PAYABLE

In July 1994, October 1994 and January 1995, the Company declared a $.50
per share cash dividend, for 82,443 shares outstanding. In May 1995 the Company
declared a $.75 per share dividend, for 82,443 shares outstanding. At June 30,
1995 $26,451 was payable July 1, 1995.

10. DEFERRED INCOME TAXES

Income tax expense for the year ended June 30, 1995 is computed under SFAS
109 and consisted of the following:

<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
---------- -------- ----------
<S> <C> <C> <C>
Current........................................... $ 808,602 $241,191 $1,049,793
Deferred.......................................... 657,023 100,162 757,185
Tax benefit of net operating loss carryforward.... (251,439) (35,997) (287,436)
---------- -------- ----------
Income tax expenses............................... $1,214,186 $305,356 $1,159,542
========== ======== ==========
</TABLE>

Components of deferred income tax balances at June 30, 1995 consisted of:

<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
----------- -------- ----------
<S> <C> <C> <C>
Current deferred tax assets....................... $ 136,254 $ 9,300 $ 145,554
========== ======== ==========
Long-term deferred tax liabilities................ $2,539,860 $669,107 $3,208,967
========== ======== ==========
</TABLE>

Deferred income tax liabilities arise primarily from timing differences due
to use of accelerated depreciation methods for income tax purposes and the
straight-line method for financial reporting purposes. Deferred income tax
assets arise primarily from the application of federal and state net operating
loss carryovers.

At June 30, 1995, the Company had alternative minimum tax credits in the
amount of $16,837, available to offset future taxes. Tax credits are included in
deferred tax assets.

F-183
<PAGE> 505
MARTIN & MACFARLANE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11. RELATED PARTY TRANSACTIONS

The following transaction occurring between the Company and a related
party, which is not presented elsewhere in these financial statements, is as
follows:

Martin Media, which has partners who are also stockholders in the Company,
contracts the Company to perform management duties. Martin Media pays a
management fee to the Company which is approximately 3% of Martin Media's gross
revenue. Management fees of $986,356 were received from the partnership during
the fiscal year ending June 30, 1995.

12. PROFIT SHARING PLAN

Discretionary contributions under a defined contribution profit sharing
plan, which are determined by the Company's Board of Directors, have been
accrued to a trust for the benefit of qualified employees in the amount of
$50,000 for the year ended June 30, 1995. All costs are funded currently.

13. COMMITMENTS

The Company leases land in connection with its outdoor advertising posters
and panels as well as for office and yard spaces. These are long-term operating
leases which the Company and lessor have the option to terminate with thirty
days notice.

Lease expense for the year ended June 30, 1995 was $2,218,480.

The Company leases office and shop buildings which are located at various
divisions. A portion of these are long-term leases.

Future minimum lease payments under noncancellable leases at June 30, 1995
are as follows:

<TABLE>
<S> <C>
Years ending June 30,
1996...................................................... $ 47,747
1997...................................................... 22,665
1998...................................................... 18,711
1999...................................................... 19,944
2000...................................................... 19,944
Thereafter................................................ 121,830
--------
$250,841
========
</TABLE>

On August 1, 1995, the Company entered into a lease with Gannett Outdoor
Company of Kansas City. Under the terms of the lease, Gannett Outdoor is leasing
87 outdoor advertising structures from the Company for $12,500 per month. The
agreement will terminate on December 31, 1997. In addition, Gannett Outdoor
shall have the right to exercise an option to purchase these structures at any
time on or after November 2, 1995 and prior to June 30, 1997 for the option
price of $1,030,000.

F-184
<PAGE> 506

MARTIN & MACFARLANE, INC.

STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)

<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Income...................................................... $16,352,832 $9,717,160
Cost of sales............................................... 1,620,010 1,151,641
----------- ----------
Gross profit...................................... 14,732,822 8,565,519
Managers' controlled operating expenses..................... 8,323,130 5,033,818
----------- ----------
Income from managers' operations.................. 6,409,692 3,531,701
Other operating expenses:
Depreciation and amortization............................. 1,676,518 909,068
Management fees........................................... 1,672,981 98,132
Refinance and acquisition................................. 103,614 39,801
----------- ----------
3,453,113 1,047,001
Operating income.................................. 2,956,579 2,484,700
Nonoperating income (expenses):
Interest expense.......................................... (1,928,998) (796,203)
----------- ----------
(1,928,998) (796,203)
----------- ----------
Income before income taxes.................................. 1,027,581 1,688,497
Income tax expense.......................................... (9,992) --
----------- ----------
Net income........................................ $ 1,017,589 $1,688,497
=========== ==========
</TABLE>

The accompanying note is an integral part of these statements.

F-185
<PAGE> 507

MARTIN & MACFARLANE, INC.

STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)

<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,017,589 $ 1,688,497
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,676,518 909,068
Changes in operating assets and liabilities (exclusive
of acquisitions):
Increase in accounts receivable...................... (1,111,203) (118,870)
Increase in other receivables........................ (6,167) 279,700
Decrease in inventories, raw materials............... 75,728 117,325
Increase in prepaid expenses......................... (334,730) (225,219)
Decrease in deferred income tax asset................ 59 --
Increase in other assets............................. (125,142) (1,442,229)
Decrease in accounts payable......................... (711,997) 4,494,655
Decrease in accrued expenses......................... (121,962) (152,733)
Decrease in accrued income........................... (10,788) (64,230)
------------ -----------
Net cash provided (used) by operating
activities..................................... 347,905 5,485,964
Cash flows from investing activities:
Decrease (increase) in notes receivable................... 29,722 (22,129)
Change in intangible assets............................... (10,768,268) (810,001)
Capital expenditures...................................... (4,879,517) (1,821,808)
------------ -----------
Net cash used in investing activities............. (15,618,063) (2,653,938)
------------ -----------
Cash flows from financing activities:
Proceeds (payments) on long-term debt..................... 16,476,756 (325,153)
Distributions to partners................................. (463,235) (1,051,176)
------------ -----------
Net cash provided by investing activities......... 16,013,521 (1,376,329)
------------ -----------
Net decrease in cash........................................ 743,363 1,455,697
Cash at beginning of year................................... (27,790) (529,763)
------------ -----------
Cash at end of period....................................... $ 715,573 $ 925,934
============ ===========
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 1,912,798 $ 796,203
============ ===========
Payment of income taxes.............................. $ 3,584 $ --
============ ===========
</TABLE>

The accompanying note is an integral part of these statements.

F-186
<PAGE> 508

MARTIN & MACFARLANE, INC.

NOTE TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

F-187
<PAGE> 509

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Chancellor Broadcasting Company:

We have audited the accompanying combined statements of operations and cash
flows of KYSR Inc. and KIBB Inc. for the year ended December 31, 1996. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
KYSR Inc. and KIBB Inc. for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.

KPMG LLP

Dallas, Texas
March 14, 1997

F-188
<PAGE> 510

KYSR INC. AND KIBB INC.

COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Gross revenues.......................... $33,769 $15,762 $16,784
Less agency commissions and national
rep fees........................... 5,462 2,196 2,385
------- ------- -------
Net revenues.................. 28,307 13,566 14,399
------- ------- -------
Operating expenses:
Station operating expenses, excluding
depreciation and amortization...... 13,378 6,834 7,119
Depreciation and amortization......... 3,627 1,826 1,844
Corporate general and
administrative..................... 844 542 302
------- ------- -------
Operating expenses................. 17,849 9,202 9,265
------- ------- -------
Operating income................... 10,458 4,364 5,134
Interest expense (note 5)............... 6,374 3,187 3,178
------- ------- -------
Earnings before income taxes.......... 4,084 1,177 1,956
Income tax expense (benefit) (note 3)... 1,694 494 296
------- ------- -------
Net earnings.................. $ 2,390 $ 683 $ 1,660
======= ======= =======
</TABLE>

See accompanying notes to combined financial statements.

F-189
<PAGE> 511

KYSR INC. AND KIBB INC.

COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, -----------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings.............................................. $2,390 $ 683 $ 1,660
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation........................................... 325 175 193
Amortization of intangibles............................ 3,302 1,651 1,651
Deferred tax expense................................... 1,332 -- --
Changes in certain assets and liabilities:
Accounts receivable, net............................. (1,030) (330) (120)
Prepaid expenses and other current assets............ (197) (1,468) 591
Accounts payable and accrued expenses................ (259) 2,236 (1,542)
------ ------- -------
Net cash provided by operating activities......... 5,863 2,947 2,433
------ ------- -------
Cash used by investing activities -- capital expenditures... (235) (80) (296)
------ ------- -------
Cash flows used by financing activities -- distributions to
Parent.................................................... (5,628) (2,867) (2,137)
------ ------- -------
Increase (decrease) in cash................................. -- -- --
Cash at beginning of period................................. -- -- --
------ ------- -------
Cash at end of period....................................... $ -- $ -- $ --
====== ======= =======
</TABLE>

See accompanying notes to combined financial statements.

F-190
<PAGE> 512

KYSR INC. AND KIBB INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

(1) ORGANIZATION AND BASIS OF PRESENTATION

The accompanying combined financial statements include the accounts of KYSR
Inc. and KIBB Inc. (collectively, the "Company"). The Company owns and operates
two commercial radio stations in the Los Angeles market, KYSR-FM and KIBB-FM,
and is wholly owned by Viacom International Inc. ("Viacom" or "Parent"), a
wholly owned subsidiary of Viacom, Inc. Significant intercompany balances and
transactions have been eliminated in combination.

On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HSR Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom Radio Properties referred to
above for $480 million from Evergreen or from Viacom directly.

The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of KYSR Inc. and KIBB
Inc. These financial statements are not necessarily indicative of the results
that would have occurred if the Company had been a separate stand-alone entity
during the period presented.

Corporate overhead allocations have been included in the accompanying
combined statements of earnings in corporate general and administrative expense
and station operating expenses.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Property and Equipment

Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Repair and maintenance
costs are charged to expense when incurred.

(b) Intangible Assets

Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.

The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.

F-191
<PAGE> 513
KYSR INC. AND KIBB INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(d) Revenue Recognition

Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.

(e) Income Taxes

Income taxes are accounted for under the asset and liability method.
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 year end based on enacted tax laws and statutory tax
rates applicable to the periods 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 total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.

(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.

(g) Disclosure of Certain Significant Risks and Uncertainties

No one advertiser accounted for more than 10% of net revenues during the
year ended December 31, 1996. Certain advertisers purchase the advertising of
the stations through a third party buying service. Approximately 19% of total
revenue was derived through the use of this service during the year ended
December 31, 1996.

(h) Unaudited Interim Financial Information

In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.

(3) INCOME TAXES

The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.

F-192
<PAGE> 514
KYSR INC. AND KIBB INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The tax provision presented has been determined as if the Company were a
stand-alone business filing separate tax returns. Income tax expense for the
year ended December 31, 1996 consists of:

<TABLE>
<S> <C>
Current:
Federal................................................... $ 278
State and local........................................... 84
Deferred federal............................................ 1,332
------
$1,694
======
</TABLE>

A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes for the year ended December
31, 1996 is as follows:

<TABLE>
<S> <C>
Statutory U.S. tax rate..................................... 35.0%
State and local taxes, net of federal tax benefit........... 6.1
Other, net.................................................. 0.4
----
Effective tax rate.......................................... 41.5%
====
</TABLE>

Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.

(4) DEBT AND INTEREST COST

Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company.

(5) RELATED PARTY TRANSACTIONS

Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements.

On January 25, 1990, KYSR, Inc., formerly KXEZ, Inc., issued an
intercompany demand note to Viacom in the amount of $66,400. The note bears
interest at 9.6% per year payable on the last day of each calendar year. The
principal and final interest payment are payable on January 25, 2000. However,
immediately prior to closing of the Proposed Transaction, all debts between the
Company and Viacom will be canceled.

Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying combined financial
statements as corporate general and administrative expense. Management believes
that the method of allocation of overhead is reasonable.

Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to this plan
in the amount of $191 for the year ended December 31, 1996.

Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.

F-193
<PAGE> 515
KYSR INC. AND KIBB INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services rendered from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.

(6) COMMITMENTS AND CONTINGENCIES

The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $405 during
the year ended December 31, 1996.

Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31:
- ------------
<S> <C> <C>
1997.................................................................. $ 365
1998.................................................................. 366
1999.................................................................. 312
2000.................................................................. 19
Thereafter............................................................ --
------
$1,062
======
</TABLE>

F-194
<PAGE> 516

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Chancellor Broadcasting Company:

We have audited the accompanying statements of earnings and cash flows of
WLIT Inc. for the year 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of WLIT Inc.
for the year ended December 31, 1996 in conformity with generally accepted
accounting principles.

KPMG LLP

Dallas, Texas
March 14, 1997

F-195
<PAGE> 517

WLIT INC.

STATEMENT OF EARNINGS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ----------------
1996 1996 1997
------------ ------ -------
(UNAUDITED)
<S> <C> <C> <C>
Gross revenues.............................................. $18,294 $8,080 $10,035
Less agency commissions and national rep fees............. 3,071 1,144 1,410
------- ------ -------
Net revenues...................................... 15,223 6,936 8,625
------- ------ -------
Operating expenses:
Station operating expenses excluding depreciation and
amortization........................................... 7,508 3,839 4,221
Depreciation and amortization............................. 659 327 340
Corporate general and administrative...................... 479 274 172
------- ------ -------
Operating expenses..................................... 8,646 4,440 4,733
------- ------ -------
Earnings before income taxes........................... 6,577 2,496 3,892
Income tax expense (note 3)................................. 2,728 1,048 1,280
------- ------ -------
Net earnings...................................... $ 3,849 $1,448 $ 2,612
======= ====== =======
</TABLE>

See accompanying notes to financial statements.

F-196
<PAGE> 518

WLIT INC.

STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows provided by operating
activities:
Net earnings.......................... $ 3,849 $ 1,448 $ 2,612
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 116 55 68
Amortization of intangibles........ 543 272 272
Deferred income taxes.............. (8) -- --
Changes in certain assets and
liabilities:
Accounts receivable, net......... (517) (476) (209)
Prepaid expenses and other
current assets................ 98 (577) 295
Accounts payable and accrued
expenses...................... (247) 1,461 (1,542)
------- ------- -------
Net cash provided by operating
activities.................. 3,834 2,183 1,496
------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (112) (45) (156)
------- ------- -------
Cash flows used by financing
activities -- distributions to
Parent................................ (3,722) (2,138) (1,340)
------- ------- -------
Increase (decrease) in cash............. -- -- --
Cash at beginning of period............. -- -- --
------- ------- -------
Cash at end of period................... $ -- $ -- $ --
======= ======= =======
</TABLE>

See accompanying notes to financial statements.

F-197
<PAGE> 519

WLIT INC.

NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

(1) ORGANIZATION AND BASIS OF PRESENTATION

The accompanying financial statements include the accounts of WLIT Inc.
(the "Company"). The Company owns and operates a commercial radio station in the
Chicago market, WLIT-FM, and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc.

On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively, the "Viacom Radio
Properties") to Evergreen Media Corporation ("Evergreen") for $1.075 billion in
cash ("Proposed Transaction"). The Proposed Transaction is expected to close
after the expiration or termination of the applicable waiting periods under the
HSR Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.

The accompanying financial statements reflect the carve-out historical
results of operations and financial position of WLIT Inc. These financial
statements are not necessarily indicative of the results that would have
occurred if the Company had been a separate stand-alone entity during the
periods presented.

Corporate overhead allocations have been included in the accompanying
statements of earnings in corporate general and administrative expense and
station operating expenses.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Property and Equipment

Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Repair and maintenance
costs are charged to expense when incurred.

(b) Intangible Assets

F-198
<PAGE> 520
WLIT INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(d) Revenue Recognition

Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.

(e) Income Taxes

(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

(g) Disclosure of Certain Significant Risks and Uncertainties

No one customer accounted for more than 10% of net revenues in 1996.

(h) Unaudited Interim Financial Information

F-199
<PAGE> 521
WLIT INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) INCOME TAXES

The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.

The tax provision presented has been determined as if the Company were a
stand-alone business filing separate tax returns.

Income tax expense for the year ended December 31, 1996 consists of:

<TABLE>
<S> <C>
Current:
Federal................................................... $2,391
State and local........................................... 345
Deferred federal............................................ (8)
------
$2,728
======
</TABLE>

A reconciliation of the U.S. Federal Statutory tax rate to the Company's
effective tax rate on earnings before income taxes for the year ended December
31, 1996 is as follows:

<TABLE>
<S> <C>
Statutory U.S. tax rate..................................... 35.0%
Amortization of intangibles................................. 2.9
State and local taxes, net of federal tax benefit........... 3.4
Other, net.................................................. 0.2
----
Effective tax rate................................ 41.5%
====
</TABLE>

(4) DEBT AND INTEREST COST

Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.

(5) RELATED PARTY TRANSACTIONS

Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying financial statements.

Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, tax and other
corporate services. The allocation of these expenses, which is generally based
on revenue dollars, is reflected in the accompanying financial statements as
corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.

Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars. The Company recognized
expense related to this plan in the amount of $126 for the year ended December
31, 1996.

F-200
<PAGE> 522
WLIT INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.

(6) COMMITMENTS AND CONTINGENCIES

The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
years and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases (excluding those with lease terms
of one month or less that were not renewed) was approximately $327 during the
year ended December 31, 1996.

Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31:
- ------------
<S> <C> <C>
1997.................................................................. $ 266
1998.................................................................. 291
1999.................................................................. 298
2000.................................................................. 287
2001.................................................................. 296
Thereafter............................................................ 103
------
$1,541
======
</TABLE>

F-201
<PAGE> 523

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Capstar Communications, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of Capstar
Communications, Inc. and its subsidiaries (formerly known as SFX Broadcasting,
Inc. and Subsidiaries) at December 31, 1998 and the results of their operations
and their cash flows for the five month period ended May 31, 1998 and the seven
month period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Austin, Texas
February 26, 1999, except as to Note 2,
which is as of March 15, 1999

F-202
<PAGE> 524

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Capstar Communications, Inc.

We have audited the accompanying consolidated balance sheet of Capstar
Communications, Inc. and Subsidiaries (formerly known as SFX Broadcasting, Inc.
and Subsidiaries) as of December 31, 1997 and the related consolidated
statements of operations, shareholder's equity and cash flows for each of the
two 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.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Capstar Communications, Inc. and Subsidiaries (formerly known as SFX
Broadcasting, Inc. and Subsidiaries) as of December 31, 1997, and the
consolidated results of their operations and their cash flows for each of the
two 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 Note 1
as to which the date is April 27, 1998.

F-203
<PAGE> 525

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ------------
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 24,686 $ 11,391
Accounts receivable, net of allowance for doubtful
accounts of $2,264 and $4,511 at December 31, 1997 and
1998, respectively..................................... 71,241 71,314
Assets under contract for sale............................ 42,883 --
Prepaid and other current assets.......................... 3,109 1,660
Receivable from SFX Entertainment......................... 11,539 --
---------- ----------
Total current assets.............................. 153,458 84,365
Property and equipment, net............................... 74,829 118,163
Intangibles and other, net................................ 1,039,394 3,323,486
Net assets to be distributed to shareholders.............. 102,144 --
Other assets.............................................. 5,790 627
---------- ----------
Total assets...................................... $1,375,615 $3,526,641
========== ==========

LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities:
Accounts payable.......................................... $ 8,665 $ 3,303
Accrued expenses.......................................... 19,246 13,398
Payable to former national sales representative........... 23,025 471
Accrued interest.......................................... 6,675 4,136
Income taxes payable...................................... -- 35,140
Current portion of long-term debt......................... 610 372,903
---------- ----------
Total current liabilities......................... 58,221 429,351
Long-term debt, net of current portion.................... 764,092 325,686
Deferred income taxes..................................... 102,681 1,008,385
---------- ----------
Total liabilities................................. 924,994 1,763,422
---------- ----------
Redeemable Preferred Stock, aggregate liquidation
preference of $390,300 and $133,944, respectively...... 375,796 148,669
---------- ----------
Commitments and contingencies
Shareholder's equity:
Class A Voting Common Stock, $.01 par value; 100,000,000
and 200,000 shares authorized; 614 and 1,006 shares
issued; 612 and 1,006 shares outstanding at December
31, 1997 and 1998, respectively........................ 1 1
Class B Voting Convertible Common Stock, $01 par value,
10,000,000 shares, authorized; 77 shares issued and 68
shares outstanding at December 31, 1997................ 1 --
Additional paid-in capital................................ 185,642 1,613,967
Treasury stock; 11 shares at December 31, 1997............ (6,523) --
Retained earnings (deficit)............................... (104,296) 582
---------- ----------
Total shareholder's equity........................ 74,825 1,614,550
---------- ----------
Total liabilities and shareholder's equity........ $1,375,615 $3,526,641
========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-204
<PAGE> 526

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of the consolidated financial
statements.

F-205
<PAGE> 527

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
----------------- ----------------- ADDITIONAL RETAINED TOTAL
NUMBER OF PAR NUMBER OF PAR PAID-IN TREASURY EARNINGS SHAREHOLDER'S
SHARES VALUE SHARES VALUE CAPITAL STOCK (DEFICIT) EQUITY
--------- ----- --------- ----- ---------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996
(Predecessor)....................... 609 $ 1 64 $ 1 $ 115,256 $ -- $ (32,197) $ 83,061
Dividends and accretion on 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.............................. 3 -- 13 -- 71,541 -- -- 71,541
Repurchase of common stock............ -- -- -- -- -- (6,393) -- (6,393)
Net loss.............................. -- -- -- -- -- -- (50,852) (50,852)
----- --- -- --- ---------- ------- --------- ----------
Balance, December 31, 1996
(Predecessor)....................... 612 1 77 1 190,011 (6,393) (83,049) 100,571
Issuance upon exercise of stock
options............................. 1 -- -- -- 21,143 -- -- 21,143
Issuance upon exercise of Class B
Warrants............................ -- -- -- -- 2,476 -- -- 2,476
Issuance of stock for acquisitions.... 1 -- -- -- 9,522 -- -- 9,522
Payment from shareholder.............. -- -- -- -- 1,000 -- -- 1,000
Dividends and accretion on preferred
stock............................... -- -- -- -- (38,510) -- -- (38,510)
Repurchase of common stock............ -- -- -- -- -- (130) -- (130)
Net loss.............................. -- -- -- -- -- -- (21,247) (21,247)
----- --- -- --- ---------- ------- --------- ----------
Balance, December 31, 1997
(Predecessor)....................... 614 1 77 1 185,642 (6,523) (104,296) 74,825
Dividends and accretion on preferred
stock............................... -- -- -- -- (17,264) -- -- (17,264)
Settlement of Options and Warrants.... -- -- -- -- 74,061 -- -- 74,061
Spin-Off of SFX Entertainment......... -- -- -- -- 34,329 -- -- 34,329
Other, principally shares issued
pursuant to stock option plan....... 23 -- -- -- 13,418 -- -- 13,418
Net loss.............................. -- -- -- -- -- (201,616) (201,616)
----- --- -- --- ---------- ------- --------- ----------
Balance at May 31, 1998
(Predecessor)....................... 637 $ 1 77 $ 1 $ 290,186 $(6,523) $(305,912) $ (22,247)
===== === == === ========== ======= ========= ==========
Balance at June 1, 1998 (Company)..... 1,000 $ 1 -- $-- $1,287,948 $ -- $ -- $1,287,949
Issuance of common stock.............. 6 -- -- -- 314,510 -- -- 314,510
Capital contributions by Parent....... -- -- -- -- 11,509 -- -- 11,509
Dividends and accretion on preferred
stock............................... -- -- -- -- -- -- (9,779) (9,779)
Net income............................ -- -- -- -- -- -- 10,361 10,361
----- --- -- --- ---------- ------- --------- ----------
Balance at December 31, 1998
(Company)........................... 1,006 $ 1 -- $-- $1,613,967 $ -- $ 582 $1,614,550
===== === == === ========== ======= ========= ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-206
<PAGE> 528

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------------------------- ------------------
YEAR ENDED YEAR ENDED FIVE MONTHS ENDED SEVEN MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 MAY 31, 1998 DECEMBER 31, 1998
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Operating Activities:
Net income (loss)................................ $ (50,852) $ (21,247) $(201,616) $ 10,361
Loss (income) from operations distributed to
shareholders................................... -- (3,814) 86,382 --
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation................................... 5,972 10,955 4,919 5,637
Amortization................................... 10,202 26,406 12,628 50,048
Noncash interest............................... -- -- -- (1,545)
Noncash settlement of options and warrants..... -- -- 74,061 --
Noncash portion of non-recurring and unusual
charges...................................... 9,878 4,712 4,497 --
Extraordinary loss on debt repayment........... 15,219 -- -- --
Loss on sale of radio station and other noncash
items........................................ 1,900 -- -- --
Deferred income taxes.......................... (710) -- 22,195 (21,919)
Changes in assets and liabilities, net of amounts
acquired:
Accounts receivable.......................... (13,839) (22,189) (5,729) 16,850
Prepaid and other assets..................... (1,704) 2,599 4,238 2,478
Accounts payable, accrued expenses and other
liabilities................................ 10,487 6,620 (24,279) (22,276)
Income taxes payable......................... -- -- -- (60,578)
--------- --------- --------- ---------
Cash provided by (used in) continuing
operations..................................... (13,447) 4,042 (22,704) (20,944)
Cash from operating activities of SFX
Entertainment.................................. -- 1,005 10,988 --
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities..................................... (13,447) 5,047 (11,716) (20,944)
--------- --------- --------- ---------
Investing activities:
Purchase of stations and related businesses,
net of cash
acquired..................................... (493,433) (408,788) -- (239,022)
Proceeds from sales of stations and other
assets....................................... 56,943 1,836 4,692 109,091
Deposits and other payments for pending
acquisitions................................. (30,799) (3,594) -- --
Purchase of property and equipment............. (3,224) (12,409) (5,179) (11,911)
Loans and advances to related parties.......... -- (2,800) -- --
Income tax liability indemnity payments........ -- -- -- 92,968
Other investing activities..................... -- -- (215) 184
--------- --------- --------- ---------
Net cash used in investing activities............ (470,513) (425,755) (702) (48,690)
Cash used in investing activities of SFX
Entertainment................................ -- (73,296) (397,640) --
--------- --------- --------- ---------
Net cash used in investing activities............ (470,513) (499,051) (398,342) (48,690)
--------- --------- --------- ---------
Financing activities:
Payments on long-term debt and credit
facilities................................... (110,396) (73,863) (141) (677,583)
Additions to debt issuance costs............... (19,505) (3,006) -- --
Proceeds from issuance of long-term debt and
credit
facilities................................... 501,500 356,500 -- 572,955
Proceeds from sales of preferred stock......... 143,445 215,258 -- --
Redemption of preferred stock.................. -- -- -- (135,207)
Purchase of treasury stock..................... (6,393) (130) -- --
Proceeds from issuance of common stock......... -- 24,619 17,177 314,510
Preferred stock dividends...................... (4,983) (23,487) (2,459) (9,507)
Other.......................................... (1,000) (1,000) -- --
--------- --------- --------- ---------
Net cash provided by financing activities........ 502,668 494,891 14,577 65,168
Cash provided by (used in) financing activities
of
SFX Entertainment.............................. -- (823) 467,874 --
--------- --------- --------- ---------
Net cash provided by financing activities........ 502,668 494,068 482,451 65,168
--------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents.................................... 18,708 64 72,393 (4,466)
Cash and cash equivalents at beginning of
period......................................... 11,893 30,601 24,686 15,857
Net (increase) decrease in cash of SFX
Entertainment.................................. -- (5,979) (81,222) --
--------- --------- --------- ---------
Cash and cash equivalents at end of period....... $ 30,601 $ 24,686 $ 15,857 $ 11,391
========= ========= ========= =========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-207
<PAGE> 529

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1 -- ORGANIZATION AND BUSINESS

Capstar Communications, Inc. and Subsidiaries ("CCI" or "the Company")
(formerly known as SFX Broadcasting, Inc. and Subsidiaries "SFX") is an indirect
wholly-owned subsidiary of Capstar Radio Broadcasting Partners, Inc. ("Capstar
Radio") which is indirectly wholly-owned by Capstar Broadcasting Corporation
("Capstar Broadcasting"). At December 31, 1998, the Company owned and operated
114 and programmed 3 radio stations throughout the United States. In addition,
the Company owned eleven radio stations which were operated by third parties,
ten of which were operated by Chancellor Media Corporation ("Chancellor Media").

On May 29, 1998, SBI Holding Corporation, a Delaware corporation ("SFX
Parent"), acquired SFX Broadcasting, Inc., which has been renamed CCI. The
acquisition was effected through the merger (the "SFX Merger") of SBI Radio
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of
SFX Parent, with and into SFX, with SFX as the surviving corporation. The
acquisition of SFX by SFX Parent resulted in a change of control of SFX. As a
result of the SFX Merger, SFX became an indirect wholly-owned subsidiary of
Capstar Radio. The total consideration paid in the SFX Merger for all of the
outstanding common equity interest was approximately $1,300,000, including
direct costs of the acquisition.

In connection with the SFX Merger and other related transactions, the
Company (i) acquired and disposed of certain assets and stock as described in
Note 4 and (ii) borrowed approximately $441,400 in cash from Capstar Radio under
a revolving credit note with Capstar Radio ("the Capstar Radio Note"). In
connection with certain asset divestiture transactions occurring immediately
after the SFX Merger, CCI incurred an income tax liability to Capstar
Broadcasting of approximately $25,000. The Capstar Radio Note is a $1,400,000
revolving credit agreement with interest payable quarterly at an annual floating
rate equal to the per annum interest rate available to Capstar Radio under its
credit facility for revolving loans that are Eurodollar loans with a three month
interest period applicable thereto.

On April 27, 1998, SFX 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.

The Company estimates that in connection with (i) the Spin-Off and (ii)
certain other intercompany transactions engaged in by SFX Entertainment prior to
the Spin-Off, SFX incurred a federal income tax liability of approximately
$88,000. SFX Entertainment has agreed to fully indemnify CCI from and against
such tax liability (Note 10), including any tax liability of CCI arising from
such indemnification payments, which full indemnity payments are presently
estimated to be approximately $93,000. On June 30, September 30, and December
31, 1998, respectively, CCI received approximately $52,500, $26,300 and $14,200
in cash from SFX Entertainment in payment of SFX Entertainment's estimated
indemnity obligation.

The operations of SFX Entertainment have been presented in the financial
statements as discontinued operations pursuant to the Spin-Off. During the five
month period ended May 31, 1998, revenue and loss from operations for SFX
Entertainment were $122,700 and $5,307, respectively. Included in operating
expenses is $2,420 of allocated corporate expenses. Additionally, interest
expense relating to the debt that was distributed to the stockholders pursuant
to the Spin-Off of $7,300 has been allocated to SFX Entertainment. Included in
the loss from operations to be distributed to shareholders for the five months
ended May 31, 1998 is income tax expense of $75,700, which includes $93,000 of
current income tax expense offset by a tax benefit resulting from reduction of
the Company's deferred tax asset valuation allowance. During the year ended
December 31, 1997, revenue and income from operations for SFX Entertainment were
$96,100 and $5,100, respectively. Included in operating expenses is $2,200 of
allocated corporate expenses. Additionally, interest expense

F-208
<PAGE> 530
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

relating to the debt to be distributed to the shareholders pursuant to the
Spin-Off of $1,600 has been allocated to SFX Entertainment. The Company provided
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 method of allocation is reasonable and allocated expenses
approximate what SFX Entertainment would have incurred on a stand-alone basis.

The Company accounted for the SFX Merger under the purchase method of
accounting, following the accounting treatment in accordance with push-down
accounting, whereby the Company recorded the purchase price allocation in its
financial statements. For financial reporting purposes, the Company accounted
for the transaction effective June 1, 1998. As of June 1, 1998, the Company made
a preliminary allocation of the purchase price to the net assets required. The
purchase price was allocated to assets and liabilities based on their respective
fair values at June 1, 1998, as adjusted, as listed in the table below which
represents the components of the opening balance sheet.

<TABLE>
<S> <C>
Cash........................................................ $ 15,857
Accounts receivable......................................... 73,701
Other current assets........................................ 2,693
Receivable from SFX Entertainment........................... 92,968
Receivable from Capstar Radio............................... 8,293
Land........................................................ 7,248
Buildings and improvements.................................. 14,337
Broadcasting equipment and other............................ 68,252
FCC licenses................................................ 3,193,074
Goodwill.................................................... 1,670
Other assets................................................ 222
Accounts payable............................................ (11,850)
Accrued expenses............................................ (13,342)
Payable to former national sales representative............. (7,014)
Accrued interest............................................ (6,782)
Income taxes payable........................................ (95,718)
Long-term debt.............................................. (812,436)
Capital lease obligations................................... (619)
Deferred income taxes....................................... (959,000)
Redeemable preferred stock.................................. (283,605)
----------
Shareholder's net equity.................................... $1,287,949
==========
</TABLE>

NOTE 2 -- CHANCELLOR MERGER AGREEMENT

On August 26, 1998, Capstar Broadcasting and Chancellor Media, an affiliate
of the Company, entered into an agreement to merge (the "Chancellor Merger") in
a stock-for-stock transaction that will create the nation's largest radio
broadcasting entity. Under the merger agreement:

- Chancellor Media will acquire Capstar Broadcasting in a reverse merger in
which Capstar Broadcasting will be renamed Chancellor Media Corporation;

- each share of Class A Common Stock and Class C Common Stock will
represent 0.4955 shares of voting common stock in the combined entity;

F-209
<PAGE> 531
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

- each share of Class B Common Stock will represent 0.4955 shares of
nonvoting common stock of the combined entity;

- each share of Chancellor Media common stock will represent one share of
the combined entity; and

- each share of Chancellor Media preferred stock will represent one share
of preferred stock of the combined entity.

The completion of the merger depends upon the satisfaction of a number of
conditions. There can be no assurance that all of the conditions to the merger
will be satisfied. Either company may waive compliance with the conditions at
its discretion if permitted by law.

NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its direct and indirect subsidiaries. All significant inter-company accounts
and 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 a maturity at date of purchase 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. The costs of assets retired or otherwise disposed of and the related
accumulated depreciation and amortization balances are removed from the accounts
and any resulting gain or loss is included in income.

Leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets.

Intangible Assets

F-210
<PAGE> 532
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

part of completed acquisitions or expensed in the period in which the pending
acquisition is terminated. Deferred financing costs are amortized under the
interest method over the life of the related debt.

The Company periodically evaluates intangible and other long-lived assets
for potential impairment in accordance with the provisions of Accounting
Principles Board ("APB") Opinion 17, "Intangible Assets," and Statement of
Financial Accounting Standards ("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 impairment. At this time, in the opinion of management,
no impairment has occurred.

Exchange of Radio Stations

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.

Revenue Recognition

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, 1996 and 1997 and the five
month period ended May 31, 1998 and the seven month period ended December 31,
1998, the Company recorded barter revenue of $8,029, $11,995, $5,469 and $7,980,
respectively, and expenses of $7,476, $11,281, $5,337 and $7,535, respectively.

Uncertainties and Use of Estimates and Assumptions

F-211
<PAGE> 533
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

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 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 stations as net revenue to the extent that the payment received represents
a reimbursement of the Company's ownership costs.

Advertising Costs

Advertising and promotional costs are expensed as incurred and approximated
$5,068, $9,789, $7,141 and $12,618 for the years ended December 31 1996 and
1997, the five months ended May 31, 1998 and the seven months ended December 31,
1998, respectively.

Intercompany Matters

The Company is charged by its Parent for corporate services through a
monthly corporate overhead allocation charge. Such charge is based on factors of
direct usage and in the opinion of management, is reasonable and approximates
what the Company would have incurred on a stand-alone basis.

Subsequent to the SFX Merger, the Company's operating results are included
in the consolidated federal income tax return of its parent. Tax provisions in
the accompanying consolidated financial statements have been prepared on a
stand-alone basis with any net current tax liability due to taxing authorities
resulting from inclusion of the Company's activities in its parent's
consolidated tax return being reflected as due to its parent under the Capstar
Radio Note.

Concentration of Credit Risk

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 the management's expectations and adequate allowances
for any uncollectable accounts receivables are maintained.

F-212
<PAGE> 534
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Segment Information

In 1998, the Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 superseded SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 does not affect results of operations or financial position. The
Company operates within a single radio broadcasting segment within the
continental United States.

New Accounting Pronouncements

Reclassification

Certain amounts in 1996 and 1997 have been reclassified to conform to the
1998 presentation.

NOTE 4 -- ACQUISITIONS AND DISPOSITIONS

1998 Radio Broadcasting Acquisitions and Dispositions

On February 20, 1998, Capstar Broadcasting and Chancellor Media entered
into an exchange agreement pursuant to which Chancellor Media would acquire
stations KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, Texas, KODA-FM, KKRW-FM and
KQUE-AM in Houston, Texas, KPLN-FM and KYXY-FM in San Diego, California, and
WVTY-FM, WJJJ-FM, WXDX-FM and WDVE-FM in Pittsburgh, Pennsylvania (collectively,
the "Chancellor Exchange Stations") for an aggregate purchase price of
approximately $637.5 million in a series of purchases and exchanges over a
three-year period. The Chancellor Exchange Stations were acquired by Capstar
Broadcasting in connection with the acquisition of SFX Broadcasting, Inc. in May
1998. On May 29, 1998, as part of the SFX acquisition, Chancellor Media
exchanged stations WAPE-FM and WFYV-FM in Jacksonville, Florida in exchange for
station KODA-FM in Houston, Texas and cash placed with a qualified intermediary
(discussed below). In the case of the remaining Chancellor Exchange Stations,
Capstar Broadcasting will identify mid-sized radio stations for exchange with
Chancellor Media. The purchase price for the remaining ten Chancellor Exchange
Stations will be approximately $494.3 million. Capstar Broadcasting and
Chancellor Media are currently assessing whether the terms of the exchange
agreement will be modified upon consummation of the merger with Chancellor
Media. During the pendency of the Chancellor Merger, the Company does not
anticipate effecting any exchanges with Chancellor Media.

Chancellor Media is providing services to the Chancellor Exchange Stations
(other than KODA-FM) 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.
During 1998, the Company received approximately $28.8 million in LMA fees from
Chancellor Media. The LMA fees will decrease as each Chancellor Exchange Station
is exchanged.

F-213
<PAGE> 535
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

In January 1998, the Company sold one radio station operating in Richmond,
Virginia for $4.3 million.

On May 21, 1998, SFX completed the acquisition of three radio stations (two
FM and one AM) in the Nashville, Tennessee market from Sinclair Broadcasting
Group for an aggregate purchase price of approximately $35,000 in cash. Cash for
the purchase was provided by Capstar Radio.

On May 29, 1998, the Company exchanged station KODA-FM in Houston, Texas
for Chancellor Media radio stations WAPE-FM and WFYV-FM in Jacksonville, Florida
and approximately $90,250 in cash (the "KODA Exchange"). In an exchange under
Section 1031 of the Code, indirect, wholly-owned subsidiaries of CCI, through a
qualified intermediary, used the $90,250 in cash received from Chancellor Media
to acquire radio stations KASE-FM, KVET-AM and KVET-FM in Austin, Texas. The
deemed value of the KODA Exchange was $143,250.

On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of one FM radio station
in the Daytona Beach, Florida market for consideration of approximately $11,500
in cash to Clear Channel Metroplex, Inc. and Clear Channel Metroplex Licensee,
Inc.

On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of four radio stations
(three FM and one AM) in the Long Island, New York market for an aggregate sale
price of $46,000 in cash to Cox Radio, Inc.

On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of one FM radio station
in the Houston, Texas market for $54,000 in cash to HBC Houston, Inc. and HBC
Houston License Corporation. Pursuant to an agreement with Chancellor Media, the
Company paid 50% of the sale proceeds in excess of $50,000, approximately $1,700
to Chancellor Media.

On May 29, 1998, Capstar Radio sold all of the outstanding capital stock of
Patterson Broadcasting, Inc. (the "Patterson Broadcasting Acquisition") (which
then owned and operated or programmed 22 FM and 12 AM stations) to the Company.
In addition, Pacific Star Communications, Inc., a wholly-owned subsidiary of
Capstar Radio, sold radio stations KJSN-FM, KFIV-FM, KJAX-AM and KFRY-FM in the
Modesto/ Stockton, California market to the Company. Total consideration for the
foregoing purchases was approximately $223,000 in cash and approximately $11,500
due under the Capstar Radio Note. The Company funded the acquisition of
Patterson Broadcasting, Inc., and certain stations of Pacific Star
Communications, Inc. with proceeds from a loan by Bankers Trust Company, which
loan was refinanced with borrowings under the Capstar Radio Note.

For financial reporting purposes, the transaction in the preceding
paragraph has been treated as a transaction between entities under common
control. Accordingly, the assets and liabilities so acquired have been recorded
by the Company at historical cost in a manner similar to that in
pooling-of-interests accounting. The operating results of these businesses have
been included in the Company's financial statements from the date of the
Patterson Broadcasting Acquisition, the earliest date for which common control
of both entities existed.

On August 10, 1998, the Company exchanged one AM station in Pittsburgh,
Pennsylvania for another AM station in Cleveland, Ohio. On September 30, 1998,
the Company exchanged one FM station in Jackson, Mississippi for another FM
station in Jackson, Mississippi. The $5.0 million and $11.75 million,
respectively, carrying value of the station's net assets exchanged approximate
the fair value of the net assets received.

On October 5, 1998, the Company's parent contributed one FM station in
Albany, New York with a fair value and historical book value of $2.7 million to
the Company.
F-214
<PAGE> 536
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1997 Radio Broadcasting Acquisitions and Dispositions

In August 1997, the Company acquired two radio stations operating in
Pittsburgh, Pennsylvania and two radio stations in Milwaukee, Wisconsin for
$35.0 million.

In August 1997, the Company exchanged one radio station in Pittsburgh,
Pennsylvania and $20.0 million in cash for one radio station in Charlotte, North
Carolina. 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.

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.

Also in April 1997, the Company sold one radio station operating in Little
Rock, Arkansas 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 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 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 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 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.

1996 Radio Broadcasting Acquisitions and Dispositions

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 and exchanged radio station KRLD-AM, Dallas, Texas and the Texas
State Networks for radio station KKRW-FM, Houston, Texas. The exchange was
structured as a substantially tax free exchange of like kind assets. No gain or
loss was recorded

F-215
<PAGE> 537
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

on the 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 105 shares of Class
A Common Stock, 13 shares of Class B Common Stock both valued at $526,381 per
share and other equity securities with a total market value for all securities
issued of approximately $71.5 million in cash. 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 one 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 Company also terminated a JSA with one
station operating in Augusta, Georgia and its 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 Company
acquired the assets of KTCK-AM in Dallas, Texas in September 1995 from a third
party for $8,633 in cash (including $133 in transaction costs) and $2,000 of 6%
current coupon Series C Redeemable Preferred Stock (Note 9). The purchase
agreement contains a provision for a contingent payment not to exceed $7,500
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
disposition, based on its estimate of the ultimate resolution of the
contingency. During 1997, the company paid $3,000 to the Seller in connection
with this provision. During 1998, the Company paid $3,100 in final settlement of
this provision.

In July 1996, the Company acquired Liberty Broadcasting, Inc. for a
purchase price of approximately $239.7 million in cash, including $10.4 million
for working capital. Liberty Broadcasting Inc. 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 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 stations operating in the Washington,
DC/Baltimore, Maryland market for $25.0 million. No gain or loss was recognized
on the 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, 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 FCC licenses of such stations (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 for $18.5 million in cash. The Company recognized no gain or
loss on the 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

F-216
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CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

substantially all of the assets of WSTZ-FM and WZRX-AM, each operating in
Jackson, Mississippi, for approximately $3.5 million in cash.

In June 1996, the Company acquired substantially all of the assets of
WROQ-FM, Greenville, South Carolina, for approximately $14.0 million in cash 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.

In February 1996, the Company acquired radio stations WTDR-FM and WLYT-FM
(formerly WEZC-FM), both operating in Charlotte, North Carolina, for an
aggregate purchase price of $24.3 million in cash. Costs of $785 related to the
integration and reformatting of the Charlotte stations were included in
depreciation, amortization, duopoly integration costs and acquisition related
costs in 1996.

For financial statement purposes, all of the acquisitions described above,
with the exception of the Patterson Broadcasting Acquisition, were accounted for
using the purchase method of accounting, with the purchase price allocated to
the assets acquired (principally intangible assets) and the liabilities assumed
based on their estimated fair values at the dates of acquisition. Certain of the
recent transactions are based on preliminary estimates of the fair value of the
net assets acquired and are subject to final adjustment. The excess purchase
price over the estimated fair value of the net assets acquired has been recorded
as FCC licenses and goodwill. The assets and liabilities of these acquisitions
and the results of their operations and cash flows for the period from the date
of acquisition are included in the accompanying consolidated financial
statements. The following unaudited pro forma summary presents the consolidated
results of operations for the years ended December 31, 1997 and 1998 as if the
foregoing transactions 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 FCC licenses and goodwill and interest expense on the
acquisition debt. 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 acquisition been made as of that date or of results which may occur in
the future.

<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Net revenue (unaudited)................................ $340,818 $ 371,573
Loss from continuing operations (unaudited)............ $(22,491) $ (67,248)
Net loss (unaudited)................................... $(18,677) $(153,630)
</TABLE>

Concert Promotion Acquisitions. During 1997 and 1998, the Company also
acquired the following concert promotion companies, which were 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 deferred payments are subject to acceleration in certain
circumstances.

In March 1997, Delsener/Slater consummated the acquisition of certain
companies which collectively own and operate the Meadows for $900 in cash, 16
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.

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, 4 shares of Class A
Common Stock issued and issuable over a two

F-217
<PAGE> 539
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

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.

In February and March 1998, SFX Entertainment acquired the following live
entertainment businesses.

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. 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, 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, 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.

The Network Magazine Group, a publisher of trade magazines for the radio
broadcasting industry, and SJS Entertainment, 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, for total consideration of approximately $66,784.

BG Presents, 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, for total consideration of approximately $80,327.

Concert/Southern Promotions, a promoter of live music events in the
Atlanta, Georgia metropolitan, for total consideration of approximately $16,600.

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.

In order to facilitate certain concert promotion acquisitions, the Company
and/or SFX Entertainment undertook the following financing activities.

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 collateralized 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.

F-218
<PAGE> 540
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

For financial statement purposes, all of the acquisitions described above
were accounted for using the purchase method of accounting, with the purchase
price allocated to the assets acquired (principally intangible assets) and the
liabilities assumed based on their estimated fair values at the dates of
acquisition. Certain of the recent transactions are based on preliminary
estimates of the fair value of the net assets acquired and are subject to final
adjustment. The excess purchase price over the estimated fair value of the net
assets acquired has been recorded as goodwill. The assets and liabilities of
these acquisitions and the results of their operations and cash flows for the
period from the date of acquisition are included in the accompanying
consolidated financial statements.

NOTE 5 -- PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DEPRECIABLE PREDECESSOR COMPANY
DEPRECIATION LIFE ----------- --------
METHOD (YEARS) 1997 1998
------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Buildings and improvements............. Straight-line 5-20 $ 18,295 $ 22,460
Broadcasting and other equipment....... Straight-line 3-20 67,821 92,398
-------- --------
86,116 114,858
Accumulated depreciation and
amortization......................... (17,456) (5,637)
-------- --------
68,660 109,221
Land................................... 6,169 8,942
-------- --------
$ 74,829 $118,163
======== ========
</TABLE>

NOTE 6 -- INTANGIBLES

Intangibles consists of the following:

<TABLE>
<CAPTION>
AMORTIZABLE PREDECESSOR COMPANY
AMORTIZATION LIFE ----------- ----------
METHOD (YEARS) 1997 1998
--------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
FCC licenses..................... Straight-line 40 $ 913,887 $3,360,522
Goodwill......................... Straight-line 40 131,601 2,372
Deferred financing costs......... Interest Method -- 22,250 --
Other............................ Straight-line 3-5 5,406 1,915
---------- ----------
1,073,144 3,364,809
Less accumulated amortization.... (39,580) (50,116)
---------- ----------
1,033,564 3,314,693
Pending acquisition costs........ 5,830 8,793
---------- ----------
$1,039,394 $3,323,486
========== ==========
</TABLE>

F-219
<PAGE> 541
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7 -- LONG-TERM DEBT

Long-Term Debt consists of the following:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------- ---------
1997 1998
----------- ---------
<S> <C> <C>
Capstar Radio Note.................................... $ -- $ 372,703
10 3/4% Senior subordinated notes..................... 450,000 323,473
11 3/8% Senior subordinated notes..................... 566 566
Senior credit facility................................ 313,000 --
Capital lease obligations and other notes payable at
various interest rates.............................. 1,136 1,847
-------- ---------
764,702 698,589
Less: current portion................................. (610) (372,903)
-------- ---------
$764,092 $ 325,686
======== =========
</TABLE>

The aggregate contractual maturities of long-term debt for the years ending
December 31 are as follows: 1999 -- $372,903; 2000 -- $1,169; 2001 -- $378;
2002 -- $353; 2003 -- $313; thereafter -- $323,473.

The Capstar Radio Note is a $1,400,000 revolving credit agreement with
Capstar Radio, due on demand, with interest payable quarterly at an annual
floating rate equal to the per annum interest rate available to Capstar Radio
under its credit facility for revolving loans that are Eurodollar loans with a
three month interest period applicable thereto (7.7% at December 31, 1998).

Incidental to the SFX Merger, the Company repaid its senior credit
facility. No amounts are available under this facility.

On July 3, 1998, pursuant to the terms of the indenture governing the
Company's 10 3/4% Senior Subordinated Notes due 2006, the Company redeemed
$154,000 aggregate principal amount of the 10 3/4% senior subordinated notes for
an aggregate purchase price of $172,800 including a $16,600 redemption premium
and $2,200 of accrued interest. (The carrying value of the 10 3/4% senior
subordinated notes approximated their fair value at the date of redemption).

The SFX Merger resulted in a change of control under the indentures
governing the 10 3/4% senior subordinated notes and the Company's 11 3/8% Senior
Subordinated Notes due 2000 (in which case the Company is required to offer to
repurchase all outstanding notes at a specified price). Pursuant to change of
control offers to acquire all of the outstanding 10 3/4% senior subordinated
notes and 11 3/8% senior subordinated notes, each of which commenced on June 8,
1998, the Company purchased on July 10, 1998 $1,866 aggregate principal amount
of the 10 3/4% senior subordinated notes for an aggregate purchase price of
$1,915, including an $18 purchase premium and $31 of accrued interest (The
carrying value of the 10 3/4% senior subordinated notes approximated their fair
value at the date of redemption). No 11 3/8% senior subordinated notes were
tendered for repurchase.

To fund these purchases, Capstar Radio contributed $314,510 in cash to the
Company in exchange for stock of the Company.

To facilitate the Spin-Off, SFX Entertainment's 1998 acquisitions and its
financing thereof, the Company sought and obtained consents from the holders of
the 10 3/4% senior subordinated notes, holders of the 11 3/8% senior
subordinated notes and the holders of the Company's 12 5/8% Series E Cumulative
Exchangeable Preferred Stock. In connection with these consents, the Company
modified certain covenants. Fees and

F-220
<PAGE> 542
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

expenses of approximately $18,000 were incurred by the Company in connection
with the consent solicitations and were reimbursed by SFX Entertainment. Such
charges are included in non-recurring and unusual charges.

In May 1996, the Company completed the placement of $450.0 million in
aggregate principal amount of its 10 3/4% senior subordinated notes (the "Note
Offering"). Interest is payable semi-annually on May 15 and November 15. The
notes are uncollateralized 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. The effective interest rate on the notes is approximately 9.1% after
giving effect to revaluation at June 1, 1998.

Concurrently with the closings of the Note Offering, the Company completed
a tender offer (the "Tender Offer") and related consent solicitation with
respect to its 11 3/8% senior subordinated notes. SFX repurchased approximately
$79.4 million in principal amount of the $80.0 million in principal amount of
the 11 3/8% senior subordinated 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 113/8% senior subordinated notes were
issued.

In March 1995, the Company entered into a $50.0 million senior credit
facility (the "Old Credit Facility"). On May 31, 1996 all amounts outstanding
under the Old Credit Facility were repaid.

In connection with the repurchase of the 11 3/8% senior subordinated 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.

The Company's 10 3/4% senior subordinated notes and 11 3/8% 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 8 -- SHAREHOLDER'S EQUITY

Common Stock

In connection with the SFX Merger, the Company amended its charter to
provide for 10,210,000 shares of authorized stock consisting of 200,000 shares
of Class A Common Stock and 10,010,000 shares of preferred stock, par value
$0.01. Upon the filing of the new amendment all existing outstanding common
shares were immediately converted to .000064592 new Class A common shares. All
share information included in the accompanying consolidated financial statements
and notes thereto (with the exception of authorized shares) has been
retroactively adjusted to reflect the reverse split.

In May 1996, 2 shares of Class A Common Stock and 9 shares of Class B
Common Stock were repurchased from the Company's former President. In July 1997,
the Company repurchased .2 shares of Class A Common for $111. In addition, in
September 1997, the Company repurchased .03 shares of Class A Common Stock for
$19.

F-221
<PAGE> 543
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Stock Options

The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to employees" and related interpretations in accounting for its employee
stock options, as opposed to the fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation."

Under stock option plans adopted annually since 1993, stock options to
acquire Class A Common were granted to certain officers, key employees and other
key individuals who performed services for the Company. Options granted under
these plans were 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 APB
Opinion No. 25, no expense was 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.

Capstar Radio purchased and settled all outstanding options and warrants of
SFX resulting in SFX recording approximately $74,000 in expense and a
corresponding credit to paid-in capital.

The table below does not include the options issued in the MMR acquisition.

<TABLE>
<CAPTION>
1996 1997 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Options outstanding at beginning of
year.............................. 48.31 58.78 39.01
Option price........................ $201,263-$328,988 $201,263-$522,511 $201,263-$445,102
Options granted..................... 22.54 27.13 --
Options price....................... $421,879-$522,511 $433,490 --
Options exercised................... -- 46.90 9.91
Option price........................ -- $201,263-$522,511 $201,263-$445,102
Options repurchased or settled...... 12.08 -- 29.10
Option price........................ $201,263-$328,988 -- $201,263-$445,102
Options expired or canceled......... -- -- --
Options outstanding at end of
year.............................. 58.78 39.01 --
Option price........................ $201,263-$522,511 $201,263-$445,102 --
Options exercisable at end of
year.............................. 29.79 28.40 --
</TABLE>

F-222
<PAGE> 544
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 9 -- REDEEMABLE PREFERRED STOCK

Preferred stock consists of the following:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------- --------
1997 1998
----------- --------
<S> <C> <C>
Preferred Stock of the Company, $.01 par value, 10,010,000
shares authorized:
Series C Redeemable, 2,000 shares issued and outstanding in
1997, including accreted dividends of $197................ $ 1,730 $ --
Series D Cumulative Convertible Exchangeable Preferred
Stock, 2,990,000 shares issued and outstanding in 1997,
including accreted issuance costs of $878................. 145,149 --
Series E Cumulative Exchangeable Preferred Stock, 2,250,000
and 1,266,176 shares issued and 2,250,000 and 1,266,176
shares outstanding in 1997 and 1998, respectively, net of
issuance costs, includes accreted issuance costs of $951
in 1997................................................... 228,917 148,669
-------- --------
$375,796 $148,669
======== ========
</TABLE>

The Series C Redeemable Preferred Stock and Series D Cumulative Convertible
Exchangeable Preferred Stock were redeemed coincidental with the SFX Merger.

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 January 15 and July 15 of each year.
Dividends may be paid, at the Company's option, on any dividend payment date
occurring on or before January 15, 2002, either in cash or in additional shares
of Series E Preferred Stock having a liquidation preference equal to the amount
of such dividend. Subject to certain conditions, the shares of 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 ("CCI Exchange
Notes"), provided that immediately after giving effect to any partial exchange,
there shall be outstanding Series E Preferred Stock with an aggregate
liquidation preference of not less than $50,000 and not less than $50,000 in
aggregate principal amount of CCI Exchange Notes. The Company is required,
subject to certain conditions, to redeem all of the Series E Preferred Stock
outstanding on October 31, 2006.

On July 3, 1998, pursuant to the terms of the certificate of designation
that governs the Series E Preferred Stock (the "CCI Certificate of
Designation"), the Company redeemed $119,600 aggregate liquidation preference,
or 1,196,011 shares, of the Series E Preferred stock for an aggregate purchase
price of $141,700, including a $15,100 redemption premium and $7,000 of accrued
dividends. (The carrying value of the Series E Preferred Stock approximated its
fair value at the date of redemption).

The SFX Merger resulted in a change of control under the CCI Certificate of
Designation (in which case the Company is required to offer to repurchase all
outstanding shares at a specified price). Pursuant to change of control offers
to acquire all of the outstanding Series E Preferred Stock, which commenced on
June 8, 1998, the Company purchased on July 10, 1998 $500 aggregate liquidation
preference, or 5,004 shares, of the Series E Preferred Stock for an aggregate
purchase price of $536, including a $5 purchase premium and $31 of accrued
dividends.

F-223
<PAGE> 545
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

To fund these purchases, Capstar Radio contributed $314,510 in cash to the
Company in exchange for stock of the Company.

The CCI Certificate of Designation contains restrictive provisions that,
among other things, limit the ability of CCI 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.
Substantially all of the CCI assets are restricted.

NOTE 10 -- INCOME TAXES

The provisions for income taxes for the years ended December 31, 1996 and
1997 and the five and seven month periods ended May 31, 1998 and December 31,
1998, respectively are summarized as follows:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------- ------------------
FIVE MONTHS ENDED SEVEN MONTHS ENDED
MAY 31, DECEMBER 31,
1996 1997 1998 1998
------ ----- ----------------- ------------------
<S> <C> <C> <C> <C>
Current
Federal.................................. $ -- $ -- $ -- $ 24,896
State.................................... 1,190 990 310 4,000
------ ----- ----- --------
1,190 990 310 28,896
------ ----- ----- --------
Deferred
Federal.................................. -- -- -- (19,323)
State.................................... (710) (180) (100) (2,596)
------ ----- ----- --------
(710) (180) (100) (21,919)
------ ----- ----- --------
$ 480 $ 810 $ 210 $ 6,977
====== ===== ===== ========
</TABLE>

Prior to the SFX Merger, the Company filed a consolidated tax return for
federal income tax purposes. Subsequent to the SFX Merger, the Company is
included in the consolidated federal income tax return of its parent. As a
result of current losses, the benefit for which realization was not reasonably
assured, no federal tax provision was recorded for the years ended December 31,
1996 and 1997. The current income tax expense recorded during 1996, 1997 and
1998 is a result of current state and local income taxes in certain states where
subsidiaries file separate tax returns and state and federal income tax expense
for the seven months ended December 31, 1998 resulting primarily from taxable
gains on asset sales.

At December 31, 1998, the Company had total net operating loss
carryforwards of approximately $21,300 that will expire from 2007 through 2013,
which all result from net operating losses of acquired subsidiaries. The
acquired net operating losses are SRLY to the acquired subsidiaries that
generated the losses. 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, 1998.

F-224
<PAGE> 546
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The significant components of the Company's deferred tax assets and
liabilities as of December 31, 1997 and 1998 are as follows:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------- -----------
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable......................................... $ 860 $ 1,776
Net operating loss carryforwards............................ 23,965 8,123
Unamortized discount on long term debt...................... -- 11,719
Management service contract................................. 2,356 --
Other reserves.............................................. 113 --
National sales representative contract settlement........... 8,740 --
Accrued bonuses and other compensation...................... 1,563 --
--------- -----------
Total deferred tax assets................................... 37,597 21,618
Valuation allowance......................................... (21,876) (2,856)
--------- -----------
Net deferred tax assets........................... 15,721 18,762
Deferred tax liabilities:
Property and equipment and intangible asset basis
differences and related depreciation and amortization..... (118,402) (1,027,147)
--------- -----------
Total deferred tax liabilities.................... (118,402) (1,027,147)
--------- -----------
Net deferred tax liabilities...................... $(102,681) $(1,008,385)
========= ===========
</TABLE>

The 1996, 1997 and 1998 effective tax rates varied from the statutory
federal income tax rate as follows:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------- ------------------
FIVE MONTHS ENDED SEVEN MONTHS ENDED
1996 1997 MAY 31, 1998 DECEMBER 31, 1998
-------- -------- ----------------- ------------------
<S> <C> <C> <C> <C>
Income taxes at the statutory rate.... $(16,924) $ (8,488) $(40,258) $6,068
Effect of non-recurring and unusual
charges............................. 6,875 6,781 11,325 --
Valuation allowance................... 9,859 13,977 -- --
Effect of nondeductible amortization
of intangibles...................... 264 295 -- --
Options and warrants.................. -- (12,380) 10,628 --
Utilization of net operating losses
through Spin-Off.................... -- -- 18,450 --
State and local income taxes (net of
federal benefit).................... 317 535 65 913
Other................................. 89 90 -- (4)
-------- -------- -------- ------
Total....................... $ 480 $ 810 $ 210 $6,977
======== ======== ======== ======
</TABLE>

In connection with the Spin-Off of SFX Entertainment (Note 1), the Company
entered into a tax sharing agreement with SFX Entertainment. Under the tax
sharing agreement, the parties have agreed to indemnify each other for any net
tax consequences resulting from inclusion of SFX Entertainment's tax attributes
in the consolidated federal income tax returns of the Company including any tax
liability to the Company resulting from the Spin-Off of SFX Entertainment (Note
1). The term of the tax sharing

F-225
<PAGE> 547
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

agreement is indefinite and includes provisions which consider the consequences
to the parties of future adjustments to tax liabilities, if any, which may be
required by taxing authorities related to past tax filings.

NOTE 11 -- COMMITMENTS AND CONTINGENCIES

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 Merger to the holders of
SFX's Class A common stock is unfair and that the individual defendants have
breached their fiduciary duties. Both complainants seek to have the actions
certified as class actions and seek to enjoin the SFX Merger 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 Merger in
order to offset SFX Entertainment's indemnity obligations. The Settlement also
provides for SFX to pay plaintiff's counsel an aggregate of $950, including all
fees and expenses as approved by the court. The Settlement is conditioned on the
(a) consummation of the SFX Merger, (b) completion of the confirmatory discovery
and (c) approval of the court. Pursuant to the Settlement, the defendants have
denied, and continue 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. The
parties currently are engaging in confirmatory discovery.

On July 13, 1998, Noddings Investment Group, Inc. and Noddings Warrant
Limited Partnership ("Noddings") filed Civil Action No. 16538 in the Court of
Chancery of the State of Delaware in and for New Castle County against CCI.
Noddings alleges that CCI breached a Warrant Agreement that Noddings contends
requires CCI to permit Noddings to exercise warrants in exchange for cash and
shares of stock of SFX Entertainment, Inc. Specifically, Noddings alleges that
CCI has violated the Warrant Agreement by permitting Noddings to receive cash in
exchange for its warrants, but refusing to convey shares of stock of SFX
Entertainment. In addition to suing on its own behalf, Noddings is seeking to
prosecute the action on behalf of a putative class comprised of all persons who
owned equivalent warrants on April 21, 1998 (the date immediately following the
record date of the distribution of the stock of SFX Entertainment to holders of
the stock of SFX) and their transferees and successors in interest. Noddings has
requested that the court (i) declare that on the exercise of its warrants CCI
transmit to plaintiffs and members of the class that it seeks to represent
$22.3725 in cash per warrant and 0.2983 shares of common stock of SFX
Entertainment per warrant, (ii) require CCI to pay 0.2983 shares of common stock
of SFX Entertainment per warrant and (if not previously paid) $22.3725 in cash,
to any putative class member that has exercised or exercises warrants after
April 20, 1998, (iii) in the alternative, award plaintiffs and members of the
putative class monetary damages in an amount to be determined at trial, and (iv)
award costs and attorney's fees.

F-226
<PAGE> 548
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The Company is subject to various other 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.

The Company has entered into various operating leases, broadcast rights
agreements and employment agreements. Total rent expense was $2,903, $5,403,
$2,251 and $2,442 for the years ended December 31, 1996 and 1997, the five
months ended May 31, 1998 and the seven months ended December 31, 1998,
respectively. The Company has historically entered into employment agreements
with certain officers and other key employees. Expenses under the contracts
approximated $19,748 for the year ended December 31, 1997 and $8,228 for the
five months ended May 31, 1998.

Future aggregate minimum payments under noncancelable operating leases
including broadcast rights agreements with initial terms of one year or more are
as follows as of December 31, 1998:

<TABLE>
<S> <C>
1999........................................................ $10,857
2000........................................................ 8,341
2001........................................................ 5,394
2002........................................................ 4,698
2003........................................................ 3,560
2004 and thereafter......................................... 10,503
</TABLE>

NOTE 12 -- RELATED PARTY TRANSACTIONS

Chancellor Media Transactions

Beginning in 1998, the Company 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. For the five months ended May 31,
1998 and the seven months ended December 31, 1998, the Company incurred $1.6
million and $2.3 million, respectively, for media representation services from
Katz.

Beginning in 1998, the Company broadcasts advertising over the Company's
portfolio of stations from the AMFM Radio Networks. The AMFM Radio Networks are
owned and operated by Chancellor Media. For the seven months ended December 31,
1998, the Company recorded $2.1 million in revenue relating to the AMFM Radio
Networks.

As stated in Note 4, in 1998, the Company began earning LMA revenue from
Chancellor Media under the Chancellor Exchange Agreement. For the seven months
ended December 31, 1998, the Company earned LMA fees of approximately $28,800
from the Chancellor Exchange Stations.

Prior to April 1996, SCMC, where Robert F.X. Sillerman, the Company's
former 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 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 to SCMC and Triathlon paid
SCMC an annual fee of $300 (which increased to $500 effective January 1, 1997).
In addition, Triathlon has agreed to advance to

F-227
<PAGE> 549
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

SCMC an amount of $500 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. Pursuant to the SFX Merger, the Company transferred the
Triathlon consulting contract to SFX Entertainment. In consideration of the
foregoing agreements, the Company issued to SCMC warrants to purchase up to 39
shares of Class A Common Stock at an exercise price, subject to adjustment, of
$522,511 per share (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 former Chairman agreed with the Company that he would
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 from MMR and $511
from Triathlon. During 1997, the Company received fees of $1,794 from Triathlon.
In connection with this agreement, the Company had a $44 receivable from
Triathlon at December 31, 1997.

In 1996, the Company paid to SCMC advisory fees of $4,000 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 $2,000 for investment banking services provided to MMR in
connection with the MMR Merger.

Prior to June 1996, the Company held a non-recourse note receivable from
the Company's former President in the amount of $2,000 which was secured by 9
shares of Class B Common Stock. The note bore interest at 6% per annum. Interest
income of $60 was accrued in 1996 on the loan. 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.

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 Company's former 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 for the year ended
December 31, 1996. The reimbursements paid to SCMC in 1996 included $292 and
$261 of fees paid by MMR and Triathlon, respectively, directly to SCMC 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 during the period.

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 former Executive Vice President, General Counsel and Director
is Of Counsel to the law firm of Baker & McKenzie. Baker & McKenzie served as
counsel to the Company in certain matters up to the date of the SFX Merger.
Baker & McKenzie compensates the executive based, in part, on the fees it
receives
F-228
<PAGE> 550
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

from providing legal services to the Company and other clients originated by the
executive. The Company paid Baker & McKenzie $4,886, $6,813 and $3,915 for legal
services during 1996, 1997 and the five months ended May 31, 1998, respectively.

NOTE 13 -- 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, 1997
and 1998. 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>
PREDECESSOR COMPANY
------------------- -------------------
1997 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Long-term debt -- Senior Subordinated
Notes.................................... $450,566 $493,313 $324,039 $355,733
Redeemable preferred stock................. 375,796 521,620 148,669 152,891
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:

Cash, 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 senior subordinated
notes is based on quoted market prices. As amounts outstanding under the
Company's Capstar Radio Note bear interest at current market rates, their
carrying amounts approximate fair market value.

Redeemable preferred stock: The fair value is estimated based on
quoted market prices.

NOTE 14 -- NON-RECURRING AND UNUSUAL CHARGES, INCLUDING ADJUSTMENTS TO BROADCAST
RIGHTS AGREEMENT

The Company recorded non-recurring and unusual charges of $35,318 in the
five months ended May 31, 1998 which consisted primarily of (i) $5,554 of
compensation expense related to bonuses and options issued, (ii) $1,420 relating
to the settlement of lawsuits, (iii) $489 relating to the increase in value of
certain Stock Appreciation Rights, (iv) $16,600 relating to the consent
solicitations from the holders of its Senior Subordinated Notes due 2006 and the
holders of its Series E Preferred Stock in connection with the Spin-Off, (v)
$6,255 of expenses, primarily legal, accounting and regulatory fees associated
with the SFX Merger and the consent solicitations in connection with the
Spin-Off and (vi) $5,000 related to a brokers contract due upon a change in
control.

The Company recorded non-recurring and unusual charges related to the SFX
Merger and the Spin-Off of SFX Entertainment of $20,174 in 1997 which consisted
primarily of (i) $12,140 related to bonuses paid to officers of the Company (ii)
a write-off of a $2,500 loan made to the Company's then Executive Chairman (iii)
$1,713 relating to an increase in value of certain Stock Appreciation Rights and
(iv) $3,821 of other expenses, primarily legal, accounting and regulatory fees.

The Company recorded non-recurring and unusual charges of $28,994 in 1996
which consisted primarily of (i) payments in excess of the fair value of stock
repurchased totaling $12,461 to the company's former President and the write-off
by the Company of $2,330 relating to a loan and accrued interest to the
Company's former President, (ii) $5,586 related to the SCMC Termination
Agreement (Note 12), (iii) $4,575 for the repurchase of options and rights to
receive options held by the former Chief Operating Officer and (iv) a

F-229
<PAGE> 551
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

charge of $1,600 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.

NOTE 15 -- DEFINED CONTRIBUTION PLAN

The Company participates in 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 contributions of
approximately $672 in 1998. The Company made no contributions in 1996 or 1997.

NOTE 16 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------- ------------
FIVE MONTHS SEVEN MONTHS
ENDED ENDED
MAY 31, DECEMBER 31,
1996 1997 1998 1998
------- ------- ----------- ------------
<S> <C> <C> <C> <C>
Cash paid during the year for:
Interest........................................ $30,898 $65,184 $30,760 $40,397
Income taxes.................................... $ 81 $ 1,059 $ 1,200 $89,625
</TABLE>

Supplemental schedule of noncash investing and financing activities:

During 1998, the Company's parent contributed certain radio stations
and rights to the Company with an aggregate historical book value and fair
value of approximately $11,509.

Issuance of equity securities, including deferred equity security
issuance, and assumption of debt in connection with certain acquisitions
(Note 4)

Agreements to pay future cash consideration in connection with certain
acquisitions (Note 4)

Exchange of radio stations (Note 4)

Issuance of warrants in connection with SCMC termination agreement
(Note 12).

F-230
<PAGE> 552

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 11,391 $ 8,380
Accounts receivable, net of allowance for doubtful
accounts of $4,511 and $4,660, respectively............ 71,314 59,232
Prepaid and other current assets.......................... 1,660 4,317
---------- ----------
Total current assets.............................. 84,365 71,929
Property and equipment, net............................... 118,163 117,780
Intangibles and other, net................................ 3,323,486 3,301,542
Other assets.............................................. 627 1,947
---------- ----------
Total assets...................................... $3,526,641 $3,493,198
========== ==========

LIABILITIES AND SHAREHOLDER'S EQUITY

Current Liabilities:
Accounts payable.......................................... $ 3,303 $ 2,628
Accrued expenses.......................................... 13,869 12,903
Accrued interest.......................................... 4,136 11,913
Income taxes payable...................................... 35,140 2,203
Current portion of long-term debt......................... 372,903 369,467
---------- ----------
Total current liabilities......................... 429,351 399,114
Long-term debt, net of current portion.................... 325,686 324,622
Deferred income taxes..................................... 1,008,385 1,007,867
---------- ----------
Total liabilities................................. 1,763,422 1,731,603
---------- ----------
Redeemable Preferred Stock, aggregate liquidation preference
of $133,944 and $138,150, respectively.................... 148,669 152,511
---------- ----------
Commitments and contingencies
Shareholder's equity:
Class A Voting Common Stock, $.01 par value; 200,000
shares authorized; 1,006 shares issued and outstanding,
respectively........................................... 1 1
Class B Voting Convertible Common Stock, $.01 par value,
10,000,000 shares, authorized; none issued............. -- --
Additional paid-in capital................................ 1,613,967 1,610,125
Retained earnings (deficit)............................... 582 (1,042)
---------- ----------
Total shareholder's equity........................ 1,614,550 1,609,084
---------- ----------
Total liabilities and shareholder's equity........ $3,526,641 $3,493,198
========== ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-231
<PAGE> 553

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------ ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1999
------------------ ------------------
<S> <C> <C>
Gross broadcast revenue.................................. $ 74,405 $ 94,130
Less: agency commissions................................. (8,654) (8,909)
--------- --------
Net broadcast revenue.................................... 65,751 85,221
--------- --------
Station operating expenses............................... 44,636 49,281
Depreciation, amortization, duopoly integration costs and
acquisition related costs.............................. 10,653 23,060
Corporate expenses....................................... 1,569 1,681
LMA fees................................................. -- 75
Settlement of options and warrants....................... 138 --
Non-recurring and unusual charges, including adjustments
to broadcast rights agreement.......................... 24,974 --
--------- --------
Total operating expenses....................... 81,970 74,097
--------- --------
Operating income (loss).................................. (16,219) 11,124
Investment income........................................ 202 42
Interest expense......................................... (19,190) (13,312)
--------- --------
Loss from continuing operations before income taxes...... (35,207) (2,146)
Income tax expense (benefit)............................. 210 (522)
--------- --------
Loss from continuing operations.......................... (35,417) (1,624)
--------- --------
Discontinued operations:
Loss from operations to be distributed to shareholders,
net of taxes........................................ (97,576) --
--------- --------
Net loss................................................. (132,993) (1,624)
Dividends and accretion on preferred stocks.............. 10,350 3,842
--------- --------
Net loss attributable to common stock.................... $(143,343) $ (5,466)
========= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-232
<PAGE> 554

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------ ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1999
------------------ ------------------
<S> <C> <C>
Cash provided by continuing operations................... $ 11,547 $ 3,919
Cash from operating activities of SFX Entertainment...... 9,140 --
--------- --------
Net cash provided by operating activities................ 20,687 3,919
--------- --------
Investing activities:
Proceeds from sales of stations and other assets....... 4,692 --
Deposits and other payments for pending acquisitions... -- (596)
Purchase of property and equipment..................... (3,602) (2,173)
Other investing activities............................. (59) (591)
--------- --------
Net cash used in investing activities.................... 1,031 (3,360)
Cash used in investing activities of SFX Entertainment... (379,782) --
--------- --------
Net cash used in investing activities.................... (378,751) (3,360)
--------- --------
Financing activities:
Payments on long-term debt and credit facilities....... (100) (44,527)
Proceeds from issuance of long-term debt and credit
facilities.......................................... -- 40,957
Proceeds from issuance of common stock................. 3,759 --
Preferred stock dividends.............................. (2,459) --
--------- --------
Net cash provided by (used in) financing activities...... 1,200 (3,570)
Cash provided by financing activities of SFX
Entertainment.......................................... 458,654 --
--------- --------
Net cash provided by (used in) financing activities...... 459,854 (3,570)
--------- --------
Net increase (decrease) in cash and equivalents.......... 101,790 (3,011)
Cash and cash equivalents at beginning of period......... 24,686 11,391
Net increase in cash of SFX Entertainment................ (88,012) --
--------- --------
Cash and cash equivalents at end of period............... $ 38,464 $ 8,380
========= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-233
<PAGE> 555

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

Information with respect to the three month periods ended March 31, 1998
and 1999 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, the unaudited interim consolidated
financial statements contain all adjustments considered necessary for a fair
presentation. Operating results for the three month period ended March 31, 1999,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999, or for any other interim period. For further
information, refer to the consolidated financial statements and footnotes
thereto for Capstar Communications included in its Form 10-K for the year ended
December 31, 1998.

On May 29, 1998, SBI Holding Corporation, a Delaware corporation ("SFX
Parent"), acquired SFX Broadcasting, Inc., which has been renamed Capstar
Communications, Inc. The acquisition was effected through the merger (the "SFX
Merger") of SBI Radio Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of SFX Parent, with and into SFX, with SFX as the
surviving corporation. The acquisition of SFX by SFX Parent resulted in a change
of control of SFX. As a result of the SFX Merger, SFX became an indirect
wholly-owned subsidiary of Capstar Radio.

NOTE 2 -- CHANCELLOR MERGER AGREEMENT

- each share of Class A Common Stock, Class B Common Stock and Class C
Common Stock will represent 0.4955 shares of common stock in Chancellor
Media;

- each share of Chancellor Media common stock will remain equal to one
share of Chancellor Media common stock; and

- each share of Chancellor Media preferred stock will remain equal to one
share of Chancellor preferred stock.

F-234
<PAGE> 556
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- RECENT ACCOUNTING PRONOUNCEMENT

NOTE 4 -- COMMITMENTS AND CONTINGENCIES

On August 29, 1997, two lawsuits were commenced against SFX Broadcasting,
Inc. 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
by Capstar Broadcasting 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 by Capstar Broadcasting 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. 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
by Capstar Broadcasting in order to offset SFX Entertainment's indemnity
obligations. The settlement also provides for SFX to pay plaintiff's counsel an
aggregate of $950,000, including all fees and expenses as approved by the court.
The settlement is conditioned on the consummation of the SFX acquisition by
Capstar Broadcasting (which has been consummated), completion of the
confirmatory discovery (which has been completed) and approval of the court.
Pursuant to the settlement, the defendants have denied, and continue to deny,
that they have acted in bad faith or breached any fiduciary duty. The parties
expect to submit the settlement documents soon to the court for its approval.
However, there can be no assurance that the court will approve the settlement.

On July 13, 1998, Noddings Investment Group, Inc. and Noddings Warrant
Limited Partnership filed Civil Action No. 16538 in the Court of Chancery of the
State of Delaware in and for New Castle County against Capstar Communications.
Noddings alleges that Capstar Communications breached a March 23, 1994, Warrant
Agreement that Noddings contends requires Capstar Communications to permit
Noddings to exercise warrants in exchange for cash and shares of stock of SFX
Entertainment, Inc. Specifically, Noddings alleges that Capstar Communications
has violated the Warrant Agreement by permitting Noddings to receive cash in
exchange for its warrants, but refusing to convey shares of stock of SFX
Entertainment. In addition to suing on its own behalf, Noddings is seeking to
prosecute the action on behalf of a putative class comprised of all persons who
owned equivalent warrants on April 21, 1998 (the date immediately following the
record date of the distribution of stock of SFX Entertainment to holders of the
stock of SFX) and their transferees and successors in interest. Noddings has
requested that the Court:

- require Capstar Communications to pay 0.2983 shares of common stock of
SFX Entertainment per warrant and, (if not previously paid) $22.3725 in
cash, to any putative class member that has exercised or exercises
warrants after April 20, 1998,
F-235
<PAGE> 557
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- in the alternative, award plaintiffs and members of the putative class
monetary damages in an amount to be determined at trial, and

- award costs and attorneys' fees.

In March 1999, the court issued an opinion dismissing two of Noddings'
counts and granted summary judgment in favor of Noddings on one count. The court
held that Noddings is entitled to 0.2983 shares of SFX Entertainment, Inc. stock
per warrant. Both parties have filed a notice of appeal.

Capstar Communications 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 Capstar Communications.

F-236
<PAGE> 558

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Chancellor Media Corporation of Los Angeles:

We have audited the accompanying combined statement of assets acquired as
of April 3, 1998 and the related combined statements of revenues and direct
operating expenses of KBIG-FM, KLDE-FM, and WBIX-FM (formerly WNSR-FM),
(collectively, the "Company"), for each of the three years ended December 31,
1997. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined 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 combined statement of assets acquired and
the combined statements of revenues and direct operating expenses 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.

The accompanying combined financial statements reflect the assets acquired
and the revenues and direct operating expenses attributable to the Company as
described in Note 1 and are not intended to be a complete presentation of the
assets or revenues and expenses of the Company.

In our opinion, the combined statement of assets acquired and statements of
revenues and direct operating expenses present fairly, in all material respects,
the assets described in Note 1 as of April 3, 1998 and the revenues and direct
operating expenses as described in Note 1 for each of the three years ended
December 31, 1997 of the Company, in conformity with generally accepted
accounting principles.

PRICEWATERHOUSECOOPERS LLP

Dallas, Texas
February 16, 1999

F-237
<PAGE> 559

KBIG-FM, KLDE-FM AND WBIX-FM (FORMERLY WNSR-FM)

COMBINED STATEMENT OF ASSETS ACQUIRED
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
APRIL 3,
1998
--------
<S> <C>
Property and equipment, net................................. $5,699
Broadcast licenses.......................................... --
------
$5,699
======
</TABLE>

The accompanying notes are an integral part of the financial statements

F-238
<PAGE> 560

KBIG-FM, KLDE-FM, AND WBIX-FM (FORMERLY WNSR-FM)

COMBINED STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total revenue................................ $55,125 $55,286 $44,738 $ 9,870 $10,109
Less agency commissions...................... (9,252) (8,485) (6,290) (1,521) (1,398)
------- ------- ------- ------- -------
Net revenue........................ 45,873 46,801 38,448 8,349 8,711
------- ------- ------- ------- -------
Direct operating expenses:
Programming, technical and news............ 7,933 7,081 6,906 1,820 1,690
Sales and promotion........................ 15,720 13,187 10,536 3,294 2,293
Station general and administrative......... 4,981 5,437 5,064 1,754 1,674
Depreciation expense....................... 976 975 1,000 250 185
------- ------- ------- ------- -------
Total.............................. 29,610 26,680 23,506 7,118 5,842
------- ------- ------- ------- -------
Excess of net revenues over direct operating
expenses................................... $16,263 $20,121 $14,942 $ 1,231 $ 2,869
======= ======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of the financial statements

F-239
<PAGE> 561

KBIG-FM, KLDE-FM, AND WBIX-FM (FORMERLY WNSR-FM)

NOTES TO THE COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

(1) ORGANIZATION AND BASIS OF PRESENTATION

The accompanying combined financial statements include the accounts of
KBIG-FM, KLDE-FM and WBIX-FM (formerly WNSR-FM), (collectively, the "Company").
The Company operates three commercial radio stations, KBIG-FM in Los Angeles,
KLDE-FM in Houston and WBIX-FM in New York. The Company is wholly owned by
Bonneville International Corporation. Bonneville Holding Company is the licensee
of the Company pursuant to certain licenses and authorizations issued by the
Federal Communications Commission.

On April 3, 1998, Bonneville International Corporation and Bonneville
Holding Company (together, "Bonneville") exchanged KBIG-FM, KLDE-FM and WBIX-FM
for Chancellor Media Corporation of Los Angeles ("CMCLA") stations WTOP-AM in
Washington, KZLA-FM in Los Angeles and WGMS-FM in Washington plus $63,000 in
cash under an asset exchange agreement. No liabilities were assumed by CMCLA in
the transaction. The accompanying financial statements do not reflect any
adjustments relating to this transaction. CMCLA operated KBIG-FM and KDLE-FM
under time brokerage agreements from October 1, 1997 to April 3, 1998 and
WBIX-FM from October 10, 1997 to April 3, 1998. Revenues and direct operating
expenses of the Company included in the Combined Statements of Revenues and
Direct Operating Expenses and recognized by CMCLA in its Consolidated Statement
of Operations amounted to net revenue of approximately $9,959 and direct
operating expenses of approximately $4,229 for the period ended December 31,
1997 and net revenue of approximately $8,711 and direct operating expenses of
approximately $5,657 for the period ended March 31, 1998.

The accompanying statement of assets acquired and statements of revenues
and direct operating expenses have been prepared in accordance with generally
accepted accounting principles and were derived from the historical accounting
records of the Company. Significant intercompany balances and transactions have
been eliminated in combination.

The statement of assets acquired includes the assets of the Company, which
were acquired by Chancellor Media Corporation of Los Angeles on April 3, 1998.
This statement does not include cash, accounts receivable, prepaid or other
assets, accounts payable, accrued expenses or other borrowings.

The statements of revenues and direct operating expenses include the
revenues and direct expenses directly attributable to each station. The
statements do not include amortization expense, corporate general and
administrative costs, interest expense, income taxes or the LMA fees earned by
Bonneville pursuant to the time brokerage agreements.

Complete financial statements, including historical balance sheets and
statements of cash flows, were not prepared as Bonneville has not segregated
indirect corporate operating cost information or related assets and liabilities
for the Company in its accounting records.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Property and Equipment

Property and equipment are stated at cost less accumulated depreciation
which approximates the appraised value of the assets at the date of exchange.
The Company continually evaluates the propriety of the carrying amount of
property and equipment to determine whether current events or circumstances
warrant adjustment to the carrying value. Repairs and maintenance costs are
charged to expense when incurred.

F-240
<PAGE> 562
KBIG-FM, KLDE-FM AND WBIX-FM (FORMERLY WNSR-FM)

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(b) Broadcast Licenses

Broadcast licenses are stated at zero as Bonneville has not segregated the
cost basis of such licenses to the station level. The Company continually
evaluates the propriety of the carrying amount of broadcast licenses to
determine whether current events or circumstances warrant adjustment to the
carrying value.

Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.

(d) Disclosure of Certain Significant Risks and Uncertainties

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
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

(e) Unaudited Interim Financial Information

In the opinion of management, the unaudited interim combined statements of
revenues and direct operating expenses for the three months ended March 31, 1998
and 1997, reflect all adjustments, consisting of only normal and recurring
items, which are necessary for a fair presentation of the results for the
interim period presented. The results for the interim periods are not
necessarily indicative of results to be expected for any other interim periods
or for the full year.

F-241
<PAGE> 563

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Chancellor Media Corporation of Los Angeles:

We have audited the accompanying statement of assets acquired as of May 29,
1998 and the related statements of revenues and direct operating expenses of
KODA-FM, (the "Company"), for each of the two years 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.

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 statement of assets acquired and the
statements of revenues and direct operating expenses 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.

The accompanying financial statements reflect the assets acquired and the
revenues and direct operating expenses attributable to the Company as described
in Note 1 and are not intended to be a complete presentation of the assets or
revenues and expenses of the Company.

In our opinion, the statement of assets acquired and statements of revenues
and direct operating expenses present fairly, in all material respects, the
assets described in Note 1 as of May 29, 1998 and the revenues and direct
operating expenses as described in Note 1 for each of the two years ended
December 31, 1997 of the Company, in conformity with generally accepted
accounting principles.

PRICEWATERHOUSECOOPERS LLP

Dallas, Texas
February 16, 1999

F-242
<PAGE> 564

KODA-FM

STATEMENT OF ASSETS ACQUIRED
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MAY 29,
1998
-------
<S> <C>
Property and equipment, net................................. $391
Broadcast license........................................... --
----
$391
====
</TABLE>

The accompanying notes are an integral part of the financial statements

F-243
<PAGE> 565

KODA-FM

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------- ---------------
1996 1997 1997 1998
------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenue............................................ $18,950 $20,869 $4,440 $5,044
Less agency commissions.................................. (2,605) (2,889) (608) (691)
------- ------- ------ ------
Net revenue.................................... 16,345 17,980 3,832 4,353
------- ------- ------ ------
Direct operating expenses:
Programming, technical and news........................ 1,012 960 359 412
Sales and promotion.................................... 4,269 4,539 790 754
Station general and administrative..................... 2,125 2,036 529 465
Depreciation expense................................... 183 185 46 47
------- ------- ------ ------
Total.......................................... 7,589 7,720 1,724 1,678
------- ------- ------ ------
Excess of net revenues over direct operating expenses.... $ 8,756 $10,260 $2,108 $2,675
======= ======= ====== ======
</TABLE>

The accompanying notes are an integral part of the financial statements

F-244
<PAGE> 566

KODA-FM

NOTES TO THE FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

(1) ORGANIZATION AND BASIS OF PRESENTATION

The accompanying financial statements include the accounts of KODA-FM, (the
"Company"). The Company operates a commercial radio station, KODA-FM in Houston.
The Company is wholly owned by Capstar Broadcasting Corporation ("Capstar") and
formerly owned by SFX Broadcasting, Inc. ("SFX") prior to Capstar's acquisition
of SFX.

On May 29, 1998, Capstar exchanged KODA-FM for Chancellor Media Corporation
of Los Angeles ("CMCLA") stations WAPE-FM and WFYV-FM in Jacksonville under an
asset exchange agreement. As part of the transaction, CMCLA also paid cash of
$90,250 to the owners of KVET-AM, KVET-FM and KASE-FM, who simultaneously
transferred such stations to Capstar. No liabilities were assumed by CMCLA in
the transaction. The accompanying financial statements do not reflect any
adjustments relating to this transaction.

The statement of assets acquired includes the assets of the Company, which
were acquired by Chancellor Media Corporation of Los Angeles on May 29, 1998.
This statement does not include cash, accounts receivable, prepaid or other
assets, accounts payable, accrued expenses or other borrowings.

Complete financial statements, including historical balance sheets and
statements of cash flows, were not prepared as Capstar and SFX had not
segregated indirect corporate operating cost information or related assets and
liabilities for the Company in its accounting records.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Property and Equipment

(b) Broadcast Licenses

Broadcast licenses are stated at zero as Capstar has not segregated the
cost basis of such licenses to the station level. The Company continually
evaluates the propriety of the carrying amount of broadcast licenses to
determine whether current events or circumstances warrant adjustment to the
carrying value.

Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.

F-245
<PAGE> 567
KODA-FM

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

(d) Disclosure of Certain Significant Risks and Uncertainties

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
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

(e) Unaudited Interim Financial Information

In the opinion of management, the unaudited interim statements of revenues
and direct operating expenses for the three months ended March 31, 1998 and
1997, reflect all adjustments, consisting of only normal and recurring items,
which are necessary for a fair presentation of the results for the interim
period presented. The results for the interim periods are not necessarily
indicative of results to be expected for any other interim periods or for the
full year.

F-246
<PAGE> 568

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
The Broadcast Group, Inc.
Detroit, Michigan

We have audited the accompanying balance sheets of The Broadcast Group,
Inc. as of December 31, 1998 and 1997, and the related statements of
stockholder's equity (deficit), income, and cash flows for the years 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 audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Broadcast Group, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.

KLEIMAN, CARNEY & GREENBAUM
Certified Public Accountants

February 18, 1999, except
the third paragraph of
Note 1 as to which the
date is April 23, 1999

F-247
<PAGE> 569

THE BROADCAST GROUP, INC.

BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997

ASSETS

<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 15,864 $ 157,168
Accounts receivable (less allowance for uncollectible
accounts of $259,182 and $343,000, respectively)....... 1,096,779 2,429,832
Prepaid expenses and deposits............................. 35,856 112,168
---------- -----------
Total Current Assets.............................. 1,148,499 2,699,168
---------- -----------
PROPERTY AND EQUIPMENT
Land...................................................... 1,225,800 1,225,800
Buildings and improvements................................ 724,117 713,070
Broadcast equipment....................................... 1,092,151 1,090,911
Office furniture and equipment............................ 807,873 765,791
---------- -----------
3,849,941 3,795,572
Less: Accumulated depreciation......................... 2,078,969 1,994,509
---------- -----------
1,770,972 1,801,063
---------- -----------
OTHER ASSETS
Licenses, goodwill and network affiliation costs.......... 2,911,200 2,911,200
Lease acquisition costs................................... 775,000 775,000
---------- -----------
3,686,200 3,686,200
Less: Accumulated amortization......................... 1,829,656 1,726,441
---------- -----------
1,856,544 1,959,759
---------- -----------
TOTAL ASSETS...................................... $4,776,015 $ 6,459,990
========== ===========

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

CURRENT LIABILITIES
Note payable -- parent company (due on demand with
interest at 5.56%)..................................... $3,229,341 $ 7,984,408
Accounts payable.......................................... 105,285 266,841
Accrued expenses
Salaries and commissions............................... 113,807 113,770
Taxes, other than income............................... 18,441 23,403
Profit sharing plan contribution....................... 21,000 36,000
---------- -----------
Total Current Liabilities......................... 3,487,874 8,424,422
---------- -----------
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock, $1 par value, 10,000 shares authorized,
issued and outstanding................................. 10,000 10,000
Excess of amount paid in over par value of stock.......... 1,280,972 1,280,972
Deficit................................................... (2,831) (3,255,404)
---------- -----------
Total Stockholder's Equity (Deficit).............. 1,288,141 (1,964,432)
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)....................................... $4,776,015 $ 6,459,990
========== ===========
</TABLE>

See accompanying Notes to Financial Statements

F-248
<PAGE> 570

THE BROADCAST GROUP, INC.

STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1997 1998
----------------------------------------------------- -------------------------
STOCK
BALANCE, REDEMPTION BALANCE BALANCE
JANUARY 1, AND NET DECEMBER 31, NET DECEMBER 31,
1997 RETIREMENT INCOME 1997 INCOME 1998
----------- ----------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock................. $ 20,000 $ (20,000) $ -- $ -- $ -- $ --
Common stock.................... 10,000 -- -- 10,000 -- 10,000
Excess of amount paid in over
par value of stock............ 9,545,380 (8,264,408) -- 1,280,972 -- 1,280,972
Deficit......................... (6,329,466) -- 3,074,062 (3,255,404) 3,252,573 (2,831)
----------- ----------- ---------- ----------- ---------- ----------
TOTAL STOCKHOLDER'S EQUITY
(DEFICIT)................. $ 3,245,914 $(8,284,408) $3,074,062 $(1,964,432) $3,252,573 $1,288,141
=========== =========== ========== =========== ========== ==========
</TABLE>

See accompanying Notes to Financial Statements

F-249
<PAGE> 571

THE BROADCAST GROUP, INC.

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
AM and FM sales........................................... $11,828,487 $13,404,597
Time brokerage fees....................................... 1,049,067 --
Barter sales.............................................. 223,875 391,032
----------- -----------
Total Revenue.......................................... 13,101,429 13,795,629
Less: Commissions -- agencies and representatives......... 1,328,941 1,656,154
----------- -----------
Net Revenue....................................... 11,772,488 12,139,475
----------- -----------
OPERATING EXPENSES
Technical................................................. 223,470 212,528
Program................................................... 2,230,239 2,582,531
Selling................................................... 2,532,026 3,141,371
General and administrative................................ 1,164,505 1,195,355
Amortization.............................................. 103,215 103,215
Depreciation.............................................. 84,460 80,413
----------- -----------
Total Operating Expenses.......................... 6,337,915 7,315,413
----------- -----------
INCOME BEFORE INTEREST AND INCOME TAXES........... 5,434,573 4,824,067
----------- -----------
Interest.................................................... 332,000 --
----------- -----------
INCOME BEFORE INCOME TAXES........................ 5,102,573 4,824,062
Income Taxes................................................ 1,850,000 1,750,000
----------- -----------
NET INCOME........................................ $ 3,252,573 $ 3,074,062
=========== ===========
</TABLE>

See accompanying Notes to Financial Statements

F-250
<PAGE> 572

THE BROADCAST GROUP, INC.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 3,252,573 $ 3,074,062
Depreciation and amortization, charged to net income, not
requiring the use of cash.............................. 187,675 183,628
Changes in operating assets and liabilities that provide
(use) cash
Accounts receivable.................................... 1,333,053 (104,671)
Prepaid expenses and deposits.......................... 76,312 (27,479)
Accounts payable....................................... (161,556) (126,758)
Accrued expenses....................................... (19,925) (68,381)
----------- -----------
Cash Provided by Operating Activities............. 4,668,132 2,930,401
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment....................... (54,369) (81,679)
FINANCING ACTIVITIES
Payments on note payable to parent company................ (4,755,067) (300,000)
Repayment of loans payable to parent company.............. -- (2,523,670)
----------- -----------
Cash Used by Financing Activities................. (4,755,067) (2,823,670)
INCREASE (DECREASE) IN CASH....................... (141,304) 25,052
CASH, BEGINNING OF YEAR..................................... 157,168 132,116
----------- -----------
CASH, END OF YEAR................................. $ 15,864 $ 157,168
=========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for income taxes................ $ 1,850,000 $ 1,750,000
=========== ===========
Cash paid during the year for interest.................... $ 332,000 $ --
=========== ===========
SCHEDULE OF SIGNIFICANT NON-CASH FINANCING TRANSACTIONS
Demand promissory note exchanged for redemption and
retirement of preferred stock.......................... $ -- $ 8,284,408
=========== ===========
</TABLE>

See accompanying Notes to Financial Statements

F-251
<PAGE> 573

THE BROADCAST GROUP, INC.

NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997

NOTE 1 -- SIGNIFICANT EVENT

In September, 1998, the Company entered into an agreement to sell all of
its operating assets to Chancellor Media Corporation ("Chancellor") at a price
substantially in excess of net book value. The sale is expected to close during
the second quarter of 1999.

In conjunction with the pending sale, the Company also entered into a "time
brokerage agreement" with Chancellor that commenced on November 5, 1998. This
agreement transfers substantially all the operations of the Company to
Chancellor, until the sale is consummated, for a monthly payment of $562,000.

The results of operations for the stations from November 5 through December
31, 1998 recognized by Chancellor are as follows:

<TABLE>
<S> <C>
Total Revenue............................................... $2,307,845
Less Commissions............................................ 256,942
----------
Net Revenue....................................... 2,050,903
Direct Operating Expenses
Technical................................................. 21,041
Program................................................... 363,842
Selling................................................... 419,142
General and Administrative................................ 150,952
----------
Total Operating Expenses.......................... 954,977
----------
Excess of net revenue over direct operating expenses........ $1,095,926
==========
</TABLE>

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(a) Business Activity

The Company operated two radio stations, one AM and one FM in Phoenix,
Arizona. Both stations received revenues from local, regional and national
advertisers.

(b) Cash

The Company maintains cash accounts in a financial institution which, at
times, exceed federally insured amounts.

All tangible property is recorded at cost. Expenditures for maintenance and
repairs are charged to operations in the year incurred. For financial statement
purposes, property is depreciated using the straight line method over the
following estimated useful lives:

<TABLE>
<S> <C>
Buildings and improvements.............................. 10-33 years
Broadcast equipment..................................... 10 years
Office furniture and equipment.......................... 5-7 years
</TABLE>

(d) Other Assets

The following costs are being amortized using the straight line method over
the following lives:

<TABLE>
<S> <C>
Licenses, goodwill and network affiliation costs........... 40 years
Lease acquisition costs.................................... 23 years
</TABLE>

F-252
<PAGE> 574
THE BROADCAST GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(e) Income Taxes

The Broadcast Group, Inc. is a wholly owned subsidiary of The Wolpin Co.
and files a consolidated income tax return with its Parent. Differences in
financial and tax reporting for depreciation, amortization and accrued expenses
are not significant and, accordingly, no deferred income tax expense or
liability is reflected herein.

(f) Profit Sharing Plan

The Company established a 401(k) employee elective wage deferral plan with
a matching employer contribution. A matching contribution and administration fee
of $25,148 and $43,275 were expensed for the years ended December 31, 1998 and
1997, respectively.

The 1998 employer matching contribution was significantly reduced by the
termination of substantially all of the Company's employees on November 5, 1998.
(See Note 1).

(g) Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.

NOTE 3 -- ASSETS PLEDGED

Substantially all of the Company's assets are pledged as collateral under
the terms of a bank debt agreement entered into by the Parent Company.

NOTE 4 -- RELATED ENTITY TRANSACTIONS

Shareholders of the parent company, The Wolpin Co., are active in the
administration and management of The Broadcast Group, Inc. The Parent Company
charged administration and management fees of $350,000 for their services in
each of the years ended December 31, 1998 and 1997.

NOTE 5 -- STOCKHOLDER'S EQUITY (DEFICIT)

On December 31, 1997, the Company redeemed, from its Parent Company, all
2,000 outstanding shares of its non-voting preferred stock. The redemption price
of $8,284,408 represents the original issue price plus an 11% accumulated
dividend.

The Company executed a demand promissory note with interest at 5.56% in
exchange for the shares.

F-253
<PAGE> 575

KFYI-AM AND KKFR-FM

COMBINED STATEMENT OF ASSETS TO BE ACQUIRED

<TABLE>
<CAPTION>
MARCH 31, 1999
--------------
(UNAUDITED)
<S> <C>
Broadcast licenses, net of accumulated amortization of
$888,892.................................................. $1,172,307
Property and equipment:
Land...................................................... 1,225,800
Buildings and improvements................................ 724,117
Broadcast equipment....................................... 1,092,151
Office furniture and equipment............................ 807,873
----------
3,849,941
Less accumulated depreciation............................. 2,099,969
----------
1,749,972
----------
Total assets to be acquired....................... $2,922,279
==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-254
<PAGE> 576

KFYI-AM AND KKFR-FM

COMBINED STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------
1999 1998
---------- ----------
(UNAUDITED)
<S> <C> <C>
Total revenue............................................... $3,328,727 $3,103,698
Less agency commissions..................................... (326,915) (322,369)
---------- ----------
Net revenue....................................... 3,001,812 2,781,329
---------- ----------
Direct operating expenses:
Programming, technical and news........................... 637,262 629,302
Sales and promotion....................................... 646,114 558,683
Station general and administrative........................ 418,493 516,824
Depreciation and amortization............................. 33,882 33,882
---------- ----------
1,735,751 1,738,691
---------- ----------
Excess of net revenues over direct operating expenses....... $1,266,061 $1,042,638
========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-255
<PAGE> 577

KFYI-AM AND KKFR-FM

NOTES TO THE COMBINED FINANCIAL STATEMENTS
(UNAUDITED)

(1) ORGANIZATION AND BASIS OF PRESENTATION

The accompanying combined financial statements include the accounts of
KFYI-AM and KKFR-FM, (collectively, the "Company"). The Company operates two
commercial radio stations, KFYI-AM and KKFR-FM in Phoenix, Arizona. The Company
is wholly owned by The Broadcast Group, Inc. ("TBG").

TBG intends to sell KFYI-AM and KKFR-FM to a subsidiary of Chancellor Media
Corporation ("CMC") for $89,850,000. Additionally, CMC will pay $150,000 for
certain noncompetition agreements to be executed at the date of purchase. The
accompanying combined financial statements do not reflect any adjustments
relating to this transaction. CMC has operated KFYI-AM and KKFR-FM under a time
brokerage agreement since November 5, 1998. Revenues and direct operating
expenses of the Company included in the combined statement of revenues and
direct operating expenses and recognized by CMC in its consolidated statement of
operations amounted to net revenue of approximately $3,001,812 and direct
operating expenses of approximately $1,701,869 for the three months ended March
31, 1999.

The accompanying combined statement of assets to be acquired and statements
of revenues and direct operating expenses have been prepared in accordance with
generally accepted accounting principles and were derived from the historical
accounting records of the Company. Significant intercompany balances and
transactions have been eliminated in combination.

The combined statement of assets to be acquired includes the assets of the
Company to be acquired by CMC. Accordingly, this statement excludes cash,
accounts receivable, prepaid or other assets, accounts payable, accrued expenses
or other borrowings which are not being purchased.

The combined statements of revenues and direct operating expenses include
the revenues and direct expenses directly attributable to each station. The
statements do not include corporate general and administrative expenses,
interest expense, income taxes or the fees earned by TBG pursuant to the time
brokerage agreement.

Complete financial statements, including historical balance sheets and
statements of cash flows, were not prepared as neither TBG nor CMC has
segregated the related assets and liabilities for the stations in their
accounting records for the three months ended March 31, 1999.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.
The Company continually evaluates the propriety of the carrying amount of
property and equipment to determine whether current events or circumstances
warrant adjustments to the carrying value. Repairs and maintenance costs are
charged to expense when incurred.

(b) Broadcast Licenses

The Company continually evaluates the propriety of the carrying amount of
broadcast licenses to determine whether current events or circumstances warrant
adjustment to the carrying value.

Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.

F-256
<PAGE> 578
KFYI-AM AND KKFR-FM

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

(d) Disclosure of Certain Significant Risks and Uncertainties

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
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

(e) Unaudited Interim Financial Information

In the opinion of management, the unaudited interim combined statements of
revenues and direct operating expenses for the three months ended March 31, 1999
and 1998, reflect all adjustments, consisting of only normal and recurring
items, which are necessary for a fair presentation of the results for the
interim periods presented. The results for the interim periods are not
necessarily indicative of results to be expected for any other interim periods
or for the full year.

F-257
<PAGE> 579

INDEPENDENT AUDITORS' REPORT

Board of Directors
Lamar Advertising Company:

We have audited the accompanying consolidated balance sheets of Lamar
Advertising Company and subsidiaries as of December 31, 1998, and December 31,
1997, and the related consolidated statements of operations, comprehensive
income, stockholders' equity and cash flows for the years ended December 31,
1998 and 1997, the two months ended December 31, 1996, and the year ended
October 31, 1996. 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.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lamar
Advertising Company and subsidiaries as of December 31, 1998 and December 31,
1997, and the results of their operations and their cash flows for the years
ended December 31, 1998 and 1997, the two months ended December 31, 1996, and
the year ended October 31, 1996, in conformity with generally accepted
accounting principles.

KPMG LLP

New Orleans, Louisiana
February 5, 1999

F-258
<PAGE> 580

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1998 AND DECEMBER 31, 1997

ASSETS

<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 128,597 $ 7,246
Receivables:
Trade accounts, less allowance for doubtful accounts of
$2,722 in 1998 and $1,311 in 1997..................... 39,681 29,854
Affiliates, related parties and employees............... 378 788
Other................................................... 321 1,284
---------- --------
40,380 31,926
Prepaid expenses........................................ 12,346 9,112
Other current assets.................................... 1,736 1,136
---------- --------
Total current assets............................... 183,059 49,420
---------- --------
Property, plant and equipment (note 5)...................... 661,324 429,615
Less accumulated depreciation and amortization............ (153,972) (113,477)
---------- --------
507,352 316,138
---------- --------
Intangible assets (note 6).................................. 705,934 278,923
Investment securities (note 1).............................. -- 679
Receivables -- noncurrent................................... 1,972 1,625
Other assets................................................ 15,060 4,551
---------- --------
Total assets....................................... $1,413,377 $651,336
========== ========
</TABLE>

<TABLE>

<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 4,258 $ 3,308
Current maturities of long-term debt (note 9)............. 49,079 5,109
Accrued expenses (note 8)................................. 25,912 14,804
Deferred income........................................... 9,589 7,537
---------- --------
Total current liabilities.......................... 88,838 30,758
Long-term debt (note 9)..................................... 827,453 534,091
Deferred income taxes (note 10)............................. 25,613 14,687
Deferred income............................................. 1,293 837
Other liabilities........................................... 3,401 2,250
---------- --------
946,598 582,623
---------- --------
Stockholders' equity (note 12):
Class A preferred stock, par value $638, $63.80 cumulative
dividends, 10,000 shares authorized, 5,719 shares issued
and outstanding......................................... 3,649 3,649
Class A common stock, par value $.001, 75,000,000 shares
authorized, 43,392,876 and 28,453,805 shares issued and
outstanding at 1998 and 1997, respectively.............. 43 28
Class B common stock, par value $.001, 37,500,000 shares
authorized, 17,699,997 and 18,762,909 shares issued and
outstanding at 1998 and 1997, respectively.............. 18 19
Additional paid-in capital................................ 505,644 95,691
Accumulated deficit....................................... (42,575) (30,320)
Unrealized loss on investment securities.................. -- (354)
---------- --------
Stockholders' equity............................... 466,779 68,713
---------- --------
Total liabilities and stockholders' equity......... $1,413,377 $651,336
========== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-259
<PAGE> 581

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net revenues............................. $ 288,588 $ 201,062 $ 23,262 $ 120,602
Operating expenses:
Direct advertising expenses............ 92,849 63,390 7,975 41,184
General and administrative expenses.... 60,935 45,368 5,034 29,466
Depreciation and amortization.......... 88,572 48,037 3,928 16,470
----------- ----------- ----------- -----------
242,356 156,795 16,937 87,120
----------- ----------- ----------- -----------
Operating income............... 46,232 44,267 6,325 33,482
----------- ----------- ----------- -----------
Other expense (income):
Interest income........................ (762) (1,723) (243) (240)
Interest expense....................... 60,008 38,230 3,803 15,441
Loss (gain) on disposition of assets... (1,152) (15) 76 91
Other expenses......................... 219 280 30 242
----------- ----------- ----------- -----------
58,313 36,772 3,666 15,534
----------- ----------- ----------- -----------
Earnings (loss) before income
taxes and extraordinary
item......................... (12,081) 7,495 2,659 17,948
Income tax expense (benefit) (note 10)... (191) 4,654 1,199 7,099
----------- ----------- ----------- -----------
Earnings (loss) before extraordinary
item................................... (11,890) 2,841 1,460 10,849
Extraordinary item -- Loss on debt
extinguishment net of income tax
benefit of $5,660...................... -- -- 9,514 --
----------- ----------- ----------- -----------
Net earnings (loss)............ (11,890) 2,841 (8,054) 10,849
Preferred stock dividends................ (365) (365) (61) (365)
----------- ----------- ----------- -----------
Net earnings (loss) applicable to common
stock.................................. $ (12,255) $ 2,476 $ (8,115) $ 10,484
=========== =========== =========== ===========
Earnings (loss) before extraordinary item
per common share (basic and diluted)... $ (.24) $ .05 $ .03 $ .25
=========== =========== =========== ===========
Extraordinary item....................... $ -- $ -- $ (.21) $ --
=========== =========== =========== ===========
Net earnings (loss) per common share
(basic and diluted).................... $ (.24) $ .05 $ (.18) $ .25
=========== =========== =========== ===========
Weighted average common shares
outstanding............................ 51,361,522 47,037,497 45,520,784 41,134,476
Incremental common shares from dilutive
stock options.......................... -- 363,483 -- 114,057
----------- ----------- ----------- -----------
Weighted average common shares assuming
dilution............................... 51,361,522 47,400,980 45,520,784 41,248,533
=========== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-260
<PAGE> 582

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED TWO MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
------------ ------------ ---------------- -----------
<S> <C> <C> <C> <C>
Net earnings (loss) applicable to common
stock................................. $(12,255) $2,476 $(8,115) $10,484
Other comprehensive income -- change in
unrealized gain (loss) on investment
securities (net of deferred tax
expense (benefit) of $217, $(596),
$(801), $1180 for the years ended
December 31, 1998, and 1997, two
months ended December 31, 1996, and
the year ended October 31, 1996)...... 354 (974) (1,364) 1,984
-------- ------ ------- -------
Comprehensive income (loss)............. $(11,901) $1,502 $(9,479) $12,468
======== ====== ======= =======
</TABLE>

F-261
<PAGE> 583

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED OCTOBER 31, 1996, THE TWO MONTHS ENDED DECEMBER 31, 1996
AND THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998

<TABLE>
<CAPTION>
UNREALIZED
CLASS A CLASS A CLASS B ADDITIONAL GAIN (LOSS)
PREFERRED COMMON COMMON PAID-IN ACCUMULATED ON INVESTMENT
STOCK STOCK STOCK CAPITAL DEFICIT SECURITIES TOTAL
--------- ------- ------- ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1995............... $ -- $16 $17 $ -- $(28,187) $ -- $(28,154)
Conversion of 6,682,169 shares of
common stock to 5,719.49 shares of
preferred stock..................... 3,649 (2) (2) -- (3,645) -- --
Redemption of 5,427,305 shares of
common stock........................ -- (4) -- -- (2,958) -- (2,962)
Issuance of 6,441,062 shares of common
stock............................... -- 4 -- 62,745 -- -- 62,749
Conversion of 765,225 shares of Class
B common stock to Class A common
stock............................... -- 1 (1) -- -- -- --
Additional consideration for
redemption of common stock.......... -- -- -- (25,000) -- -- (25,000)
Exercise of stock options............. -- -- -- 315 -- -- 315
Unrealized gain on investment
securities, net of deferred taxes of
$1,180.............................. -- -- -- -- -- 1,984 1,984
Net earnings.......................... -- -- -- -- 10,849 -- 10,849
Dividends ($.006 per common share and
$63.80 per preferred share)......... -- -- -- -- (740) -- (740)
------ --- --- -------- -------- ------- --------
Balance, October 31, 1996............... 3,649 15 14 38,060 (24,681) 1,984 19,041
Issuance of 3,795,000 shares of common
stock............................... -- 3 -- 54,168 -- -- 54,171
Exercise of stock options............. -- -- -- 30 -- -- 30
Net loss.............................. -- -- -- -- (8,054) -- (8,054)
Dividends ($10.63 per preferred
share).............................. -- -- -- -- (61) -- (61)
Unrealized loss on investment
securities, net of deferred taxes of
$801................................ -- -- -- -- -- (1,364) (1,364)
------ --- --- -------- -------- ------- --------
Balance, December 31, 1996.............. 3,649 18 14 92,258 (32,796) 620 63,763
Exercise of stock options............. -- -- -- 3,448 -- -- 3,448
Conversion of 1,811,552 shares of
Class B common stock to Class A
common stock........................ -- 1 (1) -- -- -- --
Net earnings.......................... -- -- -- -- 2,841 -- 2,841
Dividends ($63.80 per preferred
share).............................. -- -- -- -- (365) -- (365)
Unrealized loss on investment
securities, net of deferred taxes of
$596................................ -- -- -- -- -- (974) (974)
Three-for-two stock split (Note 12)... -- 9 6 (15) -- -- --
------ --- --- -------- -------- ------- --------
Balance, December 31, 1997.............. 3,649 28 19 95,691 (30,320) (354) 68,713
Issuance of 13,338,005 shares of
common stock........................ -- 13 -- 399,288 -- -- 399,301
Exercise of stock options............. -- 1 -- 10,665 -- -- 10,666
Conversion of 1,062,912 shares of
Class B common stock to Class A
common stock........................ -- 1 (1) -- -- -- --
Net loss.............................. -- -- -- -- (11,890) -- (11,890)
Dividends ($63.80 per preferred
share).............................. -- -- -- -- (365) -- (365)
Realized loss on investment
securities, net of tax.............. -- -- -- -- -- 354 354
------ --- --- -------- -------- ------- --------
Balance December 31, 1998............... $3,649 $43 $18 $505,644 $(42,575) $ -- $466,779
====== === === ======== ======== ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-262
<PAGE> 584

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................ $ (11,890) $ 2,841 $ (8,054) $ 10,849
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities:
Depreciation and amortization........... 88,572 48,037 3,928 16,470
Loss (gain) on disposition of assets.... (1,152) (15) 76 91
Loss on debt extinguishment, net of
tax................................... -- -- 9,514 --
Deferred tax expense (benefit).......... (7,537) (2,839) 1,055 2,308
Provision for doubtful accounts......... 2,883 2,098 256 580
Changes in operating assets and
liabilities:
(Increase) decrease in:
Receivables........................... (2,464) (7,646) (4,524) (2,677)
Prepaid expenses...................... (521) (367) (28) 9
Other assets.......................... (1,929) 29 (180) (594)
Increase (decrease) in:
Trade accounts payable................ 250 (1,951) 249 828
Accrued expenses...................... 4,326 6,063 (3,121) 1,302
Deferred income....................... 2,132 (425) (38) 2,690
Other liabilities..................... (172) (42) 18 637
--------- --------- --------- --------
Net cash provided by (used in)
operating activities............. 72,498 45,783 (849) 32,493
--------- --------- --------- --------
Cash flows from investing activities:
Capital expenditures....................... (55,196) (36,654) (4,877) (25,944)
Purchase of new markets.................... (485,514) (386,842) (108,746) (23,029)
Proceeds from sale of property and
equipment............................... 5,493 53,268 225 849
--------- --------- --------- --------
Net cash used in investing
activities....................... (535,217) (370,228) (113,398) (48,124)
--------- --------- --------- --------
Cash flows from financing activities:
Net proceeds from issuance of common
stock................................... 402,629 2,403 54,927 63,064
Proceeds from issuance of long-term debt... 70 193,926 247,813 5,000
Principal payments on long-term debt....... (6,229) -- (110,143) --
Debt issuance costs........................ (3,035) -- -- --
Net borrowing (payments) under credit
agreements.............................. 191,000 54,720 (5,773) (41,187)
Redemption of common stock................. -- -- -- (7,962)
Dividends.................................. (365) (365) -- (740)
--------- --------- --------- --------
Net cash provided by financing
activities....................... 584,070 250,684 186,824 18,175
--------- --------- --------- --------
Net increase (decrease) in cash and cash
equivalents................................ 121,351 (73,761) 72,577 2,544
Cash and cash equivalents at beginning of
period..................................... 7,246 81,007 8,430 5,886
--------- --------- --------- --------
Cash and cash equivalents at end of period... $ 128,597 $ 7,246 $ 81,007 $ 8,430
========= ========= ========= ========
Supplemental disclosures of cash flow
information:
Cash paid for interest..................... $ 56,960 $ 33,284 $ 6,573 $ 15,659
========= ========= ========= ========
Cash paid for income taxes................. $ 1,107 $ 8,792 $ 15 $ 3,756
========= ========= ========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-263
<PAGE> 585

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1998, 1997 AND OCTOBER 31, 1996

(1) SIGNIFICANT ACCOUNTING POLICIES

(a) Nature of Business

Lamar Advertising Company ("LAC" or the "Company") is engaged in the
outdoor advertising business operating approximately 71,900 outdoor advertising
displays in 36 states. The Company's operating strategy is to be the leading
provider of outdoor advertising services in most of the markets it serves, with
a historical emphasis on providing a full range of outdoor advertising services
in middle markets with a population ranking between 50 and 250 in the United
States.

In addition, the Company operates a logo sign business in 18 states
throughout the United States and in 1 province of Canada. Logo signs are erected
pursuant to state-awarded service contracts on public rights-of-way near highway
exits and deliver brand name information on available gas, food, lodging and
camping services. Included in the Company's logo sign business are tourism
signing contracts. Revenues of the logo sign business contributed approximately
8%, 10% and 10% of the Company's net revenues for the years ended December 31,
1998, 1997 and October 31, 1996, respectively.

(b) Principles of Consolidation

The accompanying consolidated financial statements include Lamar
Advertising Company, its wholly-owned subsidiary, The Lamar Corporation (TLC),
and their majority-owned subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.

Property, plant and equipment are stated at cost. Depreciation is
calculated using accelerated and straight-line methods over the estimated useful
lives of the assets.

(d) Intangible Assets

Intangible assets, consisting primarily of goodwill, customer lists and
contracts, and non-competition agreements are amortized using the straight-line
method over the assets estimated useful lives, generally from 5 to 15 years.
Debt issuance costs are deferred and amortized over the terms of the related
credit facilities using the interest method.

(e) Investment Securities

Investment securities at December 31, 1997 consisted of the Company's
investment in approximately 340,000 shares of common stock of Wireless One,
Inc., a publicly-held company in the wireless cable business. The former Chief
Executive Officer of Wireless One, Inc. is an employee and principal shareholder
of the Company and has been nominated for election as a director of the Company
at the 1999 Annual Meeting.

The Wireless One, Inc. shares were classified as available-for-sale at
December 31, 1997 and were carried at fair value with the unrealized gain or
loss, net of the related tax effect, reported as a separate component of
stockholders' equity. These shares were sold in May, 1998, resulting in a
realized loss of $875. The cost of the Wireless One, Inc. shares owned by the
Company was $1,250, and the market value was $679 at December 31, 1997.

(f) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-

F-264
<PAGE> 586
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

(g) Deferred Income

Deferred income consists principally of advertising revenue received in
advance and gains resulting from the sale of certain assets to related parties.
Deferred advertising revenue is recognized in income as services are provided
over the term of the contract. Deferred gains are recognized in income in the
consolidated financial statements at the time the assets are sold to an
unrelated party or otherwise disposed of.

(h) Revenue Recognition

The Company recognizes revenue from outdoor and logo sign advertising
contracts, net of agency commissions, on an accrual basis ratably over the term
of the contracts, as advertising services are provided.

(i) Income Taxes

The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

(j) Earnings Per Share

Earnings per share are computed in accordance with SFAS No. 128, "Earnings
Per Share." The calculation of basic earnings per share excludes any dilutive
effect of stock options, while diluted earnings per share includes the dilutive
effect of stock options.

(k) Stock Option Plan

The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation," permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined in SFAS No.
123 has been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.

F-265
<PAGE> 587
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(l) Cash and Cash Equivalents

The Company considers all highly-liquid investments with original
maturities of three months or less to be cash equivalents.

(m) Reclassification of Prior Year Amounts

Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the current year presentation. These
reclassifications had no effect on previously reported net earnings.

(n) Use of Estimates

(2) CHANGE IN FISCAL YEAR END

Effective January 1, 1997, the Company changed its fiscal year from a
twelve-month period ending October 31 to a twelve-month period ending December
31. The year end change was made to conform to the predominant year ends within
the outdoor advertising industry. The consolidated statements of operations,
stockholders' equity and cash flows are presented for the twelve months ended
December 31, 1998, December 31, 1997, the two months ended December 31, 1996 and
for the twelve-months ended October 31, 1996.

(3) ACQUISITIONS

Year Ended October 31, 1996

During the year ended October 31, 1996, the Company completed twelve
acquisitions of outdoor advertising businesses, none of which were individually
significant, for an aggregate purchase price of $24,010. Each purchase was
accounted for under the purchase method of accounting, and, accordingly, the
accompanying financial statements include the results of operations of each
acquired entity from the date of acquisition. The Company recorded an aggregate
of approximately $6,100 of intangible assets as a result of these acquisitions.
Proforma net revenues, assuming these acquisitions had occurred on November 1,
1995, would have been approximately $123,000. The effect on net earnings and net
earnings per share would not have been material.

Fourteen Months Ended December 31, 1997

Effective November 1, 1996, the Company acquired all of the outstanding
capital stock of FKM Advertising, Co., Inc. for a cash purchase price of
approximately $40,000, and on December 10, 1996, the Company purchased
substantially all of the assets of Outdoor East, L.P. for a total cash purchase
price of approximately $60,500.

Effective April 1, 1997, the Company acquired all of the outstanding
capital stock of Penn Advertising, Inc. for a cash purchase price of
approximately $167,000. The Company subsequently sold approximately 16% of the
outdoor displays acquired to Universal Outdoor, Inc. for a cash purchase price
of $46,500.

F-266
<PAGE> 588
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

On June 3, 1997, the Company purchased substantially all of the assets of
Headrick Outdoor, Inc. for a cash purchase price of approximately $76,600.
Simultaneous with the acquisition, the Company sold approximately 9% of the
outdoor displays acquired for a total purchase price of $6,000.

On August 15, 1997, the Company purchased from Outdoor Systems, Inc.
("OSI") for a cash purchase price of approximately $116,000 (excluding
approximately $2,000 in capitalized costs), certain outdoor advertising assets
that OSI had acquired from National Advertising Company, a division of Minnesota
Mining and Manufacturing Company.

During the year ended December 31, 1997, the Company completed 22
additional acquisitions of outdoor advertising assets, none of which were
individually significant, for an aggregate cash purchase price of approximately
$21,000.

Each of these acquisitions were accounted for under the purchase method of
accounting, and, accordingly, the accompanying financial statements include the
results of operations of each acquired entity from the date of acquisition. The
acquisition costs have been allocated to assets acquired and liabilities assumed
based on fair market value at the dates of acquisition. The following is a
summary of the allocation of the acquisition costs in the above transactions.

<TABLE>
<CAPTION>
PROPERTY,
CURRENT PLANT & CUSTOMER OTHER CURRENT LONG-TERM
ASSETS EQUIPMENT GOODWILL LISTS ASSETS LIABILITIES LIABILITIES
------- --------- -------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FKM.................... $ 732 $ 12,536 $ 23,636 $ 3,554 $ 632 $ (83) $ (1,007)
Outdoor East........... 1,579 35,431 16,148 7,958 1,069 (153) (804)
Penn Advertising,
Inc.................. 4,645 47,745 72,435 17,752 1,448 (1,144) (22,208)
Headrick Outdoor,
Inc.................. 825 46,553 1,640 11,494 11,091 -- --
Outdoor Systems,
Inc.................. 6,243 27,091 63,148 23,611 -- (2,640) --
Other.................. 370 17,106 5,132 2,787 591 (132) (5,127)
------- -------- -------- ------- ------- ------- --------
$14,394 $186,462 $182,139 $67,156 $14,831 $(4,152) $(29,146)
======= ======== ======== ======= ======= ======= ========
</TABLE>

The following unaudited financial information for the Company gives effect
to the acquisitions during the two months ended December 31, 1996 and the year
ended December 31, 1997 as if they had occurred on November 1, 1995. These
proforma results do not purport to be indicative of the results of operations
which actually would have resulted had the acquisitions occurred on such date,
or to project the Company's results of operations for any future period.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, OCTOBER 31,
1997 1996
------------ -----------
<S> <C> <C>
Revenues, net............................................... $225,903 $207,023
Net loss applicable to common stock......................... (3,520) (8,977)
Net loss per common share (basic and diluted)............... (.07) (.22)
</TABLE>

Year Ended December 31, 1998

On January 2, 1998, the Company purchased all the outdoor advertising
assets of Ragan Outdoor Advertising Company, Ragan Outdoor Advertising Company
of Cedar Rapids, and Ragan Outdoor Advertising Company of Rockford, L.L.C. for a
cash purchase price of $25,000.

On January 30, 1998, the Company acquired all of the outdoor advertising
assets of three related outdoor advertising companies (Pioneer Advertising
Company, Superior Outdoor Advertising Company and Overland Outdoor Advertising
Company, Inc.) located in Missouri and Arkansas for a cash purchase price of
$19,200.

F-267
<PAGE> 589
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

On April 30, 1998, the Company purchased all the outdoor advertising assets
of Northwest Outdoor Advertising, L.L.C. for a cash purchase price of
approximately $70,000. The acquired displays are located in the states of
Washington, Montana, Oregon, Idaho, Wyoming, Nebraska, Nevada and Utah.

On May 15, 1998, the Company purchased the assets of Odegard Outdoor
Advertising, L.L.C., for a cash purchase price of approximately $8,500. This
acquisition increases the Company's presence in the Kansas City, Missouri
market.

On May 29, 1998, the Company entered into an agreement to purchase from
Rainier Evergreen, Inc. or through its affiliates (i) all of the issued and
outstanding common stock of American Signs, Inc., (ii) the assets of the Sun
Media division and (iii) the assets of Sun Media of the Rockies, Inc. The asset
purchases were closed on that date; while the stock purchase was delayed due to
lease transfer issues involving the Bureau of Interior Affairs. The stock
purchase was completed in September, 1998. The total purchase price was $26,550.

On September 1, 1998, the Company entered into an agreement to purchase all
of the outdoor advertising assets of Nichols & Vann Advertising. The Company
paid a cash purchase price of $11,000 of which $6,100 is held on deposit as of
December 31, 1998, and is included in other assets in the accompanying balance
sheet at December 31, 1998.

On October 1, 1998, the Company purchased all of the outstanding stock of
OCI for a purchase price of $385,000. The purchase price included approximately
$235,000 in cash, the assumption of OCI debt of approximately $105,000 and the
issuance of notes in the aggregate amount of $45,000 to certain principal
stockholders of OCI. Pursuant to this acquisition, the Company acquired
approximately 14,700 displays in 12 states. Funds for this acquisition were
provided from borrowings under the New Revolving Credit Facility and the Term
Facility.

During the twelve months ended December 31, 1998, the Company completed 60
additional acquisitions of outdoor advertising assets, none of which were
individually significant, for an aggregate cash purchase price of approximately
$89 million and issuance of 63,005 shares of Class A common stock valued at
approximately $2,400.

Each of these acquisitions were accounted for under the purchase method of
accounting, and accordingly, the accompanying financial statements include the
results of operations of each acquired entity from the date of acquisition. The
acquisition costs have been allocated to assets acquired and liabilities assumed
based on fair market value at the dates of acquisition. The following is a
summary of the allocation of the acquisition costs in the above transactions.

<TABLE>
<CAPTION>
PROPERTY, LONG-
CURRENT PLANT & CUSTOMER OTHER CURRENT TERM
ASSETS EQUIPMENT GOODWILL LISTS ASSETS LIABILITIES LIABILITIES
------- --------- -------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ragan Companies........................ $ 694 $ 9,634 $13,275 $ 1,563 $ 10 $ (176) $ --
Pioneer and related companies.......... 307 15,062 264 4,037 9 (479) --
Northwest Outdoor Advertising, LLC..... 2,176 23,667 36,199 8,498 363 (697) (273)
Odegard Outdoor Advertising, LLC....... 285 1,633 5,959 720 375 (272) (300)
Rainier Evergreen, Inc................. 359 3,205 21,681 1,755 100 (550) (50)
Nichols & Vann Advertising............. -- 300 3,944 181 6,575 -- --
Outdoor Communications, Inc............ 9,957 97,058 266,856 27,226 10,399 (54,112) (121,296)
Other.................................. 1,036 33,227 46,756 11,511 4,904 (3,506) (2,549)
------- -------- -------- ------- ------- -------- ---------
$14,814 $183,786 $394,934 $55,491 $22,735 $(59,792) $(124,468)
======= ======== ======== ======= ======= ======== =========
</TABLE>

F-268
<PAGE> 590
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The following unaudited pro forma financial information for the Company
gives effect to the 1998 and 1997 acquisitions as if they had occurred on
January 1, 1997. These pro forma results do not purport to be indicative of the
results of operations which actually would have resulted had the acquisitions
occurred on such date, or to project the Company's results of operations for any
future period.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues, net............................................... $342,101 $307,530
======== ========
Net loss applicable to common stock......................... $(25,455) $(35,117)
======== ========
Net loss per common share (basic and diluted)............... $ (.50) $ (.75)
======== ========
</TABLE>

(4) NONCASH FINANCING AND INVESTING ACTIVITIES

A summary of significant noncash financing and investing activities for the
years ended December 31, 1998, 1997 and the year ended October 31, 1996 follows:

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Disposition of assets..................................... $ 30 $1,300 $ --
Acquisitions of assets.................................... 2,706 -- 2,104
Issuance of preferred stock in exchange for common
stock................................................... -- -- 3,649
Redemption of common stock for debt....................... -- -- 20,000
Conversion of note receivable to equity investment........ -- 500 --
Debt issuance costs....................................... -- 4,750 --
</TABLE>

Significant noncash financing activities during the two months ended
December 31, 1996 include approximately $7,000 of debt issuance costs.

(5) PROPERTY, PLANT AND EQUIPMENT

Major categories of property, plant and equipment at December 31, 1998 and
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
ESTIMATED
LIFE
(YEARS) 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Land.................................................. -- $ 25,543 $ 15,185
Building and improvements............................. 10-39 28,924 20,672
Advertising structures................................ 15 576,676 371,491
Automotive and other equipment........................ 3-7 30,181 22,267
-------- --------
$661,324 $429,615
======== ========
</TABLE>

F-269
<PAGE> 591
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(6) INTANGIBLE ASSETS

The following is a summary of intangible assets at December 31, 1998 and
December 31, 1997:

<TABLE>
<CAPTION>
ESTIMATED LIFE
(YEARS) 1998 1997
-------------- -------- --------
<S> <C> <C> <C>
Debt issuance costs and fees....................... 7-10 $ 20,081 $ 14,754
Customer lists and contracts....................... 7-10 108,903 68,185
Non-compete agreements............................. 7-15 19,318 15,313
Goodwill........................................... 15 554,685 178,047
Other.............................................. 5-15 2,947 2,624
-------- --------
$705,934 $278,923
======== ========
Cost............................................... 778,655 308,621
Accumulated amortization........................... (72,721) (29,698)
-------- --------
$705,934 $278,923
======== ========
</TABLE>

(7) LEASES

The Company is party to various operating leases for production facilities
and sites upon which advertising structures are built. The leases expire at
various dates, generally during the next five years, and have varying options to
renew and to cancel. The following is a summary of minimum annual rental
payments required under those operating leases that have original or remaining
lease terms in excess of one year as of December 31:

<TABLE>
<S> <C>
1999...................................................... $32,262
2000...................................................... 27,387
2001...................................................... 23,449
2002...................................................... 19,941
2003...................................................... 16,977
Thereafter................................................ 84,201
</TABLE>

Rental expense related to the Company's operating leases was $43,440,
$31,411 and $19,387 for the years ended December 31, 1998, December 31, 1997 and
October 31, 1996, respectively.

(8) ACCRUED EXPENSES

The following is a summary of accrued expenses at December 31, 1998 and
December 31, 1997:

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Payroll................................................... $ 4,863 $ 4,390
Interest.................................................. 11,629 7,357
Insurance benefits........................................ 3,715 2,613
Other..................................................... 5,705 444
------- -------
$25,912 $14,804
======= =======
</TABLE>

F-270
<PAGE> 592
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(9) LONG-TERM DEBT

Long-term debt consists of the following at December 31, 1998 and December
31, 1997:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
9 5/8% Senior subordinated notes............................ $255,000 $255,000
8 5/8% Senior subordinated notes............................ 198,785 198,696
Bank Credit Agreement....................................... 250,000 59,000
9 1/4% Senior subordinated notes............................ 103,949 --
8% unsecured subordinated notes (see Note 12)............... 15,333 17,319
Other notes with various rates and terms.................... 53,465 9,185
-------- --------
876,532 539,200
Less current maturities..................................... (49,079) (5,109)
-------- --------
Long-term debt, excluding current maturities................ $827,453 $534,091
======== ========
</TABLE>

Long-term debt matures as follows:

<TABLE>
<S> <C>
1999...................................................... $ 49,079
2000...................................................... 18,698
2001...................................................... 22,673
2002...................................................... 38,435
2003...................................................... 38,713
Later years............................................... $708,934
</TABLE>

In November 1996, the Company issued $255,000 in principal amount of 9 5/8
Senior Subordinated Notes due 2006 (the "1996 Notes"), with interest payable
semi-annually on June 1 and December 1 of each year. The 1996 Notes are senior
subordinated unsecured obligations of the Company and are subordinated in right
of payment to all senior indebtedness of the Company, pari passu with the 1997
Notes (as defined below), and are senior to all existing and future subordinated
indebtedness of the Company.

In September 1997, the Company issued $200,000 in principal amount of
8 5/8% Senior Subordinated Notes due 2007 (the "1997 Notes") with interest
payable semi-annually on March 15 and September 15 of each year, commencing
March 15, 1998. The 1997 Notes were issued at a discount for $198,676. The
Company is using the effective interest method to recognize the discount over
the life of the 1997 Notes. The 1997 Notes are senior subordinated unsecured
obligations of the Company, subordinated in right of payment to all senior
indebtedness of the Company, pari passu with the 1996 Notes and are senior to
all existing and future subordinated indebtedness of the Company.

The 1996 and 1997 Notes are redeemable at the Company's option at any time
on or after December 31, 2001 and September 15, 2002, respectively, at
redemption prices specified by the indentures, and are required to be
repurchased earlier in the event of a change of control of the Company. The
indentures covering the 1996 and 1997 Notes include certain restrictive
covenants which limit the Company's ability to incur additional debt, pay
dividends and make other restricted payments, consummate certain transactions
and other matters.

The Bank Credit Agreement provides the Company with a committed $225,000
revolving credit facility and a $75,000 incremental term facility to be funded
at the discretion of the lenders. As of December 31, 1997, there was $59,000
outstanding under the revolving credit facility and there were no borrowings
under the incremental term facility. The revolving credit facility bears
interest at a variable rate of interest based upon an

F-271
<PAGE> 593
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

applicable margin over LIBOR or the prime rate. The weighted average interest
rate under the facility at December 31, 1997 was 7.93%.

The Bank Credit Agreement is guaranteed by the Company's subsidiaries and
secured by the capital stock of the Company's subsidiaries. The Bank Credit
Agreement contains various restrictive covenants, which require that the Company
meet certain minimum leverage, and coverage ratios, restrict additional
indebtedness, limit dividends and other restricted payments, limit capital
expenditures and disposition of assets, and other restrictions. In September
1997, the Company amended certain financial and other covenants in the Bank
Credit Facility, including increases in permitted capital expenditures and
permitted acquisitions.

In July, 1998, the Company entered into a new Bank Credit Agreement (the
"New Bank Credit Agreement") which consists of a committed $250,000 revolving
credit facility (the "New Revolving Credit Facility"), a $150,000 term facility
(the "Term Facility") and a $100,000 incremental facility (the "Incremental
Facility") funded at the discretion of the lenders. As of December 31, 1998, the
Company had borrowings outstanding of $150 million under the Term Facility, $100
million under the Incremental Facility, and $0 under the New Revolving Credit
Facility. The New Bank Credit Agreement replaced the Company's previous Bank
Credit Facility.

Availability of the line under the New Revolving Credit Facility is reduced
quarterly beginning with the quarter ended March 31, 2000, in the following
amounts:

<TABLE>
<S> <C>
March 31, 2000 -- December 31, 2001......................... $ 6,250
March 31, 2002 -- December 31, 2003......................... 9,375
March 31, 2004 -- December 31, 2004......................... 12,500
March 31, 2005 -- December 31, 2005......................... 18,750
</TABLE>

The Term Facility will begin to amortize quarterly beginning September 30,
2000 in the following quarterly amounts:

<TABLE>
<S> <C>
September 30, 2000 -- December 31, 2000..................... $7,500
March 31, 2001 -- December 31, 2001......................... 3,750
March 31, 2002 -- December 31, 2005......................... 7,500
</TABLE>

The Incremental Facility will begin quarterly principal reductions of
between 1% and 2% of the outstanding balance at the date the loans begin to
amortize, beginning with the quarter ended March 31, 2001 and ending June 30,
2006.

The Incremental Facility and the Term Facility bear interest at a variable
rate of interest based on the applicable margin over LIBOR or the prime rate.
The weighted average interest rate on borrowings under the Bank Credit Agreement
at December 31, 1998, was 7.37%

Revolving credit loans may be requested under the New Revolving Credit
Facility at any time prior to maturity. The loans bear interest, at the
Company's option, at the LIBOR Rate or Chase Prime Rate plus applicable margins,
such margins being set from time to time based on the Company's ratio of debt to
trailing twelve month EBITDA. EBITDA is defined in the New Bank Credit Agreement
as operating income before depreciation and amortization, a commonly used
measure of financial performance. The New Bank Credit Agreement contains
restrictive covenants comparable to those under the prior agreement, and of a
sort customary in credit facilities for outdoor advertising companies. The terms
of the Company's credit facility

F-272
<PAGE> 594
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

and the indentures relating to the Company's outstanding notes restrict, among
other things, the Company's ability to:

- dispose of assets;

- incur or repay debt;

- create liens; and

- make investments.

Under the Company's credit facility the Company must maintain specified
financial ratios and levels including:

- cash interest coverage;

- fixed charge coverage;

- senior debt ratios; and

- total debt ratios.

The $103,949 of 9 1/4% Senior Subordinated Notes are due 2007, with
interest payable semi-annually on February 15 and August 15 of each year, and
were previously issued by OCI. The Notes are senior subordinated unsecured
obligations of the Company, subordinated in right of payment to all senior
indebtedness of the Company, and are senior to all existing and future
subordinated indebtedness of the Company.

In November 1996, the Company commenced a tender offer for all of its
$100,000 outstanding principal amount of 11% Senior Secured Notes due 2003 (the
"1993 Notes"). As of December 31, 1997, approximately $98,827 of the 1993 Notes
were tendered to the Company and retired. As a result of this tender offer and
the extinguishment of other credit facilities, the Company recorded a loss on
debt extinguishment of $9,514, net of income tax benefit of $5,660, during the
two months ended December 31, 1996 (see Note 2).

(10) INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 1998,
December 31, 1997, the two months ended December 31, 1996, and the year ended
October 31, 1996, consists of:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Year ended December 31, 1998:
U.S. federal............................................ $6,269 $(6,074) $ 195
State and local......................................... 1,077 (1,463) (386)
------ ------- ------
$7,346 $(7,537) $ (191)
Change in deferred tax attributable to unrealized losses
on investment securities, included in stockholders'
equity.................................................. -- 217 217
------ ------- ------
$7,346 $(7,320) $ 26
====== ======= ======
</TABLE>

F-273
<PAGE> 595
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Year ended December 31, 1997:
U.S. federal............................................ $6,108 $(2,475) $3,633
State and local......................................... 1,385 (364) 1,021
------ ------- ------
$7,493 $(2,839) $4,654
Change in deferred tax attributable to unrealized losses
on investment securities, included in stockholders'
equity.................................................. -- (596) (596)
------ ------- ------
$7,493 $(3,435) $4,058
====== ======= ======
Two months ended December 31, 1996:
U.S. federal............................................ $ -- $ 1,028 $1,028
State and local......................................... 144 27 171
------ ------- ------
$ 144 $ 1,055 $1,199
Change in deferred tax attributable to unrealized losses
on investment securities, included in stockholders'
equity.................................................. -- (379) (379)
------ ------- ------
$ 144 $ 676 $ 820
====== ======= ======
Year ended October 31, 1996:
U.S. federal............................................ $3,991 $ 2,683 $6,674
State and local......................................... 800 (375) 425
------ ------- ------
$4,791 $ 2,308 $7,099
Change in deferred tax attributable to unrealized gains on
investment securities, included in stockholders'
equity.................................................. -- 1,180 1,180
------ ------- ------
$4,791 $ 3,488 $8,279
====== ======= ======
</TABLE>

Income tax expense (benefit) attributable to continuing operations for the
years ended December 31, 1998 and 1997, the two months ended December 31, 1996,
and the year ended October 31, 1996, differs from the amounts computed by
applying the U.S. federal income tax rate of 34 percent to earnings before
income taxes as follows:

<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Computed "expected" tax expense
(benefit).......................... $(4,108) $2,548 $ 904 $6,102
Increase (reduction) in income taxes
resulting from:
Book expenses not deductible for
tax purposes.................... 450 92 18 110
Amortization of non-deductible
goodwill........................ 3,752 1,730 -- --
State and local income taxes, net
of federal income tax benefit... (255) 674 113 281
Other differences, net............. (30) (390) 164 606
------- ------ ------ ------
$ (191) $4,654 $1,199 $7,099
======= ====== ====== ======
</TABLE>

F-274
<PAGE> 596
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and December 31, 1997 are presented below:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation........................................... $ (4,915) $ (3,125)
Plant and equipment, due to basis differences on
acquisitions........................................... (28,556) (15,582)
Intangibles, due to differences in amortizable lives...... (5,058) (5,646)
-------- --------
Deferred tax liabilities.......................... (38,529) (24,353)
Deferred tax assets:
Receivables, principally due to allowance for doubtful
accounts............................................... 1,151 511
Plant and equipment, due to basis differences on
acquisitions and costs capitalized for tax purposes.... 4,530 4,823
Investment in affiliates and plant and equipment, due to
gains recognized for tax purposes and deferred for
financial reporting purposes........................... 941 941
Accrued liabilities not deducted for tax purposes......... 2,125 1,384
Net operating loss carryforward........................... 3,563 1,673
Unrealized losses on investment securities................ -- 217
Other, net................................................ 606 117
-------- --------
Deferred tax assets............................... 12,916 9,666
-------- --------
Net deferred tax liability........................ $(25,613) $(14,687)
======== ========
</TABLE>

Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences. The amount of the deferred
tax assets considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.

(11) RELATED PARTY TRANSACTIONS

Affiliates, as used within these statements, are persons or entities that
are affiliated with Lamar Advertising Company or its subsidiaries through common
ownership and directorate control.

As of December 31, 1998, and December 31, 1997, debentures and ten year
subordinated notes totaling $16,749 and $19,153, respectively, are owned by
shareholders, directors and employees. Interest expense under the debentures and
ten year subordinated notes during the years ended December 31, 1998, December
31, 1997, and October 31, 1996 was $1,497, $1,719 and $494, respectively.

(12) STOCKHOLDERS' EQUITY

On December 31, 1997, the Board of Directors approved a three-for-two split
of its Class A and Class B common stock subject to the approval by the
shareholders of an increase in the authorized number of shares of

F-275
<PAGE> 597
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Class A and Class B common stock. On February 26, 1998, the shareholders
approved an increase in the authorized number of shares of Class A common stock
to 75,000,000 and Class B common stock to 37,500,000. The stock split, which was
effected by means of a 50% stock dividend, was paid to shareholders on February
27, 1998. Par value of the common stock remained unchanged at $.001. Common
stock and additional paid in capital were adjusted to reflect the split as of
December 31, 1997. All references to share and per share information in the
consolidated financial statements and related footnotes have been restated to
reflect the effect of the split for all periods presented.

During 1995 and 1996, the Company repurchased 3.6% and 12.9%, respectively,
of its then outstanding common stock (1,830,750 and 5,427,305 shares,
respectively) from certain of its existing stockholders for an aggregate
purchase price of approximately $4 million. The terms of such repurchases
entitled the selling stockholders to receive additional consideration from the
Company in the event that the Company consummated a public offering of its
common stock at a higher price within 24 months of the repurchase. In
satisfaction of that obligation, upon completion of the Company's initial public
equity offering in August 1996, the Company paid the selling stockholders an
aggregate of $5.0 million in cash and issued to them ten-year subordinated notes
in the aggregate principal amount of $20,000. The notes bear interest at 8% (1%
above the ten-year treasury note rate when issued) and are payable in monthly
installments of $167, plus interest. The balance outstanding under these notes
at December 31, 1998 and December 31, 1997, was $15,333 and $17,319,
respectively.

In June, 1998, the Company completed a public offering of 6,375,000 shares
of Class A Common Stock at $29.00 per share. Net proceeds to the Company after
underwriting discounts from the equity offering were $177.5 million. These
proceeds were used to pay down outstanding bank debt of approximately $173.0
million with the remainder used for operations.

In December, 1998, the Company completed a public offering of 6,900,000
shares of Class A Common Stock at $35 per share. Net proceeds to the Company
after underwriting discounts from the equity offering were $219.8 million. These
proceeds were used to pay down outstanding bank debt of approximately $99.0
million with the remainder used for debt reduction and acquisitions in 1999.

The rights of the Class A and Class B common stock are equal in all
respects, except holders of Class B common stock have ten votes per share on all
matters in which the holders of common stock are entitled to vote and holders of
Class A common stock have one vote per share on such matters. The Class B common
stock will convert automatically into Class A common stock upon the sale or
transfer to persons other than permitted transferees (as defined in the
Company's certificate of incorporation, as amended).

(13) STOCK OPTION PLAN

In 1996, the Company adopted the 1996 Equity Incentive Plan (the "1996
Plan"). The purpose of the 1996 Plan is to attract and retain key employees and
consultants of the Company. The 1996 Plan authorizes the grant of stock options,
stock appreciation rights and restricted stock to employees and consultants of
the Company capable of contributing to the Company's performance. Options
granted under the 1996 Plan generally become exercisable over a five-year period
and expire 10 years from the date of grant. The Company initially reserved an
aggregate of 3,000,000 shares of Class A Common Stock (as adjusted for the
Company's February 1998 three-for-two stock split) for awards under the 1996
Plan. In September, 1998, the Board of Directors of the Company voted to
increase the number of shares reserved for issuance under the 1996 Plan by
1,000,000 shares to 4,000,000 shares, subject to the approval of the
stockholders of the Company, at its next regularly scheduled shareholders'
meeting.

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has

F-276
<PAGE> 598
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

been recognized for the stock option grants. 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, 1997 and 1998, consistent with the provisions of SFAS
No. 123, the Company's net earnings (loss) and earnings (loss) per share would
have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, OCTOBER 31,
1998 1997 1996 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net earnings (loss) applicable to
common stock -- as reported........ $(12,255) $2,476 $(8,115) $10,484
======== ====== ======= =======
Net earnings (loss) applicable to
common stock -- pro forma.......... $(15,145) $ (603) $(8,666) $ 8,891
======== ====== ======= =======
Earnings (loss) per common share --as
reported (basic and diluted)....... $ (.24) $ .05 $ (.18) $ .25
======== ====== ======= =======
Earnings (loss) per common
share -- pro forma (basic and
diluted)........................... $ (.29) $ (.01) $ (.19) $ .22
======== ====== ======= =======
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used:

<TABLE>
<CAPTION>
DIVIDEND EXPECTED RISK FREE EXPECTED
GRANT YEAR YIELD VOLATILITY INTEREST RATE LIVES
---------- -------- ---------- ------------- --------
<S> <C> <C> <C> <C>
1998......................................... 0% 59% 5% 4
1997......................................... 0% 40% 6% 3
1996......................................... 0% 53% 6% 3
</TABLE>

Information regarding the 1996 Plan for the years ended December 31, 1998
and December 31, 1997, two months ended December 31, 1996, and year ended
October 31, 1996, is as follows:

<TABLE>
<CAPTION>
TWO MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 OCTOBER 31, 1996
-------------------- -------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year...................... 1,868,804 $11.60 1,774,896 $10.85 1,742,753 $10.67 -- $ --
Granted..................... 950,500 29.88 399,000 15.20 36,750 17.93 1,772,250 10.67
Exercised................... (538,154) 10.84 (225,256) 10.67 (2,844) 10.67 (29,497) 10.67
Canceled.................... (40,583) 18.24 (79,836) 10.96 (1,763) 10.67 -- --
--------- ------ --------- ------ --------- ------ --------- ------
Outstanding, end of year.... 2,240,567 $19.25 1,868,804 $11.60 1,774,896 $10.85 1,742,753 $10.67
========= ====== ========= ====== ========= ====== ========= ======
Price for exercised
shares.................... $ 10.84 $ 10.67 $ 10.67 $ 10.67
Shares available for grant,
end of year............... 963,682 873,599 1,192,763 1,227,750
Weighted average fair value
of options granted during
the year.................. $ 13.09 $ 7.18 $ 10.06 $ 4.14
</TABLE>

F-277
<PAGE> 599
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The following table summarizes information about fixed-price stock options
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1998 LIFE PRICE 1998 PRICE
- ------------------------ ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 10.67......................... 979,467 7.62 $10.67 333,849 $10.67
10.67-13.67......................... 149,000 7.66 13.25 17,750 13.25
13.83-18.42......................... 137,100 7.63 16.86 1,200 17.67
26.17......................... 63,000 8.14 22.79 0 0
26.69......................... 209,000 7.61 26.69 0 0
30.34......................... 694,000 7.62 30.34 116,100 30.34
37.50......................... 9,000 7.60 37.50 0 0
</TABLE>

No stock appreciation rights or restricted stock authorized by the 1996
Plan have been granted.

(14) COMMITMENTS AND OTHER CONTINGENCIES

The Company sponsors a partially self-insured group health insurance
program. The Company is obligated to pay all claims under the program, which are
in excess of premiums, up to program limits of $150 per employee, per claim, per
year. The Company is also self-insured with respect to its income disability
benefits and against casualty losses on advertising structures. Amounts for
expected losses, including a provision for losses incurred but not reported, is
included in accrued expenses in the accompanying consolidated financial
statements. The Company maintains a $500 letter of credit with a bank to meet
requirements of the Company's worker's compensation insurance carrier.

The Company sponsors The Lamar Corporation Savings and Profit Sharing Plan
covering employees who have completed one year of service and are at least 21
years of age. The Company matches 50% of employees' contributions up to 5% of
related compensation. Employees can contribute up to 15% of compensation. Full
vesting on the Company's matched contributions occurs after five years.
Annually, at the Company's discretion, an additional profit sharing contribution
may be made on behalf of each eligible employee. In total, for the years ended
December 31, 1998, December 31, 1997 and October 31, 1996, the Company
contributed $952, $1,181 and $1,262, respectively.

The Company sponsors a Deferred Compensation Plan for the benefit of
certain of its senior management who meet specific age and years of service
criteria. Employees who have attained the age of 30 and have a minimum of 10
years of service are eligible for annual contributions to the Plan generally
ranging from $3 to $8, depending on the employee's length of service. LAC's
contributions to the Plan are maintained in a "rabbi" trust and, accordingly,
the assets and liabilities of the Plan are reflected in the balance sheet of
LAC. Upon termination, death or disability, participating employees are eligible
to receive an amount equal to the fair market value of the assets in the
employee's deferred compensation account. The Company has contributed $406, $190
and $182 to the Plan during the years ended December 31, 1998, December 31,
1997, and October 31, 1996, respectively. Contributions to the Deferred
Compensation Plan are discretionary and are determined by the Board of
Directors.

The Company is the subject of litigation arising during the normal course
of business. In the opinion of management and the general counsel of the
Company, those claims will not have a material impact on the financial position,
results of operations or liquidity of the Company.

F-278
<PAGE> 600
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(15) SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES

Except as set forth below, separate financial statements of each of the
Company's direct or indirect subsidiaries that have guaranteed the Company's
obligations under the 1996 Notes and the 1997 Notes (collectively, the
"Guarantors") are not included herein because the Guarantors are jointly and
severally liable under the guarantees, and the aggregate assets, liabilities,
earnings and equity of the Guarantors are substantially equivalent to the
assets, liabilities, earnings and equity of the Company on a consolidated basis.

Summarized financial information for Missouri Logos, a Partnership, a
66 2/3% owned subsidiary of the Company and the only subsidiary of the Company
that is not a Guarantor, is set forth below:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance Sheet Information:
Current assets............................................ $248 $237
Total assets.............................................. 297 290
Current liabilities....................................... 7 7
Total liabilities......................................... 7 7
Venturers' equity......................................... 290 283
</TABLE>

<TABLE>
<CAPTION>
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
Income Statement Information:
Revenues.................................................. $1,038 $991 $931
Net income................................................ 523 540 545
</TABLE>

(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1998 and 1997. The fair
value of the financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties.

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Marketable investment securities................... $ -- $ -- $ 679 $ 679
Long-term debt..................................... $827,453 $874,091 $534,091 $575,198
</TABLE>

The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies as follows:

- The carrying amounts of cash and cash equivalents, receivables, trade
accounts payable, accrued expenses, and deferred income approximate fair
value because of the short term nature of these items.

- The fair value of the Company's marketable investment securities are
based on quoted market prices.

- The fair value of long-term debt is based upon market quotes obtained
from dealers where available and by discounting future cash flows at
rates currently available to the Company for similar instruments when
quoted market rates are not available.

Fair value estimates are subject to inherent limitations. Estimates of fair
values are made at a specific point in time, based on relevant market
information and information about the financial instrument. The estimated fair
values of financial instruments presented above are not necessarily indicative
of amounts the

F-279
<PAGE> 601
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Company might realize in actual market transactions. Estimates of fair value are
subjective in nature and involve uncertainties and matters of significant
judgement and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.

(17) QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FISCAL YEAR 1998 QUARTERS
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues..................................... $58,397 $69,675 $73,528 $86,988
Net revenues less direct advertising expenses.... 37,567 48,066 51,271 58,835
Net earnings (loss) applicable to common stock... (4,682) (1,253) 1,538 (7,858)
Net earnings per common share (basic)............ (.10) (.02) .03 (.15)
Net earnings per common share (diluted).......... (.10) (.02) .03 (.15)
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR 1997 QUARTERS
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues..................................... $37,847 $50,108 $55,485 $57,622
Net revenues less direct advertising expenses.... 24,380 34,625 38,974 39,693
Net earnings (loss) applicable to common stock... 1,205 1,402 916 (1,047)
Net earnings (loss) per common share (basic)..... .03 .03 .02 (.02)
Net earnings (loss) per common share (diluted)... .03 .03 .02 (.02)
</TABLE>

(18) NEW ACCOUNTING PRONOUNCEMENTS

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998, and requires that the costs of start-up
activities, including organizational costs, be expensed as incurred. At December
31, 1998, the Company estimates that $1,169, of such capitalized costs are
included in intangible assets on the Company's balance sheet.

The effect of SOP 98-5 will be recorded in the first quarter of fiscal 1999
as the cumulative effect of a change in accounting principle, as described in
Accounting Principles Board Opinion No. 20 "Accounting Changes."

(19) SUBSEQUENT EVENTS

Subsequent to December 31, 1998, the Company purchased substantially all of
the assets of four outdoor advertising companies for a total purchase price of
approximately $63,000 in cash. The acquisitions will be accounted for under the
purchase method of accounting.

F-280
<PAGE> 602

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 8,171 $ 128,597
Receivables:
Trade accounts, net....................................... 40,242 39,681
Affiliates, related parties and employees................. 470 378
Other..................................................... 330 321
---------- ----------
Net receivables................................... 41,042 40,380
Prepaid expenses............................................ 12,856 12,346
Other current assets........................................ 4,717 1,736
---------- ----------
Total current assets.............................. 66,786 183,059
---------- ----------
Property, plant and equipment............................... 687,523 661,324
Less accumulated depreciation and amortization............ (166,028) (153,972)
---------- ----------
Net property, plant and equipment................. 521,495 507,352
---------- ----------
Intangible assets........................................... 752,809 705,934
Receivables -- noncurrent................................... 3,183 1,972
Other assets................................................ 14,264 15,060
---------- ----------
Total assets...................................... $1,358,537 $1,413,377
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 4,064 $ 4,258
Accrued expenses.......................................... 22,061 25,912
Current maturities of long-term debt...................... 4,165 49,079
Deferred income........................................... 10,279 9,589
---------- ----------
Total current liabilities......................... 40,569 88,838
Long-term debt.............................................. 829,288 827,453
Deferred tax liability...................................... 23,998 25,613
Deferred income............................................. 1,313 1,293
Other liabilities........................................... 4,464 3,401
---------- ----------
Total liabilities................................. 899,632 946,598
---------- ----------
Stockholders' equity:
Class A preferred stock, par value $638, $63.80 cumulative
dividends, authorized 10,000 shares; 5,719.49 shares
issued and outstanding................................. 3,649 3,649
Class A common stock, $.001 par value, authorized
75,000,000 shares; issued and outstanding 43,514,283
shares and 43,392,876 shares at March 31, 1999 and
December 31, 1998, respectively........................ 43 43
Class B common stock, $.001 par value, authorized
37,500,000 shares; issued and outstanding 17,699,997... 18 18
Additional paid-in capital................................ 508,567 505,644
Accumulated deficit....................................... (53,372) (42,575)
---------- ----------
Stockholders' equity...................................... 458,905 466,779
---------- ----------
Total liabilities and stockholders' equity........ $1,358,537 $1,413,377
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements

F-281
<PAGE> 603

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues
Outdoor advertising, net.................................. $ 85,766 $ 58,397
----------- -----------
Operating expenses:
Direct advertising expenses............................... 29,764 20,830
Selling, general and administrative expenses.............. 20,099 13,216
Depreciation and amortization............................. 31,561 17,605
----------- -----------
81,424 51,651
----------- -----------
Operating income.................................. 4,342 6,746
----------- -----------
Other expense (income):
Interest income........................................... (686) (107)
Interest expense.......................................... 18,145 13,326
Gain on disposition of assets............................. (336) (317)
----------- -----------
17,123 12,902
----------- -----------
Loss before income taxes and cumulative effect of a change
in accounting principle................................ (12,781) (6,156)
Income tax benefit.......................................... (2,842) (1,565)
----------- -----------
Loss before cumulative effect of a change in accounting
principle.............................................. (9,939) (4,591)
Cumulative effect of a change in accounting principle, net
of tax.................................................... (767) --
----------- -----------
Net loss.......................................... (10,706) (4,591)
Preferred stock dividends................................... (91) (91)
----------- -----------
Net loss applicable to common stock......................... $ (10,797) $ (4,682)
=========== ===========
Loss before cumulative effect of a change in accounting
principle per common share -- basic and diluted........... $ (.17) $ (.10)
=========== ===========
Cumulative effect of a change in accounting principle, net
of tax, per common share -- basic and diluted............. $ (.01) $ --
=========== ===========
Net loss per common share -- basic.......................... $ (.18) $ (.10)
=========== ===========
Net loss per common share -- diluted........................ $ (.18) $ (.10)
=========== ===========
Weighted average common shares outstanding.................. 61,143,351 47,350,919
Incremental common shares from dilutive stock options....... -- --
----------- -----------
Weighted average common shares assuming dilution............ 61,143,351 47,350,919
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements

F-282
<PAGE> 604

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Net loss applicable to common stock......................... $(10,797) $(4,682)
Other comprehensive income -- change in unrealized loss on
investment securities (net of deferred tax benefit of
$(133) for the three months ending March 31, 1998)........ -- (217)
-------- -------
Comprehensive loss.......................................... $(10,797) $(4,899)
======== =======
</TABLE>

F-283
<PAGE> 605

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (10,706) $ (4,591)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 31,561 17,605
Gain on disposition of assets............................. (336) (317)
Deferred taxes............................................ (2,319) (1,550)
Provision for doubtful accounts........................... 941 551
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables............................................ (1,923) 2,772
Prepaid expenses....................................... (11) (115)
Other assets........................................... (1,915) (2,315)
Increase (decrease) in:
Trade accounts payable................................. (194) (444)
Accrued expenses....................................... (6,432) (1,178)
Other liabilities...................................... 37 20
Deferred income........................................ 675 570
--------- --------
Net cash provided by operating activities......... 9,378 11,008
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable................................ (1,184) (250)
Acquisition of new markets.................................. (74,930) (54,990)
Capital expenditures........................................ (12,581) (11,069)
Proceeds from disposition of assets......................... 749 579
--------- --------
Net cash used in investing activities............. (87,946) (65,730)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.................. 1,312 2,601
Principal payments on long-term debt........................ (45,939) (1,063)
Proceeds from issuance of notes payable..................... 2,860 70
Net borrowings under credit agreements...................... -- 50,000
Dividends................................................... (91) (91)
--------- --------
Net cash provided by (used in) financing
activities...................................... (41,858) 51,517
--------- --------
Net decrease in cash and cash equivalents................... (120,426) (3,205)
Cash and cash equivalents at beginning of period............ 128,597 7,246
--------- --------
Cash and cash equivalents at end of period.................. $ 8,171 $ 4,041
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 18,835 $ 10,783
========= ========
Cash paid for state and federal income taxes................ $ 570 $ 848
========= ========
</TABLE>

See accompanying notes to consolidated financial statements

F-284
<PAGE> 606

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. SIGNIFICANT ACCOUNTING POLICIES

The information included in the foregoing interim financial statements is
unaudited. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the Company's
financial position and results of operations for the interim periods presented
have been reflected herein. The results of operations for interim periods are
not necessarily indicative of the results to be expected for the entire year.
These condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K.

Earnings per share are computed in accordance with SFAS No. 128, "Earnings
Per Share." The calculations of basic earnings per share excludes any dilutive
effect of stock options, while diluted earnings per share includes the dilutive
effect of stock options. Antidilutive shares of 598,848 and 611,296 for the
three months ended March 31, 1999 and 1998 have been excluded from the
calculation of diluted earnings per share.

Certain amounts in the prior year's consolidated financial statements have
been reclassified to conform with the current year presentation. These
reclassifications had no effect on previously reported net earnings.

New Accounting Pronouncements

In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP 98-5"), Reporting on the Costs of Start-Up
Activities. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998, and requires that the costs of start-up
activities, including organizational costs, be expensed as incurred. The effect
of SOP 98-5 is recorded as a cumulative effect of a change in accounting
principle as described in Accounting Principles Board Opinion No. 20 "Accounting
Changes."

2. ACQUISITIONS

On January 5, 1999, the Company purchased all the outdoor advertising
assets of American Displays, Inc. for a cash purchase price of approximately
$14,511.

On February 1, 1999, the company purchased all of the outdoor advertising
assets of KJS, LLC for a cash purchase price of $40,494.

During the three months ended March 31, 1999, the company completed 17
additional acquisitions for an aggregate cash purchase price of approximately
$20,000 and issuance of 13,023 shares of class A common stock valued at
approximately $475.

F-285
<PAGE> 607
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
PROPERTY,
CURRENT PLANT AND CUSTOMER OTHER CURRENT LONG-TERM
ASSETS EQUIPMENT GOODWILL LISTS ASSETS LIABILITIES LIABILITIES
------- --------- -------- -------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
American Displays.......... $ 87 $ 899 $10,532 $ 3,227 $ 50 $ (284) $ --
KJS, LLC................... 46 9,468 30,543 4,479 10 (2,079) (1,921)
Other...................... 181 5,309 13,222 2,594 662 (402) (1,548)
---- ------- ------- ------- ---- ------- -------
$314 $15,676 $54,297 $10,300 $722 $(2,765) $(3,469)
==== ======= ======= ======= ==== ======= =======
</TABLE>

Summarized below are certain unaudited pro forma statement of operations
data for the three months ended March 31, 1999 and March 31, 1998 as if each of
the above acquisitions and the acquisitions occurring in 1998, which were fully
described in the Company's December 31, 1998 Annual Report on Form 10K, had been
consummated as of January 1, 1998. This pro forma information does not purport
to represent what the Company's results of operations actually would have been
had such transactions occurred on the date specified or to project the Company's
results of operations for any future periods.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues, net............................................... $ 86,244 $ 79,691
Net loss applicable to common stock......................... (11,012) (13,021)
Net loss per common share -- basic.......................... (.18) (.27)
Net loss per common share -- diluted........................ (.18) (.27)
</TABLE>

3. SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES

Separate financial statements of each of the Company's direct or indirect
wholly owned subsidiaries that have guaranteed the Company's obligations with
respect to its publicly issued notes (collectively, the "Guarantors") are not
included herein because the Guarantors are jointly and severally liable under
the guarantees, and the aggregate assets, liabilities, earnings and equity of
the Guarantors are substantially equivalent to the assets, liabilities, earnings
and equity of the Company on a consolidated basis.

Summarized financial information for Missouri Logos, a Partnership, a
66 2/3% owned subsidiary of the Company and the only subsidiary of the Company
that is not a Guarantor, is set forth below:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Balance Sheet Information:
Current assets............................................ $208 $248
Total assets.............................................. 256 297
Total liabilities......................................... -- 7
Venturers' equity......................................... 256 290
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
--------- ------------
(UNAUDITED)
<S> <C> <C>
Income Statement Information:
Revenues.................................................. $274 $264
Net income................................................ 214 162
</TABLE>

F-286
<PAGE> 608
LAMAR ADVERTISING COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

4. SUBSEQUENT EVENTS

Subsequent to March 31, 1999, the Company purchased substantially all of
the assets of two outdoor advertising companies for a total purchase price of
approximately $23,200 in cash. The acquisitions will be accounted for under the
purchase method of accounting.

F-287
<PAGE> 609

ANNEX I

AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
CHANCELLOR MEDIA CORPORATION,
CAPSTAR BROADCASTING CORPORATION,
CBC ACQUISITION COMPANY, INC.
AND
CMC MERGER SUB, INC.

DATED AS OF APRIL 29, 1999
<PAGE> 610

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE 1 THE MERGER............................................................. 2
1.1 The Merger........................................................... 2
1.2 Closing.............................................................. 2
1.3 Effective Time....................................................... 2
1.4 Certificate of Incorporation......................................... 2
1.5 Bylaws............................................................... 3
1.6 Directors............................................................ 3
1.7 Officers............................................................. 3
1.8 Effect on Capstar Capital Stock...................................... 3
(a) Outstanding Capstar Common Stock.......................... 3
(b) Treasury Shares........................................... 3
(c) Impact of Stock Splits, etc. ............................. 4
1.9 Effect on Chancellor Capital Stock................................... 4
1.10 Effect on Merger Sub Capital Stock................................... 4
1.11 Exchange of Certificates............................................. 4
(a) Paying Agent.............................................. 4
(b) Exchange Procedures....................................... 4
(c) Letter of Transmittal..................................... 5
(d) Distributions with Respect to Unexchanged Shares.......... 5
(e) No Further Ownership Rights in Capstar Common Stock....... 5
(f) No Fractional Shares...................................... 6
(g) Termination of Payment Fund............................... 6
(h) No Liability.............................................. 6
(i) Withholding of Tax........................................ 7
1.12 Dissenting Shares.................................................... 7
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF CAPSTAR.............................. 7
2.1 Organization, Standing and Corporate Power........................... 7
2.2 Capital Structure.................................................... 8
2.3 Authority; Noncontravention.......................................... 9
2.4 Capstar SEC Documents; Financial Statements.......................... 10
2.5 Absence of Certain Changes or Events................................. 11
2.6 No Extraordinary Payments or Change in Benefits...................... 12
2.7 Voting Requirements.................................................. 12
2.8 State Takeover Statutes.............................................. 12
2.9 Capstar FCC Licenses; Operations of Capstar Licensed Facilities...... 12
2.10 Brokers.............................................................. 13
2.11 FCC Qualification.................................................... 14
2.12 Compliance With Applicable Laws...................................... 14
2.13 Absence of Undisclosed Liabilities................................... 14
</TABLE>

i
<PAGE> 611

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
2.14 Litigation........................................................... 14
2.15 Transactions With Affiliates......................................... 15
2.16 Labor Matters........................................................ 15
2.17 Employee Arrangements and Benefit Plans.............................. 15
2.18 Tax Matters.......................................................... 16
2.19 Intellectual Property................................................ 17
2.20 Environmental Matters................................................ 18
2.21 Material Agreements.................................................. 19
2.22 Tangible Property.................................................... 19
2.23 Opinion of Financial Advisors........................................ 19
2.24 No Other Representations and Warranties.............................. 20
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF CHANCELLOR........................... 20
3.1 Organization, Standing and Corporate Power........................... 20
3.2 Capital Structure.................................................... 20
3.3 Authority; Noncontravention.......................................... 21
3.4 Chancellor SEC Documents; Financial Statements....................... 23
3.5 Absence of Certain Changes or Events................................. 23
3.6 No Extraordinary Payments or Change in Benefits...................... 24
3.7 Brokers.............................................................. 24
3.8 Opinion of Financial Advisors........................................ 25
3.9 Absence of Undisclosed Liabilities................................... 25
3.10 Litigation........................................................... 25
3.11 Transactions With Affiliates......................................... 25
3.12 Voting Requirements.................................................. 26
3.13 FCC Qualification.................................................... 26
3.14 Employee Arrangements and Benefit Plans.............................. 26
3.15 Tax Matters.......................................................... 26
3.16 Intellectual Property................................................ 27
3.17 Environmental Matters................................................ 28
3.18 Compliance With Applicable Laws...................................... 28
3.19 Chancellor FCC Licenses; Operations of Chancellor Licensed 28
Facilities...........................................................
3.20 State Takeover Statutes.............................................. 29
3.21 Chancellor Common Stock.............................................. 30
3.22 No Other Representations and Warranties.............................. 30
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MERGER SUB........................... 30
4.1 Organization, Standing and Corporate Power........................... 30
4.2 Capital Structure.................................................... 30
4.3 Authority; Noncontravention.......................................... 30
4.4 No Prior Activities.................................................. 31
</TABLE>

ii
<PAGE> 612

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE 5 ADDITIONAL AGREEMENTS.................................................. 31
5.1 Preparation of Form S-4 and Joint Proxy Statement/Prospectus;
Information Supplied................................................. 31
5.2 Stockholder Approval................................................. 32
5.3 Access To Information; Confidentiality............................... 34
5.4 Public Announcements................................................. 34
5.5 Acquisition Proposals................................................ 34
5.6 Consents, Approvals and Filings...................................... 36
5.7 Affiliates Letters................................................... 36
5.8 Nasdaq or Exchange Listing........................................... 36
5.9 Indemnification...................................................... 37
5.10 Letter of Chancellor's Accountants................................... 37
5.11 Letter of Capstar's Accountants...................................... 37
5.12 [Intentionally left blank.].......................................... 38
5.13 Senior Credit Facility Consents...................................... 38
5.14 Section 16(b) Board Approval......................................... 38
5.15 Termination of or Waiver of Rights Under Stockholders Agreements..... 39
5.16 Chancellor Registration Rights....................................... 39
ARTICLE 6 COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER..............
39
6.1 Conduct of Business.................................................. 39
6.2 Capstar Stock Options................................................ 41
6.3 Capstar Warrants..................................................... 42
6.4 Other Actions........................................................ 43
ARTICLE 7 CONDITIONS PRECEDENT................................................... 43
7.1 Conditions to Each Party's Obligation to Effect the Merger........... 43
(a) Stockholder Approval...................................... 43
(b) FCC Order................................................. 43
(c) Governmental and Regulatory Consents...................... 43
(d) HSR Act................................................... 43
(e) No Injunctions or Restraints.............................. 43
(f) Nasdaq or Exchange Approval............................... 43
(g) Form S-4.................................................. 44
(h) [Intentionally left blank.]............................... 44
(i) [Intentionally left blank.]............................... 44
(j) Consent of Senior Lenders................................. 44
7.2 Conditions to Obligations of Capstar................................. 44
(a) Representations and Warranties............................ 44
(b) Performance of Obligations of Chancellor and Merger Sub... 44
(c) Tax Opinion............................................... 44
(d) Chancellor Registration Rights............................ 45
</TABLE>

iii
<PAGE> 613

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
7.3 Conditions to Obligations of Chancellor.............................. 45
(a) Representations and Warranties............................ 45
(b) Performance of Obligations of Capstar..................... 45
(c) Tax Opinion............................................... 45
(d) Material Agreements....................................... 45
(e) Financial Services Agreements............................. 45
(f) Dissenting Shares......................................... 46
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER...................................... 46
8.1 Termination.......................................................... 46
8.2 Effect of Termination................................................ 47
8.3 Amendment............................................................ 48
8.4 Extension; Consent; Waiver........................................... 48
8.5 Procedure for Termination, Amendment, Extension, Consent or Waiver... 48
ARTICLE 9 SURVIVAL OF PROVISIONS................................................. 48
9.1 Survival............................................................. 48
ARTICLE 10 NOTICES............................................................... 49
10.1 Notices.............................................................. 49
ARTICLE 11 MISCELLANEOUS......................................................... 50
11.1 Entire Agreement..................................................... 50
11.2 Expenses............................................................. 50
11.3 Counterparts......................................................... 51
11.4 No Third Party Beneficiary........................................... 51
11.5 Governing Law........................................................ 51
11.6 Assignment; Binding Effect........................................... 51
11.7 Headings, Gender, Etc. .............................................. 51
11.8 Invalid Provisions................................................... 51
11.9 No Recourse Against Others........................................... 51
11.10 Release of Old Merger Sub............................................ 52
</TABLE>

<TABLE>
<S> <C>
ANNEXES
Annex I Certificate of Incorporation of Merger Sub
Annex II Form of Second Amended and Restated Certificate of
Incorporation of Chancellor
Annex III Bylaws of Merger Sub
Annex IV Form of Affiliate Letter
</TABLE>

iv
<PAGE> 614

AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER

THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated
as of April 29, 1999, is being entered into by and among CHANCELLOR MEDIA
CORPORATION, a Delaware corporation ("Chancellor"), CAPSTAR BROADCASTING
CORPORATION, a Delaware corporation ("Capstar"), CBC ACQUISITION COMPANY, INC.,
a Delaware corporation and wholly-owned subsidiary of Capstar ("Old Merger
Sub"), and CMC MERGER SUB, INC., a Delaware corporation and wholly-owned
subsidiary of Chancellor ("Merger Sub").

RECITALS

WHEREAS, Chancellor, Capstar and Old Merger Sub are parties to that certain
Agreement and Plan of Merger, dated as of August 26, 1998 (the "Old Agreement");

WHEREAS, Chancellor and Capstar still deem it advisable and in the best
interests of their respective stockholders to combine their respective
businesses in a strategic merger as contemplated by the Old Agreement;

WHEREAS, Chancellor, Capstar and Old Merger Sub desire hereby to amend and
restate the Old Agreement in its entirety and to add Merger Sub as a party to
the Agreement and to release Old Merger Sub from any obligations under the Old
Agreement;

WHEREAS, subject to the terms and conditions set forth herein, (i) the Board of
Directors of Capstar, upon the recommendation of a duly authorized special
committee thereof (consisting of Capstar's independent director) (the "Capstar
Special Committee"), has approved and declared advisable the merger of Merger
Sub with and into Capstar, (ii) the Board of Directors of Chancellor, including
a majority of the independent directors thereof, has approved and declared
advisable the foregoing merger and the other transactions contemplated by this
Agreement, and (iii) the Board of Directors of Merger Sub has approved and
declared advisable the foregoing merger;

WHEREAS, concurrently with the execution of the Old Agreement and as a condition
to Chancellor entering into the Old Agreement, certain stockholders of Capstar
have entered into a voting agreement with respect to the transactions
contemplated thereby (the "Voting Agreement");

WHEREAS, concurrently with the execution hereof and as a condition to Chancellor
entering into this Agreement, Chancellor and the stockholders of Capstar parties
to the Voting Agreement have entered into an amendment and restatement of such
Voting Agreement;

WHEREAS, it is the intention of Chancellor, Capstar and Merger Sub that such
merger will qualify as a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and

WHEREAS, Chancellor, Capstar and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with such
merger and also to prescribe various conditions to such merger;
<PAGE> 615

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

ARTICLE 1

THE MERGER

1.1 THE MERGER. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.3), Merger Sub shall merge with and into
Capstar (the "Merger") in accordance with the General Corporation Law of the
State of Delaware (the "Delaware Code"). At the Effective Time, the separate
corporate existence of Merger Sub shall cease and Capstar shall continue as the
surviving corporation of the Merger (the "Surviving Corporation") and as a
wholly-owned subsidiary of Chancellor under the laws of the State of Delaware
and with all the rights, privileges, immunities and powers, and subject to all
the duties and liabilities, of a corporation organized under the Delaware Code.
The Merger shall have the effects set forth in the Delaware Code.

1.2 CLOSING. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") will take place at 10:00
a.m., Dallas, Texas time, on the second business day following the date on which
the last to be fulfilled or waived of the conditions set forth in Article VII
shall be fulfilled or waived in accordance with this Agreement (the "Closing
Date"), at the offices of Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite
1300, Dallas, Texas 75201, unless another date, time or place is agreed to in
writing by the parties hereto.

1.3 EFFECTIVE TIME. The parties hereto will file with the Secretary of State of
the State of Delaware (the "Delaware Secretary of State") on the Closing Date
(or on such other date as the parties may agree) a certificate of merger or
other appropriate documents, executed in accordance with the relevant provisions
of the Delaware Code, and make all other filings or recordings required under
the Delaware Code in connection with the Merger. The Merger shall become
effective upon the filing of the certificate of merger with the Delaware
Secretary of State, or at such later time specified in such certificate of
merger (the "Effective Time").

1.4 CERTIFICATE OF INCORPORATION.

(a) The Certificate of Incorporation of Merger Sub in effect immediately
prior to the Merger, attached hereto as Annex I, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with its terms and as provided by the Delaware Code, except that the
name of the Surviving Corporation will be "Capstar Broadcasting Corporation."

(b) Concurrently with the execution and delivery of this Agreement, the
Board of Directors of Chancellor has adopted a resolution setting forth and
approving an amendment and restatement of the Certificate of Incorporation of
Chancellor in the form set forth as Annex II hereto (the "Amended and Restated
Charter"), and directing that the Amended and Restated Charter be considered by
the stockholders of Chancellor at the Chancellor Stockholders Meeting (as
defined in Section 5.2(b)), all in accordance with the provisions of the
Delaware Code. Prior to the Effective Time of the Merger,

2
<PAGE> 616

Chancellor shall file the Amended and Restated Charter with the Secretary of
State of the State of Delaware.

1.5 BYLAWS. The Bylaws of Merger Sub in effect immediately prior to the Merger,
attached hereto as Annex III, shall be the bylaws of the Surviving Corporation
until thereafter amended in accordance with their terms and as provided by
applicable law.

1.6 DIRECTORS. At the Effective Time, R. Gerald Turner shall become a "Class II
Director" of Chancellor. At or prior to the Effective Time, the Board of
Directors of Chancellor shall deliver or cause to be delivered to Chancellor
certified copies of the resolutions of the Chancellor Board of Directors
appointing R. Gerald Turner as a "Class II Director" of Chancellor to be
effective as of the Effective Time.

The directors of the Surviving Corporation immediately following the Effective
Time shall be the same as the directors of Chancellor immediately following the
Effective Time, except that such directors will not be classified as to term.
Each director of the Surviving Corporation will hold office from the Effective
Time until his or her respective successor is duly elected or appointed and
qualified in the manner provided in the Surviving Corporation's Certificate of
Incorporation and Bylaws or as otherwise provided by applicable law.

1.7 OFFICERS. The initial officers of the Surviving Corporation at the
Effective Time shall be the officers of Chancellor immediately prior to the
Effective Time. Each such officer of the Surviving Corporation will hold office
from the Effective Time until his respective successor is duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation or as otherwise provided
by applicable law.

1.8 EFFECT ON CAPSTAR CAPITAL STOCK.

(a) OUTSTANDING CAPSTAR COMMON STOCK. Each share of Class A Common
Stock, $0.01 par value, of Capstar ("Capstar Class A Common Stock"), Class B
Common Stock, $0.01 par value, of Capstar ("Capstar Class B Common Stock"), and
Class C Common Stock, $0.01 par value, of Capstar ("Capstar Class C Common
Stock" and, collectively with the Capstar Class A Common Stock and Capstar Class
B Common Stock, the "Capstar Common Stock") issued and outstanding immediately
prior to the Effective Time (other than shares of Capstar Common Stock held as
treasury shares by Capstar and Dissenting Shares (as defined in Section 1.12))
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive 0.4955 of a validly issued,
fully paid and nonassessable share of the common stock, $0.01 par value, of
Chancellor ("Chancellor Common Stock"). The ratio of the shares of Chancellor
Common Stock to be issued in exchange for each whole share of Capstar Common
Stock is referred to as the "Exchange Ratio." The shares of Chancellor Common
Stock to be issued to holders of Capstar Common Stock in accordance with this
Section 1.8(a), and any cash to be paid in lieu of fractional shares of
Chancellor Common Stock, are referred to as the "Merger Consideration."

(b) TREASURY SHARES. Each share of Capstar Common Stock which is held as
a treasury share by Capstar at the Effective Time shall, by virtue of the Merger
and without any action on the part of Capstar, be cancelled and retired and
cease to exist, without any conversion thereof.

3
<PAGE> 617

(c) IMPACT OF STOCK SPLITS, ETC. In the event of any change in Capstar
Common Stock and/or Chancellor Common Stock between the date of this Agreement
and the Effective Time of the Merger in accordance with the terms of this
Agreement by reason of any stock split, stock dividend, subdivision,
reclassification, recapitalization, combination, exchange of shares or the like,
the number and class of shares of Chancellor Common Stock to be issued and
delivered in the Merger in exchange for each outstanding share of Capstar Common
Stock as provided in this Agreement shall be appropriately adjusted so as to
maintain the relative proportionate interests of the holders of Chancellor
Common Stock and Capstar Common Stock.

1.9 EFFECT ON CHANCELLOR CAPITAL STOCK. Each share of Chancellor Common Stock,
7% Convertible Preferred Stock, $0.01 par value ("Chancellor 7% Convertible
Preferred Stock"), and $3.00 Convertible Exchangeable Preferred Stock, $0.01 par
value ("Chancellor $3.00 Convertible Preferred Stock" and, collectively with the
Chancellor 7% Convertible Preferred Stock, the "Chancellor Convertible Preferred
Stock"), of Chancellor issued and outstanding immediately prior to the Effective
Time shall remain outstanding and shall be unaffected by the Merger.

1.10 EFFECT ON MERGER SUB CAPITAL STOCK. Each share of common stock, $0.01 par
value, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into one share of common stock, $0.01 par value, of
the Surviving Corporation and such shares shall, collectively, represent all of
the issued and outstanding capital stock of the Surviving Corporation.

1.11 EXCHANGE OF CERTIFICATES.

(a) PAYING AGENT. Immediately following the Effective Time, Chancellor
shall deposit with its transfer agent and registrar (the "Paying Agent"), for
the benefit of the holders of Capstar Common Stock (other than treasury shares
and Dissenting Shares), certificates representing the shares of Chancellor
Common Stock to be issued to such holders pursuant to Section 1.8 (such
certificates, together with any dividends or distributions with respect to the
shares represented by such certificates, being hereinafter referred to as the
"Payment Fund").

(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, each holder of an outstanding certificate or certificates which prior
thereto represented shares of Capstar Common Stock shall, upon surrender to the
Paying Agent of such certificate or certificates and acceptance thereof by the
Paying Agent, be entitled to a certificate representing that number of whole
shares of Chancellor Common Stock which the aggregate number of shares of
Capstar Common Stock previously represented by such certificate or certificates
surrendered shall have been converted into the right to receive pursuant to
Section 1.8 of this Agreement. The Paying Agent shall accept such certificates
upon compliance with such reasonable terms and conditions as the Paying Agent
may impose to effect an orderly exchange thereof in accordance with its normal
exchange practices. If the Merger Consideration (or any portion thereof) is to
be delivered to any person other than the person in whose name the certificate
or certificates representing the shares of Capstar Common Stock surrendered in
exchange therefor is registered, it shall be a condition to such exchange that
the certificate or certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
exchange shall pay to the Paying Agent any transfer or other Taxes (as

4
<PAGE> 618

defined in Section 2.18) required by reason of the payment of such consideration
to a person other than the registered holder of the certificate(s) surrendered,
or shall establish to the satisfaction of the Paying Agent that such Tax has
been paid or is not applicable. After the Effective Time, there shall be no
further transfer on the records of Capstar or its transfer agent of certificates
representing shares of Capstar Common Stock, and if such certificates are
presented to the Surviving Corporation, they shall be cancelled against delivery
of the Merger Consideration as hereinabove provided. Until surrendered as
contemplated by this Section 1.11(b), each certificate representing shares of
Capstar Common Stock (other than certificates representing treasury shares to be
cancelled in accordance with the terms of this Agreement and Dissenting Shares),
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration without any interest
thereon, as contemplated by Section 1.8.

(c) LETTER OF TRANSMITTAL. Promptly after the Effective Time (but in no
event more than five business days thereafter), Chancellor shall require the
Paying Agent to mail to each record holder of certificates that immediately
prior to the Effective Time represented shares of Capstar Common Stock which
have been converted pursuant to Section 1.8, a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
shall pass, only upon proper delivery of certificates representing shares of
Capstar Common Stock to the Paying Agent, and which shall be in such form and
have such provisions as Chancellor reasonably may specify) and instructions for
use in surrendering such certificates and receiving the Merger Consideration to
which such holder shall be entitled therefor pursuant to Section 1.8.

(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Chancellor Common Stock with a record date
after the Effective Time shall be paid to the holder of any certificate that
immediately prior to the Effective Time represented shares of Capstar Common
Stock which have been converted pursuant to Section 1.8, until the surrender for
exchange of such certificate in accordance with this Article I. Following
surrender for exchange of any such certificate, there shall be paid to the
holder of such certificate, without interest, (i) at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to the number of whole shares of
Chancellor Common Stock into which the shares of Capstar Common Stock
represented by such certificate immediately prior to the Effective Time were
converted pursuant to Section 1.8, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time, but prior to such surrender, and with a payment date subsequent
to such surrender, payable with respect to such whole shares of Chancellor
Common Stock.

(e) NO FURTHER OWNERSHIP RIGHTS IN CAPSTAR COMMON STOCK. The Merger
Consideration (or, in the case of Dissenting Shares, the cash payment therefor)
paid upon the surrender for exchange of certificates representing shares of
Capstar Common Stock in accordance with the terms of this Article I shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to the shares of Capstar Common Stock theretofore represented by such
certificates, subject, however, to Capstar's obligation (if any) to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared by Capstar on the shares of Capstar
Common Stock and which remain unpaid at the Effective Time. From and after the

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Effective Time, the holders of certificates evidencing ownership of shares of
Capstar Common Stock shall cease to have any further rights with respect to such
shares except as provided herein or by applicable law.

(f) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Chancellor Common Stock shall be issued upon the surrender
for exchange of certificates that immediately prior to the Effective Time
represented shares of Capstar Common Stock which have been converted pursuant to
Section 1.8, and such fractional share interests will not entitle the owner
thereof to vote or any rights of a stockholder of Chancellor. In lieu of any
such fractional shares, the Paying Agent shall, on behalf of all holders of
fractional shares of Chancellor Common Stock, aggregate all such fractional
interests (collectively, the "Fractional Shares") and such Fractional Shares
shall be sold by the Paying Agent as agent for the holders of such Fractional
Shares at the then prevailing price on The Nasdaq Stock Market (or on the New
York Stock Exchange, if such shares of Chancellor Common Stock are then listed
thereon), all in the manner provided hereinafter. Until the gross proceeds of
such sale or sales have been distributed to the holders of Fractional Shares,
the Paying Agent shall retain such proceeds in trust for the benefit of such
holders as part of the Payment Fund. The sale of the Fractional Shares shall be
executed on The Nasdaq Stock Market or through one or more member firms of The
Nasdaq Stock Market (or, in each case, on the New York Stock Exchange, if such
shares of Chancellor Common Stock are then listed thereon) and will be executed
in round lots, to the extent practicable. The Paying Agent will determine the
portion, if any, of the gross proceeds of such sale or sales to which each
holder of Fractional Shares is entitled, by multiplying the amount of the
aggregate gross proceeds of the sale of the Fractional Shares by a fraction, the
numerator of which is the amount of Fractional Shares to which such holder is
entitled and the denominator of which is the aggregate amount of Fractional
Shares to which all holders of Fractional Shares are entitled; provided,
however, that in lieu of the foregoing, at the sole option of Chancellor,
Chancellor may instead satisfy payment with respect to such Fractional Shares by
delivering to the Paying Agent reasonably promptly following the Effective Time
cash (without interest) in an amount equal to the aggregate amount of all such
Fractional Shares multiplied by the closing price per share of Chancellor Common
Stock on The Nasdaq Stock Market (or on the New York Stock Exchange, if such
shares of Chancellor Common Stock are then listed thereon) on the trading day
immediately prior to the Effective Time.

(g) TERMINATION OF PAYMENT FUND. Any portion of the Payment Fund which
remains undistributed to the holders of certificates representing shares of
Capstar Common Stock for 120 days after the Effective Time shall be delivered to
Chancellor, upon demand, and any holders of shares of Capstar Common Stock who
have not theretofore complied with this Article I shall thereafter look only to
Chancellor and only as general creditors thereof for payment of their claims for
any Merger Consideration.

(h) NO LIABILITY. None of Chancellor, the Surviving Corporation or the
Paying Agent shall be liable to any person in respect of any cash, shares,
dividends or distributions payable from the Payment Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any certificates representing shares of Capstar Common Stock shall not have
been surrendered prior to five years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration in respect of such
certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 2.3)), any such cash, shares,

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<PAGE> 620

dividends or distributions payable in respect of such certificate shall, to the
extent permitted by applicable law, become the property of Chancellor, free and
clear of all claims or interest of any person previously entitled thereto.

(i) WITHHOLDING OF TAX. Chancellor shall be entitled to deduct and
withhold (or caused to be deducted or withheld) from the Merger Consideration
otherwise payable pursuant to this Agreement to any former holder of Capstar
Common Stock and from payments made in respect of Dissenting Shares, such amount
as Chancellor (or any affiliate thereof) or the Paying Agent is required to
deduct and withhold with respect to the making of such payment under the Code or
state, local or foreign Tax law. To the extent that amounts are so withheld (or
caused to be withheld) by Chancellor, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the former holder of
Capstar Common Stock in respect of which such deduction and withholding was made
by Chancellor.

1.12 DISSENTING SHARES. Notwithstanding anything to the contrary in this
Agreement, shares of Capstar Class B Common Stock and Capstar Class C Common
Stock outstanding immediately prior to the Effective Time and held by a holder
who has not voted in favor of the Merger or consented thereto and who properly
demands in writing appraisal of such shares of Capstar Class B Common Stock and
Capstar Class C Common Stock, as the case may be, in accordance with Section 262
of the Delaware Code and who shall not have withdrawn such demand or otherwise
have forfeited appraisal rights, shall not be converted into or represent the
right to receive the Merger Consideration therefor ("Dissenting Shares"). Such
stockholders shall be entitled to receive payment of the appraised value of such
shares of Capstar Class B Common Stock and Capstar Class C Common Stock, as the
case may be, held by them in accordance with the provisions of Section 262 of
the Delaware Code, except that all Dissenting Shares held by stockholders who
shall have failed to perfect or who effectively shall have withdrawn or lost
their rights to appraisal of such securities under Section 262 shall thereupon
be deemed to have been converted into, as of the Effective Time, the right to
receive, without any interest thereon, the Merger Consideration, upon surrender
in the manner provided in this Article I of the certificate or certificates that
formerly represented such securities. Capstar shall take all actions required to
be taken by it in accordance with Section 262(d) of the Delaware Code with
respect to the holders of Capstar Class B Common Stock and Capstar Class C
Common Stock.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF CAPSTAR

Capstar hereby represents and warrants to Chancellor and Merger Sub as follows:

2.1 ORGANIZATION, STANDING AND CORPORATE POWER. Each of Capstar and the Capstar
Significant Subsidiaries (as defined below) is a corporation, limited
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is organized and
has the requisite corporate, partnership or limited liability company power and
authority to carry on its business as now being conducted. Each of Capstar and
the Capstar Significant Subsidiaries is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure to be so qualified could not reasonably be expected to
have a material adverse

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<PAGE> 621

effect on the business, properties, results of operations, or condition
(financial or otherwise) of Capstar and its subsidiaries, considered as a whole
(other than as a result of changes in general economic conditions or in economic
conditions generally affecting the radio broadcasting industry) (a "Capstar
Material Adverse Effect"). Capstar has delivered to Chancellor complete and
correct copies of its Certificate of Incorporation and Bylaws, as amended to
August 26, 1998. For purposes of this Agreement, a "Capstar Significant
Subsidiary" means any subsidiary of Capstar that would constitute a "significant
subsidiary" within the meaning of Rule 1-02 of Regulation S-X of the Securities
and Exchange Commission (the "SEC"). For purposes of this Agreement, a
"subsidiary" of any person shall mean any other entity at least a majority of
the equity interests in which is beneficially owned, directly or indirectly, by
the specified person.

2.2 CAPITAL STRUCTURE. (a) The authorized capital stock of Capstar consists of
(i) 750,000,000 shares of Capstar Class A Common Stock, (ii) 150,000,000 shares
of Capstar Class B Common Stock, (iii) 150,000,000 shares of Capstar Class C
Common Stock, and (iv) 100,000,000 shares of preferred stock, $0.01 par value,
none of which shares of preferred stock are issued and outstanding. At the close
of business on August 24, 1998: (A) 33,925,158 shares of Capstar Class A Common
Stock were issued and outstanding, 500,000 shares of Capstar Class A Common
Stock were reserved for issuance pursuant to outstanding warrants (the "Class A
Warrants") to purchase shares of Capstar Class A Common Stock, 4,700,000 shares
of Capstar Class A Common Stock were reserved for issuance pursuant to options
to purchase Capstar Class A Common Stock granted under the Capstar Broadcasting
Corporation 1998 Amended and Restated Stock Option Plan (the "Capstar Stock
Option Plan"), of which stock options to purchase 3,841,045 shares of Capstar
Class A Common Stock have been granted to directors, officers or employees of
Capstar or others ("Capstar Stock Options"), and 300,000,000 shares of Capstar
Class A Common Stock were reserved for issuance upon the conversion of shares of
Capstar Class B Common Stock and Capstar Class C Common Stock; (B) 6,081,723
shares of Capstar Class B Common Stock were issued and outstanding and no shares
of Capstar Class B Common Stock were reserved for issuance for any purpose; (C)
67,589,121 shares of Capstar Class C Common Stock were issued and outstanding
and 2,196,408 shares of Capstar Class C Common Stock were reserved for issuance
pursuant to outstanding warrants (the "Class C Warrants" and, collectively with
the Class A Warrants, the "Warrants") to purchase shares of Capstar Class C
Common Stock; and (D) no shares of Capstar Common Stock were held as treasury
shares by Capstar or any subsidiary of Capstar. Except as set forth above or
disclosed in writing by Capstar to Chancellor in a disclosure letter (the
"Capstar Disclosure Letter") delivered to Capstar prior to the execution and
delivery of the Old Agreement, at the close of business on August 24, 1998, no
shares of capital stock or other equity securities of Capstar were authorized,
issued, reserved for issuance or outstanding. All outstanding shares of Capstar
Common Stock are, and all shares which may be issued upon the exercise of
outstanding Capstar Stock Options and Warrants will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. No bonds, debentures, notes or other indebtedness of Capstar
or any subsidiary of Capstar having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
the stockholders of Capstar or any subsidiary of Capstar may vote are issued or
outstanding. All the outstanding shares of capital stock or other equity
interests of each subsidiary of Capstar have been validly issued and are fully
paid and nonassessable and (except for the shares of 12% Senior Exchangeable
Preferred Stock, $0.01 par value

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<PAGE> 622

("Capstar Partners 12% Preferred Stock"), of Capstar Broadcasting Partners,
Inc., a Delaware corporation ("Capstar Partners"), and the 12 5/8% Series E
Cumulative Exchangeable Preferred Stock, $0.01 par value ("Capstar
Communications 12 5/8% Preferred Stock"), of Capstar Communications, Inc.
(formerly known as SFX Broadcasting, Inc.) ("Capstar Communications")), are
owned by Capstar, by one or more wholly-owned subsidiaries of Capstar or by
Capstar and one or more such wholly-owned subsidiaries, free and clear of all
pledges, claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever (collectively, "Liens"), except for Liens arising out of
the senior credit facility of Capstar Radio Broadcasting Partners, Inc., a
Delaware corporation ("Capstar Radio Partners"), and the $150 million promissory
note dated May 29, 1998, as it may be amended from time to time, made payable by
Capstar to Chancellor. Except as set forth above, in Section 6.4, in the Capstar
Disclosure Letter or the Capstar SEC Documents (as defined in Section 2.4) and
except for certain provisions of the Certificate of Incorporation of Capstar
relating to "alien ownership" of the Capstar Common Stock, as of August 26,
1998, neither Capstar nor any subsidiary of Capstar had any outstanding option,
warrant, subscription or other right, agreement or commitment that either (i)
obligated Capstar or any subsidiary of Capstar to issue, sell or transfer,
repurchase, redeem or otherwise acquire or vote any shares of the capital stock
of Capstar or any Capstar Significant Subsidiary or (ii) restricted the transfer
of Capstar Common Stock. Except with respect to the formation of Old Merger Sub,
from the close of business on August 24, 1998 to August 26, 1998, neither
Capstar nor any subsidiary of Capstar issued any capital stock or securities or
other rights convertible into or exercisable or exchangeable for shares of such
capital stock.

2.3 AUTHORITY; NONCONTRAVENTION. Capstar has the requisite corporate power and
authority to enter into this Agreement and, subject to the approval and adoption
of this Agreement by the holders of a majority of the voting power of the
outstanding shares of Capstar Class A Common Stock and the Capstar Class C
Common Stock, voting as a single class as set forth in Section 5.2(a) (the
"Capstar Stockholders Approval"), to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement by Capstar and the
consummation by Capstar of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Capstar, subject to
the Capstar Stockholders Approval. This Agreement has been duly executed and
delivered by Capstar and, assuming this Agreement constitutes the valid and
binding agreement of each of the other parties hereto, constitutes a valid and
binding obligation of Capstar, enforceable against it in accordance with its
terms except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). Except as disclosed in the Capstar Disclosure Letter or the
supplement to the Capstar Disclosure Letter dated the date hereof and subject to
receipt of the Capstar Stockholders Approval, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions hereof will not, (i) conflict with
any of the provisions of the Certificate of Incorporation or Bylaws of Capstar
or the comparable documents of any Capstar Significant Subsidiary, (ii) subject
to the governmental filings and other matters referred to in the following
sentence, conflict with, result in a breach of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit

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<PAGE> 623

under, or require the consent of any person under, any indenture or other
agreement, permit, concession, franchise, license or similar instrument or
undertaking to which Capstar or any of the Capstar Significant Subsidiaries is a
party or by which Capstar or any of the Capstar Significant Subsidiaries or any
of their assets is bound or affected, (iii) result in an obligation by Capstar,
the Surviving Corporation, Chancellor, or any of their respective subsidiaries
to redeem, repurchase or retire (or offer to redeem, repurchase or retire) any
indebtedness of Capstar or any of its subsidiaries outstanding as of the date
hereof or equity security of Capstar or any of its subsidiaries outstanding as
of the date hereof, or (iv) subject to the governmental filings and other
matters referred to in the following sentence, contravene any law, rule or
regulation of any state or of the United States or any political subdivision
thereof or therein, or any order, writ, judgment, injunction, decree,
determination or award currently in effect, except, in the cases of the
foregoing clauses (ii) through (iv), for conflicts, breaches, defaults or other
consequences (collectively, "breaches") that, individually or in the aggregate,
could not reasonably be expected to have a Capstar Material Adverse Effect or to
materially hinder Capstar's ability to consummate the transactions contemplated
by this Agreement. No consent, approval or authorization of, or declaration or
filing with, or notice to, any governmental agency or regulatory authority (a
"Governmental Entity") which has not been received or made, is required by or
with respect to Capstar or any of the Capstar Significant Subsidiaries in
connection with the execution and delivery of this Agreement by Capstar or the
consummation by Capstar of the transactions contemplated hereby, except for (i)
the filing of premerger notification and report forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the Merger and the termination or earlier expiration of
the applicable waiting period thereunder, (ii) such filings with and approvals
required by the Federal Communications Commission or any successor entity (the
"FCC") under the Communications Act of 1934, as amended, and the rules,
regulations and policies of the FCC promulgated thereunder (collectively, the
"Communications Act") including those required in connection with the transfer
of control of Capstar FCC Licenses (as defined in Section 2.9) for the operation
of the Capstar Licensed Facilities, (iii) a proxy statement to be filed with the
SEC by Capstar relating to the Capstar Stockholders Approval (such proxy
statement, as amended or supplemented from time to time, the "Joint Proxy
Statement/Prospectus"), (iv) such reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement and the transactions contemplated by this Agreement, (v) such
filings and consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or the other transactions contemplated by this
Agreement, (vi) such filings as may be required in connection with statutory
provisions and regulations relating to real property transfer gains taxes and
real property transfer taxes, (vii) any filing required by the New York Stock
Exchange, and (viii) the filing of the Certificate of Merger with the Delaware
Secretary of State and appropriate documents with the relevant authorities of
other states in which Capstar is qualified to do business.

2.4 CAPSTAR SEC DOCUMENTS; FINANCIAL STATEMENTS. (i) Capstar has filed with the
SEC a Registration Statement on Form S-1, as amended (the "IPO Registration
Statement"), with respect to the registration of an initial public offering of
the Capstar Class A Common Stock pursuant to the Prospectus dated May 26, 1998
contained in such IPO Registration Statement, and has filed all required
reports, schedules, forms, statements and other documents with the SEC since the
effective date of the IPO Registration Statement

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to August 26, 1998 (such IPO Registration Statement and reports, schedules,
forms, statements and other documents and any other documents filed with the SEC
by Capstar, Capstar Partners, Capstar Radio Partners and Capstar Communications
and publicly available prior to August 26, 1998 are hereinafter referred to as
the "Capstar SEC Documents"); (ii) as of their respective dates, the Capstar SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Capstar SEC Documents, and none of the Capstar SEC
Documents as of such dates contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading; and (iii) as of their respective dates, the
consolidated financial statements of Capstar and its predecessors included in
the Capstar SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with GAAP applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Rule
10-01 of Regulation S-X) and fairly present, in all material respects, the
consolidated financial position of Capstar and its consolidated subsidiaries (or
its predecessors and their respective consolidated subsidiaries) as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (on the basis stated therein and subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments).

2.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Capstar
SEC Documents, the Capstar Disclosure Letter or in the supplement to the Capstar
Disclosure Letter dated the date hereof, or as otherwise agreed to in one or
more writings after August 26, 1998 by Chancellor (which writings are hereby
reaffirmed), or as expressly permitted by this Agreement, since the date of the
most recent audited financial statements of Capstar contained in the Capstar SEC
Documents, Capstar and its subsidiaries have conducted their business only in
the ordinary course, and there has not been (i) any change which could
reasonably be expected to have a Capstar Material Adverse Effect (including as a
result of the consummation of the transactions contemplated by this Agreement),
(ii) to August 26, 1998, any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of Capstar's outstanding capital stock, (iii) to August 26, 1998, any
split, combination or reclassification of any of its outstanding capital stock
or any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its outstanding capital
stock, (iv) to August 26, 1998, (x) any granting by Capstar or any of its
subsidiaries to any director, officer or other employee or independent
contractor of Capstar or any of its subsidiaries of any increase in compensation
or acceleration of benefits as a result of which the annual compensation payable
with respect thereto would exceed $150,000, except under employment agreements
in effect as of the date of the most recent audited financial statements of
Capstar contained in the Capstar SEC Documents, (y) any granting by Capstar or
any of its subsidiaries to any director, officer or other employee or
independent contractor of any increase in, or acceleration of benefits in
respect of, severance or termination pay, or pay in connection with any change
of control of Capstar, except in the ordinary course of business consistent with
prior practice or as was required under any employment, severance or

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termination agreements in effect as of the date of the most recent audited
financial statements of Capstar contained in the Capstar SEC Documents, or (z)
any entry by Capstar or any of its subsidiaries into any employment, severance,
change of control, or termination or similar agreement as a result of which the
annual compensation payable with respect thereto would exceed $150,000 with any
director, executive officer or other employee or independent contractor, or (v)
any change in accounting methods, principles or practices by Capstar or any of
its subsidiaries materially affecting its assets, liability or business, except
insofar as may have been required by a change in generally accepted accounting
principles.

2.6 NO EXTRAORDINARY PAYMENTS OR CHANGE IN BENEFITS. Except as disclosed in the
Capstar Disclosure Letter, in the supplement to the Capstar Disclosure Letter
dated the date hereof or in the Capstar SEC Documents, no current or former
director, officer, employee or independent contractor of Capstar or any of its
subsidiaries is entitled to receive any payment under any agreement, arrangement
or policy (written or oral) relating to employment, severance, change of
control, termination, stock options, stock purchases, compensation, deferred
compensation, fringe benefits or other employee benefits currently in effect
(collectively, the "Capstar Benefit Plans"), nor will any benefit received or to
be received by any current or former director, officer, employee or independent
contractor of Capstar or any of its subsidiaries under any Capstar Benefit Plan
be accelerated or modified, in each case, as a result of or in connection with
the execution and delivery of, or the consummation of the transactions
contemplated by, this Agreement.

2.7 VOTING REQUIREMENTS. The affirmative vote of the holders of a majority of
the voting power of the outstanding shares of Capstar Class A Common Stock and
Capstar Class C Common Stock, voting as a single class as provided in Capstar's
Certificate of Incorporation, with respect to the adoption of this Agreement is
the only vote of the holders of any class or series of Capstar's capital stock
necessary by law to approve this Agreement and the transactions contemplated by
this Agreement.

2.8 STATE TAKEOVER STATUTES. The Board of Directors of Capstar has approved the
terms of this Agreement and the consummation of the transactions contemplated by
this Agreement, and such approval is sufficient to render inapplicable to the
Merger and the other transactions contemplated by this Agreement the provisions
of Section 203 of the Delaware Code. To Capstar's knowledge, no other state
takeover statute or similar statute or regulation applies or purports to apply
to the Merger, this Agreement or any of the transactions contemplated by this
Agreement and no provision of the Certificate of Incorporation, Bylaws or other
governing instrument of Capstar or any of its subsidiaries would, directly or
indirectly, restrict or impair the ability of Capstar to consummate the
transactions contemplated by this Agreement.

2.9 CAPSTAR FCC LICENSES; OPERATIONS OF CAPSTAR LICENSED FACILITIES. Capstar
and its subsidiaries have operated the radio stations for which Capstar and any
of its subsidiaries hold licenses from the FCC, in each case which are owned or
operated by Capstar and its subsidiaries (each a "Capstar Licensed Facility" and
collectively the "Capstar Licensed Facilities"), in material compliance with the
terms of the licenses issued by the FCC to Capstar and its subsidiaries (the
"Capstar FCC Licenses"), and in material compliance with the Communications Act,
except where the failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Capstar Material Adverse Effect. To the
knowledge of Capstar, each broadcast radio station for which Capstar or any of
its

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subsidiaries provides programming and advertising services pursuant to a local
marketing agreement (each a "Capstar LMA Facility" and collectively the "Capstar
LMA Facilities") has been operated in material compliance with the terms of the
licenses issued by the FCC to the owner of such Capstar LMA Facility (each an
"LMA Facility FCC License" and collectively the "LMA Facility FCC Licenses").
Capstar has, and its subsidiaries have, timely filed or made all applications,
reports and other disclosures required by the FCC to be made with respect to the
Capstar Licensed Facilities and have timely paid all FCC regulatory fees with
respect thereto, except where the failure to do so could not, individually or in
the aggregate, reasonably be expected to have a Capstar Material Adverse Effect.
Capstar and each of its subsidiaries have, and are the authorized legal holders
of, all the Capstar FCC Licenses necessary or used in the operation of the
businesses of the Capstar Licensed Facilities as presently operated. To the
knowledge of Capstar, the third-parties with which Capstar or its subsidiaries
have entered into local marketing agreements with respect to the Capstar LMA
Facilities have, and are the authorized legal holders of, the LMA Facility FCC
License necessary or used in the operation of the business of the respective
Capstar LMA Facility to which such local marketing agreement relates. All
Capstar FCC Licenses and, to the knowledge of Capstar, LMA Facility FCC Licenses
are validly held and are in full force and effect, unimpaired by any act or
omission of Capstar, each of its subsidiaries (or, to Capstar's knowledge, their
respective predecessors) or their respective officers, employees or agents,
except where such impairments could not, individually or in the aggregate,
reasonably be expected to have a Capstar Material Adverse Effect. As of August
26, 1998, except as set forth in the Capstar Disclosure Letter, no application,
action or proceeding is pending for the renewal of any Capstar FCC License or,
to the knowledge of Capstar, LMA Facility FCC License as to which any petition
to deny has been filed and, to Capstar's knowledge, there is not now before the
FCC any material investigation, proceeding, notice of violation or order of
forfeiture relating to any Capstar Licensed Facility or Capstar LMA Facility
that, if adversely determined, could reasonably be expected to have a Capstar
Material Adverse Effect. As of August 26, 1998, except as set forth in the
Capstar Disclosure Letter, Capstar is not aware of any basis that could
reasonably be expected to cause the FCC not to renew any of the Capstar FCC
Licenses or the LMA Facility FCC Licenses (other than proceedings to amend FCC
rules or the Communications Act of general applicability to the radio broadcast
industry). There is not now pending and, to Capstar's knowledge, there is not
threatened, any action by or before the FCC to revoke, suspend, cancel, rescind
or modify in any material respect any of the Capstar FCC Licenses or, to the
knowledge of Capstar, any of the LMA Facility FCC Licenses that, if adversely
determined, could reasonably be expected to have a Capstar Material Adverse
Effect (other than proceedings to amend FCC rules or the Communications Act of
general applicability to the radio broadcast industry).

2.10 BROKERS. Except with respect to Hicks, Muse & Co. Partners, L.P. ("Hicks
Muse"), Credit Suisse First Boston Corporation ("CSFB"), BT Wolfensohn, a
division of BT Alex. Brown Incorporated ("BT Wolfensohn") and Bear, Stearns &
Co. Inc. ("Bear Stearns"), all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out by Capstar directly with
Chancellor without the intervention of any person on behalf of Capstar in such a
manner as to give rise to any valid claim by any person against Capstar,
Chancellor, the Surviving Corporation or any subsidiary of any of them for a
finder's fee, brokerage commission, or similar payment. The Capstar Disclosure
Letter and the supplement to the Capstar Disclosure Letter dated the date

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<PAGE> 627

hereof set forth a written summary of the terms of its agreement relating to the
transactions contemplated by this Agreement with CSFB, BT Wolfensohn and Bear
Stearns, and Section 7.3(e) of this Agreement sets forth a summary of the terms
of its agreement relating to the transactions contemplated by this Agreement
with Hicks Muse, and Capstar has no other agreements or understandings (written
or oral) with respect to such services.

2.11 FCC QUALIFICATION. Capstar and its subsidiaries are fully qualified under
the Communications Act to be the transferors of control of the Capstar FCC
Licenses. Except as disclosed in the Capstar Disclosure Letter or in the
supplement to the Capstar disclosure letter dated the date hereof, Capstar is
not aware of any facts or circumstances relating to the FCC qualifications of
Capstar or any of its subsidiaries that could reasonably be expected to prevent
the FCC's granting the FCC Form 316 Transfer of Control Application to be filed
with respect to the Merger.

2.12 COMPLIANCE WITH APPLICABLE LAWS. Each of Capstar and its subsidiaries has
in effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights (collectively, "Permits") necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted, other
than such Permits the absence of which could not, individually or in the
aggregate, reasonably be expected to have a Capstar Material Adverse Effect, and
there has occurred no default under any such Permit other than such defaults
which, individually or in the aggregate, could not reasonably be expected to
have a Capstar Material Adverse Effect. Except as disclosed in the Capstar
Disclosure Letter, Capstar and its subsidiaries are in compliance with all
applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for such noncompliance which, individually or in the
aggregate, could not reasonably be expected to have a Capstar Material Adverse
Effect.

2.13 ABSENCE OF UNDISCLOSED LIABILITIES. Except for (x) liabilities disclosed
in the Capstar SEC Documents, (y) current liabilities incurred by Capstar and
its subsidiaries in the ordinary course of business consistent with past
practices since the date of the most recent consolidated balance sheet of
Capstar set forth in Capstar's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, as filed with the SEC (the "1998 Capstar 10-K"), and
(z) liabilities contemplated by this Agreement or disclosed in the Capstar
Disclosure Letter, Capstar and its subsidiaries do not have any material
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise) (i) required by GAAP to be reflected on a consolidated
balance sheet of Capstar and its consolidated subsidiaries or in the notes,
exhibits or schedules thereto or (ii) which reasonably could be expected to have
a Capstar Material Adverse Effect.

2.14 LITIGATION. Except as disclosed in the Capstar SEC Documents or the
Capstar Disclosure Letter, to August 26, 1998, there is no litigation,
administrative action, arbitration or other proceeding pending against Capstar
or any of its subsidiaries or, to the knowledge of Capstar, threatened that,
individually or in the aggregate, could reasonably be expected to (i) have a
Capstar Material Adverse Effect or (ii) prevent, or significantly delay, the
consummation of the transactions contemplated by this Agreement. Except as set
forth in the Capstar Disclosure Letter or in the Capstar SEC Documents, to
August 26, 1998, there is no judgment, order, injunction or decree of any
Governmental Entity outstanding against Capstar or any of its subsidiaries that,
individually or in the

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<PAGE> 628

aggregate, could reasonably be expected to have any effect referred to in the
foregoing clauses (i) and (ii) of this Section 2.14.

2.15 TRANSACTIONS WITH AFFILIATES. Other than the transactions contemplated by
this Agreement, or except to the extent disclosed in the Capstar SEC Documents
or in the Capstar Disclosure Letter or in the supplement to the Capstar
Disclosure Letter dated the date hereof, there have been no transactions,
agreements, arrangements or understandings between Capstar or its subsidiaries,
on the one hand, and Capstar's affiliates (other than subsidiaries of Capstar)
or any other person, on the other hand, that would be required to be disclosed
under Item 404 of Regulation S-K under the Securities Act.

2.16 LABOR MATTERS. Except as set forth in the Capstar Disclosure Letter or in
the Capstar SEC Documents, (i) neither Capstar nor any of its subsidiaries is a
party to any labor or collective bargaining agreement, and no employees of
Capstar or any of its subsidiaries are represented by any labor organization,
(ii) to the knowledge of Capstar, there are no material representation or
certification proceedings, or petitions seeking a representation proceeding,
pending or threatened to be brought or filed with the National Labor Relations
Board or any other labor relations tribunal or authority and (iii) to the
knowledge of Capstar, there are no material organizing activities involving
Capstar or any of its subsidiaries with respect to any group of employees of
Capstar or its subsidiaries.

2.17 EMPLOYEE ARRANGEMENTS AND BENEFIT PLANS.

(a) The Capstar Disclosure Letter sets forth a complete and correct list
of (i) as of August 26, 1998, all Capstar Benefit Plans, including all employee
benefit plans within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), sponsored by Capstar or any
of its subsidiaries, and (ii) as of August 26, 1998, all persons with whom
Capstar or its subsidiaries had written employment, severance, termination,
change-in-control or indemnification agreements (collectively, the "Employment
Arrangements"), under which Capstar or any of its subsidiaries had any
obligation or liability (contingent or otherwise), except for any Employment
Arrangement which (x) provided for annual compensation (excluding benefits) of
$150,000 or less, (y) had an unexpired term of or can be terminated (before, on
or after a change in control) in less than one year from the date hereof without
additional cost or penalty or (z) related to agreements for on-air talent
entered into in the ordinary course of business consistent with past practices.
Except as set forth in the Capstar SEC Documents or in the Capstar Disclosure
Letter and except as could not, individually or in the aggregate, reasonably be
expected to have a Capstar Material Adverse Effect: (A) each Capstar Benefit
Plan has been administered and is in compliance with the terms of such plan and
all applicable laws, rules and regulations, (B) no "reportable event" (as such
term is used in section 4043 of ERISA) (other than those events for which the 30
day notice has been waived pursuant to the regulations), "prohibited
transaction" (as such term is used in section 406 of ERISA or section 4975 of
the Code) or "accumulated funding deficiency" (as such term is used in section
412 or 4971 of the Code) has heretofore occurred with respect to any Capstar
Benefit Plan and (C) each Capstar Benefit Plan intended to qualify under Section
401(a) of the Code has received a favorable determination from the United States
Internal Revenue Service ("IRS") regarding its qualified status and no notice
has been received from the IRS with respect to the revocation of such
qualification.

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<PAGE> 629

(b) To August 26, 1998, there is no litigation or administrative or
other proceeding involving any Capstar Benefit Plan or Employment Arrangement
nor has Capstar or any of its subsidiaries received written notice that any such
proceeding is threatened, in each case where an adverse determination could
reasonably be expected to have a Capstar Material Adverse Effect. Except as set
forth in the Capstar Disclosure Letter, to August 26, 1998, neither Capstar nor
any of its subsidiaries has contributed to any "multiemployer plan" (within the
meaning of section 3(37) of ERISA) and neither Capstar nor any of its
subsidiaries has incurred, nor, to the best of Capstar's knowledge, is
reasonably likely to incur any withdrawal liability which remains unsatisfied in
an amount which could reasonably be expected to have a Capstar Material Adverse
Effect. The termination of, or withdrawal from, any Capstar Benefit Plan or
multiemployer plan to which Capstar or its subsidiaries contributes, on or prior
to the Closing Date, will not subject Capstar or any of its subsidiaries to any
liability under Title IV of ERISA that could reasonably be expected to have a
Capstar Material Adverse Effect.

2.18 TAX MATTERS. Except as set forth in the Capstar Disclosure Letter, in the
Capstar SEC Documents or in the 1998 Capstar 10-K, (A) Capstar and each of its
subsidiaries have timely filed with the appropriate taxing authorities all
material Tax Returns (as defined below) required to be filed through the date
hereof and will timely file any such material Tax Returns required to be filed
on or prior to the Closing Date (except those under valid extension) and all
such Tax Returns are and will be true and correct in all material respects, (B)
all Taxes (as defined below) of Capstar and each of its subsidiaries shown to be
due on the Tax Returns described in (A) above have been or will be timely paid,
(C) no material deficiencies for any Taxes have been proposed, asserted or
assessed against Capstar or any of its subsidiaries that have not been fully
paid or adequately provided for in the appropriate financial statements of
Capstar and its subsidiaries, and no power of attorney with respect to any Taxes
has been executed or filed with any taxing authority and no material issues
relating to Taxes have been raised in writing by any governmental authority
during any presently pending audit or examination, (D) Capstar and its
subsidiaries are not now subject to audit by any taxing authority and no waivers
of statutes of limitation with respect to the Tax Returns have been given by or
requested in writing from Capstar or any of its subsidiaries, (E) there are no
material liens for Taxes (other than for Taxes not yet due and payable) on any
assets of Capstar or any of its subsidiaries, (F) neither Capstar nor any of its
subsidiaries is a party to or bound by (nor will any of them become a party to
or bound by) any tax indemnity, tax sharing, tax allocation agreement, or
similar agreement, arrangement or practice with respect to Taxes, (G) neither
Capstar nor any of its subsidiaries has ever been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code, other than
the affiliated group of which Capstar is the common parent, (H) neither Capstar
nor any of its subsidiaries has filed a consent pursuant to the collapsible
corporation provisions of Section 341(f) of the Code (or any corresponding
provision of state or local law) or agreed to have Section 341(f)(2) of the Code
(or any corresponding provisions of state or local law) apply to any disposition
of any asset owned by Capstar or any of its subsidiaries, as the case may be,
(l) neither Capstar nor any of its subsidiaries has agreed to make, nor is any
required to make, any adjustment under Section 481(a) of the Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method or otherwise, (J) Capstar and its subsidiaries have complied in all
material respects with all applicable laws, rules and regulations relating to
withholding of Taxes and (K) no property owned by Capstar or any of its
subsidiaries (i) is property required to be treated as being

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<PAGE> 630

owned by another person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986; (ii) constitutes "tax exempt use
property" within the meaning of Section 168(h)(l) of the Code; or (iii) is tax
exempt bond financed property within the meaning of Section 168(g) of the Code.

As used in this Agreement, "Tax Return" shall mean any return, report, claim for
refund, estimate, information return or statement or other similar document
relating to or required to be filed with any governmental authority with respect
to Taxes, including any schedule or attachment thereto, and including any
amendment thereof. As used in this Agreement, "Taxes" shall mean all federal,
state, local and foreign taxes, duties, levies or similar charges of any kind,
including but not limited to those measured by or referred to as income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees, assessments
or charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign.

2.19 INTELLECTUAL PROPERTY. Except as set forth in the Capstar Disclosure
Letter and except to the extent that the inaccuracy of any of the following (or
the circumstances giving rise to such inaccuracy), individually or in the
aggregate, could not reasonably be expected to have a Capstar Material Adverse
Effect: (a) Capstar and each of its subsidiaries owns, or is licensed to use (in
each case, free and clear of any Liens), all Intellectual Property (as defined
below) used in or necessary for the conduct of its business as currently
conducted; (b) the use of any Intellectual Property by Capstar and its
subsidiaries does not infringe on or otherwise violate the rights of any person
and is in accordance with any applicable license pursuant to which Capstar or
any subsidiary acquired the right to use any Intellectual Property; (c) to the
knowledge of Capstar, no person is challenging, infringing on or otherwise
violating any right of Capstar or any of its subsidiaries with respect to any
Intellectual Property owned by and/or licensed to Capstar or its subsidiaries;
and (d) neither Capstar nor any of its subsidiaries has received any written
notice of any pending claim with respect to any Intellectual Property used by
Capstar and its subsidiaries and to its knowledge no Intellectual Property owned
and/or licensed by Capstar or its subsidiaries is being used or enforced in a
manner that would result in the abandonment, cancellation or unenforceability of
such Intellectual Property.

For purposes of this Agreement, "Intellectual Property" shall mean trademarks,
service marks, brand names and other indications of origin, the goodwill
associated with the foregoing and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, applications for patents (including, without limitation,
divisions, continuations, continuations in part and renewal applications), and
any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any person; writings and
other works, whether copyrightable or not, in any jurisdiction; registrations or
applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; any similar intellectual property or proprietary
rights; and any claims or causes of action arising out of or relating to any
infringement or misappropriation of any of the foregoing.

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2.20 ENVIRONMENTAL MATTERS. Except as disclosed in the Capstar SEC Documents or
in the Capstar Disclosure Letter and except as could not reasonably be expected
to have a Capstar Material Adverse Effect: (i) the operations of Capstar and its
subsidiaries have been and are in compliance with all Environmental Laws (as
defined below) and with all Permits required by Environmental Laws, (ii) to
August 26, 1998, there are no pending or, to the knowledge of Capstar,
threatened, actions, suits, claims, investigations or other proceedings
(collectively, "Actions") under or pursuant to Environmental Laws against
Capstar or its subsidiaries or involving any real property currently or, to the
knowledge of Capstar, formerly owned, operated or leased by Capstar or its
subsidiaries, (iii) Capstar and its subsidiaries are not subject to any
Environmental Liabilities (as defined below), and, to the knowledge of Capstar,
no facts, circumstances or conditions relating to, arising from, associated with
or attributable to any real property currently or, to the knowledge of Capstar,
formerly owned, operated or leased by Capstar or its subsidiaries or operations
thereon that could reasonably be expected to result in Environmental
Liabilities, (iv) all real property owned and to the knowledge of Capstar all
real property operated or leased by Capstar or its subsidiaries is free of
contamination from Hazardous Material (as defined below) and (v) there is not
now, nor, to the knowledge of Capstar, has there been in the past, on, in or
under any real property owned, leased or operated by Capstar or any of its
predecessors (a) any underground storage tanks, above-ground storage tanks,
dikes or impoundments containing Hazardous Materials, (b) any
asbestos-containing materials, (c) any polychlorinated biphenyls, or (d) any
radioactive substances.

As used in this Agreement, "Environmental Laws" means any and all federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decisions, injunctions, orders, decrees, requirements of any
Governmental Entity, any and all common law requirements, rules and bases of
liability regulating, relating to or imposing liability or standards of conduct
concerning pollution, Hazardous Materials or protection of human health or the
environment, as currently in effect and includes, but is not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. sec. 9601 et seq., the Hazardous Materials Transportation Act 49
U.S.C. sec. 1801 et seq., the Resource Conservation and Recovery Act ("RCRA"),
42 U.S.C. sec. 6901 et seq., the Clean Water Act, 33 U.S.C. sec. 1251 et seq.,
the Clean Air Act, 33 U.S.C. sec. 2601 et seq., the Toxic Substances Control
Act, 15 U.S.C. sec. 2601 et seq., the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C., sec. 136 et seq., and the Oil Pollution Act of 1990,
33 U.S.C. sec. 2701 et seq., as such laws have been amended or supplemented, and
the regulations promulgated pursuant thereto, and all analogous state or local
statutes. As used in this Agreement, "Environmental Liabilities" with respect to
any person means any and all liabilities of or relating to such person or any of
its subsidiaries (including any entity which is, in whole or in part, a
predecessor of such person or any of such subsidiaries), whether vested or
unvested, contingent or fixed, actual or potential, known or unknown, which (i)
arise under or relate to matters covered by Environmental Laws and (ii) relate
to actions occurring or conditions existing on or prior to the Closing Date. As
used in this Agreement, "Hazardous Materials" means any hazardous or toxic
substances, materials or wastes, defined, listed, classified or regulated as
such in or under any Environmental Laws which includes, but is not limited to,
petroleum, petroleum products, friable asbestos, urea formaldehyde and
polychlorinated biphenyls.

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<PAGE> 632

2.21 MATERIAL AGREEMENTS.

(a) Except as disclosed in the Capstar Disclosure Letter, from and after
the date of filing of the Capstar SEC Documents to August 26, 1998, neither
Capstar nor any of its subsidiaries has entered into any contract, agreement or
other document or instrument (other than the Old Agreement) that would be
required to be filed with the SEC or any material amendment, modification or
waiver under any contract, agreement or other document or instrument (other than
any such amendments, modifications or waivers entered into following August 26,
1998 in connection with the transactions contemplated hereby) that was
previously filed with the SEC or would be required to be so filed.

(b) Except as filed as an exhibit to the Capstar SEC Documents or as set
forth in the Capstar Disclosure Letter, to August 26, 1998, neither Capstar nor
any of its subsidiaries is a party to or has entered into or made any material
amendment or modification to or granted any material waiver under any contract,
agreement, document or instrument that Capstar would be required to file under
Item 601 of Regulation S-K promulgated under the Exchange Act as an Exhibit to
Form 10-K (collectively, the "Material Agreements").

(c) Each of the Material Agreements is valid and enforceable against
Capstar in accordance with its terms, and there is no default under any Material
Agreements either by Capstar or any of its subsidiaries which is a party to such
Material Agreements or, to the knowledge of Capstar, by any other party thereto,
and no event has occurred that with the lapse of time or the giving of notice or
both would constitute a default thereunder by Capstar or, to the knowledge of
Capstar, any other party thereto, in any such case in which such default or
event could reasonably be expected to have a Capstar Material Adverse Effect. In
addition, neither Capstar nor any subsidiary of Capstar is in material breach of
any Material Agreement (including any breach which would give rise to a right to
terminate any such agreement). To August 26, 1998, neither Capstar nor any
subsidiary of Capstar has received any written notice (or to the knowledge of
Capstar any other notice) of default or termination under any Material
Agreement, and to the knowledge of Capstar, there exists no basis for any
assertion of a right of default or termination under such agreements. To August
26, 1998, neither Capstar nor any subsidiary of Capstar has received any written
notice (or to the knowledge of Capstar any other notice) of the exercise of a
put option or other right pursuant to which Capstar or any of its subsidiaries
would be obligated to purchase capital stock or assets relating to any Capstar
LMA Facility.

2.22 TANGIBLE PROPERTY. All of the assets of Capstar and the Capstar
Significant Subsidiaries are in good operating condition, reasonable wear and
tear excepted, and usable in the ordinary course of business, except where the
failure to be in such condition or so usable could not, individually or in the
aggregate, reasonably be expected to have a Capstar Material Adverse Effect.

2.23 OPINION OF FINANCIAL ADVISORS.

(a) The Capstar Special Committee has received the opinion of Bear
Stearns, dated as of April 13, 1999, to the effect that, as of such date, the
Exchange Ratio is fair, from a financial point of view, to the public holders of
Capstar Class A Common Stock.

(b) The Board of Directors of Capstar has received the opinions of each
of CSFB and BT Wolfensohn, dated August 26, 1998, to the effect that, as of such
date, the

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<PAGE> 633

Exchange Ratio is fair, from a financial point of view, to the holders of
Capstar Common Stock.

2.24 NO OTHER REPRESENTATIONS AND WARRANTIES. Except for the representations
and warranties made by Capstar as expressly set forth in this Agreement or in
any certificate or document delivered pursuant this Agreement, neither Capstar
nor any of its affiliates has made and shall not be construed as having made to
Chancellor or to any affiliate thereof any representation or warranty of any
kind.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF CHANCELLOR

Chancellor represents and warrants to Capstar as follows:

3.1 ORGANIZATION, STANDING AND CORPORATE POWER. Each of Chancellor and the
Chancellor Significant Subsidiaries (as defined below) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted. Each of
Chancellor and the Chancellor Significant Subsidiaries is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so qualified could not reasonably be
expected to have a material adverse effect on the business, properties, results
of operations, or condition (financial or otherwise) of Chancellor and its
subsidiaries, considered as a whole (other than as a result of changes in
general economic conditions or in economic conditions generally affecting the
radio broadcasting industry) (a "Chancellor Material Adverse Effect").
Chancellor has delivered to Capstar complete and correct copies of its
Certificate of Incorporation and Bylaws, as amended to August 26, 1998. For
purposes of this Agreement, a "Chancellor Significant Subsidiary" means any
subsidiary of Chancellor that would constitute a "significant subsidiary" within
the meaning of Rule 1-02 of Regulation S-X of the SEC.

3.2 CAPITAL STRUCTURE. The authorized capital stock of Chancellor consists of
(i) 75,000,000 shares of Chancellor Class A Common Stock, none of which are
issued and outstanding, (ii) 200,000,000 shares of Chancellor Common Stock and
(iii) 50,000,000 shares of preferred stock, $0.01 par value, of which (x)
2,200,000 shares have been designated as 7% Convertible Preferred Stock and (y)
6,000,000 shares have been designated as $3.00 Convertible Exchangeable
Preferred Stock. At the close of business on August 24, 1998: (i) 142,355,677
shares of Chancellor Common Stock were issued and outstanding, 14,149,671 shares
of Chancellor Common Stock were reserved for issuance pursuant to outstanding
options or warrants to purchase Chancellor Common Stock which have been granted
to directors, officers or employees of Chancellor or others ("Chancellor Stock
Options"), 18,059,088 shares of Chancellor Common Stock were reserved for
issuance upon the conversion of the Chancellor Convertible Preferred Stock, and
no shares of Chancellor Common Stock were held as treasury shares by Chancellor
or any subsidiary of Chancellor; (ii) 2,200,000 shares of Chancellor 7%
Convertible Preferred Stock were issued and outstanding; (iii) 6,000,000 shares
of Chancellor $3.00 Convertible Preferred Stock were issued and outstanding; and
(iv) no shares of Chancellor Convertible Preferred Stock were held as treasury
shares by Chancellor or any subsidiary of Chancellor. Except as set forth above
or disclosed in writing by Chancellor to Capstar in a

20
<PAGE> 634

disclosure letter (the "Chancellor Disclosure Letter") delivered to Capstar
prior to the execution and delivery of the Old Agreement, at the close of
business on August 24, 1998, no shares of capital stock or other equity
securities of Chancellor were authorized, issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of Chancellor are, and all
shares which may be issued pursuant to Chancellor's stock option plans, as
amended to the date hereof (the "Chancellor Stock Option Plans"), or upon the
exercise of outstanding Chancellor Stock Options or upon the conversion of
outstanding shares of Chancellor Convertible Preferred Stock will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. No bonds, debentures, notes or other indebtedness
of Chancellor or any subsidiary of Chancellor having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which the stockholders of Chancellor or any subsidiary of
Chancellor may vote are issued or outstanding. All the outstanding shares of
capital stock of each subsidiary of Chancellor have been validly issued and are
fully paid and nonassessable and (except for the shares of 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock, $0.01 par value, of Chancellor
Media Corporation of Los Angeles, a Delaware corporation (the "Chancellor
Operating Subsidiary")), are owned by Chancellor, by one or more wholly-owned
subsidiaries of Chancellor or by Chancellor and one or more such wholly-owned
subsidiaries, free and clear of all Liens, except for Liens arising out of the
senior credit facility of Chancellor Operating Subsidiary and those that,
individually or in the aggregate, could not reasonably be expected to have a
Chancellor Material Adverse Effect. Except as set forth above or in the
Chancellor Disclosure Letter and in that certain Amended and Restated
Stockholders Agreement, dated as of February 14, 1996, as amended by the First
Amendment to Amended and Restated Stockholders Agreement dated as of September
4, 1997, among Chancellor and the stockholders parties thereto (the "Chancellor
Stockholders Agreement") (which restricts the transfer of shares of Chancellor
Common Stock by the parties to the Chancellor Stockholders Agreement in certain
circumstances), and except for certain provisions of the Certificate of
Incorporation of Chancellor relating to "alien ownership" of the Chancellor
Common Stock, as of August 26, 1998, neither Chancellor nor any subsidiary of
Chancellor had any outstanding option, warrant, subscription or other right,
agreement or commitment that either (i) obligates Chancellor or any subsidiary
of Chancellor to issue, sell or transfer, repurchase, redeem or otherwise
acquire or vote any shares of the capital stock of Chancellor or any Chancellor
Significant Subsidiary or (ii) restricts the transfer of Chancellor Common
Stock. From the close of business on August 24, 1998 to August 26, 1998, neither
Chancellor nor any subsidiary of Chancellor had issued any capital stock or
securities or other rights convertible into or exercisable or exchangeable for
shares of such capital stock, other than shares of Chancellor Common Stock
issued upon the exercise of Chancellor Stock Options outstanding on August 24,
1998 or upon the conversion of shares of Chancellor Convertible Preferred Stock
outstanding on August 24, 1998.

3.3 AUTHORITY; NONCONTRAVENTION. Chancellor has the requisite corporate power
and authority to enter into this Agreement and, subject to the approval of the
stockholders of Chancellor as set forth in Section 5.2(b) (the "Chancellor
Stockholders Approval") of (i) the issuance of shares of Chancellor Common Stock
to the holders of Capstar Common Stock in the Merger and (ii) the Amended and
Restated Charter (clauses (i) and (ii) collectively being referred to
hereinafter as the "Chancellor Stockholder Proposals"), to consummate the
transactions contemplated by this Agreement. The

21
<PAGE> 635

execution and delivery of this Agreement by Chancellor and the consummation by
Chancellor of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Chancellor, subject to the
Chancellor Stockholders Approval. This Agreement has been duly executed and
delivered by Chancellor and, assuming this Agreement constitutes the valid and
binding agreement of each of the other parties hereto, constitutes a valid and
binding obligation of Chancellor, enforceable against it in accordance with its
terms except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). Except as set forth in the Chancellor Disclosure Letter and
subject to the receipt of the Chancellor Stockholders Approval and the filing of
the Amended and Restated Charter, the execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated by this Agreement
and compliance with the provisions hereof will not, (i) conflict with any of the
provisions of the Certificate of Incorporation or Bylaws of Chancellor or the
comparable documents of any subsidiary of Chancellor, (ii) subject to the
governmental filings and other matters referred to in the following sentence,
conflict with, result in a breach of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or require
the consent of any person under, any indenture or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which
Chancellor or any of its subsidiaries is a party or by which Chancellor or any
of its subsidiaries or any of their assets is bound or affected, (iii) result in
an obligation by Chancellor or any of its subsidiaries to redeem, repurchase or
retire (or offer to redeem, repurchase or retire) any indebtedness of Chancellor
or any of its subsidiaries outstanding as of the date hereof or equity security
of Chancellor or any of its subsidiaries outstanding as of the date hereof, or
(iv) subject to the governmental filings and other matters referred to in the
following sentence, contravene any law, rule or regulation of any state or of
the United States or any political subdivision thereof or therein, or any order,
writ, judgment, injunction, decree, determination or award currently in effect,
except, in the cases of the foregoing clauses (ii) through (iv), for breaches
that, individually or in the aggregate, could not reasonably be expected to have
a Chancellor Material Adverse Effect or to materially hinder Chancellor's
ability to consummate the transactions contemplated by this Agreement. No
consent, approval or authorization of, or declaration or filing with, or notice
to, any Governmental Entity which has not been received or made, is required by
or with respect to Chancellor or any of its subsidiaries in connection with the
execution and delivery of this Agreement by Chancellor or the consummation by
Chancellor of the transactions contemplated hereby, except for (i) the filing of
premerger notification and report forms under the HSR Act with respect to the
Merger and the termination or earlier expiration of the applicable waiting
period thereunder, (ii) such filings with and approvals required by the FCC
under the Communications Act, including those required in connection with the
acquisition of control of the Capstar FCC Licenses for the operation of the
Capstar Licensed Facilities, (iii) the filing of the Certificate of Merger with
the Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which Chancellor is qualified to do business,
(iv) the Joint Proxy Statement/Prospectus to be filed with the SEC by Chancellor
relating to the Chancellor Stockholders Approval and the issuance of Chancellor
Common Stock in connection with the Merger, (v) any filing required by The

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<PAGE> 636

Nasdaq Stock Market (or the New York Stock Exchange, if the shares of Chancellor
Common Stock are then listed thereon) with respect to the issuance of shares of
Chancellor Common Stock in connection with the Merger or upon the exercise of
Capstar Stock Options issued pursuant to the Capstar Stock Option Plan or the
Warrants, (vi) the filing of such reports under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (vii) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
other transactions contemplated by this Agreement, (viii) such filings as may be
required in connection with statutory provisions and regulations relating to
real property transfer gains taxes and real property transfer taxes, and (ix)
the filing of the Amended and Restated Charter.

3.4 CHANCELLOR SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as set forth in the
supplement to the Chancellor Disclosure Letter dated the date hereof, (i)
Chancellor and its predecessors have filed all required reports, schedules,
forms, statements and other documents with the SEC since January 1, 1995 to
August 26, 1998 (such reports, schedules, forms, statements and other documents
and any other documents filed with the SEC and publicly available prior to
August 26, 1998 are hereinafter referred to as the "Chancellor SEC Documents");
(ii) as of their respective dates, the Chancellor SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Chancellor SEC Documents, and none of the
Chancellor SEC Documents as of such dates contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and (iii) as of their
respective dates, the consolidated financial statements of Chancellor and its
predecessors included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto or,
in the case of unaudited statements, as permitted by Rule 10-01 of Regulation
S-X) and fairly present, in all material respects, the consolidated financial
position of Chancellor and its consolidated subsidiaries (or its predecessors
and their respective consolidated subsidiaries) as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (on the basis stated therein and subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments).

3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Chancellor
SEC Documents or except as disclosed in the Chancellor Disclosure Letter or in
the supplement to the Chancellor Disclosure Letter dated the date hereof, or as
otherwise agreed to in writing after August 26, 1998 by Capstar, or as expressly
permitted by this Agreement, since the date of the most recent audited financial
statements included in the Chancellor SEC Documents, Chancellor and its
subsidiaries have conducted their business only in the ordinary course, and
there has not been (i) any change which could reasonably be expected to have a
Chancellor Material Adverse Effect (including as a result of the consummation of
the transactions contemplated by this Agreement), (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or

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<PAGE> 637

property) with respect to any of Chancellor's currently outstanding capital
stock (other than the payment of regular cash dividends on the Chancellor 7%
Convertible Preferred Stock and Chancellor $3.00 Convertible Preferred Stock, in
each case in accordance with usual record and payment dates), (iii) any split,
combination or reclassification of any of its outstanding capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding capital stock,
(iv) (x) any granting by Chancellor or any of its subsidiaries to any director,
officer or other employee or independent contractor of Chancellor or any of its
subsidiaries of any increase in compensation or acceleration of benefits, except
in the ordinary course of business consistent with prior practice or as was
required under employment agreements in effect as of the date of the most recent
audited financial statements included in the Chancellor SEC Documents, (y) any
granting by Chancellor or any of its subsidiaries to any director, officer or
other employee or independent contractor of any increase in, or acceleration of
benefits in respect of, severance or termination pay, or pay in connection with
any change of control of Chancellor, except in the ordinary course of business
consistent with prior practice or as was required under any employment,
severance or termination agreements in effect as of the date of the most recent
audited financial statements included in the Chancellor SEC Documents or (z) any
entry by Chancellor or any of its subsidiaries into any employment, severance,
change of control, or termination or similar agreement with any director,
executive officer or other employee or independent contractor other than in the
ordinary course of business consistent with past practices, or (v) any change in
accounting methods, principles or practices by Chancellor or any of its
subsidiaries materially affecting its assets, liability or business, except
insofar as may have been required by a change in generally accepted accounting
principles.

3.6 NO EXTRAORDINARY PAYMENTS OR CHANGE IN BENEFITS. Except as disclosed in the
Chancellor Disclosure Letter or in the supplement to the Chancellor Disclosure
Letter dated the date hereof, no current or former director, officer, employee
or independent contractor of Chancellor or any of its subsidiaries is entitled
to receive any payment under any agreement, arrangement or policy (written or
oral) relating to employment, severance, change of control, termination, stock
options, stock purchases, compensation, deferred compensation, fringe benefits
or other employee benefits currently in effect (collectively, the "Chancellor
Benefit Plans"), nor will any benefit received or to be received by any current
or former director, officer, employee or independent contractor of Chancellor or
any of its subsidiaries under any Chancellor Benefit Plan be accelerated or
modified, in each case, as a result of or in connection with the execution and
delivery of, or the consummation of the transactions contemplated by, this
Agreement.

3.7 BROKERS. Except with respect to Salomon Brothers Inc. and Smith Barney
Inc., collectively doing business as Salomon Smith Barney ("Salomon Smith
Barney"), Wasserstein Perella & Co. ("Wasserstein"), Morgan Stanley & Co.
Incorporated ("Morgan Stanley") and Goldman, Sachs & Co. ("Goldman Sachs"), all
negotiations relating to this Agreement and the transactions contemplated hereby
have been carried out by Chancellor directly with Capstar without the
intervention of any person on behalf of Chancellor in such a manner as to give
rise to any valid claim by any person against Chancellor, Capstar, the Surviving
Corporation or any subsidiary of any of them for a finder's fee, brokerage
commission, or similar payment. The Chancellor Disclosure Letter and the
supplement to the Chancellor Disclosure Letter dated the date hereof set forth a
written summary of the terms of its agreements relating to the transactions
contemplated

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<PAGE> 638

by this Agreement with Salomon Smith Barney, Wasserstein, Morgan Stanley and
Goldman Sachs, and Chancellor has no other agreements or understandings (written
or oral) with respect to such services.

3.8 OPINION OF FINANCIAL ADVISORS.

(a) The Board of Directors of Chancellor has received the opinion of
Wasserstein, dated the date hereof, to the effect that, as of such date, the
Exchange Ratio is fair, from a financial point of view, to Chancellor and the
holders of Chancellor Common Stock.

(b) The special committee of the Board of Directors of Chancellor
(consisting of independent directors) (the "Chancellor Special Committee") has
received the opinion of Salomon Smith Barney, dated as of August 26, 1998, to
the effect that, as of such date, the Exchange Ratio is fair, from a financial
point of view, to the holders of Chancellor Common Stock who are not affiliated
with Hicks, Muse, Tate & Furst Incorporated.

(c) The Board of Directors of Chancellor has received the opinion of
Morgan Stanley, dated as of August 26, 1998, to the effect that, as of such
date, the Exchange Ratio is fair, from a financial point of view, to Chancellor
and the holders of Chancellor Common Stock.

3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except for (x) liabilities disclosed in
the Chancellor SEC Documents, (y) current liabilities incurred by Chancellor and
its subsidiaries in the ordinary course of business consistent with past
practices since the date of the most recent consolidated balance sheet of
Chancellor set forth in Chancellor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, as filed with the SEC, and (z) liabilities
contemplated by this Agreement or disclosed in the Chancellor Disclosure Letter,
Chancellor and its subsidiaries do not have any material indebtedness,
obligations or liabilities of any kind (whether accrued, absolute, contingent or
otherwise) (i) required by GAAP to be reflected on a consolidated balance sheet
of Chancellor and its consolidated subsidiaries or in the notes, exhibits or
schedules thereto or (ii) which reasonably could be expected to have a
Chancellor Material Adverse Effect.

3.10 LITIGATION. Except as disclosed in the Chancellor SEC Documents or in the
Chancellor Disclosure Letter, to August 26, 1998, there is no litigation,
administrative action, arbitration or other proceeding pending against
Chancellor or any of its subsidiaries or, to the knowledge of Chancellor,
threatened that, individually or in the aggregate, could reasonably be expected
to (i) have a Chancellor Material Adverse Effect or (ii) prevent, or
significantly delay the consummation of the transactions contemplated by this
Agreement. Except as set forth in the Chancellor SEC Documents, to the date of
this Agreement, there is no judgment, order, injunction or decree of any
Governmental Entity outstanding against Chancellor or any of its subsidiaries
that, individually or in the aggregate, could reasonably be expected to have any
effect referred to in the foregoing clauses (i) and (ii) of this Section 3.10.

3.11 TRANSACTIONS WITH AFFILIATES. Other than the transactions contemplated by
this Agreement or except to the extent disclosed in the Chancellor SEC Documents
or in the Chancellor Disclosure Letter or in the supplement to the Chancellor
Disclosure Letter dated the date hereof, there have been no transactions,
agreements, arrangements or understandings between Chancellor or its
subsidiaries, on the one hand, and Chancellor's affiliates (other than
subsidiaries of Chancellor) or any other person, on the other hand,

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<PAGE> 639

that would be required to be disclosed under Item 404 of Regulation S-K under
the Securities Act.

3.12 VOTING REQUIREMENTS. The affirmative votes of (i) a majority of the
outstanding shares of Chancellor Common Stock with respect to the approval and
adoption of the Amended and Restated Charter, and (ii) a majority of the votes
cast by the holders of Chancellor Common Stock with respect to the approval of
the issuance of Chancellor Common Stock to Capstar stockholders in the Merger,
are the only votes of the holders of any class or series of Chancellor's capital
stock necessary by law to approve the transactions contemplated by this
Agreement.

3.13 FCC QUALIFICATION. Chancellor and its subsidiaries are fully qualified
under the Communications Act to be the transferees of control of the Capstar FCC
Licenses. Except as disclosed in the Chancellor Disclosure Letter or in the
supplement to the Chancellor Disclosure Letter dated the date hereof, Chancellor
is not aware of any facts or circumstances relating to the FCC qualifications of
Chancellor or any of its subsidiaries that could reasonably be expected to
prevent the FCC's granting the FCC Form 316 Transfer of Control Application to
be filed with respect to the Merger.

3.14 EMPLOYEE ARRANGEMENTS AND BENEFIT PLANS.

(a) Except as set forth in the Chancellor SEC Documents or in the
Chancellor Disclosure Letter and except as could not, individually or in the
aggregate, reasonably be expected to have a Chancellor Material Adverse Effect:
(A) each Chancellor Benefit Plan has been administered and is in compliance with
the terms of such plan and all applicable laws, rules and regulations, (B) no
"reportable event" (as such term is used in section 4043 of ERISA) (other than
those events for which the 30 day notice has been waived pursuant to the
regulations), "prohibited transaction" (as such term is used in section 406 of
ERISA or section 4975 of the Code) or "accumulated funding deficiency" (as such
term is used in section 412 or 4971 of the Code) has heretofore occurred with
respect to any Chancellor Benefit Plan and (C) each Chancellor Benefit Plan
intended to qualify under Section 401(a) of the Code has received a favorable
determination from the IRS regarding its qualified status and no notice has been
received from the IRS with respect to the revocation of such qualification.

(b) To August 26, 1998, there is no litigation or administrative or
other proceeding involving any Chancellor Benefit Plan nor has Chancellor or its
subsidiaries received written notice that any such proceeding is threatened, in
each case where an adverse determination could reasonably be expected to have a
Chancellor Material Adverse Effect. Neither Chancellor nor any of its
subsidiaries has incurred, nor, to the best of Chancellor's knowledge, is
reasonably likely to incur any withdrawal liability with respect to any
"multiemployer plan" (within the meaning of section 3(37) of ERISA) which
remains unsatisfied in an amount which could reasonably be expected to have a
Chancellor Material Adverse Effect. The termination of, or withdrawal from, any
Chancellor Benefit Plan or multiemployer plan to which Chancellor or its
subsidiaries contributes, on or prior to the Closing Date, will not subject
Chancellor or any of its subsidiaries to any liability under Title IV of ERISA
that could reasonably be expected to have a Chancellor Material Adverse Effect.

3.15 TAX MATTERS. Except as set forth in the Chancellor Disclosure Letter or
the Chancellor SEC Documents, (A) Chancellor and each of its subsidiaries have
timely filed with the appropriate taxing authorities all material Tax Returns
required to be filed

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<PAGE> 640

through the date hereof and will timely file any such material Tax Returns
required to be filed on or prior to the Closing Date (except those under valid
extension) and all such Tax Returns are and will be true and correct in all
material respects, (B) all Taxes of Chancellor and each of its subsidiaries
shown to be due on the Tax Returns described in (A) above have been or will be
timely paid, (C) no material deficiencies for any Taxes have been proposed,
asserted or assessed against Chancellor or any of its subsidiaries that have not
been fully paid or adequately provided for in the appropriate financial
statements of Chancellor and its subsidiaries, and no power of attorney with
respect to any Taxes has been executed or filed with any taxing authority and no
material issues relating to Taxes have been raised in writing by any
governmental authority during any presently pending audit or examination, (D)
Chancellor and its subsidiaries are not now subject to audit by any taxing
authority and no waivers of statutes of limitation with respect to the Tax
Returns have been given by or requested in writing from Chancellor or any of its
subsidiaries, (E) there are no material liens for Taxes (other than for Taxes
not yet due and payable) on any assets of Chancellor or any of its subsidiaries,
(F) neither Chancellor nor any of its subsidiaries is a party to or bound by
(nor will any of them become a party to or bound by) any tax indemnity, tax
sharing, tax allocation agreement, or similar agreement, arrangement or practice
with respect to Taxes, (G) neither Chancellor nor any of its subsidiaries has
ever been a member of an affiliated group of corporations within the meaning of
Section 1504 of the Code, other than the affiliated group of which Chancellor is
the common parent, (H) neither Chancellor nor any of its subsidiaries has filed
a consent pursuant to the collapsible corporation provisions of Section 341(f)
of the Code (or any corresponding provision of state or local law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provisions of state or
local law) apply to any disposition of any asset owned by Chancellor or any of
its subsidiaries, as the case may be, (I) neither Chancellor nor any of its
subsidiaries has agreed to make, nor is any required to make, any adjustment
under Section 481(a) of the Code or any similar provision of state, local or
foreign law by reason of a change in accounting method or otherwise, (J)
Chancellor and its subsidiaries have complied in all material respects with all
applicable laws, rules and regulations relating to withholding of Taxes and (K)
no property owned by Chancellor or any of its subsidiaries (i) is property
required to be treated as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986;
(ii) constitutes "tax exempt use property" within the meaning of Section
168(h)(l) of the Code; or (iii) is tax exempt bond financed property within the
meaning of Section 168(g) of the Code.

3.16 INTELLECTUAL PROPERTY. Except as set forth in the Chancellor Disclosure
Letter or the Chancellor SEC Documents and except to the extent that the
inaccuracy of any of the following (or the circumstances giving rise to such
inaccuracy), individually or in the aggregate, could not reasonably be expected
to have a Chancellor Material Adverse Effect: (a) Chancellor and each of its
subsidiaries owns, or is licensed to use (in each case, free and clear of any
Liens), all Intellectual Property used in or necessary for the conduct of its
business as currently conducted; (b) the use of any Intellectual Property by
Chancellor and its subsidiaries does not infringe on or otherwise violate the
rights of any person and is in accordance with any applicable license pursuant
to which Chancellor or any subsidiary acquired the right to use any Intellectual
Property; and (c) to the knowledge of Chancellor, no person is challenging,
infringing on or otherwise violating any right of Chancellor or any of its
subsidiaries with respect to any Intellectual Property owned by

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<PAGE> 641

and/or licensed to Chancellor or its subsidiaries; and (d) neither Chancellor
nor any of its subsidiaries has received any written notice of any pending claim
with respect to any Intellectual Property used by Chancellor and its
subsidiaries and to its knowledge no Intellectual Property owned and/or licensed
by Chancellor or its subsidiaries is being used or enforced in a manner that
would result in the abandonment, cancellation or unenforceability of such
Intellectual Property.

3.17 ENVIRONMENTAL MATTERS. Except as disclosed in the Chancellor SEC Documents
or in the Chancellor Disclosure Letter and except as could not reasonably be
expected to have a Chancellor Material Adverse Effect (i) the operations of
Chancellor and its subsidiaries have been and are in compliance with all
Environmental Laws and with all Permits required by Environmental Laws, (ii) to
August 26, 1998, there are no pending or, to the knowledge of Chancellor,
threatened, Actions under or pursuant to Environmental Laws against Chancellor
or its subsidiaries or involving any real property currently or, to the
knowledge of Chancellor, formerly owned, operated or leased by Chancellor or its
subsidiaries, (iii) Chancellor and its subsidiaries are not subject to any
Environmental Liabilities, and, to the knowledge of Chancellor, no facts,
circumstances or conditions relating to, arising from, associated with or
attributable to any real property currently or, to the knowledge of Chancellor,
formerly owned, operated or leased by Chancellor or its subsidiaries or
operations thereon that could reasonably be expected to result in Environmental
Liabilities, (iv) all real property owned and to the knowledge of Chancellor all
real property operated or leased by Chancellor or its subsidiaries is free of
contamination from Hazardous Material and (v) there is not now, nor, to the
knowledge of Chancellor, has there been in the past, on, in or under any real
property owned, leased or operated by Chancellor or any of its predecessors (a)
any underground storage tanks, above-ground storage tanks, dikes or impoundments
containing Hazardous Materials, (b) any asbestos-containing materials, (c) any
polychlorinated biphenyls, or (d) any radioactive substances.

3.18 COMPLIANCE WITH APPLICABLE LAWS. Each of Chancellor and its subsidiaries
has in effect all Permits necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, other than
such Permits the absence of which could not, individually or in the aggregate,
reasonably be expected to have a Chancellor Material Adverse Effect, and there
has occurred no default under any such Permit other than such defaults which,
individually or in the aggregate, could not reasonably be expected to have a
Chancellor Material Adverse Effect. Except as disclosed in the Chancellor
Disclosure Letter, Chancellor and its subsidiaries are in compliance with all
applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity, except for such noncompliance which, individually or in the
aggregate, could not reasonably be expected to have a Chancellor Material
Adverse Effect.

3.19 CHANCELLOR FCC LICENSES; OPERATIONS OF CHANCELLOR LICENSED
FACILITIES. Chancellor and its subsidiaries have operated the radio stations for
which Chancellor and any of its subsidiaries hold licenses from the FCC, in each
case which are owned or operated by Chancellor and its subsidiaries (each a
"Chancellor Licensed Facility" and collectively the "Chancellor Licensed
Facilities"), in material compliance with the terms of the licenses issued by
the FCC to Chancellor and its subsidiaries (the "Chancellor FCC Licenses"), and
in material compliance with the Communications Act, except where the failure to
do so could not, individually or in the aggregate, reasonably be expected to
have a Chancellor Material Adverse Effect. To the knowledge of Chancellor, each
broadcast

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<PAGE> 642

radio station for which Chancellor or any of its subsidiaries provides
programming and advertising services pursuant to a local marketing agreement
(each a "Chancellor LMA Facility" and collectively the "Chancellor LMA
Facilities") has been operated in material compliance with the terms of the
licenses issued by the FCC to the owner of such Chancellor LMA Facility (each an
"Chancellor LMA Facility FCC License" and collectively the "Chancellor LMA
Facility FCC Licenses"). Chancellor has, and its subsidiaries have, timely filed
or made all applications, reports and other disclosures required by the FCC to
be made with respect to the Chancellor Licensed Facilities and have timely paid
all FCC regulatory fees with respect thereto, except where the failure to do so
could not, individually or in the aggregate, reasonably be expected to have a
Chancellor Material Adverse Effect. Chancellor and each of its subsidiaries
have, and are the authorized legal holders of, all the Chancellor FCC Licenses
necessary or used in the operation of the businesses of the Chancellor Licensed
Facilities as presently operated. To the knowledge of Chancellor, the
third-parties with which Chancellor or its subsidiaries have entered into local
marketing agreements with respect to the Chancellor LMA Facilities have, and are
the authorized legal holders of, the Chancellor LMA Facility FCC License
necessary or used in the operation of the business of the respective Chancellor
LMA Facility to which such local marketing agreement relates. All Chancellor FCC
Licenses and, to the knowledge of Chancellor, Chancellor LMA Facility FCC
Licenses are validly held and are in full force and effect, unimpaired by any
act or omission of Chancellor, each of its subsidiaries (or, to Chancellor's
knowledge, their respective predecessors) or their respective officers,
employees or agents, except where such impairments could not, individually or in
the aggregate, reasonably be expected to have a Chancellor Material Adverse
Effect. As of August 26, 1998, except as set forth in the Chancellor Disclosure
Letter, no application, action or proceeding is pending for the renewal of any
Chancellor FCC License or, to the knowledge of Chancellor, Chancellor LMA
Facility FCC License as to which any petition to deny has been filed and, to
Chancellor's knowledge, there is not now before the FCC any material
investigation, proceeding, notice of violation or order of forfeiture relating
to any Chancellor Licensed Facility or Chancellor LMA Facility that, if
adversely determined, could reasonably be expected to have a Chancellor Material
Adverse Effect, and Chancellor is not aware of any basis that could reasonably
be expected to cause the FCC not to renew any of the Chancellor FCC Licenses or
the Chancellor LMA Facility FCC Licenses (other than proceedings to amend FCC
rules or the Communications Act of general applicability to the radio broadcast
industry). There is not now pending and, to Chancellor's knowledge, there is not
threatened, any action by or before the FCC to revoke, suspend, cancel, rescind
or modify in any material respect any of the Chancellor FCC Licenses or to the
knowledge of Chancellor, any of the Chancellor LMA Facility FCC Licenses that,
if adversely determined, could reasonably be expected to have a Chancellor
Material Adverse Effect (other than proceedings to amend FCC rules or the
Communications Act of general applicability to the radio broadcast industry).

3.20 STATE TAKEOVER STATUTES. The Board of Directors of Chancellor has approved
the terms of this Agreement and the consummation of the transactions
contemplated by this Agreement, and such approval is sufficient to render
inapplicable to the Merger and the other transactions contemplated by this
Agreement the provisions of Section 203 of the Delaware Code. To Chancellor's
knowledge, no other state takeover statute or similar statute or regulation
applies or purports to apply to the Merger, this Agreement or any of the
transactions contemplated by this Agreement and no provision of the Certificate
of

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<PAGE> 643

Incorporation, Bylaws or other governing instrument of Chancellor or any of its
subsidiaries would, directly or indirectly, restrict or impair the ability of
Chancellor to consummate the transactions contemplated by this Agreement.

3.21 CHANCELLOR COMMON STOCK. The shares of Chancellor Common Stock to be
issued in the Merger will be, upon delivery against receipt of the shares of
Capstar Common Stock for which such shares will be issued in accordance with
Section 1.8 of this Agreement, duly authorized, validly issued, fully paid and
nonassessable. The shares of Chancellor Common Stock to be issued pursuant to
the Capstar Stock Options issued under the Capstar Stock Option Plan and upon
exercise of the Warrants will be, upon delivery of the exercise price therefor
in accordance with the terms of the Capstar Stock Option Plan and agreements
pursuant to which such Capstar Stock Options were issued and the warrant
agreements pursuant to which such Warrants were issued, respectively, duly
authorized, validly issued, fully paid and nonassessable.

3.22 NO OTHER REPRESENTATIONS AND WARRANTIES. Except for the representations
and warranties made by Chancellor as expressly set forth in this Agreement or in
any certificate or document delivered pursuant this Agreement, neither
Chancellor nor any of its affiliates has made and shall not be construed as
having made to Capstar or to any affiliate thereof any representation or
warranty of any kind.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF MERGER SUB

Merger Sub represents and warrants to Capstar as follows:

4.1 ORGANIZATION, STANDING AND CORPORATE POWER. Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to carry
on its business as now being conducted. Merger Sub is duly qualified to do
business and in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties would make such
qualification necessary, except where the failure to be so qualified could not
reasonably be expected to have a Chancellor Material Adverse Effect.

4.2 CAPITAL STRUCTURE. The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, $0.01 par value, all of which are issued and
outstanding and owned of record and beneficially by Chancellor, free and clear
of all Liens. All outstanding shares of capital stock of Merger Sub are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Merger Sub has no outstanding options, warrants,
subscriptions or other rights, agreements or commitments that obligates it to
issue, sell or transfer, repurchase, redeem or otherwise acquire or vote any
shares of the capital stock of Merger Sub.

4.3 AUTHORITY; NONCONTRAVENTION. Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
Merger Sub and the consummation by it of the transactions contemplated by this
Agreement, have been duly authorized by all necessary corporate action on the
part of Merger Sub, including all necessary stockholder approval. This Agreement
has been duly executed and delivered by Merger Sub, and, assuming this Agreement
constitutes the valid and binding agreement of Chancellor and Capstar,
constitutes a valid and binding obligation of Merger Sub

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<PAGE> 644

enforceable against it in accordance with its terms except that the enforcement
thereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium
or similar laws now or hereafter in effect relating to creditor's rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity). The execution
and delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, (i) conflict with any of the provisions of the Certificate
of Incorporation or Bylaws of Merger Sub, or (ii) subject to the governmental
filings and other matters referred to in the following sentence, contravene any
law, rule or regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect. No consent, approval or
authorization of, or declaration or filing with, or notice to, any Governmental
Entity which has not been received or made is required by or with respect to
Merger Sub in connection with the execution and delivery of this Agreement by it
or the consummation by it of any of the transactions contemplated by this
Agreement, except for (i) the filing of premerger notification and report forms
under the HSR Act with respect to the Merger and the termination or earlier
expiration of the applicable waiting periods thereunder, (ii) such filings with
and approvals required by the FCC under the Communications Act including those
required in connection with the transfer of control of the Capstar FCC Licenses
for the operation of the Capstar Licensed Facilities, and (iii) the filing of a
certificate of merger with the Delaware Secretary of State.

4.4 NO PRIOR ACTIVITIES. Except for this Agreement, Merger Sub (i) has not
entered into any agreements or arrangements with any person or (ii) is not
subject to or bound by any obligation or undertaking. Except as contemplated by
this Agreement, Merger Sub has not engaged, directly or indirectly, in any
business activities of any type or kind.

ARTICLE 5

ADDITIONAL AGREEMENTS

5.1 PREPARATION OF FORM S-4 AND JOINT PROXY STATEMENT/PROSPECTUS; INFORMATION
SUPPLIED.

(a) As soon as practicable following the date of this Agreement, (i)
Chancellor and Capstar shall prepare and file with the SEC the Joint Proxy
Statement/Prospectus and (ii) Capstar and Chancellor shall prepare and file a
Registration Statement on Form S-4 (the "Form S-4") with respect to the
registration of the issuance of shares of Chancellor Common Stock in the Merger,
of which the Joint Proxy Statement/Prospectus will form a part. Each of
Chancellor and Capstar shall use its reasonable best efforts to have the Form
S-4 declared effective under the Securities Act as promptly as practicable after
such filing. Chancellor shall use its reasonable best efforts to cause the Joint
Proxy Statement/ Prospectus to be mailed to Chancellor's stockholders, and
Capstar shall use its reasonable best efforts to cause the Joint Proxy
Statement/Prospectus to be mailed to Capstar's stockholders, in each case as
promptly as practicable after the Form S-4 is declared effective under the
Securities Act. Chancellor shall also take any action (other than qualifying to
do business in any jurisdiction in which it is not now so qualified or take any
action that would subject it to the service of process in suits, other than as
to matters and transactions relating to the Form S-4, in any jurisdiction where
it is not so subject) required to be taken under any applicable state securities
laws in connection with the

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issuance of the Chancellor Common Stock in the Merger and Capstar shall furnish
all information concerning itself and the holders of shares of Capstar Common
Stock as may be reasonably requested in connection with any such action.

(b) Capstar agrees and represents and warrants that the information
supplied or to be supplied by it specifically for inclusion or incorporation by
reference in the (i) Form S-4 will not, at the time the Form S-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, or (ii) the Joint Proxy
Statement/Prospectus will not, at the date it is first mailed to Capstar's
stockholders or at the time of the Capstar Stockholders Meeting (as defined in
Section 5.2(a)), contain any statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or omits to state any material fact necessary in order to make
the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter thereof which has become false or
misleading.

(c) Chancellor agrees and represents and warrants that the information
supplied or to be supplied by it specifically for inclusion or incorporation by
reference in (i) the Form S-4 will not, at the time the Form S-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, or (ii) the Joint Proxy
Statement/Prospectus will not, at the date it is first mailed to Chancellor's
stockholders or at the time of the Chancellor Stockholders Meeting, contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting
or subject matter thereof which has become false or misleading. Chancellor
agrees that the Form S-4 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations promulgated
thereunder and Chancellor agrees that the Joint Proxy Statement/Prospectus will
comply as to form in all material respects with the requirements of the Exchange
Act and the rules and regulations promulgated thereunder, except in each case
with respect to statements made or incorporated by reference in the Form S-4 or
the Joint Proxy Statement/Prospectus supplied by Capstar specifically for
inclusion or incorporation by reference therein as to which Chancellor assumes
no responsibility.

5.2 STOCKHOLDER APPROVAL.

(a) Capstar agrees that it will take all action necessary in accordance
with applicable law and its Certificate of Incorporation and Bylaws to convene a
meeting of its stockholders (the "Capstar Stockholders Meeting") to submit this
Agreement, together (subject to Section 5.5(b) below) with the affirmative
recommendation of the Capstar Special Committee and Capstar's Board of
Directors, to Capstar's stockholders so that

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<PAGE> 646

they may consider and vote upon the approval and adoption of this Agreement.
Capstar will use its best efforts to hold the Capstar Stockholders Meeting as
soon as reasonable after the date hereof and, so long as the recommendation of
the Capstar Special Committee or the Board of Directors of Capstar has not been
withdrawn or modified in accordance with Section 5.5(b), to obtain the favorable
votes of its stockholders. Except as may otherwise be permitted by Section
5.5(b) below, the Capstar Special Committee and the Board of Directors of
Capstar shall recommend to its stockholders that they vote in favor of the
approval and adoption of this Agreement. Without limiting the generality of the
foregoing, Capstar agrees that its obligations pursuant to the first two
sentences of this Section 5.2(a) shall not be affected by (i) the commencement,
public proposal, public disclosure or communication to Chancellor of any
Acquisition Proposal (as defined in Section 5.5(c) below) or (ii) the withdrawal
or modification by Capstar Special Committee or the Board of Directors of
Capstar of its approval or recommendation of this Agreement and the Merger in
accordance with Section 5.5(b) below, except with respect to a withdrawal or
modification of the affirmative recommendation of the Capstar Special Committee
or the Board of Directors of Capstar to Capstar stockholders at the Capstar
Stockholders Meeting in accordance with Section 5.5(b) or in the event Capstar
elects to terminate this Agreement in accordance with Section 8.1(b)(vii).

(b) Chancellor agrees that it will take all action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of its stockholders (the "Chancellor Stockholders Meeting")
to submit the Chancellor Stockholder Proposals, together (subject to the proviso
of the last sentence of this Section 5.2(b)) with the affirmative recommendation
of the Chancellor Special Committee and Chancellor's Board of Directors, to the
Chancellor's stockholders so that they may consider and vote upon the Chancellor
Stockholder Proposals. Chancellor will use its best efforts to hold the
Chancellor Stockholders Meeting as soon as reasonable after the date hereof and,
so long as the recommendation of the Chancellor Special Committee or the Board
of Directors of Chancellor has not been withdrawn or modified in accordance with
this Section 5.2(b), to obtain the favorable votes of its stockholders. The
Chancellor Special Committee and the Board of Directors of Chancellor shall
recommend to its stockholders that they vote in favor of each of the Chancellor
Stockholder Proposals; provided, however, that in the event that the Chancellor
Special Committee or the Board of Directors of Chancellor determines in good
faith, following consultation with and after considering the advice of outside
counsel, that in order to comply with its fiduciary duties to stockholders under
applicable law it is necessary for the Chancellor Special Committee or the full
Board of Directors of Chancellor to withdraw or modify, in a manner materially
adverse to Capstar, its approval or recommendation of the transactions
contemplated by this Agreement or the Merger (including either or both of the
Chancellor Stockholder Proposals), then the Chancellor Special Committee or the
full Board of Directors of Chancellor shall be entitled to (A) withdraw or
modify such recommendation without breaching the terms of this Agreement or (B)
terminate this Agreement in accordance with Section 8.1(b)(viii); provided,
further, that in the event of any such withdrawal or modification of such
recommendation by the Chancellor Special Committee or the full Board of
Directors of Chancellor in which Chancellor does not elect to terminate this
Agreement pursuant to Section 8.1(b)(viii), such modification or withdrawal
shall not affect the obligation of Chancellor's Board of Directors to call and
convene the Chancellor Stockholders Meeting and submit the Chancellor
Stockholder Proposals to the Chancellor stockholders for a vote thereon in
accordance with this Section 5.2(b) and 5.2(c) hereof.

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(c) Unless this Agreement is first terminated in accordance with Section
8.1(b)(vii) or 8.1(b)(viii), each of Chancellor and Capstar agrees to cooperate
and use its respective best efforts to hold the Chancellor Stockholders Meeting
and the Capstar Stockholders Meeting on the same day.

5.3 ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable notice, each of
Chancellor and Capstar shall, and shall cause each of its respective
subsidiaries to, afford to the other parties hereto and to their respective
officers, employees, counsel, financial advisors and other representatives
reasonable access during normal business hours during the period prior to the
Effective Time to all its properties, books, contracts, commitments, personnel
and records and, during such period, each of Chancellor and Capstar shall, and
shall cause each of its respective subsidiaries to, furnish as promptly as
practicable to the other parties hereto such information concerning its
business, properties, financial condition, operations and personnel as such
parties may from time to time reasonably request, subject to restrictions as to
confidentiality contained in any agreements in effect as of the date of this
Agreement to which either Chancellor or Capstar is a party, provided that
Chancellor or Capstar, as the case may be, shall use its reasonable best efforts
to obtain consent to the waiver of any such restrictions upon the request of the
other party. Without limiting the foregoing, Capstar shall provide promptly to
Chancellor all weekly pacing reports and monthly financial statements prepared
by Capstar or any of its subsidiaries in the ordinary course of business. Except
as required by law, each of the Chancellor and Capstar will hold, and will cause
its respective directors, officers, partners, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
nonpublic information obtained from Capstar or Chancellor, respectively, in
confidence to the extent required by and in accordance with the provisions of
the letter dated August 1, 1998, between Chancellor and Capstar (the
"Confidentiality Agreement"), and each of Chancellor and Capstar agrees that
prior to the Effective Time neither party will use any of such nonpublic
information to directly or indirectly divert or attempt to divert any business,
customer or employee of the other.

5.4 PUBLIC ANNOUNCEMENTS. Chancellor and Capstar agree that each of them will
consult with the other before issuing, and will provide each other the
opportunity to review and comment upon, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to rules of any
national securities exchange or The Nasdaq Stock Market (to the extent
applicable to them).

5.5 ACQUISITION PROPOSALS.

(a) Except as may otherwise be provided in Section 5.5(e), from and
after August 26, 1998, without the prior written consent of Chancellor, Capstar
did not and shall not, and did not and shall not authorize or permit any of its
subsidiaries to, and did and shall direct and use its best efforts to cause its
and its subsidiaries' respective directors, officers, partners, employees,
agents, accountants, counsel, financial advisors and other representatives and
affiliates (collectively, "Representatives") not to, (i) directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information or
assistance) or take any other action to facilitate any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to an
Acquisition

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<PAGE> 648

Proposal (as defined below) or (ii) enter into or participate in any discussions
or negotiations regarding any Acquisition Proposal. As of August 26, 1998,
Capstar immediately ceased and terminated any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any persons conducted by
it or its Representatives with respect to the foregoing. Except as may otherwise
be provided by Section 5.5(e), from and after August 26, 1998, Capstar did not,
and agrees not to, release any third party from, or waive any provision of, any
standstill agreement to which it is a party or any confidentiality agreement
between it and another person who has made, or who may reasonably be considered
likely to make, an Acquisition Proposal. From and after August 26, 1998, Capstar
did, and agrees that it will, notify Chancellor orally and in writing promptly
(but in any event within 24 hours) of any such inquiries, offers or proposals
(including, without limitation, the terms and conditions of any such proposal
but, at Capstar's discretion, excluding the identity of such third party).

(b) Neither the Board of Directors of Capstar nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Chancellor, the approval or recommendation by such Board of Directors
or committee thereof of this Agreement and the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or (iii)
cause Capstar to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any Acquisition
Proposal; provided, however, that in the event that the Capstar Special
Committee or the Board of Directors of Capstar determines in good faith,
following consultation with and after considering the advice of outside counsel,
that in order to comply with its fiduciary duties to stockholders under
applicable law it is necessary for the Capstar Special Committee or the full
Board of Directors of Capstar to withdraw or modify, in a manner materially
adverse to Chancellor, its approval or recommendation of this Agreement and the
Merger, then the Capstar Special Committee or the full Board of Directors of
Capstar shall be entitled to (A) withdraw or modify such recommendation without
breaching the terms of this Agreement or (B) terminate this Agreement in
accordance with Section 8.1(b)(vii); provided, further, that in the event of any
such withdrawal or modification of such recommendation by the Capstar Special
Committee or the full Board of Directors of Capstar in which Capstar does not
elect to terminate this Agreement pursuant to Section 8.1(b)(vii), such
modification or withdrawal shall not affect the obligation of Capstar's Board of
Directors to call and convene the Capstar Stockholders Meeting and submit this
Agreement to the Capstar stockholders for a vote thereon in accordance with
Section 5.2(a) and 5.2(c) hereof.

(c) For purposes of this Agreement, an "Acquisition Proposal" means any
written proposal or offer from any person (other than Chancellor or any of its
subsidiaries) for a tender or exchange offer, merger, consolidation, other
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Capstar or any Capstar Significant Subsidiary, or any
proposal to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of, Capstar or a Capstar Significant
Subsidiary.

(d) Nothing contained in this Section 5.5 shall prohibit the Board of
Directors of Capstar from taking and disclosing to its stockholders a position
in accordance with Rules 14d-9 and 14e-2 under the Exchange Act with respect to
a tender offer or any exchange offer commenced by a third party.

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<PAGE> 649

(e) In the event that Capstar notifies Chancellor of the existence of
any inquiries, offers or proposals in accordance with Section 5.5(a), the
Capstar Special Committee or the Board of Directors of Capstar may, or authorize
Capstar to, engage in discussions or negotiations with a third party who
(without any solicitation or initiation, directly or indirectly, by or with
Capstar or any of its Representatives after the date of this Agreement) seeks to
initiate such discussions or negotiations and may, or authorize Capstar to,
furnish such third party information concerning Capstar and its business,
properties and assets and may release such third party from, or waive any
provision of, any standstill or confidentiality agreement with respect to such
third party, provided that such action is consistent with the fiduciary duties
of the Capstar Special Committee or the full Board of Directors of Capstar under
applicable law, as determined by the Capstar Special Committee or the Board of
Directors in good faith following consultation with and after considering the
advice of outside counsel.

5.6 CONSENTS, APPROVALS AND FILINGS. Chancellor and Capstar will make and cause
their respective subsidiaries and, to the extent necessary, their other
affiliates to make all necessary filings, including, without limitation, those
required under the HSR Act, the Securities Act, the Exchange Act, and the
Communications Act (including filing an application with the FCC for the
transfer of control of the Capstar FCC Licenses) as soon as practicable after
the date of this Agreement, in order to facilitate the prompt consummation of
the Merger and the other transactions contemplated by this Agreement. In
addition, Chancellor and Capstar will each use its best efforts, and will
cooperate fully and in good faith with each other, (i) to comply as promptly as
practicable with all governmental requirements applicable to the Merger and the
other transactions contemplated by this Agreement, and (ii) to obtain as
promptly as practicable all necessary permits, orders or other consents of
Governmental Entities and consents of all third parties necessary for the
consummation of the Merger and the other transactions contemplated by this
Agreement, including without limitation, the consent of the FCC to the transfer
of control of the Capstar FCC Licenses. Each of Chancellor and Capstar shall use
its best efforts to promptly provide such information and communications to
Governmental Entities as such Governmental Entities may reasonably request. Each
of the parties hereto shall provide to the other parties copies of all
applications in advance of filing or submission of such applications to
Governmental Entities in connection with this Agreement and shall make such
revisions thereto as reasonably requested by each other party hereto. Each of
the parties hereto shall provide to the other parties the opportunity to
participate in all meetings and material conversations with Governmental
Entities with respect to the matters contemplated by this Agreement.

5.7 AFFILIATES LETTERS. Prior to the Closing Date, Capstar shall deliver to
Chancellor a letter identifying all persons who, at the time the Merger is
submitted for approval to the stockholders, may be deemed to be an "affiliate"
of such party for purposes of Rule 145 under the Securities Act. Capstar shall
use its best efforts to cause each such person to deliver to Chancellor on or
prior to the Closing Date a written agreement substantially in the form attached
as Annex IV hereto.

5.8 NASDAQ OR EXCHANGE LISTING. Chancellor shall use its best efforts to cause
the shares of Chancellor Common Stock to be issued (a) in the Merger, (b) upon
the exercise of the Capstar Stock Options issued under the Capstar Stock Option
Plan, and (c) upon exercise of the Warrants, to be approved for quotation on The
Nasdaq Stock Market (or for listing

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<PAGE> 650

on the New York Stock Exchange, if the shares of Chancellor Common Stock are
then listed thereon) at the Effective Time.

5.9 INDEMNIFICATION. The Certificate of Incorporation of the Surviving
Corporation shall contain the provisions with respect to indemnification
contained in the certificate of incorporation of Capstar, as in effect on the
date hereof, and none of such provisions shall be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors or officers of Capstar, or any of its
respective subsidiaries (the "Capstar Indemnified Parties") in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), unless
such modification is required by law. If commercially available, Chancellor will
cause to be maintained for a period of not less than six years from the
Effective Time Capstar's current directors' and officers' insurance and
indemnification policies to the extent that they provide coverage for events
occurring prior to the Effective Time (the "D&O Insurance") for all persons who
are directors and executive officers of Capstar on the date of this Agreement,
so long as the annual premium therefor would not be in excess of 250% of the
last annual premium paid prior to the date of the Old Agreement; provided,
however, that Chancellor or its subsidiaries may, in lieu of maintaining such
existing D&O Insurance as provided above, cause coverage to be provided under
any policy maintained for the benefit of Chancellor and its subsidiaries so long
as the terms thereof are not less advantageous to the beneficiaries thereof than
the existing D&O Insurance. Immediately following the Effective Time, Chancellor
shall (i) enter into agreements with Chancellor's executive officers and members
of the Board of Directors providing for indemnification on substantially
identical terms as the agreements of Capstar with the current directors of
Capstar and (ii) use its commercially reasonable efforts to obtain an additional
directors and officers insurance policy for Chancellor in an amount equal to at
least $25 million to cover members of the Chancellor Board of Directors
(including the director appointed as of the Effective Time pursuant to this
Agreement) for facts and circumstances arising after the Effective Time. The
provisions of this Section 5.9 are intended to be for the benefit of, and shall
be enforceable by, each Capstar Indemnified Party, executive officer of
Chancellor and member of the Chancellor Board of Directors following the
Effective Time, and his heirs and his personal representatives and shall be
binding on all successors and assigns of Chancellor and the Surviving
Corporation.

5.10 LETTER OF CHANCELLOR'S ACCOUNTANTS. Chancellor shall use its reasonable
best efforts to cause to be delivered to Capstar a letter of
PricewaterhouseCoopers LLP, Chancellor's independent public accountants, and any
other independent public accountants whose report would be required to be
included in the Form S-4 pursuant to the rules and regulations under the
Securities Act, each dated a date within two business days before the date on
which the Form S-4 shall become effective and an additional letter from each of
them dated a date within two business days before the Closing Date, each
addressed to such party, in form and substance reasonably satisfactory to
Capstar and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.

5.11 LETTER OF CAPSTAR'S ACCOUNTANTS. Capstar shall use its reasonable best
efforts to cause to be delivered to Chancellor, a letter of
PricewaterhouseCoopers LLP, Capstar's independent public accountants, and any
other independent public accountants whose

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report would be required to be included in the Form S-4 pursuant to the rules
and regulations under the Securities Act, each dated a date within two business
days before the date on which the Form S-4 shall become effective and an
additional letter from each of them dated a date within two business days before
the Closing Date, each addressed to such party, in form and substance reasonably
satisfactory to Chancellor and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.

5.12 [INTENTIONALLY LEFT BLANK.]

5.13 SENIOR CREDIT FACILITY CONSENTS. Prior to Closing, Capstar agrees to use
its commercially reasonable efforts to obtain the consent of lenders under its
senior secured credit facilities to (i) waive the potential event of default
under such facility as a result of a change of control thereunder in order to
consummate the Merger and the transactions contemplated by this Agreement and
(ii) permit Capstar and its subsidiaries to make change of control offers
pursuant to the terms of the indentures governing their outstanding indebtedness
and the certificates of designation governing the Capstar Partners 12% Preferred
Stock and the Capstar Communications 12 5/8% Preferred Stock. In the event that
Capstar is unable to obtain such consent upon commercially reasonable terms
(giving effect to the overall capitalization of Chancellor and its consolidated
subsidiaries following the Effective Time), each of Chancellor and Capstar
agrees to cooperate with the other party in obtaining refinancing of such senior
secured credit facility upon terms and conditions that are mutually agreed upon
in good faith by each party.

5.14 SECTION 16(B) BOARD APPROVAL.

(a) Prior to Closing, the Board of Directors of Chancellor shall, by
resolution duly adopted by such Board of Directors or a duly authorized
committee of "non-employee directors" thereof, approve and adopt, for purposes
of exemption from "short-swing" liability under Section 16(b) of the Exchange
Act, the acquisition of Chancellor Common Stock at the Effective Time by
officers and directors of Chancellor (including officers or directors of Capstar
who become, prior to, at, or following the Effective Time of the Merger,
officers or directors of Chancellor) as a result of the conversion of shares of
Capstar Common Stock in the Merger and the assumption of the Capstar Stock
Options and Warrants by Chancellor at the Effective Time. Such resolution shall
set forth the name of the applicable "insiders" for purposes of Section 16 of
the Exchange Act, the number of securities to be acquired by each individual,
that the approval is being granted to exempt the transaction under Rule 16b-3
under the Exchange Act, and, for Capstar Stock Options and Warrants to be
assumed by Chancellor at the Effective Time, the material terms of the options
and warrants to purchase Chancellor Common Stock acquired by such insiders as a
result of the assumption by Chancellor of such Capstar Stock Options and
Warrants.

(b) Prior to Closing, the Board of Directors of Capstar shall, by
resolution duly adopted by such Board of Directors or a duly authorized
committee of "non-employee directors" thereof, approve and adopt, for purposes
of exemption from "short-swing" liability under Section 16(b) of the Exchange
Act, the conversion at the Effective Time of the shares of Capstar Common Stock
held by officers and directors of Capstar into shares of Chancellor Common Stock
as a result of the conversion of shares in the Merger, and the assumption by
Chancellor at the Effective Time of the Capstar Stock Options and Warrants of
the officers and directors of Capstar. Such resolution shall set forth the name

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<PAGE> 652

of the applicable "insiders" for purposes of Section 16 of the Exchange Act and,
for each "insider," the number of shares of Capstar Common Stock to be converted
into shares of Chancellor Common Stock at the Effective Time, the number and
material terms of the Capstar Stock Options and Warrants to be assumed by
Chancellor at the Effective Time, and that the approval is being granted to
exempt the transaction under Rule 16b-3 under the Exchange Act.

5.15 TERMINATION OF OR WAIVER OF RIGHTS UNDER STOCKHOLDERS AGREEMENTS. Prior to
the Closing, Capstar shall use its reasonable best efforts to obtain the consent
of the requisite parties to the Stockholders Agreement dated October 16, 1996,
as amended, among Capstar and the other parties listed therein, the Stockholders
Agreement dated November 26, 1996, as amended, among Capstar and the other
parties listed therein, and the Amended and Restated Stockholders Agreement
dated May 18, 1998, among Capstar and the other parties listed therein
(collectively, the "Capstar Stockholders Agreements") to terminate, or otherwise
waive their rights from and after the Effective Time under, such Capstar
Stockholders Agreements at the Effective Time. To the extent that a termination
or waiver of rights under any of the Capstar Stockholders Agreements is not
effected prior to Closing, Chancellor agrees to assume the obligations of the
Surviving Corporation thereunder with respect to shares of Chancellor Stock
issued in the Merger or otherwise subject to such agreement(s).

5.16 CHANCELLOR REGISTRATION RIGHTS. Prior to the Closing, Chancellor shall use
its reasonable best efforts to enter into a joinder to the Chancellor
Stockholders Agreement (the "Chancellor Registration Rights Agreement") with the
holders of Capstar Common Stock at the Effective Time (or otherwise enter into a
new agreement with such holders and the existing parties to the Chancellor
Stockholders Agreement) that, after giving effect to the Merger and the issuance
of shares of Chancellor Common Stock therein, will own at least 1% of the
outstanding shares of Chancellor Common Stock immediately following the
Effective Time, providing for rights of registration under the Securities Act of
all shares of Chancellor Common Stock held by such holders following the Merger
on substantially similar terms as are provided in the Chancellor Stockholders
Agreement, with such changes as are described in the supplement to the
Chancellor Disclosure Letter dated the date hereof.

ARTICLE 6

COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER

6.1 CONDUCT OF BUSINESS.

(a) Except as expressly contemplated by this Agreement or in the
supplement to the Capstar Disclosure Letter dated the date hereof, during the
period from August 26, 1998 to the Effective Time, Capstar did and shall, and
did and shall cause its subsidiaries to, act and carry on their respective
businesses in the ordinary course of business and, to the extent consistent
therewith, use reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve the goodwill of those engaged in material business
relationships with them. Without limiting the generality of the foregoing,
during the period from August 26, 1998 to the Effective Time and except as
contemplated by this Agreement, as set forth in the Capstar SEC Documents or a
supplement to the Capstar Disclosure Letter dated the date hereof or as
otherwise agreed to in one or more writings after August 26, 1998 (which

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writings are hereby reaffirmed), Capstar did and shall not, and did and shall
not permit any of its subsidiaries to, without the prior consent of Chancellor
(which shall not be unreasonably delayed or withheld):

(i) (w) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect of, any of
its or its subsidiaries' outstanding capital stock (except dividends and
distributions by a direct or indirect wholly owned subsidiary of Capstar to its
parent and regularly scheduled dividend payments on the 12% Senior Exchangeable
Preferred Stock of Capstar Partners and 12 5/8% Series E Cumulative Preferred
Stock of Capstar Communications), (x) split, combine or reclassify any of its
outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock, (y) except in connection with the termination of the
employment of any employees, purchase, redeem or otherwise acquire any shares of
outstanding capital stock or any rights, warrants or options to acquire any such
shares, or (z) issue, sell, grant, pledge or otherwise encumber any shares of
its capital stock, any other equity securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, equity
securities or convertible securities (other than (A) upon the exercise of
Capstar Stock Options outstanding on August 26, 1998, (B) pursuant to employment
agreements or other contractual arrangements in effect on August 26, 1998, and
(C) issuances of stock of any direct or indirect wholly-owned subsidiary of
Capstar to its parent);

(ii) amend its Certificate of Incorporation, Bylaws or other
comparable charter or organizational documents;

(iii) acquire any business (including the assets thereof) or any
corporation, partnership, joint venture, association or other business
organization or division thereof;

(iv) sell, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets that are material to
Capstar and its subsidiaries, taken as whole, other than bank Liens on any radio
station assets acquired by Capstar or any of its subsidiaries in accordance with
the terms of this Agreement;

(v) (x) other than working capital borrowings in the ordinary
course of business and consistent with past practices or borrowings used for the
purchase of any radio station or other acquisition permitted by the terms of
this Agreement, incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, other than indebtedness owing to or guarantees
of indebtedness owing to Capstar or any of its direct or indirect wholly-owned
subsidiaries or (y) make any material loans or advances to any other person,
other than to Capstar or any of its direct or indirect wholly-owned subsidiaries
and other than routine advances to employees consistent with past practices;

(vi) make any Tax election or settle or compromise any Tax
liability that could reasonably be expected to be material to Capstar and its
subsidiaries, taken as a whole or change its Tax or accounting methods,
policies, practice or procedures, except as required by GAAP;

(vii) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against

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<PAGE> 654

in, or contemplated by, the most recent consolidated financial statements (or
the notes thereto) of Capstar included in the Capstar SEC Documents or incurred
since the date of such financial statements in the ordinary course of business
consistent with past practice;

(viii) make any material commitments or agreements for capital
expenditures or capital additions or betterments except as materially consistent
with the budget for capital expenditures as of August 26, 1998, in the ordinary
course of business consistent with past practices and for acquisitions of radio
station assets, including radio towers related thereto, in accordance with the
terms of this Agreement;

(ix) except as may be required by law:

(A) other than in the ordinary course of business and
consistent with past practices, make any representation or promise, oral or
written, to any employee or former director, officer or employee of Capstar or
any of its subsidiaries which is inconsistent with the terms of any Capstar
Benefit Plan;

(B) other than in the ordinary course of business and
consistent with past practices, make any change to, or amend in any way, the
contracts, salaries, wages, or other compensation of any director, employee or
any agent or consultant of Capstar or any of its subsidiaries other than routine
changes or amendments that are required under existing contracts;

(C) except for renewals in the ordinary course of business
consistent with past practices, adopt, enter into, amend, alter or terminate,
partially or completely, any Capstar Benefit Plan, or any election made pursuant
to the provisions of any Capstar Benefit Plan, to accelerate any payments,
obligations or vesting schedules under any Capstar Benefit Plan; or

(D) other than in the ordinary course of business consistent
with past practices, approve any general or company-wide pay increases for
employees;

(x) except in the ordinary course of business, modify, amend or
terminate any material agreement, permit, concession, franchise, license or
similar instrument to which Capstar or any of its subsidiaries is a party or
waive, release or assign any material rights or claims thereunder; or

(xi) authorize any of, or commit or agree to take any of, the
foregoing actions.

6.2 CAPSTAR STOCK OPTIONS.

(a) At the Effective Time, each Capstar Stock Option that is outstanding
and unexercised immediately prior to the Effective Time shall be deemed to have
been assumed by Chancellor, without further action by Chancellor, the Surviving
Corporation or the holders of such options, and shall thereafter be deemed to be
an option to acquire shares of Chancellor Common Stock in such amount and at the
exercise price provided below and otherwise having the same terms and conditions
as are in effect immediately prior to the Effective Time (except to the extent
that such terms and conditions may be altered in accordance with their terms as
a result of the transactions contemplated hereby):

(i) the number of shares of Chancellor Common Stock to be subject
to the new option shall be equal to the product of (x) the number of shares of
Capstar Common Stock subject to the original option and (y) the Exchange Ratio;
and

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<PAGE> 655

(ii) the exercise price per share of Chancellor Common Stock under
the new option shall be equal to (x) the exercise price per share of Capstar
Common Stock under the original option divided by (y) the Exchange Ratio.

The adjustments provided herein to any options which are "incentive stock
options" (as defined in Section 422 of the Code) shall be effected in a manner
consistent with Section 424(a) of the Code.

(b) At the Effective Time, Chancellor shall approve and adopt the
Capstar Stock Option Plans and assume the obligations of Capstar thereunder,
with such changes thereto as may be necessary to reflect the consummation of the
transactions contemplated hereby. Nothing in this Section 6.2(b) shall be
construed to prevent Chancellor in any way from terminating or freezing the
benefits under any such plans (subject to the rights of the holders of the
Capstar Stock Options thereunder) and adopting one or more new stock option
plans, as approved by the Board of Directors of Chancellor following the
Effective Time.

(c) Promptly following the Effective Time, Chancellor shall use its
reasonable best efforts to file with the SEC a Registration Statement on Form
S-8 (or an amendment to any such form of Chancellor currently on file with the
SEC that is available therefor) (the "Form S-8") for the purpose of registering
the shares of Chancellor Common Stock issuable upon the exercise of the Capstar
Stock Options issued or issuable under the Capstar Stock Option Plan, and
Chancellor shall use its reasonable best efforts to have the Form S-8 (or any
post-effective amendment thereto) declared effective under the Securities Act as
soon as practicable after such filing.

6.3 CAPSTAR WARRANTS.

(a) At the Effective Time, each Warrant to purchase shares of Capstar
Common Stock that is outstanding immediately prior to the Effective Time shall
be deemed to have been assumed by Chancellor, without further action by
Chancellor, the Surviving Corporation or the holders of such Warrants, and shall
thereafter be deemed to be a warrant to purchase shares of Chancellor Common
Stock in such amount and at the purchase price provided below and otherwise
having the same terms and conditions as are in effect immediately prior to the
Effective Time (except to the extent that such terms and conditions may be
altered in accordance with their terms as a result of the transactions
contemplated hereby):

(i) the number of shares of Chancellor Common Stock to be subject
to the new warrant shall be equal to the product of (x) the number of shares of
Capstar Common Stock subject to the original Warrant and (y) the Exchange Ratio;
and

(ii) the purchase price per share of Chancellor Common Stock under
the new warrant shall be equal to (x) the purchase price per share of Capstar
Common Stock under the original Warrant divided by (y) the Exchange Ratio.

(b) Promptly following the Effective Time, Chancellor shall use its
reasonable best efforts to file with the SEC a Registration Statement on Form
S-8 (or an amendment to any such form of Chancellor currently on file with the
SEC that is available therefor) (the "Form S-8") for the purpose of registering
the shares of Chancellor Common Stock issuable upon the exercise of the
Warrants, and Chancellor shall use its reasonable best efforts to have the Form
S-8 (or any post-effective amendment thereto) declared effective under the
Securities Act as soon as practicable after such filing.

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<PAGE> 656

6.4 OTHER ACTIONS. From and after August 26, 1998, neither Chancellor nor
Capstar shall, and neither of them shall permit any of their respective
subsidiaries to, take any action that would, or that could reasonably be
expected to, result in any of the conditions of the Merger set forth in Article
VII not being satisfied.

ARTICLE 7

CONDITIONS PRECEDENT

7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective
obligation of each party to effect the Merger is subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:

(a) STOCKHOLDER APPROVAL. The Capstar Stockholders Approval and
Chancellor Stockholders Approval shall have been obtained in accordance with the
requirements of the Delaware Code and The Nasdaq Stock Market, as applicable.

(b) FCC ORDER. The FCC shall have issued an order (the "FCC Order")
approving the transfers of control pursuant to the Merger of the Capstar FCC
Licenses for the operation of the Capstar Licensed Facilities without the
imposition of any conditions or restrictions that could reasonably be expected
to have a Capstar Material Adverse Effect, and which FCC Order has not been
reversed, stayed, enjoined, set aside or suspended and with respect to which no
timely request for stay, petition for reconsideration or appeal has been filed
and as to which the time period for filing of any such appeal or request for
reconsideration or for any sua sponte action by the FCC with respect to the FCC
Order has expired, or, in the event that such a filing or review sua sponte has
occurred, as to which such filing or review shall have been disposed of
favorably to the grant of the FCC Order and the time period for seeking further
relief with respect thereto shall have expired without any request for such
further relief having been filed or review initiated.

(c) GOVERNMENTAL AND REGULATORY CONSENTS. All required consents,
approvals, permits and authorizations to the consummation of the Merger shall be
obtained from any Governmental Entity (other than the FCC) whose consent,
approval, permission or authorization is required by reason of a change in law
after the date of this Agreement, unless the failure to obtain such consent,
approval, permission or authorization could not reasonably be expected to have a
Capstar Material Adverse Effect, or to materially and adversely affect the
validity or enforceability of this Agreement or the Merger.

(d) HSR ACT. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
otherwise expired.

(e) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the party
invoking this condition shall use its reasonable best efforts to have any such
order or injunction vacated.

(f) NASDAQ OR EXCHANGE APPROVAL. The shares of Chancellor Common Stock
issuable pursuant to the Merger shall have been approved for quotation on The
Nasdaq Stock Market (or the New York Stock Exchange, if the shares of Chancellor
Common Stock are then listed thereon).

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<PAGE> 657

(g) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.

(h) [INTENTIONALLY LEFT BLANK.]

(i) [INTENTIONALLY LEFT BLANK.]

(j) CONSENT OF SENIOR LENDERS. Capstar shall have received (i) all
necessary consents under its senior secured credit facility in order to
consummate the Merger and the transactions contemplated by this Agreement, or
(ii) a firm commitment of senior secured financing from a nationally recognized
commercial bank or syndicate of banks in amounts sufficient to refinance all of
the outstanding indebtedness under its senior secured credit facilities at the
Closing.

7.2 CONDITIONS TO OBLIGATIONS OF CAPSTAR. The obligation of Capstar to effect
the Merger is further subject to the following conditions:

(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Chancellor and Merger Sub contained in this Agreement shall have been true
and correct as of the date such representations and warranties are made under
this Agreement and shall be true and correct at and as of the Closing Date as
though made at and as of such time (except to the extent that any such
representations and warranties expressly relate only to an earlier time, in
which case they shall have been true and correct at such earlier time);
provided, however, that this condition shall be deemed to have been satisfied
unless the individual or aggregate impact of all inaccuracies of such
representations and warranties (without regard to any materiality or Chancellor
Material Adverse Effect qualifier(s) contained therein) could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise) of Chancellor and its subsidiaries, considered as a whole, and except
to the extent that any inaccuracies of such representations and warranties are a
result of changes in the United States financial markets generally or in
national, regional or local economic conditions generally, or are a result of
matters arising after the date hereof that affect the broadcast industry
generally. Each of Chancellor and Merger Sub shall have delivered to Capstar a
certificate dated as of the Closing Date, signed by a senior executive officer
of such company, to the effect set forth in this Section 7.2(a).

(b) PERFORMANCE OF OBLIGATIONS OF CHANCELLOR AND MERGER SUB. Each of
Chancellor and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, including without limitation, the filing of the Amended and
Restated Charter, and Capstar shall have received a certificate signed on behalf
of each of Chancellor and Merger Sub by a senior executive officer of each of
them to such effect.

(c) TAX OPINION. Capstar shall have received an opinion of Vinson &
Elkins L.L.P., dated as of the Closing Date, to the effect that (i) the Merger
will constitute a reorganization under Section 368(a) of the Code, (ii)
Chancellor, Merger Sub and Capstar will each be a party to the reorganization
under Section 368(b) of the Code, and (iii) no gain or loss will be recognized
by the stockholders of Capstar on the receipt pursuant to the Merger of shares
of Chancellor Common Stock in exchange for shares of Capstar Common Stock,
except with respect to cash received in lieu of fractional shares of Chancellor
Common Stock or Dissenting Shares. In rendering such opinion, Vinson &

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<PAGE> 658

Elkins L.L.P. shall receive and may rely upon representations contained in
certificates of Chancellor, Merger Sub and Capstar.

(d) CHANCELLOR REGISTRATION RIGHTS. Chancellor shall have entered into
the Chancellor Registration Rights Agreement.

7.3 CONDITIONS TO OBLIGATIONS OF CHANCELLOR. The obligations of Chancellor and
Merger Sub to effect the Merger is further subject to the following conditions:

(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Capstar contained in this Agreement shall have been true and correct as of
the date such representations and warranties are made under this Agreement and
shall be true and correct at and as of the Closing Date as though made at and as
of such time (except to the extent that any such representations and warranties
expressly relate only to an earlier time, in which case they shall have been
true and correct at such earlier time); provided, however, that this condition
shall be deemed to have been satisfied unless the individual or aggregate impact
of all inaccuracies of such representations and warranties (without regard to
any materiality or Capstar Material Adverse Effect qualifier(s) contained
therein) could reasonably be expected to have a material adverse effect on the
condition (financial or otherwise) of Capstar (or, following the Effective Time,
the Surviving Corporation) and its subsidiaries, considered as a whole, and
except to the extent that any inaccuracies of such representations and
warranties are a result of changes in the United States financial markets
generally or in national, regional or local economic conditions generally, or
are a result of matters arising after the date hereof that affect the broadcast
industry generally. Capstar shall have delivered to Chancellor a certificate
dated as of the Closing Date, signed by a senior executive officer of Capstar,
to the effect set forth in this Section 7.3(a).

(b) PERFORMANCE OF OBLIGATIONS OF CAPSTAR. Capstar shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and Chancellor and Merger Sub
shall have received a certificate signed on behalf of Capstar by a senior
executive officer of Capstar to such effect.

(c) TAX OPINION. Chancellor shall have received an opinion of Weil,
Gotshal & Manges LLP, dated as of the Closing Date, to the effect that (i) the
Merger will constitute a reorganization under Section 368(a) of the Code, (ii)
Chancellor, Merger Sub and Capstar will each be a party to the reorganization
under Section 368(b) of the Code, and (iii) no gain or loss will be recognized
by Chancellor, Merger Sub or Capstar by reason of the Merger. In rendering such
opinion, Weil, Gotshal & Manges LLP shall receive and may rely upon
representations contained in certificates of Chancellor, Merger Sub and Capstar.

(d) MATERIAL AGREEMENTS. Capstar and its subsidiaries shall have
received any necessary consents required as a result of the Merger and
transactions contemplated by this Agreement with respect to each Material
Agreement. A true and correct list of which Material Agreements require such
consents is set forth in the Capstar Disclosure Letter.

(e) FINANCIAL SERVICES AGREEMENTS. Capstar and certain of its
subsidiaries and Hicks Muse shall have entered into an amendment to each of the
Monitoring and Oversight Agreement (the "Capstar M&O Agreement") between Hicks
Muse and Capstar, the Monitoring and Oversight Agreement (the "Partners M&O
Agreement") between Hicks Muse and Capstar Partners, the Financial Advisory
Agreement (the

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<PAGE> 659

"Capstar Financial Advisory Agreement") between Hicks Muse and Capstar, and the
Financial Advisory Agreement (the "Partners Financial Advisory Agreement")
between Hicks Muse and Partners, that provide (i) the Partners M&O Agreement
will be terminated at the Effective Time with no further obligation of any party
thereto, (ii) the Partners Financial Advisory Agreement will be terminated at
the Effective Time with no further obligation of any party thereto, (iii) the
Capstar M&O Agreement will be terminated at the Effective Time and, in
consideration therefor, Capstar shall deliver to Hicks Muse at Closing a
one-time cash payment of $14,202,000, and (iv) the Capstar Financial Advisory
Agreement will be terminated at the Effective Time and, in consideration
therefor, Hicks Muse will receive a fee from Capstar of $17,500,000 in cash,
payable at Closing, in satisfaction of its services performed under the Capstar
Financial Advisory Agreement in connection with the Merger.

(f) DISSENTING SHARES. Holders of not more than 10% of the outstanding
shares of Capstar Class B Common Stock and Capstar Class C Common Stock shall
have properly demanded appraisal rights for their shares under the Delaware
Code.

ARTICLE 8

TERMINATION, AMENDMENT AND WAIVER

8.1 TERMINATION. This Agreement may be terminated and the Merger abandoned as
follows:

(a) at any time prior to the Effective Time, whether before or after
receipt of the Chancellor Stockholders Approval or the Capstar Stockholders
Approval, by mutual written consent of Chancellor and Capstar;

(b) at any time prior to the Effective Time, whether before or after
receipt of the Chancellor Stockholders Approval or the Capstar Stockholders
Approval:

(i) by Chancellor or Capstar if the Capstar Stockholders Approval
shall not have been obtained after submission by the Board of Directors of
Capstar of this Agreement for approval and adoption by the common stockholders
of Capstar at a special meeting called for such purpose in accordance with
Section 5.2(a);

(ii) by Capstar or Chancellor if the Chancellor Stockholders
Approval shall not have been obtained after submission by the Board of Directors
of Chancellor of the Chancellor Stockholder Proposals for approval by the common
stockholders of Chancellor at an annual or special meeting called for such
purpose in accordance with Section 5.2(b);

(iii) by Chancellor or Capstar if the Merger shall not have been
consummated on or before September 30, 1999, unless the failure to consummate
the Merger is the result of a willful and material breach of this Agreement by
the party seeking to terminate this Agreement;

(iv) by Chancellor or Capstar if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;

(v) by Chancellor or Capstar in the event of a breach by the other
party of any representation, warranty, covenant or other agreement contained in
this Agreement

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<PAGE> 660

which (A) would give rise to the failure of a condition set forth in Section
7.2(a) or (b) or Section 7.3(a) or (b), as applicable, and (B) cannot be or has
not been cured within 30 days after the giving of written notice to the
breaching party of such breach (a "Material Breach"), provided that the
terminating party is not then in Material Breach of any representation,
warranty, covenant or other agreement contained in this Agreement;

(vi) by Chancellor if Capstar shall have breached the requirements
of Section 5.5 hereof, unless Chancellor shall at such time be in Material
Breach of any representation, warranty, covenant or other agreement contained in
this Agreement;

(vii) by Capstar if the Board of Directors of Capstar or the
Capstar Special Committee has determined in good faith, following consultation
with and after considering the advice of outside counsel, that in order to
comply with its fiduciary duties to stockholders under applicable law it is
necessary for the Capstar Special Committee or the full Board of Directors of
Capstar to withdraw or modify, in a manner materially adverse to Chancellor, its
approval or recommendation of this Agreement or the Merger in accordance with
Section 5.5(b); or

(viii) by Chancellor if the Board of Directors of Chancellor or the
Chancellor Special Committee has determined in good faith, following
consultation with and after considering the advice of outside counsel, that in
order to comply with its fiduciary duties to stockholders under applicable law
it is necessary for the Chancellor Special Committee or the full Board of
Directors of Chancellor to withdraw or modify, in a manner materially adverse to
Capstar, its approval or recommendation of the Merger and the Chancellor
Stockholder Proposals in accordance with Section 5.2(b).

8.2 EFFECT OF TERMINATION.

(a) In the event that Chancellor or Capstar terminates this Agreement as
provided in Section 8.1(a), 8.1(b)(iii) or 8.1(b)(iv), this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of Chancellor or Capstar, other than the last sentence of Section 5.3
and Sections 2.10, 3.7, 8.2 and 11.2.

(b) In the event that this Agreement is terminated by Chancellor
pursuant to Section 8.1(b)(v) or 8.1(b)(vi) or by Capstar or Chancellor pursuant
to Section 8.1(b)(i), Capstar shall promptly reimburse Chancellor for all
substantiated out-of-pocket costs and expenses incurred by them in connection
with this Agreement and the transactions contemplated hereby, including, without
limitation, costs and expenses of accountants, attorneys and financial advisors.
In the event that this Agreement is terminated by Capstar pursuant to Section
8.1(b)(v) or by Chancellor or Capstar pursuant to Section 8.1(b)(ii), Chancellor
shall promptly reimburse Capstar for all substantiated out-of-pocket costs and
expenses incurred by it in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, costs and expenses of
accountants, attorneys and financial advisors.

(c) In the event that this Agreement is terminated by Capstar pursuant
to Section 8.1(b)(vii) or by Chancellor pursuant to Section 8.1(b)(viii), the
party electing to terminate this Agreement shall, concurrently with such
termination, pay to the non-terminating party (by wire transfer of immediately
available funds) an amount of $50,000,000 in cash (the "Termination Fee").

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<PAGE> 661

(d) This Agreement shall not be deemed to have been validly terminated
until all payments contemplated by Section 8.2(b) and 8.2(c) shall have been
made in full. In the event of a termination pursuant to Sections 8.1(b)(i),
8.1(b)(ii), 8.1(b)(v) or 8.1(b)(vi), the reimbursement of expenses by the
breaching party pursuant to Section 8.2(b) shall be the parties sole remedy
unless the termination resulted from a willful material breach of the
representations, warranties, covenants or other agreements in this Agreement, in
which case the non-breaching party may seek damages or any other appropriate
remedy at law or in equity. In the event of a termination pursuant to Sections
8.1(b)(vii) or 8.1(b)(viii), the payment of the Termination Fee by Capstar or
Chancellor, as applicable, pursuant to Section 8.2(c) shall be the
non-terminating party's sole remedy.

8.3 AMENDMENT. Subject to the applicable provisions of the Delaware Code, at
any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after the Capstar
Stockholders Approval has been obtained, no amendment shall be made which
reduces the consideration payable in the Merger or adversely affects the rights
of Capstar's stockholders hereunder without the approval of such stockholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.

8.4 EXTENSION; CONSENT; WAIVER. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to
Section 8.3, waive compliance with any of the agreements or conditions of the
other parties contained in this Agreement or consent to any action requiring
consent pursuant to this Agreement. Any agreement on the part of a party to any
such extension, waiver or consent shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.

8.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION, CONSENT OR WAIVER. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension, consent or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of each of
Chancellor or Capstar, action by its Board of Directors.

ARTICLE 9

SURVIVAL OF PROVISIONS

9.1 SURVIVAL. The representations and warranties of Chancellor, Merger Sub and
Capstar made in this Agreement, or in any certificate, respectively, delivered
by any of them pursuant to this Agreement, will not survive the Closing.

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<PAGE> 662

ARTICLE 10

NOTICES

10.1 NOTICES. All notices and other communications under this Agreement must be
in writing and will be deemed to have been duly given if delivered, telecopied
or mailed, by certified mail, return receipt requested, first-class postage
prepaid, to the parties at the following addresses:

If to Chancellor or Merger Sub, to:

Chancellor Media Corporation
300 Crescent Court, Suite 600
Dallas, Texas 75201
Attention: D. Geoffrey Armstrong
William S. Banowsky, Jr.
Facsimile: (214) 922-8701

with copies to:

Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Michael A. Saslaw
Facsimile: (214) 746-7777

and

Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300
Dallas, Texas 75201
Attention: Sam P. Burford, Jr.
Facsimile: (214) 969-1751

If to Capstar, to:

Capstar Broadcasting Corporation
600 Congress Avenue
Suite 1400
Austin, Texas 78701
Attention: R. Steven Hicks
William S. Banowsky, Jr.
Facsimile: (512) 340-7890

and

c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Facsimile: (214) 740-7313

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<PAGE> 663

with copies to:

Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael D. Wortley
Facsimile: (214) 999-7732

and

R. Gerald Turner
Southern Methodist University
P.O. Box 750100
Dallas, Texas 75272-0333
Facsimile: (214) 768-3844

and

Hughes & Luce, LLP
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Alan J. Bogdanow
Facsimile: (214) 939-5849

All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Article X will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if delivered by mail in the manner described
above, be deemed given on the third business day after the day it is deposited
in a regular depository of the United States mail. Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.

ARTICLE 11

MISCELLANEOUS

11.1 ENTIRE AGREEMENT. Except for the documents executed by Chancellor and
Capstar pursuant hereto, this Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement (including the exhibits hereto and other documents
delivered in connection herewith) and the Confidentiality Agreement contain the
sole and entire agreement between the parties hereto with respect to the subject
matter hereof.

11.2 EXPENSES. Except as provided in Section 8.2, whether or not the Merger is
consummated, each of Chancellor and Capstar will pay its own costs and expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby; provided, that the fees
and expenses incurred in connection with (i) the filings and registrations with
the Department of Justice and Federal Trade Commission pursuant to the HSR Act,
(ii) the filings with the FCC under

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<PAGE> 664

the Communications Act, and (iii) the printing, mailing and distribution of the
Joint Proxy Statement/Prospectus and the preparation and filing of the Form S-4,
shall be borne equally by Chancellor and Capstar. In the event of any lawsuit or
other judicial proceeding brought by either party to enforce any of the
provisions of this Agreement, the losing party in such proceeding shall
reimburse the prevailing party's fees and expenses incurred in connection
therewith, including the fees and expenses of its attorneys.

11.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which will constitute one
and the same instrument and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties.

11.4 NO THIRD PARTY BENEFICIARY. Except for Section 5.9, the terms and
provisions of this Agreement are intended solely for the benefit of the parties
hereto (including their respective Boards of Directors and the Capstar Special
Committee and Chancellor Special Committee), and their respective successors or
assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other person.

11.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.

11.6 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment that is not
consented to shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by,
the parties and their respective successors and assigns.

11.7 HEADINGS, GENDER, ETC. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (e) all references to "dollars" or "$" refer to
currency of the United States of America; (f) the term "person" shall include
any natural person, corporation, limited liability company, general partnership,
limited partnership, or other entity, enterprise, authority or business
organization; and (g) the term "or" is not exclusive.

11.8 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of Capstar or Chancellor under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; and (c)
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid, or unenforceable provision or
by its severance herefrom.

11.9 NO RECOURSE AGAINST OTHERS. No past, present or future director, officer,
employee, stockholder, incorporator or partner, as such, of Chancellor, Capstar,
Merger Sub or the

51
<PAGE> 665

Surviving Corporation shall have any liability for any obligations of
Chancellor, Capstar, Merger Sub or the Surviving Corporation under this
Agreement or for any claim based on, in respect of or by reason of such
obligations or their creation.

11.10 RELEASE OF OLD MERGER SUB. Each of Chancellor and Capstar hereby
generally release and forever discharge Old Merger Sub and its successors and
their respective directors, officers, employees, agents or other representatives
from any and all obligations, claims or liabilities whatsoever arising out of
the Old Agreement, this Agreement and the transactions contemplated thereby or
hereby.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

52
<PAGE> 666

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
duly authorized officers of Chancellor, Capstar, Old Merger Sub and Merger Sub
effective as of the date first written above.

CHANCELLOR MEDIA CORPORATION

By: /s/ THOMAS O. HICKS
-----------------------------------
Name: Thomas O. Hicks
Title: Chairman and Chief Executive
Officer

CAPSTAR BROADCASTING CORPORATION

By: /s/ WILLIAM S. BANOWSKY, JR.
-----------------------------------

Name: William S. Banowsky, Jr.

Title: Executive Vice President

CMC MERGER SUB, INC.

By: /s/ THOMAS O. HICKS
-----------------------------------
Name: Thomas O. Hicks
Title: Chairman

CBC ACQUISITION COMPANY, INC.

By: /s/ WILLIAM S. BANOWSKY, JR.
-----------------------------------

Name: William S. Banowsky, Jr.

Title: Executive Vice President

53
<PAGE> 667

ANNEX II

[SALOMON SMITH BARNEY LETTERHEAD]

August 27, 1998

Special Committee of
the Board of Directors
Chancellor Media Corporation
300 Crescent Court
Suite 600
Dallas, Texas 75201

Dear Members of the Special Committee:

You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the holders of common stock, par value $0.01 per
share (the "Common Stock"), of Chancellor Media Corporation ("Chancellor") who
are not affiliated with Hicks Muse Tate & Furst, Inc. (such holders, the "Public
Shareholders") of the Chancellor Exchange Ratio (as defined below) to be
received by the Public Shareholders in the acquisition by Chancellor of Capstar
Broadcasting Corporation ("Capstar") pursuant to the Agreement and Plan of
Merger (the "Merger Agreement") by and among Chancellor, Capstar and CBC
Acquisition Company, Inc. ("Merger Sub"), a wholly owned subsidiary of Capstar.
The Merger Agreement provides for, among other things, (i) the amendment by
Capstar of its Certificate of Incorporation, which amendment will, among other
things, change the name of Capstar to Chancellor Media Corporation (as such, the
"Parent"); (ii) the merger (the "Merger") of Chancellor with and into Merger
Sub, pursuant to which each share of Common Stock issued and outstanding
immediately prior to the effective time (the "Effective Time") of the Merger
will be converted into the right to receive one share (the "Chancellor Exchange
Ratio") of the common stock, $0.01 par value per share (the "Parent Voting
Common Stock"), of Parent; (iii) each share of 7% Convertible Preferred Stock,
$0.01 par value per share, of Chancellor and each share of $3.00 Convertible
Exchangeable Preferred Stock, $0.01 par value per share, of Chancellor,
outstanding immediately prior to the Effective Time to be converted into the
right to receive one share of substantially identical 7% Convertible Preferred
Stock, $0.01 par value per share, of Parent and substantially identical $3.00
Convertible Exchangeable Preferred Stock, $0.01 par value per share, of Parent,
respectively; (iv) each share of Class A common stock, $0.01 par value per share
(the "Capstar Class A Common Stock"), of Capstar and each share of Class C
common stock, $0.01 par value per share (the "Capstar Class C Common Stock" and,
collectively with the Capstar Class A Common Stock, the "Capstar Voting Common
Stock"), issued and outstanding immediately prior to the Effective Time to be
reclassified, changed and converted into 0.4800 shares (the "Initial Capstar
Voting Exchange Ratio") of Parent Voting Common Stock, which Initial Capstar
Voting Exchange Ratio will be subject to upward adjustment (as so adjusted, the
"Capstar Voting Exchange Ratio"), as specified in Section 1.9 of the Merger
Agreement, if the Adjusted BCF (as defined in the Merger Agreement) is greater
than $245.5 million, but in no event will the Capstar Voting Exchange Ratio
exceed 0.5050; and (v) each share of Class B common stock, $0.01 par value per
share (the "Capstar Class B Common Stock" and, collectively with the Capstar
Voting Common Stock, the "Capstar Common Stock"), of Capstar issued and
outstanding immediately

II-1
<PAGE> 668

prior to the Effective Time to be reclassified, changed and converted into the
right to receive 0.4800 shares (the "Initial Non-Voting Exchange Ratio" and,
collectively with the Initial Capstar Voting Exchange Ratio, the "Initial
Capstar Exchange Ratio") of the non-voting common stock, par value $0.01 per
share (the "Parent Non-Voting Common Stock" and, collectively with the Parent
Voting Common Stock, the "Parent Common Stock"), of Parent, which Initial
Capstar Non-Voting Exchange Ratio will be subject to upward adjustment (as so
adjusted, the "Capstar Non-Voting Exchange Ratio" and, collectively with the
"Capstar Voting Exchange Ratio, the "Capstar Exchange Ratio"), as specified in
Section 1.9 of the Merger Agreement, if the Adjusted BCF is greater than $245.5
million, but in no event will the Capstar Non-Voting Exchange Ratio exceed
0.5050. You have informed us that as a result of the Merger, the Public
Shareholders would own approximately 65.7% of the Parent Voting Common Stock and
64.7% of the Parent Common Stock at the Initial Capstar Exchange Ratio, and
would own approximately 64.8% of the Parent Voting Common Stock and 63.8% of the
Parent Common Stock if the Capstar Exchange Ratio were 0.5050.

We understand that the Merger is intended to qualify as a tax-free
reorganization for federal income tax purposes within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended. The terms and conditions of
the Merger are set forth in more detail in the Merger Agreement.

In connection with rendering our opinion, we have, among other things: (i)
reviewed the August 26, 1998 draft of the Merger Agreement, including the
exhibits thereto and certain documents referred to therein, in the form provided
to us and have assumed that the final form of such agreement will not vary in
any respect that is material to our analysis; (ii) reviewed certain publicly
available business and financial information that we deemed relevant relating to
Chancellor and Capstar and the industries in which they operate; (iii) reviewed
certain internal non-public financial and operating data and other information
provided to us by the managements of Chancellor and Capstar relating to
Chancellor's and Capstar's businesses, including certain forecast and projection
information as to the future financial results of such businesses; (iv) reviewed
certain publicly available business and financial information with respect to
certain other companies that we believed to be relevant or comparable in certain
respects to Chancellor and Capstar, and the trading markets for such other
companies' securities; (v) reviewed and analyzed certain publicly available and
other information concerning the trading of, and the trading market for, the
Common Stock and the Capstar Common Stock; (vi) reviewed the financial terms of
certain business combinations and acquisition transactions we deem reasonably
comparable to the Merger and otherwise relevant to our inquiry; (vii) analyzed
certain information concerning cost savings and combination benefits expected to
result from the Merger that was provided to or reviewed for us by the
managements of Chancellor and Capstar; (viii) discussed with members of
Chancellor's and Capstar's senior managements and other officers and employees
of Chancellor and Capstar the foregoing, including the past and current business
operations, financial condition and prospects of Chancellor and Capstar,
respectively, before and after giving effect to the Merger; and (ix) considered
such other information, financial studies, analyses, investigations and
financial, economic, market and trading criteria as we deemed relevant to our
inquiry.

In our review and analysis and in arriving at our opinion, we have assumed and
relied upon, without assuming any responsibility for verification, the accuracy
and completeness of all of the financial and other information provided to,
discussed with, or reviewed by or

II-2
<PAGE> 669

for us, or publicly available. With respect to Chancellor's and Capstar's
financial projections, as well as the information concerning operating cost
savings and combination benefits provided to or reviewed for us by the
managements of Chancellor and Capstar, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgements on the part of management of Chancellor or Capstar, as the case
may be, as to the future financial performance of Chancellor or Capstar, as the
case may be, and as to the cost savings and combination benefits expected to
result from the Merger. We express no view as to such projections or information
or the assumptions on which they are based. We have not assumed any
responsibility for making or obtaining any independent evaluations or appraisals
of any of the assets or liabilities of Chancellor or Capstar, nor for conducting
a physical inspection of the properties and facilities of Chancellor or Capstar.

For purposes of rendering our opinion, we have assumed, in all respects material
to our analysis, that the representations and warranties of each party contained
in the Merger Agreement are true and correct, that each party will perform all
of the covenants and agreements required to be performed by it under the Merger
Agreement and that all conditions to the consummation of the Merger will be
satisfied without waiver thereof. We have also assumed that all material
governmental, regulatory or other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which either Chancellor or Capstar is a party, as contemplated by
the Merger Agreement, no restrictions will be imposed or amendments,
modifications or waivers made that would have any material adverse effect on the
contemplated benefits of the Merger.

Our opinion necessarily is based on market, economic and other conditions as
they exist and can be evaluated on the date hereof, and we assume no
responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof. Our opinion does not address
Chancellor's underlying business decision to effect the Merger or constitute a
recommendation to any holder of Common Stock as to how such holder should vote
with respect to the Merger. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for the Common Stock or the Parent
Common Stock following the announcement or consummation of the Merger, which may
vary depending upon, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities.

As you are aware, Salomon Smith Barney Inc. has acted as financial advisor to
the Special Committee of the Board of Directors of Chancellor (the "Special
Committee") in connection with the Merger and will receive a fee for such
services, a portion of which will be received in connection with the delivery of
this opinion. In addition, Chancellor has agreed to indemnify us for certain
liabilities arising out of our engagement. We, in the ordinary course of
business, have from time to time provided, and in the future may continue to
provide, investment banking, financial advisory and other related services to
Chancellor, Capstar, Parent and/or their respective affiliates (including Hicks
Muse Tate & Furst, Inc.), as the case may be, for which we have or will receive
fees. In the ordinary course of business, we or our affiliates may trade in the
debt and equity securities of Chancellor, Capstar, Parent and/or their
respective affiliates, as the case may be, for our

II-3
<PAGE> 670

own accounts and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.

Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Chancellor Exchange Ratio is fair, from a financial point of
view, to the Public Shareholders.

Very truly yours,

/s/ SALOMON SMITH BARNEY INC.
-----------------------------------------
SALOMON SMITH BARNEY INC.

II-4
<PAGE> 671

ANNEX III-A

[WASSERSTEIN PERELLA & CO. LETTERHEAD]

August 26, 1998

Special Committee of the Board of Directors
Chancellor Media Corporation
433 East Las Colinas Boulevard
Irving, TX 75039

Members of the Special Committee of the Board:

You have asked us to advise you with respect to the fairness, from a financial
point of view, to Chancellor Media Corporation ("Chancellor") of the Chancellor
Exchange Ratio (as defined below) provided for pursuant to the terms of the
Agreement and Plan of Merger, dated as of August 26, 1998 (the "Merger
Agreement"), among Chancellor, Capstar Broadcasting Corporation ("Capstar"), and
CBC Acquisition Company, Inc., a wholly owned subsidiary of Capstar ("Sub").
Pursuant to the Merger Agreement, the name of Capstar will be changed to
"Chancellor Media Corporation" ("New Chancellor"). The Merger Agreement provides
for, among other things, a merger of Chancellor with and into Sub (the "Merger")
pursuant to which (i) each outstanding share of common stock, par value $0.01
per share, of Chancellor ("Chancellor Common Stock") (other than any such shares
held in the treasury of Chancellor) will be converted into a right to receive
one share of voting common stock, par value $0.01 per share, of New Chancellor
("New Chancellor Voting Common Stock") (the "Chancellor Exchange Ratio"), (ii)
each share of Class A common stock, par value $0.01 per share, and Class C
common stock, par value $0.01 per share, of Capstar will be converted into 0.480
shares of New Chancellor Voting Common Stock (the "Initial Capstar Exchange
Ratio"), and (iii) each share of Class B common stock, par value $0.01 per
share, of Capstar will be converted into shares of nonvoting common stock, par
value $0.01 per share, of New Chancellor equal to the Initial Capstar Exchange
Ratio. The Initial Capstar Exchange Ratio shall be adjusted (so adjusted, the
"Capstar Exchange Ratio") such that (i) in the event that the Adjusted BCF (as
defined in the Merger Agreement and hereinafter referred to as "Broadcast Cash
Flow") of Capstar is less than or equal to $245.5 million, the Capstar Exchange
Ratio shall equal 0.480, (ii) in the event that Broadcast Cash Flow of Capstar
is greater than $245.5 million but less than $270.5 million, the Capstar
Exchange Ratio shall equal (rounded to the nearest ten thousandth) (A) 0.480
plus (B) the product of (x) 0.0250 times (y) a fraction, the numerator of which
is equal to the amount of Broadcast Cash Flow minus 245,500,000 and the
denominator is 25,000,000, and (iii) in the event that the Broadcast Cash Flow
is equal to or greater than $270.5 million, then the Capstar Exchange Ratio
shall equal 0.505. The terms and conditions of the Merger are set forth in more
detail in the Merger Agreement.

In connection with rendering our opinion, we have reviewed the Merger Agreement.
We have also reviewed and analyzed certain publicly available business and
financial information relating to Capstar and Chancellor for recent years and
interim periods to date, as well as certain internal financial and operating
information, including financial forecasts, analyses and projections prepared by
or on behalf of Capstar and Chancellor and provided to us for purposes of our
analysis, and we have met with management of Capstar and

III-A-1
<PAGE> 672

Chancellor to review and discuss such information and, among other matters,
Capstar's and Chancellor's business, operations, assets, financial condition and
future prospects.

We have reviewed and considered certain financial and stock market data relating
to Capstar and Chancellor, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to Capstar or
Chancellor or one or more of their respective businesses or assets, and we have
reviewed and considered the financial terms of certain recent acquisitions and
business combination transactions in the radio broadcasting industry
specifically, and in other industries generally, that we believe to be
reasonably comparable to the Merger or otherwise relevant to our inquiry. We
have also performed such other financial studies, analyses, and investigations
and reviewed such other information as we considered appropriate for purposes of
this opinion.

In our review and analysis and in formulating our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us
(including estimates of revenue synergies, cost savings and other operating
efficiencies expected to result from consummation of the Merger), and we have
assumed that such projections, forecasts and analyses were reasonably prepared
in good faith and on bases reflecting the best currently available judgments and
estimates of Capstar's and Chancellor's management. We express no opinion with
respect to such projections, forecasts and analyses or the assumptions upon
which they are based. In addition, we have not reviewed any of the books and
records of Capstar or Chancellor, or assumed any responsibility for conducting a
physical inspection of the properties or facilities of Capstar or Chancellor, or
for making or obtaining an independent valuation or appraisal of the assets or
liabilities of Capstar or Chancellor, and no such independent valuation or
appraisal was provided to us. We note that the Merger is intended to qualify as
a tax free reorganization for United States Federal tax purposes, and we have
assumed that the Merger will so qualify. We also have assumed that obtaining all
regulatory and other approvals and third party consents required for
consummation of the Merger will not have an adverse impact on Chancellor or
Capstar or on the anticipated benefits of the Merger, and we have assumed that
the transactions described in the Merger Agreement will be consummated without
waiver or modification of any of the material terms or conditions contained
therein by any party thereto. Our opinion is necessarily based on economic and
market conditions and other circumstances as they exist and can be evaluated by
us as of the date hereof. We are not expressing any opinion herein as to the
prices at which any securities of Chancellor or Capstar will actually trade at
any time.

In the ordinary course of our business, we may actively trade the debt and
equity securities of Capstar and Chancellor for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.

WP&Co. advised Evergreen Media Corporation in its merger with Chancellor
Broadcasting Corporation, which transaction resulted in the formation of
Chancellor. WP&Co. advised Evergreen Media Corporation in its joint acquisition
with Chancellor Broadcasting Corporation of Viacom Radio Group. WP&Co. advised
the predecessor of LIN Television Corporation and the Independent Directors of
the Board of Directors of LIN Television

III-A-2
<PAGE> 673

Corporation in its sale to Hicks Muse Tate & Furst, Incorporated. WP&Co. is
acting as financial advisor to the Special Committee of the Board of Directors
of Chancellor in its pending acquisition of LIN Television Corporation.

Our opinion addresses only the fairness, from a financial point of view, to
Chancellor and holders of Chancellor Common Stock who are not affiliated with
Hicks, Muse, Tate & Furst of the Chancellor Exchange Ratio provided for pursuant
to the Merger Agreement, and we do not express any views on any other terms of
the Merger. Specifically, our opinion does not address Chancellor's underlying
business decision to effect the transactions contemplated by the Merger
Agreement.

It is understood that this letter is for the benefit and use of the Special
Committee of the Board of Directors of Chancellor in its consideration of the
Merger, and except for inclusion in its entirety in any registration statement
or proxy statement required to be circulated to shareholders of Chancellor
relating to the Merger, may not be disseminated, quoted, referred to or
reproduced at any time or in any manner without our prior written consent. This
opinion does not constitute a recommendation to any shareholder as to how such
holder should vote with respect to the Merger, and should not be relied upon by
any shareholder as such.

Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, it is our opinion that, as of the date hereof, the
Chancellor Exchange Ratio provided for pursuant to the Merger Agreement is fair,
from a financial point of view, to Chancellor and holders of Chancellor Common
Stock who are not affiliated with Hicks, Muse, Tate & Furst.

Very truly yours,

/s/ WASSERSTEIN PERELLA & CO., INC.
-------------------------------------------
WASSERSTEIN PERELLA & CO., INC.

III-A-3
<PAGE> 674

ANNEX III-B

[LETTERHEAD OF WASSERSTEIN PERELLA & CO., INC.]

June 7, 1999

Board of Directors
Chancellor Media Corporation
433 East Las Colinas Boulevard
Irving, TX 75039

Members of the Board:

You have asked us to advise you with respect to the fairness, from a financial
point of view, to Chancellor Media Corporation ("Chancellor") of the Exchange
Ratio (as defined below) provided for pursuant to the terms of the Amended and
Restated Agreement and Plan of Merger, dated as of April 29, 1999 (the "Amended
and Restated Merger Agreement"), among Chancellor, Capstar Broadcasting
Corporation ("Capstar"), CBC Acquisition Company, Inc., a wholly owned
subsidiary of Capstar ("Old Sub") and CMC Merger Sub, Inc., a wholly owned
subsidiary of Chancellor ("Sub"). The Amended and Restated Merger Agreement
provides for, among other things, a merger of Sub with and into Capstar (the
"Merger") pursuant to which each issued and outstanding share of Class A common
stock, par value $0.01 per share, Class B common stock, par value $0.01 per
share and Class C common stock, par value $0.01 per share, of Capstar will be
converted into 0.4955 (the "Exchange Ratio") shares of Common Stock, par value
$0.01 per share, of Chancellor ("Chancellor Common Stock"). The terms and
conditions of the Merger are set forth in more detail in the Amended and
Restated Merger Agreement.

In connection with rendering our opinion, we have reviewed the Amended and
Restated Merger Agreement. We also have reviewed and analyzed certain publicly
available business and financial information relating to Capstar and Chancellor
for recent years and interim periods to date, as well as certain internal
financial and operating information, including financial forecasts, analyses and
projections prepared by or on behalf of Capstar and Chancellor and provided to
us for purposes of our analysis, and we have met with management of Capstar and
Chancellor to review and discuss such information and, among other matters,
Capstar's and Chancellor's business, operations, assets, financial condition and
future prospects. We have reviewed a copy of the Stock Purchase Agreement (not
including the exhibits thereto and other documents referred to therein), dated
as of June 1, 1999 (the "Lamar Agreement"), between Chancellor Media of Los
Angeles, an indirect wholly-owned subsidiary of Chancellor, and Lamar
Advertising Company ("Lamar") regarding the proposed sale by Chancellor to Lamar
of Chancellor's outdoor advertising business and have assumed that the
transactions contemplated in the Stock Purchase Agreement will be consummated
without waiver or modification of any of the material terms or conditions
contained therein by any party thereto.

III-B-1
<PAGE> 675

respective businesses or assets, and we have reviewed and considered the
financial terms of certain recent acquisitions and business combination
transactions in the radio broadcasting industry specifically, and in other
industries generally, that we believe to be reasonably comparable to the Merger
or otherwise relevant to our inquiry. We also have performed such other
financial studies, analyses, and investigations and reviewed such other
information as we considered appropriate for purposes of this opinion.

In our review and analysis and in formulating our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We also have assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us
(including estimates of revenue synergies, cost savings and other operating
efficiencies expected to result from consummation of the Merger), and we have
assumed that such projections, forecasts and analyses were reasonably prepared
in good faith and on bases reflecting the best currently available judgments and
estimates of Capstar's and Chancellor's management. We express no opinion with
respect to such projections, forecasts and analyses or the assumptions upon
which they are based. In addition, we have not reviewed any of the books and
records of Capstar or Chancellor, or assumed any responsibility for conducting a
physical inspection of the properties or facilities of Capstar or Chancellor, or
for making or obtaining an independent valuation or appraisal of the assets or
liabilities of Capstar or Chancellor, and no such independent valuation or
appraisal was provided to us. We note that the Merger is intended to qualify as
a tax free reorganization for United States Federal tax purposes, and we have
assumed that the Merger will so qualify. We also have assumed that obtaining all
regulatory and other approvals and third party consents required for
consummation of the Merger will not have an adverse impact on Chancellor or
Capstar or on the anticipated benefits of the Merger, and we have assumed that
the transactions described in the Amended and Restated Merger Agreement will be
consummated without waiver or modification of any of the material terms or
conditions contained therein by any party thereto. Our opinion is necessarily
based on economic and market conditions and other circumstances as they exist
and can be evaluated by us as of the date hereof. We are not expressing any
opinion herein as to the prices at which any securities of Chancellor or Capstar
will actually trade at any time.

We advised Evergreen Media Corporation in its merger with Chancellor
Broadcasting Corporation, which transaction resulted in the formation of
Chancellor. We advised Evergreen Media Corporation in its joint acquisition with
Chancellor Broadcasting Corporation of Viacom Radio Group. We advised the
predecessor of LIN Television Corporation and the Independent Directors of the
Board of Directors of LIN Television Corporation in its sale to Hicks Muse Tate
& Furst, Incorporated. We acted as financial advisor to a Special Committee of
the Board of Directors of Chancellor in its proposed acquisition of LIN
Television Corporation and in connection with the Merger.

Our opinion addresses only the fairness, from a financial point of view, to
Chancellor of the Exchange Ratio provided for pursuant to the Amended and
Restated Merger

III-B-2
<PAGE> 676

Agreement, and we do not express any views on any other terms of the Merger.
Specifically, our opinion does not address Chancellor's underlying business
decision to effect the transactions contemplated by the Amended and Restated
Merger Agreement.

It is understood that this letter is for the benefit and use of the Board of
Directors of Chancellor in its consideration of the Merger, and except for
inclusion in its entirety in any registration statement or proxy statement
required to be circulated to shareholders of Chancellor relating to the Merger,
may not be disseminated, quoted, referred to or reproduced at any time or in any
manner without our prior written consent. This opinion does not constitute a
recommendation to any shareholder as to how such holder should vote with respect
to the Merger, and should not be relied upon by any shareholder as such.

Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, it is our opinion that, as of the date hereof, the
Exchange Ratio provided for pursuant to the Amended and Restated Merger
Agreement is fair to Chancellor from a financial point of view.

Very truly yours,

WASSERSTEIN PERELLA & CO., INC.

III-B-3
<PAGE> 677

ANNEX IV

[LETTERHEAD OF MORGAN STANLEY & CO. INCORPORATED]

August 26, 1998

Board of Directors
Chancellor Media Corporation
300 Crescent Court
Suite 600
Dallas, TX 75201

Members of the Board:

We understand that Capstar Broadcasting Corporation ("Capstar" or the
"Company"), Chancellor Media Corporation ("Chancellor") and CBC Acquisition
Company, Inc., a wholly-owned subsidiary of Capstar ("Acquisition Sub"), entered
into an Agreement and Plan of Merger, dated August 26, 1998 (the "Merger
Agreement"), which provides, among other things, for the merger (the "Merger")
of Chancellor with and into Acquisition Sub. We also understand that prior to
the effective time of the Merger, Capstar will amend its certificate of
incorporation to change its name to Chancellor Media Corporation (as such, the
"Parent") and reclassify each share of the Class A Common Stock, par value $0.01
per share, of Capstar (the "Capstar Class A Common Stock") and of the Class C
Common Stock, par value $0.01 per share, of Capstar (the "Capstar Class C Common
Stock") into .48 shares (subject to adjustment in certain circumstances) of
Common Stock, par value $0.01 per share, of Parent (the "Parent Voting Common
Stock") and each share of Class B Common Stock, par value $.01 per share, of
Capstar (the "Capstar Class B Common Stock" and, together with the Capstar Class
A Common Stock and Capstar Class C Common Stock, the Capstar Common Stock) into
.48 shares (subject to adjustment in certain circumstances) of nonvoting Common
Stock, par value $.01 per share, of Parent. Pursuant to the Merger, Chancellor
will become a wholly-owned subsidiary of Parent, and each outstanding share of
common stock, par value $0.01 per share, of Chancellor (the "Chancellor Common
Stock"), other than shares held as treasury shares, will be converted into the
right to receive one share (the "Chancellor Exchange Ratio") of Parent Voting
Common Stock. We also understand that Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse") currently owns approximately 60% of the Capstar Common Stock and
approximately 15% of the Chancellor Common Stock (assuming completion of the
previously announced merger with LIN Television Corp). The terms and conditions
of the Merger are more fully set forth in the Merger Agreement.

You have asked for our opinion as to whether the Chancellor Exchange Ratio
pursuant to the Merger Agreement is fair from a financial point of view to
Chancellor.
<PAGE> 678

For purposes of the opinion set forth herein, we have:

(i) reviewed certain publicly available financial statements and other
information of Capstar and Chancellor;

(ii) reviewed certain internal financial statements and other financial and
operating data concerning Capstar and Chancellor prepared by the
managements of Capstar and Chancellor, respectively;

(iii) analyzed certain financial projections prepared by the management of
Capstar and its affiliates;

(iv) discussed the past and current operations and financial condition and the
prospects of Capstar with senior executives of Capstar;

(v) discussed with the senior managements of Chancellor and Capstar their
estimates of the synergies and cost savings expected to be derived from
the Merger;

(vi) discussed the past and current operations and financial condition and the
prospects of Chancellor with senior executives of Chancellor, and analyzed
the pro forma impact of the Merger on Parent's after-tax cash flow per
share, consolidated capitalization and financial ratios;

(vii) reviewed the reported prices and trading activity for the Capstar Class A
Common Stock and the Chancellor Common Stock;

(viii)compared the financial performance of Capstar and Chancellor and the
prices and trading activity of the Capstar Class A Common Stock and the
Chancellor Common Stock with that of certain other comparable
publicly-traded companies and their securities;

(ix) reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;

(x) participated in discussions and negotiations among representatives of
Capstar and Chancellor and their financial and legal advisors;

(xi) reviewed the draft Merger Agreement dated August 25, 1998, the Merger
Agreement and certain related documents; and

(xii) performed such other analyses as we have deemed appropriate.

We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, including the estimates of
the synergies and cost savings expected to be derived from the Merger, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of the Company and Chancellor. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company or Chancellor, nor have we
been furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.

We have acted as financial advisor to the Board of Directors of Chancellor in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Capstar, Chancellor and Hicks Muse
and its affiliates and have received fees for the rendering of these services.
<PAGE> 679

It is understood that this letter is for the information of the Board of
Directors of Chancellor and may not be used for any other purpose without our
prior written consent. In addition, we express no opinion or recommendation as
to how the shareholders of Chancellor should vote at the shareholders meeting to
be held in connection with the Merger.

Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Chancellor Exchange Ratio pursuant to the Merger Agreement is
fair from a financial point of view to Chancellor.

Very truly yours,

MORGAN STANLEY & CO. INCORPORATED

By: /s/ PAUL J. TAUBMAN
--------------------------------------
Paul J. Taubman
Managing Director
<PAGE> 680

ANNEX V

[LETTERHEAD OF BEAR, STEARNS & CO. INC.]

June 3, 1999

Special Committee of the Board of Directors
of Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, TX 78701

Dear Sirs:

We understand that Capstar Broadcasting Corporation ("Capstar") has entered into
an Amended and Restated Agreement and Plan of Merger (the "Amended Merger
Agreement") dated April 29, 1999, among Chancellor Media Corporation
("Chancellor"), CMC Merger Sub, Inc. ("Sub") and Capstar, pursuant to which Sub
will merge with and into Capstar, and Capstar will become a wholly-owned
subsidiary of Chancellor (the "Merger"). As a result of the Merger, each share
of Class A, Class B and Class C common stock of Capstar will be converted into
the right to receive 0.4955 (the "Exchange Ratio") of a share of common stock of
Chancellor. Immediately following the Merger, the former common stockholders
(including holders of common stock equivalents) of Capstar will own
approximately 24.5% of the fully-diluted common shares of Chancellor and the
current common stockholders (including holders of common stock equivalents) of
Chancellor will own approximately 75.5% of the fully-diluted common shares of
Chancellor.

On April 13, 1999, we rendered our opinion that the Exchange Ratio was fair,
from a financial point of view, to the public Class A common stockholders of
Capstar (excluding affiliates of Capstar or Chancellor). On June 1, 1999,
Chancellor announced that it was selling its outdoor advertising business to
Lamar Advertising Company ("Lamar") in consideration of $700 million of cash and
approximately 26.2 million shares of Lamar Class A Common Stock. We have been
advised that the cash proceeds of the transaction will be used to retire bank
indebtedness of Chancellor (the sale and use of proceeds is referred to
collectively herein as the "Lamar Transaction"). You have asked us to update our
opinion in light of the Lamar Transaction.

In the course of our analyses for rendering this opinion, we have:

1. reviewed the Amended Merger Agreement;

2. reviewed a draft of the Schedule 14A Combined Proxy Statement in
substantially final form ("Proxy Statement" upon its completion);

3. reviewed Capstar's initial public offering prospectus dated May 26,
1998, its Annual Report on Form 10-K for the period ended December
31, 1998, and its Quarterly Report on Form 10-Q for the period ended
March 31, 1999;

4. reviewed Chancellor's prospectus dated January 27, 1998 (relating to
the issuance of 19,000,000 shares of Chancellor common stock), its
Annual Report on Form 10-K for the fiscal year ended December 31,
1998, and its Quarterly Report on Form 10-Q for the period ended
March 31, 1999;

V-1
<PAGE> 681

5. reviewed Triathlon Broadcasting Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998;

6. reviewed the Stock Purchase Agreement dated June 1, 1999, by and
between Lamar and Chancellor;

7. reviewed Lamar's Form 10-K dated December 31 1998, and its Form 10-Q
dated March 31, 1999;

8. reviewed certain operating and financial information of Capstar and
Chancellor, including updated projections, provided to us by
management of Capstar and Chancellor relating to their respective
businesses and prospects;

9. met with certain members of senior management of Capstar and
Chancellor to discuss their respective operations, historical
financial statements and future prospects;

10. reviewed the historical prices and trading volumes of the common
shares of Capstar and Chancellor;

11. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable
to Capstar and Chancellor;

12. reviewed the terms of recent acquisitions of companies which we
deemed generally comparable to Capstar; and

13. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.

In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by Capstar
and Chancellor. With respect to Capstar's and Chancellor's updated projected
financial results (reflecting the Lamar Transaction and including updated
projected cost and interest savings and revenue and operating synergies
resulting from the Merger) we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of Capstar and Chancellor as to the expected future
performance of Capstar and Chancellor, respectively. We have not assumed any
responsibility for the independent verification of information or updated
projections (reflecting the Lamar Transaction and including updated projected
cost and interest savings and revenue and operating synergies resulting from the
Merger), provided to us and we have further relied upon the assurances of the
managements of Capstar and Chancellor that they are unaware of any facts that
would make the information or updated projections (reflecting the Lamar
Transaction and including updated projected cost and interest savings and
revenue and operating synergies resulting from the Merger), provided to us
incomplete or misleading. In arriving at our opinion, we have not performed or
obtained any independent appraisal of the assets of Capstar, Chancellor or
Lamar, nor have we been provided with any appraisals. We have assumed, with your
permission, that the fair market value of the Lamar common stock to be received
by Chancellor in the Lamar Transaction will be equal to the market value as of
May 28, 1999. We have also assumed that the Merger will constitute a tax-free
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. Our opinion is

V-2
<PAGE> 682

necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof.

In the ordinary course of business, Bear, Stearns & Co. Inc. may make a market
and effect transactions or may have positions in the common stock of Capstar and
Chancellor (or options with respect thereto).

Our opinion as expressed below does not imply any conclusion as to the likely
trading range of any class of Capstar or Chancellor Common Stock either prior
or, in the case of Chancellor, subsequent to the consummation of the Merger,
which may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the price of securities. Our opinion as expressed below
does not address Capstar's underlying business decision to effect the Merger,
and is not a recommendation to the Special Committee of the Board of Directors
or Capstar's directors or stockholders as to whether to approve or vote for the
Merger. Further, our opinion does not imply any conclusion as to the business
decision to effect the Lamar Transaction, the consideration received by
Chancellor in the Lamar Transaction or the value of the Lamar common stock to be
received upon completion of the Lamar Transaction.

It is understood that this letter is intended for the benefit and use of the
Special Committee of the Board of Capstar and is not to be used for any other
purpose or reproduced, disseminated, quoted or referred to at any time, in whole
or in part, without our prior written consent; provided, however, that this
letter may be included in its entirety in the Proxy Statement. We have
considered the impact on Capstar and Chancellor, as appropriate, of the
consummation of all announced acquisitions or dispositions that have not closed.

Based on the foregoing, it is our opinion that the Exchange Ratio is fair, from
a financial point of view, to the public Class A common stockholders of Capstar
(excluding affiliates of Capstar or Chancellor).

We have acted as financial advisor to the Special Committee in connection with
the Merger and will receive a fee for such advisory services, including the
rendering of this opinion, payment of a significant portion of which is
contingent upon consummation of the Merger.

Very truly yours,

BEAR, STEARNS & CO. INC.

By: /s/ RICK A. LACHER
--------------------------------------
Managing Director

V-3
<PAGE> 683

ANNEX VI

[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]

August 26, 1998

Board of Directors
Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, Texas 78701

Members of the Board:

You have asked us to advise you with respect to the fairness to the holders of
the common stock of Capstar Broadcasting Corporation ("Capstar") from a
financial point of view of the consideration to be received by such holders
pursuant to the terms of the Agreement and Plan of Merger, dated as of August
26, 1998 (the "Merger Agreement"), by and among Chancellor Media Corporation
("Chancellor"), Capstar and CBC Acquisition Company, Inc., a wholly owned
subsidiary of Capstar ("Merger Sub"). The Merger Agreement provides, among other
things, for the merger of Chancellor with and into Merger Sub (the "Merger")
and, prior to the effective time of the Merger, for Capstar to amend its
certificate of incorporation and be renamed Chancellor Media Corporation
("Parent"). Pursuant to the Merger, (i) each outstanding share of Class A Common
Stock, par value $0.01 per share, of Capstar (the "Class A Stock") will be
converted into 0.4800 of a share (the "Class A Exchange Ratio") of the voting
common stock, par value $0.01 per share, of Parent (the "Parent Voting Common
Stock"), (ii) each outstanding share of Class B Common Stock, par value $0.01
per share, of Capstar (the "Class B Stock") will be converted into 0.4800 of a
share (the "Class B Exchange Ratio") of the non-voting common stock, par value
$0.01 per share, of Parent (the "Parent Non-Voting Common Stock"), (iii) each
outstanding share of Class C Common Stock, par value $0.01 per share, of Capstar
(the "Class C Stock" and, together with the Class A Stock and the Class B Stock,
the "Capstar Common Stock") will be converted into the right to receive 0.4800
of a share of Parent Voting Common Stock (the "Class C Exchange Ratio" and,
together with the Class A Exchange Ratio and the Class B Exchange Ratio, the
"Capstar Exchange Ratio"), (iv) each outstanding share of the common stock, par
value $0.01 per share, of Chancellor will be converted into the right to receive
one share of Parent Voting Common Stock, (v) each outstanding share of 7%
Convertible Preferred Stock, par value $0.01 per share, of Chancellor will be
converted into the right to receive one share of 7% Convertible Preferred Stock,
par value $0.01 per share, of Parent and (vi) each outstanding share of $3.00
Convertible Preferred Stock, par value $0.01 per share, of Chancellor will be
converted into the right to receive one share of $3.00 Convertible Preferred
Stock, par value $0.01 per share, of Parent. The Merger Agreement also provides
that the Capstar Exchange Ratio will be subject to upward adjustment if
Capstar's adjusted broadcasting cash flow meets certain specified thresholds, as
more fully described in the Merger Agreement.

In arriving at our opinion, we have reviewed the Merger Agreement and certain
publicly available business and financial information relating to Capstar and
Chancellor. We have also reviewed certain other information relating to Capstar
and Chancellor, including financial forecasts, provided to or discussed with us
by Capstar and Chancellor, and have

VI-1
<PAGE> 684
Board of Directors
Capstar Broadcasting Corporation
August 26, 1998
Page 2

met with the managements of Capstar and Chancellor to discuss the businesses and
prospects of Capstar and Chancellor. We have also considered certain financial
and stock market data of Capstar and Chancellor, and we have compared those data
with similar data for other publicly held companies in businesses similar to
Capstar and Chancellor, and we have considered, to the extent publicly
available, the financial terms of certain other business combinations and other
transactions which have recently been effected. We also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant.

In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, you have informed us, and we have assumed, that such
forecasts have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Capstar and Chancellor
as to the future financial performance of Capstar and Chancellor and the
strategic benefits and potential synergies (including the amount, timing and
achievability thereof) anticipated to result from the Merger. In addition, you
have informed us, and we have assumed, that the per share economic value of the
Class A Stock, the Class B Stock and the Class C Stock is equivalent. We have
not been requested to make, and have not made, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Capstar or
Chancellor, nor have we been furnished with any such evaluations or appraisals.
Our opinion is necessarily based upon information available to us, and
financial, economic, market and other conditions as they exist and can be
evaluated, on the date hereof. We are not expressing any opinion as to what the
value of the Parent Voting Common Stock or the Parent Non-Voting Common Stock
actually will be when issued pursuant to the Merger or the prices at which such
Common Stock will trade or otherwise be transferable subsequent to the Merger.
In connection with our engagement, we were not requested to, and we did not,
solicit third party indications of interest in acquiring all or any part of
Capstar.

We have acted as financial advisor to Capstar in connection with the Merger and
will receive a fee for such services, a significant portion of which is
contingent upon the consummation of the Merger. We have in the past provided
financial services to Capstar and Chancellor, for which services we have
received compensation. In the ordinary course of business, Credit Suisse First
Boston and its affiliates may actively trade the debt and equity securities of
both Capstar and Chancellor for their own accounts and for the accounts of
customers and, accordingly, may at any time hold long or short positions in such
securities.

It is understood that this letter is for the information of the Board of
Directors of Capstar in connection with its evaluation of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote with respect to the Merger, and is not to be quoted or referred to, in
whole or in part, in any registration statement, prospectus or proxy statement,
or in any other document used in connection with the

VI-2
<PAGE> 685
Board of Directors
Capstar Broadcasting Corporation
August 26, 1998
Page 3

offering or sale of securities, nor shall this letter be used for any other
purposes, without our prior written consent.

Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Capstar Exchange Ratio is fair to the holders of Capstar Common
Stock from a financial point of view.

Very truly yours,

CREDIT SUISSE FIRST BOSTON CORPORATION

VI-3
<PAGE> 686

ANNEX VII

[LETTERHEAD OF BT WOLFENSOHN]

August 26, 1998

Board of Directors
Capstar Broadcasting Corporation
600 Congress Avenue, Suite 1400
Austin, Texas 78701

Gentlemen:

BT Wolfensohn has acted as a financial advisor to Capstar Broadcasting
Corporation ("Capstar") in connection with the proposed business combination of
Capstar and Chancellor Media Corporation ("Chancellor") pursuant to the
Agreement and Plan of Merger, dated August 26, 1998, among Chancellor, Capstar
and CBC Acquisition Company, Inc. a wholly-owned subsidiary of Capstar ("Merger
Sub") (the "Merger Agreement"). The Merger Agreement provides, among other
things, for the merger of Chancellor with and into Merger Sub (the
"Transaction") and, prior to the effective time of the Transaction, for Capstar
to amend its certificate of incorporation and to change its name to Chancellor
Media Corporation ("Parent"). Under the Merger Agreement, (i) each outstanding
share of Class A Common Stock, $0.01 par value per share (the "Class A Stock")
and of Class C Common Stock, $0.01 par value (the "Class C Stock") of Capstar
shall be reclassified and converted into 0.4800 of a share of the voting common
stock $0.01 par value of Parent ("Parent Voting Common Stock") and (ii) each
outstanding share of Class B Common Stock, $0.01 par value (the "Class B Stock";
collectively with the Class A Stock and the Class C Stock, the "Capstar Common
Stock") shall be reclassified and converted into 0.4800 of a share of the
non-voting common stock, $0.01 par value of Parent ("Parent Non-Voting Common
Stock"; collectively with the Parent Voting Stock, the "Parent Common Stock")
(the ratio for the foregoing reclassification and conversion of Class A Common
Stock, Class B Common Stock and Class C Common Stock, which is subject to upward
adjustment (but not above 0.5050) as more fully described in the Merger
Agreement, being referred to collectively as the "Capstar Exchange Ratio"),
(iii) each outstanding share of Common Stock, $0.01 par value of Chancellor will
be converted into the right to receive one share of Parent Voting Common Stock,
(iv) each outstanding share of 7% Convertible Preferred Stock, par value $0.01
per share of Chancellor will be converted into the right to receive one share of
7% Convertible Preferred Stock, par value $0.01 per share, of Parent, and (v)
each outstanding share of $3.00 Convertible Preferred Stock, par value $0.01 per
share of Chancellor will be converted into the right to receive one share of
$3.00 Convertible Preferred Stock, par value, $0.01 per share, of Parent. The
terms and conditions of the Transaction are more fully set forth in the Merger
Agreement.

You have requested BT Wolfensohn's opinion, as investment bankers, as to the
fairness, from a financial point of view, of the Capstar Exchange Ratio to the
holders of Capstar Common Stock.

In connection with BT Wolfensohn's role as financial advisor to Capstar, and in
arriving at its opinion, BT Wolfensohn has reviewed certain publicly available
financial and other information concerning Chancellor and Capstar, including
without limitation analyst's

VII-1
<PAGE> 687

forecasts and certain internal analyses and other information furnished to it by
Chancellor and Capstar. BT Wolfensohn has also held discussions with members of
the senior managements of Chancellor and Capstar regarding the businesses and
prospects of their respective companies and the joint prospects of a combined
company. In addition, BT Wolfensohn has (i) reviewed the reported prices and
trading activity for Chancellor Common Stock and Capstar Class A Common Stock,
(ii) compared certain financial and stock market information for Chancellor and
Capstar with similar information for certain other companies whose securities
are publicly traded, (iii) reviewed the financial terms of certain recent
business combinations which it deemed comparable in whole or in part, (iv)
reviewed a summary of the financial terms of the Merger Agreement, and (v)
performed such other studies and analyses and considered such other factors as
it deemed appropriate.

BT Wolfensohn has not assumed responsibility for independent verification of,
and has not independently verified, any information, whether publicly available
or furnished to it, concerning Chancellor or Capstar, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, BT Wolfensohn has assumed and relied upon the accuracy and completeness
of all such information and BT Wolfensohn has not conducted a physical
inspection of any of the properties or assets, and has not prepared or obtained
any independent evaluation or appraisal of any of the assets or liabilities, of
Chancellor or Capstar. With respect to the financial forecasts and projections,
including the analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergies expected by Capstar and
Chancellor to be achieved as a result of the Transaction (collectively, the
"Synergies"), made available to BT Wolfensohn and used in its analyses, BT
Wolfensohn has assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Chancellor or Capstar, as the case may be, as to the matters
covered thereby. In rendering its opinion, BT Wolfensohn expresses no view as to
the reasonableness of such forecasts and projections, including the Synergies,
or the assumptions on which they are based. BT Wolfensohn's opinion is
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to it as of, the date hereof and we undertake
no obligation to update our opinion to reflect any developments occurring after
the date hereof. In connection with our engagement, we have not been authorized
by Capstar or its Board of Directors to solicit, nor have we solicited, any
third party indications of interest for the acquisition of Capstar, nor have we
reviewed with Capstar and its Board of Directors any potential transactions in
lieu of the Transaction.

For purposes of rendering its opinion, BT Wolfensohn has assumed that, in all
respects material to its analysis, the representations and warranties of the
parties contained in the Merger Agreement are true and correct, the parties will
each perform all of the covenants and agreements to be performed by it under the
Merger Agreement and all conditions to the obligations of each of the parties to
consummate the Transaction will be satisfied without any waiver thereof. BT
Wolfensohn has also assumed that all material governmental, regulatory or other
approvals and consents required in connection with the consummation of the
Transaction will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which
either Capstar or Chancellor is a party or is subject or by which it is bound,
no limitations,

VII-2
<PAGE> 688

restrictions or conditions will be imposed or amendments, modifications or
waivers made that would have a material adverse effect on Capstar or Chancellor
or materially reduce the contemplated benefits of the Transaction to Capstar. In
addition, you have informed BT Wolfensohn, and accordingly for purposes of
rendering its opinion BT Wolfensohn has assumed, that the Transaction will
qualify for a tax free reorganization for federal income tax purposes, and that
the Transaction will be accounted for as a purchase.

This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Capstar and is not a recommendation to the stockholders of Capstar
concerning as to how they should vote with respect to the Transaction. This
opinion is limited to the fairness, from a financial point of view, of the
Capstar Exchange Ratio to Capstar and accordingly to the holders of Capstar
Common Stock, and BT Wolfensohn expresses no opinion as to the merits of the
underlying decision by Capstar to engage in the Transaction. BT Wolfensohn
expresses no opinion as to the prices at which Capstar Common Stock or Parent
Common Stock will trade following the announcement or consummation of the
Transaction.

BT Wolfensohn is engaged in the merger and acquisition and client advisory
business of Bankers Trust (together with its affiliates the "BT Group") and, for
legal and regulatory purposes, is a division of BT Alex. Brown Incorporated, a
registered broker-dealer and member of the New York Stock Exchange. BT
Wolfensohn will be paid a fee for its services as financial advisor to Capstar
in connection with the Transaction, a substantial portion of which is contingent
upon consummation of the Transaction. One or more members of the BT Group have,
from time to time, provided investment banking, commercial banking (including
extension of credit) and other financial services to Capstar and Chancellor or
their affiliates for which it has received or will receive compensation, and is
currently providing investment banking services to Chancellor. In the ordinary
course of business, members of the BT Group may actively trade in the securities
and other instruments and obligations of Capstar and Chancellor for their own
accounts and for the accounts of their customers. Accordingly, the BT Group may
at any time hold a long or short position in such securities, instruments and
obligations.

Based upon and subject to the foregoing, it is BT Wolfensohn's opinion as
investment bankers that, as of the date hereof, the Capstar Exchange Ratio is
fair, from a financial point of view, to the holders of the Capstar Common
Stock.

Very truly yours,

BT WOLFENSOHN

VII-3
<PAGE> 689

ANNEX VIII

SECTION 262
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE

Appraisal Rights. (a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to
sec.228 of this title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to sec.251 (other than a merger effected pursuant to sec.251(g) of this
title), sec.252, sec.254, sec.257, sec.258, sec.263 or sec.264 of this title:

(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:

a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof:

b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market

VIII-1
<PAGE> 690

system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;

c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or

d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or

(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if

VIII-2
<PAGE> 691

the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date
of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.

(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.

VIII-3
<PAGE> 692

(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the stockholder
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.

(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.

VIII-4
<PAGE> 693

(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.

(1) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.

VIII-5
<PAGE> 694

ANNEX IX

SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AMFM INC.
(ORIGINALLY INCORPORATED ON JUNE 22, 1988)

Chancellor Media Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:

A. The Corporation's original Certificate of Incorporation was filed under the
name Evergreen Media Corporation with the Secretary of State of the State of
Delaware on June 22, 1988.

B. The Corporation filed an Amended and Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware on September 5, 1997.

C. This Second Amended and Restated Certificate of Incorporation amends and
restates in its entirety the Amended and Restated Certificate of Incorporation
of the Corporation and has been duly adopted by the vote of the stockholders of
the Corporation in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware.

D. The text of the Corporation's Amended and Restated Certificate of
Incorporation is hereby further amended and restated in its entirety to read in
full as follows:

FIRST: The name of the corporation is AMFM Inc. (the "Corporation").

SECOND: The registered office of the Corporation in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.

THIRD: The purpose for which the Corporation is organized is to engage in any
and all lawful acts and activity for which corporations may be organized under
the General Corporation Law of the State of Delaware.

FOURTH: The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 800,000,000 shares consisting of
(a) 50,000,000 shares of preferred stock, par value $0.01 per share (the
"Preferred Stock"), and (b) 750,000,000 shares of Common Stock, par value $0.01
per share (the "Common Stock").

In addition to the designations, powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock set forth in Paragraph 1
below, the Corporation has authorized and outstanding its 7% Convertible
Preferred Stock and $3.00 Convertible Exchangeable Preferred Stock whose
Certificates of Designations, Preferences and Relative, Participating, Optional
and Other Special Rights are attached hereto as Exhibits
<PAGE> 695

A and B, respectively. The designations, powers, preferences, rights,
qualifications, limitations, and restrictions of the Preferred Stock and the
Common Stock are as follows:

1. Provisions Relating to the Preferred Stock.

(a) The Preferred Stock may be issued from time to time in one or
more classes or series, the shares of each class or series to have such
designations, powers, preferences and rights and such qualifications,
limitations and restrictions thereof as are stated and expressed herein
and in the resolution or resolutions providing for the issue of such
class or series adopted by the Board of Directors of the Corporation
(the "Board of Directors") as hereafter prescribed.

(b) Authority is hereby expressly granted to and vested in the
Board of Directors to authorize the issuance of the Preferred Stock from
time to time in one or more classes or series, and with respect to each
class or series of the Preferred Stock, to fix and state by the
resolution or resolutions from time to time adopted providing for the
issuance thereof the following:

(i) whether or not the class or series is to have voting
rights, full, special or limited, or is to be without voting
rights, and whether or not such class or series is to be entitled
to vote as a separate class either alone or together with the
holders of one or more other classes or series of stock;

(ii) the number of shares to constitute the class or series
and the designations thereof;

(iii) the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations
or restrictions thereof, if any, with respect to any class or
series;

(iv) whether or not the shares of any class or series shall be
redeemable at the option of the Corporation or the holders thereof
or upon the happening of any specified event, and, if redeemable,
the redemption price or prices (which may be payable in the form of
cash, notes, securities or other property) and the time or times at
which, and the terms and conditions upon which, such shares shall
be redeemable and the manner of redemption;

(v) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be
applied to the purchase or redemption of such shares for
retirement, and, if such retirement or sinking fund or funds are to
be established, the annual amount thereof and the terms and
provisions relative to the operation thereof;

(vi) the dividend rate, whether dividends are payable in cash,
securities of the Corporation or other property, the conditions
upon which and the times when such dividends are payable, the
preference to or the relation to the payment of dividends payable
on any other class or classes or series of stock, whether or not
such dividends shall be cumulative or noncumulative and, if
cumulative, the date or dates from which such dividends shall
accumulate;

(vii) the preferences, if any, and the amounts thereof which
the holders of any class or series thereof shall be entitled to
receive upon the voluntary
<PAGE> 696

or involuntary dissolution of, or upon any distribution of the
assets of, the Corporation;

(viii) whether or not the shares of any class or series, at
the option of the Corporation or the holder thereof or upon the
happening of any specified event, shall be convertible into or
exchangeable for the shares of any other class or classes or of any
other series of the same or any other class or classes of stock,
securities, or other property of the Corporation and the conversion
price or prices or ratio or ratios or the rate or rates at which
such exchange may be made, with such adjustments, if any, as shall
be stated and expressed or provided for in such resolution or
resolutions; and

(ix) such other special rights and protective provisions with
respect to any class or series as may to the Board of Directors
seem advisable.

(c) The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any or all
of the foregoing respects. The Board of Directors may increase the
number of shares of the Preferred Stock designated for any existing
class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for
any other class or series. The Board of Directors may decrease the
number of shares of the Preferred Stock designated for any existing
class or series by a resolution subtracting from such class or series
authorized and unissued shares of the Preferred Stock designated for
such existing class or series, and the shares so subtracted shall become
authorized, unissued and undesignated shares of the Preferred Stock.

(d) The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
Common Stock without a vote of a majority of the holders of the
Preferred Stock, or of any class or series thereof, unless a vote of any
such holders is required pursuant to the certificate or certificates
establishing such class or series of Preferred Stock.

2. Provisions Relating to the Common Stock.

(a) Each share of Common Stock of the Corporation shall have
identical rights and privileges in every respect. The holders of shares
of Common Stock shall be entitled to vote upon all matters submitted to
a vote of the stockholders of the Corporation and shall be entitled to
one vote for each share of Common Stock held.

(b) Subject to the prior rights and preferences, if any, applicable
to shares of the Preferred Stock or any series thereof, the holders of
shares of Common Stock shall be entitled to receive and participate
ratably in such dividends (payable in cash, stock, or otherwise) as may
be declared thereon by the board of directors at any time and from time
to time out of any funds of the Corporation legally available therefor.

(c) In the event of any voluntary or involuntary liquidation,
dissolution, or winding-up of the Corporation, after distribution in
full of the preferential amounts, if any, to be distributed to the
holders of shares of the Preferred Stock
<PAGE> 697

or any series thereof, the holders of shares of the Common Stock shall
be entitled to receive all of the remaining assets of the Corporation
available for distribution to its stockholders, ratably in proportion to
the number of shares of the Common Stock held by them. A liquidation,
dissolution, or winding-up of the Corporation, as such terms are used in
this paragraph (c), shall not be deemed to be occasioned by or to
include any consolidation or merger of the Corporation with or into any
other corporation or corporations or other entity or a sale, lease,
exchange or conveyance of all or a part of the assets of the
Corporation.

3. General.

(a) Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its Preferred
Stock and Common Stock from time to time for such consideration
(not less than the par value thereof) as may be fixed by the Board
of Directors, which is expressly authorized to fix the same in its
absolute and uncontrolled discretion subject to the foregoing
conditions. Shares so issued for which the consideration shall have
been paid or delivered to the Corporation shall be deemed fully
paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not be
liable for any further payments in respect of such shares.

(b) The Corporation shall have authority to create and issue
rights and options entitling their holders to purchase shares of
the Corporation's capital stock of any class or series or other
securities of the Corporation, and such rights and options shall be
evidenced by instrument(s) approved by the Board of Directors. The
Board of Directors shall be empowered to set the exercise price,
duration, times for exercise, and other terms of such options or
rights; provided, however, that the consideration to be received
for any shares of capital stock subject thereto shall not be less
than the par value thereof.

FIFTH: The number of directors constituting the Board of Directors shall be no
less than five and no more than fourteen, plus such number of directors as may
be elected from time to time by the holders of any class or series of Preferred
Stock. The directors of the Corporation shall be divided into three classes (the
"Classified Directors") with the first class ("Class I"), second class ("Class
II") and the third class ("Class III") each to consist as nearly as practicable
of an equal number of directors. The term of office of the Class III directors
shall expire at the 2000 annual meeting of stockholders, the term of office of
the Class I directors shall expire at the 2001 annual meeting of stockholders
and the term of office of the Class II directors shall expire at the 2002 annual
meeting of stockholders, with each director to hold office until his or her
successor shall have been duly elected and qualified. At each annual meeting of
stockholders, Classified Directors elected to succeed those Classified Directors
whose terms then expire shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their election.

SIXTH: The directors of the Corporation need not be elected by written ballot
unless the bylaws of the Corporation otherwise provide.
<PAGE> 698

SEVENTH: The following provisions are included for the purpose of ensuring that
control of the Corporation remains with loyal citizens of the United States
and/or corporations formed under the laws of the United States or any of the
states of the United States, as required by the Communications Act of 1934, as
the same may be amended from time to time:

(a) The Corporation shall not issue to (i) a person who is a citizen
of a country other than the United States; (ii) any entity organized under
the laws of a government other than the government of the United States or
any state, territory, or possession of the United States; (iii) a
government other than the government of the United States or of any state,
territory, or possession of the United States; or (iv) a representative of,
or an individual or entity controlled by, any of the foregoing
(individually, an "Alien"; collectively, "Aliens") in excess of 25% of the
total number of shares of capital stock of the Corporation outstanding at
any time and shall not permit the transfer on the books of the Corporation
of any capital stock to any Alien that would result in the total number of
shares of such capital stock held by Aliens exceeding such 25% limit.

(b) No Alien or Aliens shall be entitled to vote or direct or control
the vote of more than 25% of (i) the total number of shares of capital
stock of the Corporation outstanding and entitled to vote at any time and
from time to time, or (ii) the total voting power of all shares of capital
stock of the Corporation outstanding and entitled to vote at any time and
from time to time.

(c) The Board of Directors of the Corporation shall have all powers
necessary to implement the provisions of this Article Seventh.

EIGHTH: No contract or transaction between the Corporation and one or more of
its directors, officers, or stockholders or between the Corporation and any
Person (as hereinafter defined) in which one or more of its directors, officers,
or stockholders are directors, officers, or stockholders, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
board or committee which authorizes the contract or transaction, or solely
because his, her, or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved, or ratified by the board of directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction. "Person" as used herein means any
corporation, partnership, association, firm, trust, joint venture, political
subdivision or instrumentality.

NINTH: The Corporation shall indemnify any Person who was, is, or is threatened
to be made a party to a proceeding (as hereinafter defined) by reason of the
fact that he or she
<PAGE> 699

(i) is or was a director, officer, employee or agent of the Corporation, or (ii)
is or was serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended. Such right shall be a
contract right and as such shall run to the benefit of any director or officer
who is elected and accepts the position of director or officer of the
Corporation or elects to continue to serve as a director or officer of the
Corporation while this Article Ninth is in effect. Any repeal or amendment of
this Article Ninth shall be prospective only and shall not limit the rights of
any such director or officer or the obligations of the Corporation with respect
to any claim arising from or related to the services of such director or officer
in any of the foregoing capacities prior to any such repeal or amendment to this
Article Ninth. Such right shall include the right to be paid by the Corporation
expenses incurred in investigating or defending any such proceeding in advance
of its final disposition to the maximum extent permitted under the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended. To the extent that a director, officer, employee or agent of the
Corporation shall be successful on the merits or otherwise in defense of any
proceeding, or in defense of any claim, issue, or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense is not permitted under the
General Corporation Law of the State of Delaware, but the burden of proving such
defense shall be on the Corporation. None of (i) the failure of the Corporation
(including its board of directors or any committee thereof, independent legal
counsel, or stockholders) to have made its determination prior to the
commencement of such action that indemnification of, or advancement of costs of
defense to, the claimant is permissible in the circumstances, (ii) an actual
determination by the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible, or (iii) the termination of
any proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall be a defense to the action or create a
presumption that such indemnification or advancement is not permissible. In the
event of the death of any Person having a right of indemnification under the
foregoing provisions, such right shall inure to the benefit of his or her heirs,
executors, administrators, and personal representatives. The rights conferred
above shall not be exclusive of any other right which any Person may have or
hereafter acquire under any statute, bylaw, resolution of stockholders or
directors, agreement, or otherwise.

The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.

Without limiting the generality of the foregoing, to the extent permitted by
then applicable law, the grant of mandatory indemnification pursuant to this
Article Ninth shall extend to proceedings involving the negligence of such
Person.
<PAGE> 700

The Board of Directors may authorize, by a vote of a majority of a quorum of the
Board of Directors, the Corporation to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of this Article Ninth.

As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.

TENTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (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 derived
an improper personal benefit. Any repeal or amendment of this Article Tenth by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the foregoing provisions of
this Article Tenth, a director shall not be liable to the Corporation or its
stockholders to such further extent as permitted by any law hereafter enacted,
including without limitation any subsequent amendment to the General Corporation
Law of the State of Delaware.

ELEVENTH: All of the power of the Corporation, insofar as may be lawfully vested
by this Second Amended and Restated Certificate of Incorporation in the Board of
Directors of the Corporation, is hereby conferred upon the Board of Directors of
the Corporation. In furtherance of and not in limitation of that power or the
powers conferred by law, a majority of the directors then in office (or such
higher percentage as may be specified in the bylaws with respect to any
provision thereof) shall have the power to adopt, amend and repeal the bylaws of
the Corporation.
<PAGE> 701

ANNEX X

CHANCELLOR MEDIA CORPORATION

1999 STOCK OPTION PLAN
<PAGE> 702

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Purpose..................................................... 1
2. Administration.............................................. 1
3. Shares Available and Maximum Individual Grants.............. 2
4. Eligibility and Bases of Participation...................... 3
5. Authority of Committee...................................... 3
6. Option Grants............................................... 5
7. Value Option Grants......................................... 8
8. Performance-Based Options................................... 12
9. Change of Control........................................... 12
10. Adjustment of Shares........................................ 12
11. Assignment or Transfer...................................... 13
12. Compliance with Securities Laws............................. 13
13. Withholding Taxes........................................... 14
14. Costs and Expenses.......................................... 14
15. Funding of Plan............................................. 14
16. Other Incentive Plans....................................... 14
17. Effect on Employment........................................ 14
18. Definitions................................................. 14
19. Amendment of Plan........................................... 17
20. Effective Date and Term..................................... 17
</TABLE>

i
<PAGE> 703

CHANCELLOR MEDIA CORPORATION
1999 STOCK OPTION PLAN

1. PURPOSE.

Chancellor Media Corporation, a Delaware corporation (herein, together with its
successors, referred to as the "Company"), by means of this 1999 Stock Option
Plan (the "Plan"), desires to afford certain key employees and other persons
performing services for the Company or any direct or indirect subsidiary or
parent corporation thereof now existing or hereafter formed or acquired (such
corporations sometimes referred to herein as "Related Entities") with 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 success
of the Company and Related Entities. Certain definitions used herein are defined
in Section 18 of this Plan.

The stock options described in Sections 6 and 7 (collectively, the "Options"),
and the shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options, are a matter of separate inducement and are not in
lieu of any salary or other compensation for services. Options may be incentive
stock options that are intended to qualify under Section 422 of the Code
("ISOs") or non-qualified stock options that are not intended to qualify under
such Section ("Non Qualified Options" or "NQOs"). An Option shall be evidenced
by one or more grant agreements between the Company and an optionee the terms of
which shall be deemed part of the applicable Option. As used in the Plan, the
terms "parent corporation" and "subsidiary corporation" shall have the meanings
contained in Sections 424(e) and 424(f), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code").

2. ADMINISTRATION.

The Plan shall be administered by the Board of Directors of the Company or the
Compensation Committee of the Board of Directors of the Company or any other
committee or sub-committee appointed by the Board of Directors of the Company to
administer this Plan (the "Committee"); provided, that the entire Board of
Directors of the Company (the "Board of Directors") may act as the Committee if
it chooses to do so; and provided, further, that (i) for purposes of determining
any Performance-Based Options (as hereinafter defined) applicable to Key
Employees (as hereinafter defined) who constitute "covered employees" within the
meaning of Section 162(m) of the Code, "Committee" shall mean only those members
thereof who qualify as "outside directors" within the meaning of Section 162(m)
of the Code, and such Performance-Based Options shall be subject to ratification
by unanimous approval of the members of the Board of Directors of the Company,
and (ii) for so long as the Company is subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Committee shall be composed solely of two or more "Non-Employee Directors" as
defined in Rule 16b-3, as amended ("Rule 16b-3") promulgated thereunder. In no
event shall any Eligible Non-Employee then serving on the Committee (or such
other committee then administering the Plan) be granted Non-Qualified Options
hereunder if the grant would cause such Eligible Non-Employee to no longer be a
"Non-Employee Director" as set forth in this Section 2.

The number of individuals that shall constitute the Committee shall be
determined from time to time by a majority of all the members of the Board of
Directors, and, unless that
<PAGE> 704

majority of the Board of Directors determines otherwise, shall be no less than
two individuals. A majority of the Committee shall constitute a quorum (or if
the Committee consists of only two members, then both members shall constitute a
quorum), and subject to the provisions of Section 5, the acts of a majority of
the members present at any meeting at which a quorum is present, or acts
approved in writing by all members of the Committee, shall be the acts of the
Committee. The Committee shall administer the Plan so as (i) to comply at all
times with the Exchange Act, and (ii) to seek to avoid the deduction limitation
imposed by Section 162(m) of the Code from applying to compensation attributable
to Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code.

The members of the Committee shall serve at the pleasure of the Board of
Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the Committee
may be with or without cause. Any individual serving as a member of the
Committee shall have the right to resign from membership in the Committee by
written notice to the Board of Directors. The Board of Directors, and not the
remaining members of the Committee, shall have the power and authority to fill
vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be below two or any other number that Rule 16b-3 or other applicable rules under
Section 16(b) of the Exchange Act, Section 162(m) of the Code, or any successor
or analogous rules or laws may require from time to time.

3. SHARES AVAILABLE AND MAXIMUM INDIVIDUAL GRANTS.

Subject to the adjustments provided in Section 10, the maximum aggregate number
of shares of common stock, par value $0.01 per share, of the Company ("Common
Stock") in respect of which Options may be granted for all purposes under the
Plan shall be ten million (10,000,000) shares, of which three million
(3,000,000) shares shall be available for grants of Options pursuant to Section
6 and seven million (7,000,000) shares shall be available for grants of Options
pursuant to Section 7. If any shares as to which any Option has been granted
cease to be subject to purchase for any reason (including the expiration of such
Option, the termination of such Option prior to exercise, or the forfeiture of
such Option), such shares shall thereafter be available for grants under the
same section of the Plan as such prior Option. Options granted under the Plan
may be fulfilled in accordance with the terms of the Plan with (i) authorized
and unissued shares of Common Stock or (ii) issued shares of Common Stock held
in the Company's treasury.

The maximum aggregate number of shares of Common Stock underlying all Options
that may be granted to any single Key Employee (as hereinafter defined),
including any Options that may have been granted to such Key Employee as an
Eligible Non-Employee (as hereinafter defined), during the Term (as hereinafter
defined) of the Plan shall be 2,000,000 shares, subject to the adjustments
provided in Section 10. For purposes of the preceding sentence, such Options
that are cancelled or repriced shall continue to be counted in determining such
maximum aggregate number of shares of Common Stock that may be granted to any
single Key Employee, including any Options that may have been granted to such
Key Employee as an Eligible Non-Employee, during the Term of the Plan.

2
<PAGE> 705

4. ELIGIBILITY AND BASES OF PARTICIPATION.

Grants of Options may be made under the Plan, subject to and in accordance with
Section 6 or 7, to Key Employees and Eligible Non-Employees designated by the
Committee in its sole discretion. The adoption of this Plan shall not be deemed
to give any Person a right to be granted any Options.

As used herein, the term "Key Employee" shall mean any employee of the Company
or any Related Entity, including officers and directors of the Company or any
Related Entity who are also employees of the Company or any Related Entity, who
are regularly employed on a salaried basis and who are so employed on the date
of such grant, whom the Committee identifies as having a direct and significant
effect on the performance of the Company or any Related Entity. The Committee
shall specify whether an Option is intended to qualify as an ISO or as a NQO,
and any stock option grant shall be a NQO if not otherwise identified.

As used herein, the term "Eligible Non-Employee" shall mean any person or entity
of any nature whatsoever, specifically including an individual, a firm, a
company, a corporation, a partnership, a trust, or other entity (collectively, a
"Person"), that the Committee designates as eligible for a grant of
Non-Qualified Options pursuant to this Plan because such Person performs bona
fide consulting, advisory or other services for the Company or any Related
Entity (other than services in connection with the offer or sale of securities
in a capital-raising transaction) and the Committee determines that the Person
has a direct and significant effect on the performance of the Company or any
Related Entity.

5. AUTHORITY OF COMMITTEE.

Subject to and not inconsistent with the express provisions of the Plan, the
Code and, if applicable, Rule 16b-3 and Section 162(m) of the Code, the
Committee shall have plenary authority to:

a. determine the Key Employees and Eligible Non-Employees to whom
Options shall be granted, the time when such Options shall be granted, the
number of Options, the purchase price or exercise price of each Option, the
period(s) during which such Options shall be exercisable (whether in whole
or in part, including whether such Options shall become immediately
exercisable upon the consummation of a Change of Control), the restrictions
to be applicable to Options and all other terms and provisions thereof
(which need not be identical);

b. require, as a condition to the granting of any Option, that the
Person receiving such Option agree not to sell or otherwise dispose of such
Option, any Common Stock acquired pursuant to such Option, or any other
"derivative security" (as defined by Rule 16a-1(c) under the Exchange Act)
of the Company for a period of six months following the later of (i) the
date of the grant of such Option or (ii) the date when the exercise price
of such Option is fixed if such exercise price is not fixed at the date of
grant of such Option, or for such other period as the Committee may
determine;

c. provide an arrangement through registered broker-dealers whereby
temporary financing may be made available to an optionee by the
broker-dealer, under the rules and regulations of the Board of Governors of
the Federal Reserve, for the purpose of assisting the optionee in the
exercise of an Option, such authority to include the payment by the Company
of the commissions of the broker-dealer;

3
<PAGE> 706

d. provide the establishment of procedures for an optionee (i) to have
withheld from the total number of shares of Common Stock to be acquired
upon the exercise of an Option that number of shares having a Fair Market
Value which, together with such cash as shall be paid in respect of
fractional shares, shall equal the aggregate exercise price under such
Option for the number of shares then being acquired (including the shares
to be so withheld), and (ii) to exercise a portion of an Option by
delivering that number of shares of Common Stock already owned by such
optionee having an aggregate Fair Market Value which shall equal the
partial Option exercise price and to deliver the shares thus acquired by
such optionee in payment of shares to be received pursuant to the exercise
of additional portions of such Option, the effect of which shall be that
such optionee can in sequence utilize such newly acquired shares in payment
of the exercise price of the entire Option, together with such cash as
shall be paid in respect of fractional shares; provided, however, that (i)
in the case of an ISO, no shares shall be used to pay the exercise price
under this paragraph unless (A) such shares were not acquired through the
exercise of an ISO, or (B) if so acquired, (x) such shares have been held
for more than two years since the grant of such ISO and for more than one
year since the exercise of such ISO (the "Holding Period"), or (y) if such
shares do not meet the Holding Period, the optionee elects in writing to
use such shares to pay the exercise price under this paragraph, and (ii) no
such procedure shall be available if there is an opinion of the Company's
independent accounting firm that the use of such a procedure could
negatively affect the financial statements of the Company or a Related
Entity;

e. provide (in accordance with Section 13 or otherwise) the
establishment of a procedure whereby a number of shares of Common Stock or
other securities may be withheld from the total number of shares of Common
Stock or other securities to be issued upon exercise of an Option to meet
the obligation of withholding for income, social security and other taxes
incurred by an optionee upon such exercise or required to be withheld by
the Company or a Related Entity in connection with such exercise unless, as
determined by the Committee in the exercise of its discretion, such
procedure is not permitted by applicable law or would result in a charge to
earnings that otherwise would not have occurred;

f. prescribe, amend, modify and rescind rules relating to the Plan;
and

g. make all determinations permitted or deemed necessary, appropriate
or advisable for the administration of the Plan, interpret any Plan or
Option provision, perform all other acts, exercise all other powers, and
establish any other procedures determined by the Committee to be necessary,
appropriate, or advisable in administering the Plan or for the conduct of
the Committee's business. Any act of the Committee, including
interpretations of the provisions of the Plan or any Option and
determinations under the Plan or any Option shall be final, conclusive and
binding on all parties.

The Committee may delegate to one or more of its members, or to one or more
agents, such administrative duties as it may deem advisable, and the Committee
or any Person to whom it has delegated duties as aforesaid may employ one or
more Persons to render advice with respect to any responsibility the Committee
or such Person may have under the Plan; provided, however, that any such
delegation shall be in writing; and provided, however, that, any determination
of Performance-Based Options (as hereinafter defined)

4
<PAGE> 707

applicable to Key Employees who constitute "covered employees" within the
meaning of Section 162(m) of the Code may not be delegated to a member of the
Board of Directors who, if elected to serve on the Committee, would not qualify
as an "outside director" within the meaning of Section 162(m) of the Code. The
Committee may employ attorneys, consultants, accountants, or other Persons and
the Committee, the Company, and its officers and directors shall be entitled to
rely upon the advice, opinions, or valuations of any such Persons. No member or
agent of the Committee shall be personally liable for any action, determination
or interpretation made in good faith with respect to the Plan and all members
and agents of the Committee shall be fully protected by the Company in respect
of any such action, determination or interpretation.

6. OPTION GRANTS.

Subject to the provisions of this Section 6 and the Plan, the Committee shall
have the authority to grant Options in respect of up to three million
(3,000,000) shares of Common Stock, including any shares of Common Stock that
have not been purchased and cease to be subject to purchase under any Option
granted under this Section, to Key Employees and Eligible Non-Employees. The
terms and conditions of the Options granted under this Section 6 shall be
determined from time to time by the Committee; provided, however, that such
Options shall be subject to and consistent with all terms and provisions of this
Section 6 and the Plan (other than Section 7). The Committee shall specify
whether an Option is intended to qualify as an ISO or as a NQO, and any stock
option grant shall be a NQO if not otherwise identified. In no event shall any
Eligible Non-Employee then serving on the Committee (or such other committee
then administering the Plan) be granted Non-Qualified Options hereunder if the
grant would cause such Eligible Non-Employee to no longer be a "Non-Employee
Director" as set forth in Section 2 hereof. The following provisions of this
Section shall apply only to Options granted under this Section and shall not
apply to Options granted under Section 7.

a. Option Exercise Price. The Committee shall establish the exercise
price per share of Common Stock at the time any Option is granted to a
optionee at such amount as the Committee shall determine; provided,
however, that the exercise price shall not be less than the Fair Market
Value of Common Stock on the grant date or, if earlier, the date on which
the Company or a Related Entity agrees to make such grant (notwithstanding
that such grant is subject to approval by the Committee) and provided,
further, that in the case of an ISO granted 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. The Option exercise price shall be
subject to adjustment in accordance with the provisions of Section 10 of
the Plan.

b. Payment. The price per share of Common Stock with respect to each
Option shall be payable at the time of exercise of such Option by the
optionee. Such price shall be payable in cash or by any other means
acceptable to the Committee, including delivery to the Company of shares of
Common Stock owned by the optionee or by the delivery or withholding of
shares pursuant to a procedure created pursuant to subsection 5(d) of the
Plan. Shares delivered to or withheld by the Company in

5
<PAGE> 708

payment of the exercise price shall be valued at the Fair Market Value of
the Common Stock on the day preceding the date of the exercise of the
Option.

c. Term. The term of each Option shall be established by the Committee
and set forth at the time such Option is granted. The term of an Option
shall not exceed ten (10) years from the date of grant of such Option
except as provided in subsections 6(e) and (f). An Option may be terminated
prior to the expiration of its term in accordance with the provisions of
the Plan.

d. Vesting and Exercisability. Unless otherwise determined by the
Committee, and subject to the provisions of subsections 6(e), (f), (g) and
(h) below, Options granted to any Key Employee or Eligible Non-Employee
pursuant to this Section 6 shall vest and become exercisable in accordance
with and on the dates described in the schedule set forth below; provided,
however, that unless otherwise determined by the Committee, such Options
shall vest and become exercisable on any such date only if such Key
Employee or Eligible Non-Employee is employed or providing services to the
Company or any Related Entity on such date:

- one-fifth of the shares of Common Stock underlying such Option shall
vest and become exercisable on the first anniversary of the date of
grant of such Option; and

- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the second anniversary of
the date of grant of such Option; and

- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the third anniversary of
the date of grant of such Option; and

- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the fourth anniversary of
the date of grant of such Option; and

- the final one-fifth of the shares of Common Stock underlying such
Option shall vest and become exercisable on the fifth anniversary of
the date of grant of such Option.

No Option by its terms shall be exercisable after the expiration of ten years
from the date of grant of the Option, except in accordance with subsection 6(e)
or (f).

e. Death. The Committee may accelerate, in whole or in part, the
vesting and exercisability of any Options held by an optionee if such
optionee's employment by or services for the Company and its Related
Entities terminates due to the death of such optionee, and the remaining
non-vested portion, if any, of such Options shall be cancelled. Upon the
death of any optionee, the vested portion of any Option held by such
optionee may be exercised by the estate of such optionee or by any other
person who acquires the right to exercise such vested portion as a result
of the death of such optionee. Unless a shorter or longer period is
provided in any Option, the vested portion of such Option may be exercised
by the earlier of (i) the first anniversary of the date of termination of
the optionee's employment with or services for the Company and its Related
Entities, or (ii) the expiration of the term of such Option, but in no
event prior to the 90th day after the death of such optionee.

6
<PAGE> 709

f. Disability. The Committee may accelerate, in whole or in part, the
vesting and exercisability of any Options held by an optionee if such
optionee's employment by or services for the Company and its Related
Entities terminates due to the Disability (as defined in Section 18) of
such optionee, and the remaining non-vested portion, if any, of such
Options shall be cancelled. Upon the Disability of any optionee, the vested
portion of any Option held by such optionee may be exercised by the
optionee or his or her legal representatives. Unless a shorter or longer
period is provided by the Committee in any Option, the vested portion of
such Option may be exercised by the earlier of (i) the first anniversary of
the date of termination of the optionee's employment with or services for
the Company and its Related Entities on account of Disability, or (ii) the
expiration of the term of such Option, but in no event prior to the 90th
day after the date of such termination of employment or services; provided,
however, that in the case of an exercise of an ISO, the optionee shall in
any event be required to exercise the vested portion of such Incentive
Option within one year after termination of the optionee's employment due
to his or her Disability.

g. Termination for Cause. Unless the Option granted to any Key
Employee expressly provides otherwise or the Committee determines
otherwise, such Key Employee shall immediately forfeit all rights under his
or her Options, except as to the shares of Common Stock already purchased
thereunder, if his or her employment is terminated by the Company or any
Related Entity for Cause (as defined below). If the retention by the
Company or any Related Entity of the services of any Eligible Non-Employee
is terminated (i) for Cause or (ii) as a result of removal of such optionee
from office as a director of the Company or of any Related Entity for cause
by action of the stockholders of the Company or such Related Entity in
accordance with the certificate of incorporation or the by-laws of the
Company or such Related Entity, as applicable, and the corporate law of the
jurisdiction of incorporation of the Company or such Related Entity, then
such optionee shall immediately forfeit his, her or its Options except as
to the shares of Common Stock already purchased. The determination that
there exists Cause for termination shall be made by the Committee (unless
otherwise agreed to in writing by the Company and the optionee) and any
decision in respect thereof by the Committee shall be final and binding on
all parties in interest.

h. Other Termination of Employment. If the employment or the retention
of the services of an optionee with the Company or a Related Entity
terminates for any reason other than those specified in subsections 6(e),
(f) or (g) above, such optionee shall have the right to exercise the vested
portion of his or her Option in accordance with its terms, within 90 days
after the date of such termination, unless a longer or shorter period is
expressly provided in such Option or established by the Committee (but in
no event after the expiration date of the Option), and thereafter such
Option shall lapse and no longer be exercisable; provided, and without
limiting the foregoing, that the Committee may, in the exercise of its
discretion, extend the exercise date of any Option upon termination of
employment for a period not to exceed six months plus one day (but in no
event after the expiration date of the Option) if the Committee determines
that the stated exercise date will have an inequitable result under Section
16(b) of the Exchange Act. The Committee may also accelerate the vesting
and exercisability of the non-vested portion of any Option in its
discretion,

7
<PAGE> 710

whether expressly provided in such Option or determined by the Committee on
or about any termination of employment or services that is not specified in
subsections 6(e), (f) or (g) above.

i. Maximum Exercise. To the extent that the aggregate Fair Market
Value of Common Stock (determined at the time of the grant of the Option)
with respect to which ISOs are exercisable for the first time by an
optionee during any calendar year under all plans of the Company and any
Related Entity exceeds $100,000, such ISOs shall be treated as NQOs.

j. Continuation of Employment. Each ISO shall require the optionee to
remain in the continuous employ of the Company or any Related Entity from
the date of grant of the ISO until at least three months prior to the date
of exercise of the ISO.

k. Recharacterization of ISO. In the event that the exercise of any
ISO, or method of exercise or payment therefor, would not be in compliance
with this Section 6 and would consequently result in a violation of the
requirements of Section 422 of the Code governing the treatment of ISOs,
the Committee in the exercise of its discretion may recharacterize the
Option as a NQO.

7. VALUE OPTION GRANTS.

Subject to the express provisions of this Section 7 and the Plan, the Committee
shall have the authority to grant Non Qualified Options which become exercisable
upon the value of the underlying shares of such options attaining a specified
value ("Value Options") in respect of up to seven million (7,000,000) shares of
Common Stock, including any shares of Common Stock that have not been purchased
and cease to be subject to purchase under any Option granted under this Section,
to Key Employees and Eligible Non-Employees. The terms and conditions of the
Value Options granted under this Section 7 shall be determined from time to time
by the Committee; provided, however, that the Value Options granted under this
Section 7 shall be subject to and consistent with all terms and provisions of
the Plan (other than Section 6). In no event shall any Eligible Non-Employee
then serving on the Committee (or such other committee then administering the
Plan) be granted Value Options hereunder if such grant would cause such Eligible
Non-Employee to no longer be a "Non-Employee Director" as set forth in Section 2
hereof. The following provisions of this Section shall apply only to Value
Options granted under this Section and shall not apply to Options granted under
Section 6.

a. Exercise Price. The exercise price with respect to each underlying
share of Common Stock subject to any Value Option granted under this
Section 7 shall be equal to the Fair Market Value per share of Common Stock
on the date such Value Option is granted or, if earlier, the date on which
the Company or a Related Entity agrees to make such grant (notwithstanding
that such grant is subject to approval by the Committee) and provided,
further, that in the case of an ISO granted 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. The Option exercise price shall be
subject to adjustment in accordance with the provisions of Section 10 of
the Plan.

8
<PAGE> 711

b. Payment. The price per share of Common Stock with respect to each
Value Option shall be payable at the time of exercise of such Option. Such
price shall be payable in cash or by any other means acceptable to the
Committee, including delivery to the Company of shares of Common Stock
owned by the optionee or by the delivery or withholding of shares pursuant
to a procedure created pursuant to subsection 5(d) of the Plan. Shares
delivered to or withheld by the Company in payment of the Value Option
exercise price shall be valued at the Fair Market Value of the Common Stock
on the day preceding the date of the exercise of the Value Option.

c. Term. The term of each Value Option shall be established by the
Committee and set forth at the time such Option is granted. The term of a
Value Option shall not exceed ten (10) years from the date of grant of such
Option except as provided in subsections 7(f) or (g). A Value Option may be
terminated prior to the expiration of its term in accordance with the
provisions of the Plan.

d. Vesting. Unless otherwise determined by the Committee, and subject
to subsections 7(f), (g), (h) and (i) below, any Value Option granted to
any Key Employee or Eligible Non-Employee hereunder shall vest, as
distinguished from becoming exercisable, on the dates and in accordance
with the vesting schedule set forth immediately below if such Key Employee
or Eligible Non-Employee is employed or providing services to the Company
or any Related Entity on such date:

- one-fifth of the shares of Common Stock underlying such Option shall
vest on the first anniversary of the date of grant of such Option; and

- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest on the second anniversary of the date of grant of
such Option; and

- an additional one-fifth of the shares of Common Stock underlying such
Option shall vest on the third anniversary of the date of grant of
such Option; and

- an additional one-fifth of the shares of Common Stock underlying such
Option grant shall vest on the fourth anniversary of the date of grant
of such Option; and

- the final one-fifth of the shares of Common Stock underlying the
Option shall vest on the fifth anniversary of the date of grant of
such Option.

e. Exercisability. A Value Option granted prior to June 1, 1999 shall
become exercisable after the date on which the average Fair Market Value of
a share of Common Stock, calculated on a daily basis, equals or exceeds
$100.00 per share and a Value Option granted on or after June 1, 1999 shall
become exercisable after the date on which the average Fair Market Value of
a share of Common Stock, calculated on a daily basis, equals or exceeds the
greater of (i) $100.00 per share or (ii) two-hundred percent (200%) of the
exercise price for a share of Common Stock under such Option (the
"Exercisability Value"), for a period of 30 consecutive days (excluding
non-business days for this purpose) during the period from (and including)
the date of grant of such Option through (and including) the fifth
anniversary of the date of grant of such Option. No Value Option (whether
or not vested) shall become exercisable after 5:00 p.m., in Dallas, Texas,
on the fifth anniversary of the date of grant of such Option, and any Value
Option (whether or not vested) that is not

9
<PAGE> 712

exercisable at such time shall automatically, and without notice, terminate
and become null and void at such time. In addition, the exercisability of a
Value Option shall be subject to subsections 7(f), (g), (h) and (i) and
Section 9.

f. Death. If any optionee's employment or retention of services by the
Company or a Related Entity is terminated due to the death of such
optionee, the Committee may accelerate, in whole or in part, the vesting of
any Value Options held by such optionee and the remaining non-vested
portion, if any, of such Value Options shall be cancelled.

Upon the termination of employment or services of any optionee on
account of the optionee's death, the vested portion of the Value Options
credited to such optionee shall, to the extent then exercisable, be
exercisable by the optionee's estate or any person who acquires rights
with respect to such optionee's Options until the later of (i) the 90th
day after the date of such termination of employment or services, or
(ii) the earlier of the expiration date of the term of such Option or
the first anniversary of the date of such termination of employment or
services, unless a shorter or longer period is provided for in the
Option or the Plan.

In the event the vested portion of any Option is not exercisable on
the date of an optionee's termination of employment or services on
account of his or her death, such vested portion shall remain in effect
and if it becomes exercisable on or prior to 5:00 p.m., Dallas, Texas,
on the fifth anniversary of the date of grant of such Option, the
optionee's estate or any person who acquires rights with respect to such
Option as a result of the optionee's death may exercise such Option
until the later of (i) the 90th day after the date such Option became
exercisable and (ii) the earlier of the expiration date of the term of
such Option or the first anniversary of the date of such termination of
employment or services, unless a shorter or longer period is provided
for in the Option or the Plan.

g. Disability. If any optionee's employment or retention of services
by the Company or a Related Entity is terminated due to the Disability of
such optionee, the Committee may accelerate, in whole or in part, the
vesting of any Value Options held by such optionee and the remaining
non-vested portion, if any, of such Value Options shall be cancelled.

Upon the termination of employment or services of any optionee on
account of the optionee's Disability, the vested portion of the Value
Options credited to such optionee shall, to the extent then exercisable,
be exercisable by the optionee's estate or any person who acquires
rights with respect to such optionee's Options until the later of (i)
the 90th day after the date of such termination of employment or
services, or (ii) the earlier of the expiration date of the term of such
Option or the first anniversary of the date of such termination of
employment or services, unless a shorter or longer period is provided
for in the Option or the Plan; provided, however, that in the case the
exercise of an ISO, the optionee shall in any event be required to
exercise the vested portion of such Incentive Option within one year
after termination of the optionee's employment due to his or her
Disability.

10
<PAGE> 713

In the event the vested portion of any Option is not exercisable on
the date of an optionee's termination of employment or services on
account of his or her Disability, such vested portion shall remain in
effect and if it becomes exercisable on or prior to 5:00 p.m., Dallas,
Texas, on the fifth anniversary of the date of grant of such Option, the
optionee's estate or any person who acquires rights with respect to such
Option as a result of the optionee's Disability may exercise such Option
until the later of (i) the 90th day after the date such Option became
exercisable and (ii) the earlier of the expiration date of the term of
such Option or the first anniversary of the date of such termination of
employment or services, unless a shorter or longer period is provided
for in the Option or the Plan; provided, however, that in the case of
the exercise of an ISO, the optionee shall in any event be required to
exercise the vested portion of such Incentive Option within one year
after termination of the optionee's employment due to his or her
Disability.

h. Termination for Cause. If any optionee's employment or retention of
services by the Company or a Related Entity is terminated for Cause, the
optionee shall forfeit the Value Option, and the Value Option shall
automatically, and without notice, terminate and become null and void at
5:00 p.m., Dallas, Texas time, on the date of termination, unless otherwise
provided in the Option or determined by the Committee.

i. Other Termination of Employment. If any optionee's employment or
retention of services by the Company or a Related Entity is terminated for
any reason other than for Cause, death or Disability, the vested portion of
the Value Option shall, to the extent exercisable, remain exercisable until
the later of: (i) the expiration of 90 days from the date of such
termination, and (ii) the end of the Term of the Option. In the event the
vested portion of the Value Option is not exercisable on the date of any
such termination of employment or services, such portion shall remain in
effect and subject to becoming exercisable on or before 5:00 p.m., Dallas,
Texas, on the fifth anniversary of the grant date of such Option, the
optionee may, until the 90th day after the date such Option becomes
exercisable, exercise such Option. The Committee may accelerate vesting of
any non-vested portion of a Value Option on account of an optionee's
termination of employment or services for any reason other than Cause,
death or Disability and may provide for a shorter or longer period to
exercise any vested portion of such Option.

j. Maximum Exercise. To the extent that the aggregate Fair Market
Value of Common Stock (determined at the time of the grant of the Option)
with respect to which ISOs are exercisable for the first time by an
optionee during any calendar year under all plans of the Company and any
Related Entity exceeds $100,000, such ISOs shall be treated as NQOs.

k. Continuation of Employment. Each ISO shall require the optionee to
remain in the continuous employ of the Company or any Related Entity from
the date of grant of the ISO until at least three months prior to the date
of exercise of the ISO.

l. Recharacterization of ISO. In the event that the exercise of any
ISO, or method of exercise or payment therefor, would not be in compliance
with this Section 7 and would consequently result in a violation of the
requirements of Section 422 of the Code governing the treatment of ISOs,
the Committee in the exercise of its discretion may recharacterize the
Option as a NQO.

11
<PAGE> 714

8. PERFORMANCE-BASED OPTIONS.

The Committee, in its sole discretion, may designate and design Options granted
under the Plan as Performance-Based Options (as hereinafter defined) if it
determines that compensation attributable to such Options might not otherwise be
tax deductible by the Company due to the deduction limitation imposed by Section
162(m) of the Code. Accordingly, Options granted under the Plan may be granted
in such a manner that the compensation attributable to such Options is intended
by the Committee to qualify as "performance-based compensation" as such term is
used in Section 162(m) of the Code and the regulations promulgated thereunder
and thus be exempt from the deduction limitation imposed by Section 162(m) of
the Code ("Performance-Based Options").

Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code shall be deemed to
qualify as Performance-Based Options only if the Option exercise price is not
less than the Fair Market Value per share of Common Stock at the date the Option
is granted; provided, that the Option exercise price shall be subject to
adjustment in accordance with the provisions of Section 10 of the Plan.

9. CHANGE OF CONTROL.

Except as otherwise expressly provided in a particular Option, if (i) a Change
of Control shall occur or (ii) the Company shall enter into an agreement
providing for a Change of Control, then the Committee may declare any or all
Options granted and outstanding under the Plan to be vested and exercisable in
full at such time or times as the Committee shall determine and the Company may
purchase any or all such Options for an amount of cash equal to the amount that
could have been attained upon the exercise of such Options or the realization of
the optionee's rights had such option been currently exercisable. Each Option
accelerated by the Committee pursuant to the preceding sentence shall terminate,
notwithstanding any express provision thereof or any other provision of the
Plan, on such date (not later than the stated exercise date) as the Committee
shall determine.

10. ADJUSTMENT OF SHARES.

Except as otherwise contemplated in Section 9, and unless otherwise expressly
provided in a particular Option, in the event that, by reason of any merger,
consolidation, combination, liquidation, recapitalization, stock dividend, stock
split, split-up, split-off, spin-off, combination of shares, exchange of shares
or other like change in capital structure of the Company (collectively, an
"Adjustment Event"), the Common Stock is substituted, combined, or changed into
any cash, property, or other securities, or the shares of Common Stock are
changed into a greater or lesser number of shares of Common Stock, the number
and/or kind of shares and/or interests subject to an Option and the per share
price, the value thereof or the Exercisability Value shall be appropriately
adjusted by the Committee to give appropriate effect to such Adjustment Event.
Any fractional shares or interests resulting from such adjustment shall be
eliminated.

Except as otherwise contemplated in Section 9, and unless otherwise expressly
provided in a particular Option, in the event the Company is not the surviving
entity of an Adjustment Event and, in connection with such Adjustment Event, any
optionee will hold Options issued pursuant to this Plan which have not been
exercised, cancelled, or terminated in connection therewith, the Company shall
cause such Options to be assumed (or cancelled

12
<PAGE> 715

and replacement Options issued) by the surviving entity or a Related Entity with
such changes to the number and/or kind of shares and/or interests subject to an
Option and the per share price, the value thereof or the Exercisability Value as
the Committee determines is necessary to give appropriate effect to such
Adjustment Event. In the event of any perceived conflict between the provisions
of Section 9 and this Section 10, the Committee's determinations under Section 9
shall control.

11. ASSIGNMENT OR TRANSFER.

Except as otherwise expressly provided in any Option, no Option granted under
the Plan or any rights or interests therein shall be assignable or transferable
by an optionee except by will or the laws of descent and distribution, and
during the lifetime of an optionee, Options granted to him or her hereunder
shall be exercisable only by the optionee or, in the event that a legal
representative has been appointed in connection with the Disability of an
optionee, such legal representative.

12. COMPLIANCE WITH SECURITIES LAWS.

The Company shall not in any event be obligated to file any registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or any applicable state securities law to permit exercise of any Option or to
issue any Common Stock in violation of the Securities Act or any applicable
state securities law. Each optionee (or, in the event of his or her death or, in
the event a legal representative has been appointed in connection with his or
her Disability, the Person exercising the Option) shall, as a condition to his
or her right to exercise any Option, deliver to the Company an agreement or
certificate containing such representations, warranties and covenants as the
Company may deem necessary or appropriate to ensure that the issuance of shares
of Common Stock pursuant to such exercise is not required to be registered under
the Securities Act or any applicable state securities law.

Certificates for shares of Common Stock, when issued, may have substantially the
following legend, or statements of other applicable restrictions, endorsed
thereon, and may not be immediately transferable:

THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT
SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE
APPLICABLE FEDERAL OR STATE LAWS.

This legend shall not be required for shares of Common Stock issued pursuant to
an effective registration statement under the Securities Act and in accordance
with applicable state securities laws.

13
<PAGE> 716

13. WITHHOLDING TAXES.

By acceptance of the Option, the optionee will be deemed to (i) agree to
reimburse the Company or Related Entity by which the optionee is employed for
any federal, state, or local taxes required by any government to be withheld or
otherwise deducted by such corporation in respect of the optionee's exercise of
all or a portion of the Option; (ii) authorize the Company or any Related Entity
by which the optionee is employed to withhold from any cash compensation paid to
the optionee or in the optionee's behalf, an amount sufficient to discharge any
federal, state, and local taxes imposed on the Company, or the Related Entity by
which the optionee is employed, and which otherwise has not been reimbursed by
the optionee, in respect of the optionee's exercise of all or a portion of the
Option; and (iii) agree that the Company may, in its discretion, hold the stock
certificate to which the optionee is entitled upon exercise of the Option as
security for the payment of the aforementioned withholding tax liability, until
cash sufficient to pay that liability has been accumulated, and may, in its
discretion, effect such withholding by retaining shares issuable upon the
exercise of the Option having a Fair Market Value on the date of exercise which
is equal to the amount to be withheld.

14. COSTS AND EXPENSES.

The costs and expenses of administering the Plan shall be borne by the Company
and shall not be charged against any Option nor to any employee receiving an
Option.

15. FUNDING OF PLAN.

The Plan shall be unfunded. The Company shall not be required to make any
segregation of assets to assure the payment of any Option under the Plan.

16. OTHER INCENTIVE PLANS.

The adoption of the Plan does not preclude the adoption by appropriate means of
any other incentive plan for employees.

17. EFFECT ON EMPLOYMENT.

Nothing contained in the Plan or any agreement related hereto or referred to
herein shall affect, or be construed as affecting, the terms of employment of
any Key Employee except to the extent specifically provided herein or therein.
Nothing contained in the Plan or any agreement related hereto or referred to
herein shall impose, or be construed as imposing, an obligation on (i) the
Company or any Related Entity to continue the employment of any Key Employee,
and (ii) any Key Employee to remain in the employ of the Company or any Related
Entity.

18. DEFINITIONS.

In addition to the terms specifically defined elsewhere in the Plan, as used in
the Plan, the following terms shall have the respective meanings indicated
unless another definition is agreed to in writing by the Company and the
optionee in an option grant agreement with respect to such term or a similar
term:

"Adjustment Event" shall have the meaning set forth in Section 10
hereof.

"Board of Directors" shall have the meaning set forth in Section 2
hereof.

14
<PAGE> 717

"Cause", with respect to any Key Employee, shall mean termination by
action of the Board of Directors because of: (A) the optionee's conviction
of, or plea of nolo contendere to, a felony or a crime involving moral
turpitude; (B) the optionee's personal dishonesty, willful misconduct,
willful violation of any law, rule, or regulation (other than minor traffic
violations or similar offenses) or breach of fiduciary duty which involves
personal profit; (C) the optionee's willful commission of material
mismanagement in the conduct of his or her duties as assigned to him by the
Board of Directors or the optionee's supervising officer or officers of the
Company; (D) the optionee's willful failure to execute or comply with the
policies of the Company or his or her stated duties as established by the
Board of Directors or the optionee's supervising officer or officers of the
Company, or the optionee's intentional failure to perform the optionee's
stated duties; or (E) substance abuse or addiction on the part of the
optionee. "Cause", with respect to any Eligible Non-Employee, shall mean
termination by action of the Board of Directors because of: (A) the
optionee's conviction of, or plea of nolo contendere to, a felony or a
crime involving moral turpitude; (B) the optionee's personal dishonesty,
willful misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (C) the optionee's willful
commission of material mismanagement in providing services to the Company
or any Related Entity; (D) the optionee's willful failure to comply with
the policies of the Company in providing services to the Company or any
Related Entity, or the optionee's intentional failure to perform the
services for which the optionee has been engaged; (E) substance abuse or
addiction on the part of the optionee; or (F) the optionee's willfully
making any material misrepresentation or willfully omitting to disclose any
material fact to the board of directors of the Company or any Related
Entity with respect to the business of the Company or any Related Entity.

"Change of Control" shall mean (a) the sale, lease or other transfer
of all or substantially all of the assets of the Company to any person or
group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the
Company of a plan relating to the liquidation or dissolution of the
Company; (c) the merger or consolidation of the Company with or into
another entity or the merger of another entity into the Company or any
subsidiary thereof with the effect that immediately after such transaction
the stockholders of the Company immediately prior to such transaction (or
their Related Parties) directly and indirectly hold less than fifty percent
(50%) of the total voting power of all securities generally entitled to
vote in the election of directors, managers or trustees of the entity
surviving such merger or consolidation; (d) the acquisition by any person
or group of more than fifty percent (50%) of the direct and indirect voting
power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and
(ii) were not approved by a majority of the Board at the time of their
election or appointment.

"Code" shall have the meaning set forth in Section 1 hereof.

"Committee" shall have the meaning set forth in Section 2 hereof.

"Common Stock" shall have the meaning set forth in Section 3 hereof.

15
<PAGE> 718

"Company" shall have the meaning set forth in Section 1 hereof.

"Disability" shall mean permanent disability as defined under the
appropriate provisions of the applicable long-term disability plan
maintained for the benefit of employees of the Company or any Related
Entity who are regularly employed on a salaried basis unless another
meaning shall be agreed to in writing by the Committee and the optionee.

"Eligible Non-Employee" shall have the meaning set forth in Section 4
hereof.

"Exchange Act" shall have the meaning set forth in Section 2 hereof.

"Fair Market Value" shall, as it relates to the Common Stock, mean, at
the option of the Committee, the average of the high and low prices or the
closing price of such Common Stock as reported on the principal national
securities exchange on which the shares of Common Stock are then listed or
the NASDAQ National Market, as applicable, on the date specified herein for
such a determination; or, if there were no sales on such date, on the next
succeeding day or immediately preceding day on which there were sales; or,
if such Common Stock is not listed on a national securities exchange, the
last reported bid price in the over-the-counter market; or, if such shares
are not traded in the over-the-counter market, the per share cash price for
which all of the outstanding Common Stock could be sold to a willing
purchaser in an arms length transaction (without regard to minority
discount, absence of liquidity, or transfer restrictions imposed by any
applicable law or agreement) at the date of the event giving rise to a need
for a determination. Except as may be otherwise expressly provided in a
particular Option, Fair Market Value shall be determined in good faith by
the Committee.

The term "including" when used herein shall mean "including, but not
limited to".

"Key Employee" shall have the meaning set forth in Section 4 hereof.

"Non Qualified Option" shall have the meaning set forth in Section 1
hereof.

"Options" shall have the meaning set forth in Section 1 hereof.

"Person" shall have the meaning set forth in Section 4 hereof.

"Performance-Based Options" shall have the meaning set forth in
Section 8 hereof.

"Plan" shall have the meaning set forth in Section 1 hereof.

"Related Entities" shall have the meaning set forth in Section 1
hereof.

"Related Parties" shall mean with respect to any person (a) the spouse
and lineal ascendants and descendants of such person, and any sibling of
any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest
of which consist of persons referred to in subsection (a) above.

"Rule 16b-3" shall have the meaning set forth in Section 2 hereof.

16
<PAGE> 719

"Securities Act" shall have the meaning set forth in Section 11
hereof. "Term" shall have the meaning set forth in Section 20 hereof.

"Value Option" shall have the meaning set forth in Section 7 hereof.

19. AMENDMENT OF PLAN.

The Board of Directors shall have the right to amend, modify, suspend or
terminate the Plan at any time; provided, that no amendment shall be made which
shall increase the total number of shares of the Common Stock which may be
issued and sold pursuant to Options granted under the Plan, or modify the
provisions of the Plan relating to the number of shares subject to Section 7 and
the Exercisability Value of Value Options pursuant to subsection 7(e) unless
such amendment is made by or with the approval of the stockholders of the
Company. The Board of Directors shall be authorized to amend the Plan and the
Options granted thereunder to comply with Rule 16b-3 (or any successor rule)
under the Exchange Act (or any successor law) and the regulations (including any
temporary regulations) promulgated thereunder. No amendment, modification,
suspension or termination of the Plan shall materially impair the value of any
Options previously granted under the Plan, without the consent of the holder
thereof.

20. EFFECTIVE DATE AND TERM.

The Plan shall be effective as of April 8, 1999. Except with respect to
outstanding Options, the Plan shall terminate on the tenth anniversary of the
date of adoption of the Plan or the date of approval of the Plan by the
stockholders of the Company, whichever is earlier, unless sooner terminated by
the Board of Directors (the "Term").

17
<PAGE> 720

CAPSTAR BROADCASTING CORPORATION

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CAPSTAR BROADCASTING
CORPORATION
FOR A SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 13, 1999.

The undersigned stockholder of Capstar Broadcasting Corporation, a Delaware
corporation ("Capstar Broadcasting"), hereby appoints R. Steven Hicks and
William S. Banowsky, Jr., and either of them, the lawful attorneys and proxies
of the undersigned, with several powers of substitution, to vote all shares of
Class A Common Stock, par value $0.01 per share ("Class A Common Stock"), and
Class C Common Stock, par value $0.01 per share (together with Class A Common
Stock, the "Common Stock"), of Capstar Broadcasting which the undersigned is
entitled to vote at the Special Meeting of Stockholders to be held on July 13,
1999, and any adjournments thereof:

1. Proposal to approve and adopt the Agreement and Plan of Merger, dated as
of August 26, 1998 and amended and restated as of April 29, 1999 (the
"Merger Agreement"), by and among Chancellor Media Corporation, a Delaware
corporation ("Chancellor Media"), Capstar Broadcasting, CBC Acquisition
Company, Inc., a Delaware Corporation, and CMC Merger Sub, Inc., a
Delaware corporation ("Merger Sub") pursuant to which, among other things,
(1) Merger Sub will be merged with and into Capstar Broadcasting, with
Capstar Broadcasting surviving the merger as a wholly-owned subsidiary of
Chancellor Media, (2) each outstanding share of Capstar class A common
stock, class B common stock and class C common stock outstanding
immediately prior to the merger will be converted into 0.4955 of a share
of Chancellor Media common stock, and (3) each Capstar stock option and
warrant that is outstanding immediately prior to the merger will be
assumed by Chancellor Media and thereafter be deemed to be an option or
warrant to purchase shares of Chancellor Media common stock in such amount
and at such exercise price as set forth in the Merger Agreement.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

2. In the discretion of the proxy holders, to transact such other business as
may properly come before the meeting or any adjournment or postponement
thereof.

(Continued and to be dated and signed on the other side)

THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED. IN THE
ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND IN THE DISCRETION OF THE PROXY HOLDERS AS
TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF. IF THIS PROXY IS VOTED "AGAINST" THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT, SUCH DISCRETIONARY AUTHORITY
WILL NOT BE USED TO VOTE THIS PROXY FOR THE ADJOURNMENT OR POSTPONEMENT OF THE
MEETING TO PERMIT FURTHER SOLICITATION OF PROXIES. THE BOARD OF DIRECTORS IS NOT
AWARE OF ANY MATTER WHICH IS TO BE PRESENTED FOR ACTION AT THE MEETING OTHER
THAN THE MATTERS SET FORTH HEREIN.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF CAPSTAR
BROADCASTING VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.

Signature:

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

Date: , 1999
- --------------------------------------------------------------------------------

NOTE: Please sign exactly as
name appears hereon. Joint
owners should each sign. When
signing in a fiduciary or
representative capacity, please
give full title as such.