SFX ENTERTAINMENT INC, 424B4, 1998-05-21

SFX ENTERTAINMENT INC
424B4, 1998-05-21
AMUSEMENT & RECREATION SERVICES

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Filed pursuant to Rule 424(b)(4)
Registration No. 333-50079

7,000,000 SHARES

[SFX ENTERTAINMENT LOGO]

CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
----------------

All of the shares of Class A Common Stock offered hereby are being sold by
the Company. See "Underwriting."

The Company has two classes of authorized common stock, the Class A Common
Stock and the Class B Common Stock. The economic rights of each class of Common
Stock are identical, but the voting rights differ in that the holders of Class
A Common Stock are entitled to one vote per share while the holders of Class B
Common Stock are generally entitled to ten votes per share on most matters
submitted to a vote of the stockholders. In addition, the holders of Class A
Common Stock, voting as a separate class, are entitled to elect two-sevenths of
the Company's directors. The holders of Class A Common Stock and Class B Common
Stock, voting as a single class, with each share of Class A Common Stock
entitled to one vote and each share of Class B Common Stock entitled to ten
votes, are entitled to elect the remaining directors. As a result, holders of
Class B Common Stock will have substantial control over most matters submitted
to a vote of the stockholders, including the election of directors. After the
consummation of the Offering and the Pending Acquisitions, Robert F.X.
Sillerman, the Executive Chairman of the Company, will beneficially own
approximately 38.5%, and all directors and executive officers together will
beneficially own approximately 45.0%, of the combined voting power of the
Common Stock. See "Risk Factors--Control by Management," "Management,"
"Principal Stockholders" and "Description of Capital Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE CLASS A COMMON STOCK.

The Class A Common Stock is quoted on The Nasdaq Stock Market's National
Market under the symbol "SFXE." On May 20, 1998, the last reported sales price
of the Class A Common Stock on the Nasdaq National Market was $44.25 per share.
See "Price Range of Class A Common Stock."

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
---------------- -------------- ----------------
<S> <C> <C> <C>
Per Share ......... $43.25 $2.38 $40.87
Total(3) .......... $302,750,000 $16,660,000 $286,090,000
</TABLE>

- ----------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."

(2) Before deducting estimated expenses of $2.5 million payable by the
Company.

(3) The Company has granted the Underwriters an option for 30 days to
purchase up to an additional 1,050,000 shares of Class A Common Stock at
the initial public offering price per share, less the underwriting
discount, solely to cover over-allotments. If such option is exercised in
full, the total initial public offering price, underwriting discount and
proceeds to Company will be $348,162,500, $19,159,000 and $329,003,500,
respectively. See "Underwriting."
--------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
delivery of the shares will be made in book-entry form through the facilities
of The Depository Trust Company, on or about May 27, 1998, against payment
therefor in immediately available funds.

GOLDMAN, SACHS & CO. LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
COWEN & COMPANY
MORGAN STANLEY DEAN WITTER
PRUDENTIAL SECURITIES INCORPORATED
--------------------
The date of this Prospectus is May 20, 1998.
<PAGE>

---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. IN ADDITION, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS, IF ANY)
ALSO MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 UNDER THE
SECURITIES EXCHANGE ACT OF 1934. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

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[THIS PAGE INTENTIONALLY LEFT BLANK.]
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the
more detailed information and consolidated financial statements appearing
elsewhere in this Prospectus. Unless the context requires otherwise (a) "SFX
Entertainment" or the "Company" means SFX Entertainment, Inc. and its
subsidiaries, after giving effect to the Pending Acquisitions (as defined
herein), and (b) "SFX Broadcasting" means SFX Broadcasting, Inc., the parent of
the Company prior to the Spin-Off (as defined herein), and its subsidiaries.
Except as otherwise indicated, all information in this Prospectus (a) assumes
consummation of the Pending Acquisitions and the SFX Merger (as defined herein)
and (b) assumes no exercise of the Underwriters' over-allotment option. For all
periods presented, except where otherwise indicated, the discussions on a pro
forma basis give effect to the 1997 Acquisitions, the Recent Acquisitions (each
as defined herein) and the Pending Acquisitions as if they had occurred on
January 1, 1997. There can be no assurance that any of the Pending Acquisitions
will be consummated on the terms described herein or at all. The closing of the
Offering is not conditioned on the prior consummation of any of the Pending
Acquisitions or the SFX Merger. See "Risk Factors--Risks Related to the Pending
Acquisitions," "Description of Capital Stock" and "Underwriting." Industry data
used throughout this Prospectus was obtained from industry publications and has
not been independently verified by the Company.

THE COMPANY

SFX Entertainment is a leading integrated promoter, producer and venue
operator in the live entertainment industry. In addition, upon consummation of
the acquisition of FAME (as defined herein), the Company will be a leading
full-service marketing and management company specializing in the
representation of team sports athletes, primarily in professional basketball.
The Company believes that it currently controls the largest network of venues
used principally for music concerts and other live entertainment events in the
United States, with 44 venues either directly owned or operated under lease or
exclusive booking arrangements in 22 of the top 50 markets on a pro forma
basis, including 11 amphitheaters in 7 of the top 10 markets. Through its large
number of venues, its strong, branded presence in each market served and its
long operating history, the Company is able to provide an integrated offering
of promotion and production services across a broad variety of live
entertainment events locally, regionally and nationally. During 1997,
approximately 27 million people attended 9,600 events promoted and/or produced
by the Company and the businesses to be acquired in the Pending Acquisitions,
including approximately 4,200 music concerts, 4,900 theatrical shows and over
190 specialized motor sports events. These events included: (a) music concerts
featuring artists such as The Rolling Stones, Phish, Fleetwood Mac, Ozzy
Osbourne and Alanis Morissette, (b) music festivals such as the George Strait
Country Music Festival, (c) touring theatrical productions such as The Phantom
of the Opera, Jekyll & Hyde, Rent and The Magic of David Copperfield and (d)
specialized motor sports events, such as Truck Fest and American Motorcycle
Association Supercross racing events. In addition, the Company's event
marketing programs interfaced with over 15 million people in 1997. The Company
believes that its ability to provide integrated live entertainment services
will, among other things, encourage wider use of its venues by performers and
allow the Company to capture a greater percentage of revenues from national
tours and ancillary revenue sources. On a pro forma basis, the Company would
have had revenues and Adjusted EBITDA (as defined herein) of $827.9 million and
$104.9 million, respectively, for the twelve months ended March 31, 1998. For a
description of Adjusted EBITDA, see footnote 5 to "Summary Consolidated
Financial Data."

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it controls. The Company also derives ancillary revenues from operations
related to its live entertainment events, including the sale of corporate
sponsorships and advertising, the sale of concessions and the merchandising of
a broad range of products. In addition, upon consummation of the acquisition of
FAME, the Company will represent approximately 70 professional athletes,
primarily in professional basketball. On a pro forma basis, the Company's music
businesses, theatrical operations, specialized motor sports operations and
other operations would have comprised approximately 67%, 13%, 6% and 14%,
respectively, of the Company's total revenues for the twelve months ended March
31, 1998.

The Company has benefited from significant growth in the live
entertainment industry over the last several years. According to Amusement
Business, an entertainment industry journal, ticket sales for North American
music concert tours have grown at a 10.9% compound annual growth rate ("CAGR")
since 1985, from approximately $321.7 million in 1985 to approximately $1.1
billion in 1997. Box office receipts from Touring Broadway Shows and Broadway
shows in the United States have grown at a 11.2% CAGR since the 1986-1987
season, from $431.5 million to $1.3 billion in the 1996-1997 season, according
to Variety Magazine. The increasing popularity of specialized motor sports over
the last several years has coincided with and, in part, been due to the
increased popularity of other professional motor sports events such as
professional auto racing, including NASCAR, CART and Indy Car Racing.

VENUES

The Company believes that it owns and/or operates the largest number of
venues in the United States used principally for music concerts and other live
entertainment events. The following table summarizes the 45 amphitheaters,
theaters and other venues owned and/or operated under lease or exclusive
booking arrangements by the Company on a pro forma basis. There can be no
assurance that any of the Pending Acquisitions will be completed on the terms
described herein or at all. See "Risk Factors--Risks Related to the Pending
Acquisitions."

<TABLE>
<CAPTION>
NUMBER OF TOTAL
MARKET NUMBER OF THEATERS AND TOTAL SEATING
MARKET RANK(1) AMPHITHEATERS(2) CLUBS(2) VENUES(2) CAPACITY(3)
- ------------------------------------------ --------- ------------------ -------------- ----------- ------------------------
<S> <C> <C> <C> <C> <C>
New York--Northern New Jersey
--Long Island ........................... 1 2 2 4 37,600
Los Angeles--Riverside--Orange
County .................................. 2 2 1 3 44,100(4)
San Francisco--Oakland--San Jose ......... 5 2 4 6 49,500(5)
Philadelphia--Wilmington
--Atlantic City ......................... 6 1 -- 1 25,000
Boston--Mansfield ........................ 7 2 1 3 27,400
Dallas--Fort Worth ....................... 9 1 -- 1 20,100
Houston--Galveston--Brazoria ............. 10 1 1 2 15,800
Atlanta .................................. 12 2 2 4 28,250
St. Louis ................................ 17 1 2 3 24,100
Phoenix--Mesa ............................ 18 1 -- 1 20,000
Pittsburgh ............................... 19 1 -- 1 22,500
Kansas City .............................. 24 1 2 3 30,000
Sacramento--Yolo ......................... 26 -- 1 1 N/A(5)
Indianapolis ............................. 28 1 1 2 23,700
Columbus ................................. 30 1 -- 1 20,000
Charlotte--Gastonia--Rock Hill ........... 32 1 -- 1 18,000
Hartford--Wallingford .................... 36 1 1 2 29,800
Rochester ................................ 38 1 -- 1 12,700
Nashville ................................ 40 1 -- 1 20,100
Oklahoma City ............................ 42 1 -- 1 9,000
Raleigh--Durham--Chapel Hill ............. 47 1 -- 1 20,000
West Palm Beach--Boca Raton .............. 50 1 -- 1 20,000
Reno ..................................... 119 1 -- 1 8,500
-- -- - ------------
Total ................................... 27 18 45 526,150(4),(5)
</TABLE>

(see footnotes on next page)

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(1) Based on the July 1994 population of metropolitan statistical areas as
set forth in the 1997 Statistical Abstracts of the United States.

(2) Does not include venues in the 31 markets where the Company sells
subscriptions for Touring Broadway Shows. See "Business--Services
Provided by the Company--Production."

(3) Does not include the approximately 16,000 seat Camarillo Creek
Amphitheater in Los Angeles and the approximately 20,000 seat White River
Amphitheater in Seattle, each of which is currently under construction.
Completion of these facilities is currently scheduled for the summer of
1999.

(4) Additional seating of approximately 40,000 is available for certain
events.

(5) Club seating, which cannot be accurately determined because clubs
typically have either open or reserved seating for any given event, is
not reflected.

OPERATING STRATEGY

The Company's principal objectives are to maximize revenue and cash flow
growth opportunities by (a) being a leading promoter and producer of live
entertainment events and a leading provider of talent representation services
and (b) owning and/or operating leading live entertainment venues in the United
States. The Company's specific strategies include the following:

OWN AND/OR OPERATE LEADING LIVE ENTERTAINMENT VENUES IN NATION'S TOP 50 MARKETS

A key component of the Company's strategy is to own and/or operate a
network of leading live entertainment venues in the nation's top 50 markets.
The Company believes that this strategy will enable it to (a) utilize its
nationwide venue footprint, significant industry expertise and access to a
large aggregate audience to secure more events and distribute content on a
national scale, (b) sell additional products and maximize numerous other
related revenue sources, (c) position itself to produce national tours by
leading music performers in order to capture a greater percentage of revenues
from those tours and (d) encourage wider use by performers of the Company's
venues by providing centralized access to a nationwide network of venues. The
Company believes that it controls the largest network of venues used
principally for music concerts and other live entertainment events in the
United States. Upon consummation of the Pending Acquisitions, the Company will
own and/or operate under exclusive booking arrangements 44 venues in 22 of the
top 50 markets, including 11 amphitheaters in 7 of the top 10 markets.

MAXIMIZE ANCILLARY REVENUE OPPORTUNITIES

The Company intends to enhance revenues and cash flows by maximizing
revenue sources arising from and related to its leadership position in the live
entertainment business. On a pro forma basis for the 1997 and Recent
Acquisitions, these ancillary revenues comprised approximately 19% of the
Company's music businesses' total revenues for the year ended December 31,
1997. Management believes that these related revenue sources generally have
higher margins than promotion and production revenues and include, among
others, (a) the sale of corporate sponsorship, naming and other rights,
concessions, merchandise, parking and other products and services and (b) the
sale of rights to advertise to the Company's large aggregate national audience.
Categories available for sponsorship arrangements include the naming of the
venue itself (e.g., the PNC Bank Arts Center) and the designation of "official"
event or tour sponsors, concessions providers (e.g., beer and soda), credit
card companies, phone companies, film manufacturers and radio stations, among
others. Sponsorship arrangements can provide significant additional revenues at
negligible incremental cost, and many of the Company's venues currently have no
sponsorship arrangements in many of the available categories (including naming
rights). The Company also intends to maximize related revenues by developing
and exploiting intellectual property rights associated with (a) its production
of musical concert tours and themed events (such as regional music festivals)
and (b) branded characters created as an integral part of the content,
marketing and merchandising of certain motor sports events.

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EXPLOIT SYNERGIES OF THE ACQUIRED BUSINESSES

The Company plans to maximize revenues by exploiting synergies among its
various businesses and the businesses to be acquired in the Pending
Acquisitions. The Company believes that it can utilize the best business
practices of the businesses acquired in the Recent Acquisitions (the "Acquired
Businesses") and the Pending Acquisitions on a national scale. For example, the
Atlanta-based regional Music Midtown Festival, created and promoted by
Concert/Southern Promotions (one of the Acquired Businesses), is a highly
successful music festival concept that drew approximately 200,000 attendees in
1997; the Company believes that it can use the event as a model for other
markets. In addition, the Company believes that the radio industry trade
publications of Network (as defined herein, another of the Acquired Businesses)
will enable the Company to introduce new acts and new musical releases to radio
programming directors nationwide. This exposure can enhance recorded music
sales and, in turn, music concert attendance, particularly for artists having
relationships with the Company. In addition, upon the consummation of the FAME
acquisition, the Company believes that it will be able to capitalize on the
cross-marketing opportunities that may arise by virtue of representing
prominent team athletes while selling corporate sponsorships and other
marketing rights at its existing venues.

INCREASE USE OF VENUES; DIVERSIFICATION OF ACTS AND VENUES

Typically, a venue is not utilized for many of the dates available for
live entertainment events in any given season. The Company believes that it
will be able to increase the utilization of its venues through its ability to
affect scheduling on a nationwide basis, its local knowledge, relationships and
expertise and its presentation of a variety of additional events, including
comedy acts, magic acts, motivational speeches, national figure skating and
gymnastics competitions and exhibitions and bull riding competitions, among
others. The Company believes that a diversified portfolio of performers, events
and venues reduces reliance on the commercial success of any one performer,
event or venue.

INNOVATIVE EVENT MARKETING

The Company plans to use innovative event marketing to increase
admissions, sponsorship and advertising revenues and, to a limited extent,
average ticket prices at its venues. In particular, the Company believes that
it can increase the profitability of its venues by offering premium ticket
packages, including (a) season ticket packages that include amenities such as
preferred seating, VIP parking, waiter service, private club and/or "upscale"
concession menus, (b) subscription series packages allowing customers to
purchase tickets for a set of performances and (c) preferred seating, such as
box seating and VIP seating areas, which typically generate higher revenues per
seat. Moreover, the market research and audience demographics databases that
the Company acquired through certain of the Recent Acquisitions, when combined
with the Company's existing audience data collection efforts, will permit
highly-effective targeted marketing, such as direct-mail and subscription
series campaigns, which the Company believes will increase ticket pre-sales and
overall sales in a cost-efficient manner.

STRICT COST CONTROLS; NATIONALLY COORDINATED BOOKING, MARKETING & ACCOUNTING

The Company's senior management imposes strict financial reporting
requirements and expense budget limitations on all of its businesses, enabling
senior management to monitor the performance and operations of all of its
businesses, to eliminate duplicative administrative costs and to realize
expense savings. Moreover, the Company believes that its size will enable it to
achieve substantial economies of scale by (a) implementing a nationally
coordinated booking system (for contracting for and scheduling acts), while
continuing to utilize the substantial local expertise of the Company, (b)
establishing a centralized marketing team to exploit ancillary revenue streams
on local, regional and national levels, including from sponsorship, advertising
and merchandising opportunities, and (c) implementing a centralized accounting
system.

PURSUE COMPLEMENTARY ACQUISITION OPPORTUNITIES

The live entertainment business is characterized by numerous participants,
including booking agents, promoters, producers, venue owners and venue
operators, many of which are entrepreneurial,

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capital-constrained local or regional businesses that do not achieve
significant economies of scale from their operations. The Company believes that
the fragmented nature of the industry presents attractive acquisition
opportunities, and that its larger size will provide it with improved access to
the capital markets that will give it a competitive advantage in implementing
its acquisition strategy. Through consolidation, the Company believes that it
will be better able to coordinate negotiations with performers and talent
agents, addressing what the Company believes is a growing desire among
performers and talent agents to deal with fewer, more sophisticated promoters.
The Company intends to pursue additional strategic acquisitions of (a)
amphitheaters and other live entertainment venues, (b) local and regional
promoters and producers of music concert, theatrical, specialized motor sports
and other live entertainment events and (c) companies in the talent
representation industry. The Company is currently in the process of negotiating
certain additional acquisitions of live entertainment and related businesses;
however, it has not entered into definitive agreements with respect to any of
such acquisitions and there can be no assurance that it will do so. See
"--Recent Developments" and "Risk Factors--Expansion Strategy; Need for
Additional Funds."

MANAGEMENT

Most of the Company's senior management team has worked together for a
number of years at SFX Broadcasting and has managed the concert promotion
operations of Delsener/Slater Enterprises, Ltd. ("Delsener/Slater"), the
predecessor of the Company, since its acquisition by SFX Broadcasting in
January 1997. Senior management plans to continue to apply to its live
entertainment businesses many of the same operating strategies that it has
successfully utilized in the radio business, including a focus on revenue
maximization through the cultivation of sponsorship and advertising
relationships, cost containment and other strategies in order to maximize
revenue and cash flow growth. Moreover, senior management believes that the
Company will benefit from the consolidation of the live entertainment industry,
much as SFX Broadcasting benefited from the consolidation of the radio
broadcasting industry. The Company's senior management team, most of whom will
continue to act as senior management of SFX Broadcasting until consummation of
the SFX Merger, is comprised of Robert F.X. Sillerman, Executive Chairman,
Michael G. Ferrel, Chief Executive Officer, Brian Becker, Executive Vice
President, Howard J. Tytel, Executive Vice President and Thomas P. Benson,
Chief Financial Officer. The Company entered into an employment agreement with
Mr. Becker which was effective upon consummation of the PACE acquisition, and
entered into employment agreements with Messrs. Sillerman, Ferrel and Benson,
which agreements will be effective upon the consummation of the SFX Merger. In
addition, Mr. Tytel has agreed in principle to enter into an employment
agreement with the Company and, upon consummation of the acquisition of FAME,
David Falk the co-founder, Chairman and Chief Executive Officer of FAME will
join senior management of the Company as a Member of the Office of the Chairman
and as a Director. See "Risk Factors--Control by Management" and "--Dependence
on Key Personnel" and "Management." The Company has also entered into long-term
employment agreements with many of the senior executives of each of the Recent
and Pending Acquisitions.

FORMATION OF THE COMPANY

The Company was formed as a wholly-owned subsidiary of SFX Broadcasting in
December 1997 as the parent company of SFX Concerts, Inc. ("Concerts").
Concerts was formed by SFX Broadcasting to acquire and hold SFX Broadcasting's
live entertainment operations. In January 1997, Concerts entered the live
entertainment business with the acquisition of Delsener/Slater. In March 1997,
Concerts acquired certain entities which hold a 37-year lease to operate the
Meadows Theater ("Meadows"), a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut. In June 1997, Concerts acquired Sunshine Promotions,
Inc., a concert promoter in the Midwest, and certain other related companies
("Sunshine Promotions" and, together with the acquisitions of Delsener/Slater
and the Meadows lease, the "1997 Acquisitions").

In January 1998, the Company acquired Westbury Music Fair ("Westbury") for
an aggregate consideration consisting of $3.0 million in cash and an agreement
to issue 75,019 shares of Class A

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Common Stock, par value $.01 per share (the "Class A Common Stock"). In
February and March of 1998, the Company completed its acquisitions of PACE
Entertainment Corporation ("PACE"); Contemporary Group ("Contemporary"); BG
Presents, Inc. ("BGP"); Album Network, Inc., SJS Entertainment Corporation and
The Network 40 (collectively, "Network"); Concert/Southern Promotions
("Concert/ Southern") and certain related entities for an aggregate
consideration consisting of approximately $442.1 million cash and 4.2 million
shares of Class A Common Stock. In March 1998, the Company acquired United
Sports of America Motor Sports ("USA Motor Sports") for a purchase price of
approximately $4.0 million. The acquisitions of Westbury, PACE, Contemporary,
BGP, Network, Concert/Southern and USA Motor Sports are collectively referred
to herein as the "Recent Acquisitions." See "Business--Recent Acquisitions."

In February 1998, the Company completed the private placement of $350.0
million of 9 1/8% Senior Subordinated Notes due 2008 (the "Notes") and borrowed
$150.0 million under the term loan portion of the Company's $300.0 million
senior credit facility (the "Credit Facility"). The proceeds from the offering
of the Notes (the "Note Offering") and the initial borrowings under the Credit
Facility were used to consummate the Recent Acquisitions.

PENDING ACQUISITIONS

In April and May of 1998, the Company entered into agreements or letters
of intent to acquire the following live entertainment and talent representation
businesses:

FAME

The Company has entered into an agreement to acquire Falk Associates
Management Enterprises, Inc. and Financial Advisory Management Enterprises,
Inc. (collectively, "FAME"), a leading full-service marketing and management
company which specializes in the representation of team sports athletes,
primarily in professional basketball. The aggregate purchase price for FAME
will be approximately $82.2 million in cash (including approximately $7.9
million which the Company anticipates paying in connection with certain taxes
expected to be incurred by FAME and the FAME sellers) and 1.0 million shares of
Class A Common Stock. The agreement also provides for payments by the Company
to the FAME sellers of additional amounts up to an aggregate of $15.0 million
in equal annual installments over five years contingent on the achievement of
certain EBITDA targets and for additional payments by the Company if FAME's
EBITDA performance exceeds the targets by certain amounts. FAME was founded in
1992 by David Falk and Curtis Polk and currently represents some of the premier
athletes in professional team sports, including, among others, Michael Jordan,
Patrick Ewing, Alonzo Mourning, Juwan Howard and Allen Iverson. In addition,
FAME provides specialized financial advisory services to professional athletes
and entertainers. Upon the consummation of the FAME acquisition, Mr. Falk will
continue to serve as the Chairman of FAME and will be appointed as a Member of
the Office of the Chairman and a Director of the Company. The Company believes
that, through its acquisition of FAME, it will be able to capitalize on the
cross-marketing opportunities that may arise by virtue of representing
prominent team athletes while selling corporate sponsorships and other
marketing rights at its existing venues.

DON LAW

The Company has entered into an agreement to acquire certain assets of
Blackstone Entertainment, LLC ("Don Law"), a leading concert and theater
promoter in New England, for an aggregate consideration of approximately $90.0
million (subject to adjustment under certain circumstances), including the
repayment of approximately $10.0 million in debt. The Company may, at its
option, pay up to $16.0 million of the purchase price in shares of Class A
Common Stock. Don Law currently owns and/or operates three venues in New
England with an aggregate seating capacity of 27,400. Don Law also acts as the
sole ticket operator for all of its own venues as well as several third party
venues. The Don Law acquisition will expand the Company's geographic presence
into the significant Boston market. The assets to be acquired from Don Law will
be subject, for two years following their acquisition, to a right of first
offer and refusal in favor of the Don Law seller.

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OAKDALE

The Company has entered into an agreement to acquire certain assets of
Oakdale Concerts, LLC and Oakdale Development Limited Partnership
(collectively, "Oakdale"), a promoter and producer of concerts in Connecticut
and the owner of the 4,800 seat Oakdale Theater, for a purchase price of $11.9
million in cash. At the closing, the Company will also make a non-recourse loan
to the Oakdale sellers in the amount of $11.4 million. In addition, the Company
may be obligated to make an additional payment to the Oakdale sellers based on
the combined EBITDA (as defined in the acquisition agreement) of the Oakdale
Theater and Meadows for 1999. The Company believes that it will be able to
exploit significant management, booking and promotional synergies between the
Oakdale Theater and the Company's Meadows amphitheater located in Hartford,
Connecticut.

EMI

The Company has entered into an agreement to acquire an approximately 80%
interest in Event Merchandising, Inc. ("EMI"), a leading event merchandising
contractor in the United States, for approximately $8.5 million. In addition,
the Company is required to make a loan to the EMI sellers in an amount equal to
20% of certain taxes incurred by the EMI sellers in connection with the EMI
acquisition. The Company expects that the amount of the loan will be
approximately $750,000. EMI has concession contracts for the sale of
merchandise with 26 amphitheaters, including 13 venues owned and/or operated by
the Company.

AVALON

On May 14, 1998, the Company acquired all of the outstanding equity
interests of Irvine Meadows Amphitheater, New Avalon, Inc., TBA Media, Inc. and
West Coast Amphitheater (collectively, "Avalon") for a cash purchase price of
approximately $26.8 million, including approximately $300,000 which the Company
paid to the Avalon sellers to reimburse them for their third party out of
pocket costs and expenses incurred in the development of the Camarillo Creek
Amphitheater. Avalon is a leading concert promoter and producer that operates
predominantly in the Los Angeles area.

The acquisitions of FAME, Don Law, Oakdale, EMI and Avalon are
collectively referred to herein as the "Pending Acquisitions." See
"Business--Pending Acquisitions," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Pending Acquisitions." The terms
of the acquisition agreements related to the Pending Acquisitions are subject
to change, both in terms of the consideration to be paid by the Company for
each acquisition and otherwise, upon the occurrence of certain events. See
"Agreements Related to the Pending Acquisitions."

The Company intends to use a portion of the proceeds of the Offering and
additional borrowings under the Credit Facility (collectively, the "Financing")
to consummate the Pending Acquisitions. The Company expects to complete all of
the Pending Acquisitions in the second quarter of 1998. However, the timing and
completion of the Pending Acquisitions are subject to a number of conditions,
certain of which are beyond the Company's control, and there can be no
assurance that any of the Pending Acquisitions (other than the Avalon
acquisition, which has been consummated) will be consummated during such
period, on the terms described herein, or at all into a definitive agreement
with respect to Avalon. The Company is also currently in the process of
negotiating certain additional acquisitions of live entertainment and related
businesses; however, it has not entered into definitive agreements with respect
to such acquisitions and there can be no assurance that it will do so. See
"Risk Factors--Risks Related to the Pending Acquisitions" and "--Expansion
Strategy; Need for Additional Funds" and "Agreements Related to the Pending
Acquisitions."

RECENT DEVELOPMENTS

The Company has indicated to The Marquee Group, Inc. ("Marquee"), a
publicly-traded company, its potential interest in acquiring Marquee. Marquee
provides integrated event management, television

7
<PAGE>

production, marketing and consulting services in the sports, news and
entertainment industries. In addition, Marquee represents various entertainers,
including athletes in team sports, and books tours and appearances for a
variety of entertainers. Mr. Sillerman, the Executive Chairman of the Company,
has an aggregate equity interest of approximately 9.1% in Marquee and is the
chairman of its board of directors, and Mr. Tytel, a Director and Executive
Vice President of the Company, is one of its directors. The Company has been
informed that Marquee has formed a committee of independent directors to
consider the proposal, as well as other strategic alternatives. However, the
Company has not entered into, and there can be no assurance that the Company
will enter into, any agreement, arrangement or understanding with Marquee. See
"Risk Factors--Potential Conflicts of Interest" and "--Expansion Strategy; Need
for Additional Funds." In addition, on May 5, 1998, a class action complaint
was filed alleging that the proposed acquisition of Marquee by the Company will
be unfair to Marquee's stockholders. See "Business--Litigation."

THE SPIN-OFF AND THE SFX MERGER

SFX Broadcasting was formed in 1992 principally to acquire and operate
radio broadcasting stations. In August 1997, SFX Broadcasting entered into a
merger agreement (the "SFX Merger Agreement") pursuant to which it agreed to
merge (the "SFX Merger") with an affiliate of Hicks, Muse Tate & Furst
Incorporated ("SFX Buyer"), and to spin-off the Company to certain stockholders
of SFX Broadcasting on a pro rata basis (the "Spin-Off"). The Spin-Off was
consummated on April 27, 1998. The Spin-Off separated the entertainment
business from SFX Broadcasting's radio broadcasting business and will enable
SFX Buyer to acquire only SFX Broadcasting's radio broadcasting business in the
SFX Merger. SFX Broadcasting has indicated that it expects the SFX Merger to be
completed in the second quarter of 1998.

Prior to the Spin-Off, pursuant to the Distribution Agreement entered into
among the Company, SFX Broadcasting and SFX Buyer (the "Distribution
Agreement"), SFX Broadcasting contributed to the Company all of its assets
relating to the entertainment business. In addition, the Company, SFX
Broadcasting and SFX Buyer also entered into a tax sharing agreement (the "Tax
Sharing Agreement") and an employee benefits agreement (the "Employee Benefits
Agreement"). Each of these agreements provides for certain indemnification
obligations by the Company and SFX Broadcasting. Pursuant to the Distribution
Agreement, at the time of the SFX Merger, SFX Broadcasting will contribute any
positive Working Capital (as defined herein) to the Company. If Working Capital
is negative, the Company must pay the amount of the shortfall to SFX
Broadcasting. In addition, pursuant to the Tax Sharing Agreement, the Company
is required to indemnify SFX Broadcasting for certain tax obligations,
including a tax obligation estimated to be $120.0 million in connection with
the Spin-Off. The tax liability relates to certain deferred intercompany
transactions which management believes will give rise to significant additional
tax basis which will be available to offset future taxable income. Management's
estimates of the amount of the indemnity payment and the additional basis are
based on certain assumptions which management believes are reasonable. However,
the actual amount of such obligations could vary significantly. The Company
intends to use a portion of the net proceeds from the Offering to make such tax
indemnity payments. See "Risk Factors--Future Contingent Payments," "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

In the Spin-Off, (a) 13,579,024 shares of Class A Common Stock were
distributed to holders on the Spin-Off record date of SFX Broadcasting's Class
A common stock, Series D preferred stock and interests in the director deferred
stock ownership plan, (b) 1,047,037 shares of Class B Common Stock were
distributed to holders on the Spin-Off record date of SFX Broadcasting Class B
common stock and (c) 609,856 shares were placed in escrow to be issued upon the
exercise of certain warrants of SFX Broadcasting. See "Certain Relationships
and Related Transactions--Common Stock Received in the Spin-Off."

The address and telephone number of the Company's principal executive
offices are: 650 Madison Avenue, 16th Floor, New York, New York 10022; (212)
838-3100.

8
<PAGE>

FINANCING PLAN

The net proceeds received by the Company from the Offering, after
deducting the underwriting discount and estimated Offering expenses, are
estimated to be approximately $283.6 million (approximately $326.5 million if
the Underwriters' over-allotment option is exercised in full), at a public
offering price of $43.25 per share. The Company intends to use the net proceeds
from the Offering, together with expected borrowings under the Credit Facility,
to make an anticipated tax indemnity payment, to pay the cash portion of the
purchase price of the Pending Acquisitions, to pay certain fees and expenses
and to make certain other payments described below. The following table
represents the Company's best estimate of the allocation of the net proceeds of
the Offering based on the current status of its business. Future events,
including the actual amount of the tax indemnity payment, the timing of the
indemnity payment, the actual amount of the cash purchase price of the Pending
Acquisitions or any other potential acquisitions, the availability of other
financing and funds generated from operations and the status of the Company's
business from time to time, may make changes in the allocation of the net
proceeds of the Offering necessary or desirable. See "Risk
Factors--Discretionary Use of Funds."

<TABLE>
<CAPTION>
(IN THOUSANDS)
SOURCES OF FUNDS: ---------------
<S> <C>
The Offering .............................................. $302,750
The Credit Facility(1) .................................... 62,990
--------
Total Sources of Funds................................. $365,740
========

USES OF FUNDS:
Tax Indemnity Payment(2) .................................. $120,000
Cash Portion of the Pending Acquisitions:
FAME Acquisition(3) ................................... 82,240
Don Law Acquisition(4) ................................ 74,000
Avalon Acquisition(5) ................................. 26,800
Oakdale Acquisition(6) ................................ 23,250
EMI Acquisition(7) .................................... 9,250
Fees and Expenses Related to the Financing(8) ............. 19,200
Fees and Expenses Related to the Pending Acquisitions ..... 6,000
Other Payment Obligations(9) .............................. 5,000
--------
Total Uses of Funds ................................... $365,740
========
</TABLE>

- ----------
(1) Includes approximately $27.5 million which the Company borrowed under the
Credit Facility on May 13, 1998 in connection with the consummation of
the Avalon acquisition. On a pro forma basis for the twelve months ended
March 31, 1998, amounts available for borrowing under the Credit
Facility, plus the net proceeds from the Offering, would be sufficient
for the uses of funds described herein. However, there can be no
assurance that the Company will have sufficient cash flows at the time of
borrowing to permit such borrowings under the terms of its debt
agreements. See "Description of Indebtedness--Credit Facility."

(2) Pursuant to the Tax Sharing Agreement, the Company is required to
indemnify SFX Broadcasting for certain tax obligations, including a tax
obligation estimated to be approximately $120.0 million in connection
with the Spin-Off. The tax liability relates to certain deferred
intercompany transactions which management believes will give rise to
significant additional tax basis which will be available to offset future
taxable income. Management's estimates with respect to the amount of the
indemnity payment and the additional basis are based on certain
assumptions which management believes are reasonable. However, the actual
amounts of such obligations could vary materially. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."

(3) Includes approximately $7.9 million which the Company anticipates paying
in connection with certain taxes expected to be incurred by FAME and the
FAME sellers. See "Agreements Related to the Pending Acquisitions."

(4) Includes the repayment of $10.0 million in debt. Assumes that the Company
pays $16.0 million of the purchase price for Don Law in shares of Class A
Common Stock. See "Agreements Related to the Pending Acquisitions."

(5) Includes approximately $300,000 which the Company paid to the Avalon
sellers to reimburse their third party out of pocket expenses incurred in
the development of the Camarillo Creek Amphitheater. The Avalon
acquisition was consummated on May 14, 1998. See "Agreements Related to
the Pending Acquisitions."

9
<PAGE>

(6) Includes a loan to the Oakdale sellers in the amount of $11.4 million, a
portion of which will be used to repay Oakdale's senior mortgage
indebtedness. See "Agreements Related to the Pending Acquisitions."

(7) Includes a loan to be made by the Company to the EMI sellers, expected to
be approximately $750,000. See "Agreements Related to the Pending
Acquisitions."

(8) Consists of approximately $16.7 million of underwriting discount and $2.5
million of other fees and expenses related to the Financing. The fees and
expenses are based on management's estimates, and may not be indicative
of, and are likely to vary from, the actual amount of fees and expenses
incurred by the Company.

(9) Consists of change of control payments under the employment agreements of
Messrs. Sillerman, Ferrel and Benson assumed by the Company pursuant to
the Distribution Agreement, aggregating approximately $3.3 million, $1.5
million and $0.2 million, respectively. See "Certain Relationships and
Related Transactions--Assumption of Employment Agreements; Certain Change
of Control Payments."

Certain of the Company's agreements provide for future contingent payments
in certain circumstances. There can be no assurance that the Company will have
sufficient sources of funds to make such payments should they come due. In
addition, the Company is currently negotiating additional acquisitions which,
if consummated, will require additional financing. See "Risk Factors--Future
Contingent Payments," "--Risks Related to the Pending Acquisitions" and
"--Expansion Strategy; Need for Additional Funds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Relationships and Related Transactions--Indemnification of Mr. Sillerman."

Pending the application of the proceeds of the Financing as provided
herein, such proceeds will be invested in interest bearing U.S. government
securities.

10
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered
by the Company ............................. 7,000,000 shares
Common Stock to be outstanding
after the Offering and Pending Acquisitions:
Class A Common Stock (1) .................. 27,539,423 shares
Class B Common Stock ...................... 1,697,037 shares
----------
Total (1) ............................... 29,236,460 shares
==========

Relative rights of shares ................... The economic rights of the Class A Common Stock and
the Class B Common Stock are identical, but the voting
rights differ. The holders of the Class A Common Stock
are entitled to one vote per share while the holders of
Class B Common Stock, par value $.01 per share (the
"Class B Common Stock" and, together with the Class
A Common Stock, the "Common Stock"), are generally
entitled to ten votes per share on most matters
submitted to a vote of the stockholders. In addition, the
holders of shares of Class A Common Stock, voting as
a separate class, are entitled to elect two-sevenths of
the Company's directors. The holders of Class A
Common Stock and Class B Common Stock, voting as
a single class, with each share of Class A Common
Stock entitled to one vote and each share of Class B
Common Stock entitled to ten votes, are entitled to
elect the remaining directors. As a result, holders of
Class B Common Stock will have substantial control
over most matters submitted to a vote of the
stockholders, including the election of directors. See
"Risk Factors--Control by Management" and
"Description of Capital Stock."

Class B Common Stock conversion ............. Each share of Class B Common Stock is convertible at
any time, at the holder's option, into one share of Class
A Common Stock. Each share of Class B Common
Stock converts automatically into one share of Class A
Common Stock (a) at the time of its sale or transfer to
a party not affiliated with Mr. Sillerman or the Company
or (b) in the case of shares held by Mr. Sillerman or any
of his affiliates, at the time of Mr. Sillerman's death. See
"Risk Factors--Control by Management" and "Descrip-
tion of Capital Stock."

Use of proceeds ............................. To make an anticipated tax indemnity payment, to pay
a portion of the purchase price of the Pending
Acquisitions, to pay certain fees and expenses and to
make certain other payments. See "Use of Proceeds."

Nasdaq National Market symbol ............... SFXE.
</TABLE>

- ------------
(1) Includes (a) 1,531,782 shares of Class A Common Stock expected to be
issued pursuant to the Pending Acquisitions and (b) 75,019 shares of
Class A Common Stock which the Company agreed to issue in connection with
its acquisition of Westbury Music Fair. Excludes (a) 2,000,000 shares of
Class A Common Stock reserved for issuance under Company's 1998 Stock
Option and Restricted Stock Plan, under which the Board of

11
<PAGE>

Directors has approved the issuance of stock options for an aggregate of
1,002,500 shares, (b) 1,697,037 shares issuable, subject to certain
conditions, upon conversion of shares of Class B Common Stock and (c)
1,050,000 shares of Class A Common Stock issuable upon exercise of the
Underwriters' over-allotment option. See "Management--Employment Agreements
and Arrangements with Certain Officers and Directors" and "Underwriting."

RISK FACTORS

See "Risk Factors" for a discussion of certain considerations relevant to
an investment in the Class A Common Stock offered hereby.

12
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Summary Consolidated Financial Data of the Company includes the
historical financial statements of Delsener/Slater and affiliated companies,
the predecessor of the Company, for each of the four years ended December 31,
1996 and the historical financial statements of the Company for the year ended
December 31, 1997 and the three months ended March 31, 1997 and 1998. The
statement of operations data with respect to Delsener/Slater for the year ended
December 31, 1993 and the balance sheet data as of December 31, 1993 and 1994
are unaudited. The financial information presented below should be read in
conjunction with the information set forth in "Unaudited Pro Forma Condensed
Combined Financial Statements" and the notes thereto and the historical
financial statements and the notes thereto of the Company, the 1997
Acquisitions, the Recent Acquisitions and the Pending Acquisitions included
herein. The financial information has been derived from the audited and
unaudited financial statements of the Company, the 1997 Acquisitions, the
Recent Acquisitions and the Pending Acquisitions. The 1997 Acquisitions, the
Recent Acquisitions, the Note Offering and the $150.0 million in initial
borrowings under the Credit Facility used to fund the Recent Acquisitions and
certain obligations related to the Spin-Off and the SFX Merger are collectively
referred to herein as the "Transactions." The pro forma summary data for the
year ended December 31, 1997, the three months ended March 31, 1998 and the
twelve months ended March 31, 1998 have been derived from the unaudited pro
forma condensed combined financial statements, which, in the opinion of
management, reflect all adjustments necessary for a fair presentation of the
transactions for which such pro forma financial information is given.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
PREDECESSOR
------------------------------------------------
1997
PRO FORMA
FOR THE
TRANSACTIONS,
1997 THE PENDING
PRO FORMA ACQUISITIONS
FOR THE AND THE
TRANSACTIONS FINANCING
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
---------- ------------- ---------- ------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue ................. $46,526 $92,785 $47,566 $ 50,362 $ 96,144 $ 646,719 $ 779,014
Operating expenses ...... 45,635 90,598 47,178 50,686 83,417 576,913 688,430
Depreciation &
amortization ........... 762 755 750 747 5,431 39,639 56,681
Corporate expenses (1)... -- -- -- -- 2,206 4,206 5,206
------- ------- ------- -------- ---------- --------- ---------
Operating income
(loss) ................. $ 129 $1,432 $ (362) $ (1,071) $ 5,090 $ 25,961 $ 28,697
Interest expense ........ (148) (144) (144) (60) (1,590) (47,296) (52,414)
Other income
(expense) .............. 85 138 178 198 295 633 1,226
Equity income (loss)
from investments ....... -- (9) 488 524 509 5,417 5,347
------- --------- ------- -------- ---------- --------- ---------
Income (loss) before
income taxes ........... $ 66 $1,417 $ 160 $ (409) $ 4,304 $ (15,285) $ (17,144)
Income tax provision .... (57) (5) (13) (106) (490) (3,500) (4,200)
------- --------- ------- -------- ---------- --------- ---------
Net income (loss) ....... $ 9 $1,412 $ 147 $ (515) $ 3,814 $ (18,785) $ (21,344)
======= ======== ======= ======== ==========
Accretion on
temporary
equity--stock subject
to redemption (2) ...... (3,300) (3,300)
--------- ---------
Net loss applicable to
common shares .......... $ (22,085) $ (24,644)
========= =========
Net loss per common
share (3) .............. $ (0.86)
=========
Weighted average
common shares
outstanding (3)(4) ..... 29,236
=========
OTHER OPERATING
DATA:
EBITDA (5) .............. $ 891 $2,187 $ 388 $ (324) $ 10,521 $ 65,600 $ 85,378
======= ======== ======= ======== ========== ========= =========
Cash flow from:
Operating activities ... $2,959 $ (453) $ 4,214 $ 1,005
Investing activities ... -- -- (435) (73,296)
Financing activities ... (477) (216) (1,431) 78,270

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

</TABLE>
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED
THREE MONTHS ENDED MARCH 31, MARCH 31,
------------------------------------------- --------------
1998 1998
PRO FORMA PRO FORMA
FOR THE FOR THE
TRANSACTIONS, TRANSACTIONS,
THE PENDING THE PENDING
ACQUISITIONS ACQUISITIONS
AND THE AND THE
1997 1998 FINANCING FINANCING
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue ................. $ 7,789 $ 60,994 $ 187,345 $ 827,916
Operating expenses ...... 7,738 58,175 172,422 729,485
Depreciation &
amortization ........... 660 4,428 14,171 56,681
Corporate expenses (1)... 858 1,314 1,617 5,565
--------- ---------- --------- ---------
Operating income
(loss) ................. $ (1,467) $ (2,923) $ (865) $ 36,185
Interest expense ........ (103) (6,748) (13,103) (52,414)
Other income
(expense) .............. 26 (17,570) (17,250) (17,136)
Equity income (loss)
from investments ....... -- 445 77 6,362
--------- ---------- --------- ---------
Income (loss) before
income taxes ........... $ (1,544) $ (26,796) $ (31,141) $ (27,003)
Income tax provision .... -- (500) (650) (3,000)
--------- ---------- --------- ---------
Net income (loss) ....... $ (1,544) $ (27,296) $ (31,791) $ (30,003)
=========
Accretion on
temporary
equity--stock subject
to redemption (2) ...... (275) (825) (3,300)
---------- --------- ---------
Net loss applicable to
common shares .......... $ (27,571) $ (32,616) $ (33,303)
========== ========= =========
Net loss per common
share (3) .............. $ (1.14) $ (1.16)
========= =========
Weighted average
common shares
outstanding (3)(4) ..... 29,236 29,236
========= =========
OTHER OPERATING
DATA:
EBITDA (5) .............. $ (807) $ 1,505 $ 13,306 $ 92,866
========= ========== ========= =========
Cash flow from:
Operating activities ... $ 307 $ 9,140
Investing activities ... (22,612) (379,782)
Financing activities ... 24,927 458,654
</TABLE>

13
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
-------------------------------------------------- -----------------------------
PRO FORMA
FOR THE
SPIN-OFF, THE
SFX MERGER, THE
PENDING
ACQUISITIONS
PREDECESSOR AND THE
--------------------------------------- ACTUAL FINANCING
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
--------- --------- --------- --------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets ...................... $1,823 $4,453 $3,022 $6,191 $ 11,220 $149,375 $ 167,021
Property and equipment, net ......... 4,484 3,728 2,978 2,231 59,685 196,732 243,824
Intangible assets, net .............. -- -- -- -- 60,306 470,721 699,430
Total assets ........................ 6,420 8,222 6,037 8,879 146,942 858,426 1,162,199
Current liabilities ................. 4,356 3,423 3,138 7,973 21,514 260,165 140,046
Long-term debt, including current
portion ............................ -- 1,830 -- -- 16,178 543,003 605,993
Temporary equity--stock subject
to redemption (2) .................. -- -- -- -- -- 16,500 16,500
Shareholders' equity (deficit) ...... 6,420 2,969 2,900 907 102,144 (5,046) 336,015(6)
</TABLE>

- ---------
(1) Corporate expenses are reduced by $1,794,000 and $1,286,000 for fees
earned from Triathlon Broadcasting Company ("Triathlon") for the year
ended December 31, 1997 and for the twelve months ended March 31, 1998,
respectively. The right to receive fees payable under the agreement with
Triathlon was assigned to the Company by SFX Broadcasting in connection
with the Spin-Off. Future fees may vary, above the minimum fee of
$500,000, depending upon the level of acquisition and financing
activities of Triathlon. Triathlon has previously announced that it is
exploring ways of maximizing stockholder value, including possible sale
to a third party. In the event that Triathlon were acquired by a third
party, there can be no assurance that the agreement would continue for
the remainder of its term. See "Certain Relationships and Related
Transactions--Triathlon Fees."

(2) The PACE acquisition agreement provides that each PACE seller shall have
an option (a "Fifth Year Put Option"), exercisable during a period
beginning on the fifth anniversary of the closing of the PACE acquisition
and ending 90 days thereafter, to require the Company to purchase up to
one-third of the Class A Common Stock received by that PACE seller
(representing 500,000 shares in the aggregate) for a cash purchase price
of $33.00 per share. With certain limited exceptions, the Fifth Year Put
Option rights are not assignable by the sellers. The maximum amount
payable under all Fifth Year Put Options ($16,500,000) has been presented
as temporary equity on the pro forma balance sheet. See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Capital Resources."

(3) Includes 500,000 shares of Class A Common Stock issued to the PACE
sellers in connection with the Fifth Year Put Option; these shares are
not included in calculating the net loss per common share.

(4) Reflects the assumed issuance of 7,000,000 shares of Class A Common Stock
in connection with the Offering and the 1,531,782 shares of Class A
Common Stock to be issued in connection with the Pending Acquisitions.

(5) "EBITDA" is defined as earnings before interest, taxes, other income,
net, equity income (loss) from investments and depreciation and
amortization. Although EBITDA is not a measure of performance calculated
in accordance with generally accepted accounting principals ("GAAP"), the
Company believes that EBITDA is accepted by the entertainment industry as
a generally recognized measure of performance and is used by analysts who
report publicly on the performance of entertainment companies.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by
operating activities or any other measure for determining the Company's
operating performance or liquidity which is calculated in accordance with
GAAP.

There are other adjustments that could affect EBITDA but have not been
reflected herein ("Adjusted EBITDA"). Had such adjustments been made,
Adjusted EBITDA on a pro forma basis would have been approximately
$96,465,000 for the year ended December 31, 1997 and $104,883,000 for the
twelve months ended March 31, 1998, an increase of $8,418,000. The
adjustments include the expected cost savings in connection with the
Recent Acquisitions associated with the elimination of duplicative
staffing and general and administrative expenses of $5,740,000 and
$5,655,000, and include equity income from investments of $5,347,000 and
$6,362,000, for the year ended December 31, 1997 and the twelve months
ended March 31, 1998, respectively. While management believes that such
cost savings are achievable, the Company's ability to fully achieve such
cost savings is subject to numerous factors, certain of which may be
beyond the Company's control.

(6) Stockholders' equity on a pro forma basis have not been adjusted for
future charges to earnings which will result from the issuance of stock
and options granted to certain executive officers and other employees of
the Company or certain other costs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Future Charges to Earnings."

14
<PAGE>

RISK FACTORS

Stockholders should carefully consider and evaluate the following risk
factors together with the other information set forth in this Prospectus.

Certain statements, estimates, predictions and projections contained in
this Prospectus under "Prospectus Summary," "Risk Factors," "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in addition to certain statements contained elsewhere in this
Prospectus, are "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
These forward-looking statements are prospective, involving risks and
uncertainties. While these forward-looking statements, and any assumptions on
which they are based, are made in good faith and reflect the Company's current
judgment regarding the direction of its business, actual results will almost
always vary, sometimes materially, from any estimates, predictions,
projections, assumptions or other future performance suggested herein. Some
important factors (but not necessarily all factors) that could affect the
Company's revenues, growth strategies, future profitability and operating
results, or that otherwise could cause actual results to differ materially from
those expressed in or implied by any forward-looking statement, are discussed
below as well as elsewhere in this Prospectus. Stockholders are urged to
carefully consider these factors in connection with the forward-looking
statements. The Company does not undertake to release publicly any revisions to
forward-looking statements that may be made to reflect events or circumstances
after the date of this Prospectus or to reflect the occurrence of unanticipated
events.

ABSENCE OF COMBINED OPERATING HISTORY; POTENTIAL INABILITY TO INTEGRATE
ACQUIRED BUSINESSES

The business of the Company has been developed principally through the
acquisition of established live entertainment businesses, all of which have
been acquired since January 1997. The Company consummated the 1997 Acquisitions
between January and June of 1997 and the Recent Acquisitions in February
through April of 1998. Prior to their acquisition by the Company, these
acquired companies operated independently. In addition, each of the businesses
to be acquired in the Pending Acquisitions currently operates independently.
Each of the Acquired Businesses has, and the Pending Acquisitions will,
significantly increase the size and operations of the Company. The Unaudited
Pro Forma Condensed Combined Financial Statements include the combined
operating results of the Acquired Businesses and the businesses to be acquired
in Pending Acquisitions during periods when they were not under common control
or management, and therefore may not necessarily be indicative of the results
that would have been attained had the Company and such businesses operated on a
combined basis during those periods. On a pro forma basis, as of and for the
twelve months ended March 31, 1998, the Recent Acquisitions and the Pending
Acquisitions represented 71% and 16% of the Company's revenues and 52% and 25%
of its assets, respectively. The Company's prospects should be considered in
light of the numerous risks commonly encountered in business combinations.
Although the anticipated management of the Company has significant experience
in other industries, there can be no assurance that the Company's management
group will be able to effectively integrate the Acquired Businesses and the
businesses to be acquired in the Pending Acquisitions. The Company's business,
financial condition and results of operations could be materially adversely
affected if the Company is unable to retain the key personnel that have
contributed to the historical performances of the Acquired Businesses, the
Company or the businesses to be acquired in the Pending Acquisitions. See
"--Dependence on Key Personnel" and "Business."

FUTURE CONTINGENT PAYMENTS

RELATED TO RECENT ACQUISITIONS

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<PAGE>

unvested options) granted to him by the Company and/or pay him an amount equal
to the present value of the compensation payable during the remaining term of
his employment agreement. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors." Moreover, pursuant to the
Contemporary acquisition agreement, if the average trading price of the
1,402,850 shares of Class A Common Stock issued in the Contemporary acquisition
is less than $13.33 during the 20 days prior to the second anniversary of the
Contemporary acquisition, the Company will be required to pay one-half of such
difference for each share held by the sellers of Contemporary on such date.
Pursuant to the Network acquisition agreement, the Company has agreed to
increase the purchase price for Network based on Network's actual 1998 EBITDA
(as defined in the acquisition agreement) as follows: (a) by $4.0 million if
the 1998 EBITDA equals or exceeds $9.0 million; (b) by an additional $4 for
each $1 of additional 1998 EBITDA between $9.0 million and $10.0 million; and
(c) by an additional $6 for each $1 of additional 1998 EBITDA between $10.0
million and $11.0 million. This contingent consideration of up to $14.0 million
is payable in shares of Class A Common Stock or, in certain circumstances, in
cash by March 20, 1999.

RELATED TO THE PENDING ACQUISITIONS

Certain of the agreements relating to the Pending Acquistions provide for
future contingent payments under certain circumstances. The Company is
obligated to pay to the FAME sellers additional amounts up to an aggregate of
$15.0 million in equal annual installments over 5 years contingent on the
achievement by FAME of certain EBITDA targets. The FAME agreement also provides
for additional payments by the Company to the FAME sellers if FAME's EBITDA
performance exceeds the targets by certain amounts. Furthermore, if the Company
disposes of all or substantially all of the assets or 50% or more of the voting
or equity interests of FAME during the five years following the closing of the
FAME acquisition, certain payments may become due to the FAME sellers out of
the proceeds of such sale. See "Agreements Related to the Pending
Acquisitions." In addition, pursuant to the agreement relating to the
acquisition of certain assets of Oakdale, if the combined EBITDA (as defined in
the acquisition agreement) for 1999 of Oakdale Theater and Meadows exceeds $5.5
million, the Company will be obligated to pay the sellers of Oakdale between
5.0 and 5.8 times the amount of such excess. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Pending Acquisitions" and "Agreements Related to the Pending
Acquisitions."

RELATED TO WORKING CAPITAL ADJUSTMENTS

Pursuant to the Distribution Agreement, the Company must pay SFX
Broadcasting any net negative Working Capital at the time of consummation of
the SFX Merger. Alternatively, SFX Broadcasting must pay to the Company any net
positive Working Capital. As of March 31, 1998, the Company estimates that
Working Capital to be paid by SFX Broadcasting to the Company would have been
approximately $3.3 million. The actual amount of Working Capital will be a
function of, among other things, the operating results of SFX Broadcasting
through the date of the SFX Merger, the actual date of the closing of the SFX
Merger and the actual cost of consummating the SFX Merger and the related
transactions. See "--Substantial Leverage" and "--Restrictions Imposed by the
Company's Indebtedness," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources," "Certain
Relationships and Related Transactions--Indemnification of Mr. Sillerman" and
"Description of Indebtedness."

RELATED TO THE TAX INDEMNITY PAYMENT

Pursuant to the Tax Sharing Agreement, the Company is required to
indemnify SFX Broadcasting for certain tax obligations, including a tax
obligation estimated to be approximately $120.0 million in connection with the
Spin-Off. Management's estimate of the amount of the indemnity payment is based
on certain assumptions which management believes are reasonable. However, the
actual amount could vary significantly. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources--Spin-Off."

RELATED TO OTHER INDEMNIFICATION OBLIGATIONS

Pursuant to the Distribution Agreement, the Company has also agreed to
indemnify, defend and hold SFX Broadcasting and its subsidiaries harmless from
and against certain liabilities to which SFX

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<PAGE>

Broadcasting or any of its subsidiaries may be or become subject. These
liabilities relate to the assets, business, operations, employees (including
under any employment agreement assumed by the Company in the Spin-Off), debts
or liabilities of the Company and its subsidiaries. Although the Company does
not anticipate that any material liabilities for which it has agreed to
indemnify SFX Broadcasting and its subsidiaries will arise, it is possible that
the Company will become subject to these liabilities. Any of these liabilities
may have a material adverse effect on the Company's business, financial
condition or results of operations.

Concurrently with the execution of the SFX Merger Agreement, Mr. Sillerman
waived his right to receive indemnification from SFX Broadcasting, its
subsidiaries, SFX Buyer Sub and SFX Buyer, after the effective time of the SFX
Merger with respect to claims or damages relating to the SFX Merger Agreement
and the transactions contemplated thereby, except to the extent that SFX
Broadcasting can be reimbursed under the terms of its directors' and officers'
liability insurance. It is anticipated that the Company will indemnify (to the
extent permitted by law) Mr. Sillerman for any such claims or damages. In
addition, pursuant to Messrs. Sillerman's and Ferrel's existing employment
agreements with SFX Broadcasting (which were assumed by the Company pursuant to
the Distribution Agreement), the Company is obligated to indemnify them (to the
extent permitted by law) for one-half of the cost of any excise tax that may be
assessed against them for any change-of-control payments made to them by SFX
Broadcasting in connection with the SFX Merger. See "Certain Relationships and
Related Transactions--Assumption of Employment Agreements; Certain Change of
Control Payments" and "--Indemnification of Mr. Sillerman."

In addition, the agreements relating to the Tax Sharing Agreement and the
Employee Benefits Agreement provide for certain other indemnities, including
the estimated $120.0 million tax indemnity liability to SFX Broadcasting, which
the Company intends to fund with a portion of the proceeds of the Financing.

RISKS RELATED TO THE PENDING ACQUISITIONS

The aggregate consideration to be paid in the Pending Acquisitions is
expected to consist of approximately $215.5 million in cash, including the
repayment of $10.0 million in debt, and the issuance of 1,531,782 shares of
Class A Common Stock. The Company intends to finance the cash portion of the
purchase price with a portion of the proceeds of the Financing. The
availability of funds under the Credit Facility is subject to certain financial
covenants and there can be no assurance that the funds required to complete the
Pending Acquisitions will be available to the Company when needed. See
"Description of Indebtedness." Moreover, the consummation of the acquisitions
of FAME, Don Law and EMI will require the consent of the Company's lenders
under the Credit Facility. In addition, certain of the agreements relating to
the Pending Acquisitions provide for future contingent payments under certain
circumstances. See "--Future Contingent Payments," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Agreements Related to the Pending Acquisitions."

The approximately 1.5 million shares to be issued in connection with
acquisitions of FAME and Don Law were not registered under the Securities Act
or state securities laws, as may have been required. The Company filed a
registration statement in order to make a rescission offer (the "Rescission
Offer") with respect to such transactions. Although the FAME and Don Law
sellers have rejected such Rescission Offer, they may continue to have a right
to bring a civil action against the Company for its prior failure to register
the Class A Common Stock to be issued in the Fame or Don Law acquisitions,
respectively, under the federal and applicable state securities laws.

There can be no assurance as to when or which of the Pending Acquisitions
will be consummated or that they will be consummated on the terms described
herein or at all. Furthermore, the consummation of the Pending Acquisitions may
fail to conform to the assumptions used in the preparation of the Unaudited Pro
Forma Condensed Combined Financial Statements included herein. Therefore, in
analyzing the Unaudited Pro Forma Condensed Combined Financial Statements and
other information, prospective purchasers of the Class A Common Stock should
consider that the Pending Acquisitions (other than the Avalon acquisition which
was consummated on May 14, 1998) may not be consummated

17
<PAGE>

on the terms described herein or at all. In addition, although the Company has
conducted a due diligence investigation of the businesses to be acquired in
Pending Acquisitions, the scope of its investigation has been limited. Although
the agreements governing the Pending Acquisitions generally provide for
indemnification from the sellers for a limited period of time with respect to
certain matters, such indemnification is subject to thresholds and limitations,
and it is possible that other material matters not identified in due diligence
will subsequently be identified or that the matters heretofore identified will
prove to be more significant than currently expected.

While none of the Pending Acquisitions is conditioned on the consummation
of any other Pending Acquisition, consummation of each of the Pending
Acquisitions is subject to the satisfaction or waiver of a number of closing
conditions, certain of which are beyond the Company's control, including in
certain cases approvals under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"). The failure to satisfy these conditions
would permit each of the parties to the acquisition agreements to refuse to
consummate the respective Pending Acquisitions. See "Agreements Related to the
Pending Acquisitions."

SUBSTANTIAL LEVERAGE

The Company is a highly leveraged company. As of March 31, 1998, on a pro
forma basis giving effect to the Transactions, the Pending Acquisitions and the
Financing, the Company's consolidated indebtedness would have been
approximately $606.0 million (of which $350.0 million would have consisted of
the Notes, and the balance would have consisted of approximately $213.0 million
in debt under the Credit Facility and $43.0 million in other debt), its
temporary equity--stock subject to redemption would have been approximately
$16.5 million, and its stockholders' equity would have been approximately
$336.0 million. See "Unaudited Pro Forma Condensed Combined Financial
Statements." On a pro forma basis for the Transactions, the Pending
Acquisitions and the Financing, the Company's ratio of total debt to total
capitalization as of March 31, 1998 would have been approximately 0.6 to 1.0.
The Company's earnings were insufficient to cover fixed charges by $26.4
million for the three months ended March 31, 1998, and would have been
insufficient by $20.6 million on a pro forma basis for the Transactions, the
Pending Acquisitions and the Financing for the twelve months ended March 31,
1998.

In addition, certain of the agreements relating to the Recent Acquisitions
and the Pending Acquisitions provide for other purchase price adjustments and
future contingent payments in certain circumstances. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Recent Acquisitions" and "--Pending Acquisitions." The Company may
also incur substantial additional indebtedness from time to time to finance
future acquisitions, for capital expenditures or for other purposes. See
"--Future Contingent Payments," "Capitalization" and "Unaudited Pro Forma
Condensed Combined Financial Statements."

The Company's ability to make scheduled payments of principal, to pay
interest on or to refinance its indebtedness, or to fund planned capital
expenditures, will depend on its future financial performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond its control, as well as the
success of the Acquired Businesses and the businesses to be acquired in the
Pending Acquisitions and their integration into the Company's operations. There
can be no assurance that the Company will be able to make planned borrowings
(including under the Credit Facility), that the Company's business will
generate sufficient cash flow from operations, or that future borrowings will
be available in an amount to enable the Company to service its debt and to make
necessary capital or other expenditures. The Company may be required to
refinance a portion of the principal amount of its indebtedness prior to their
respective maturities. There can be no assurance that the Company will be able
to raise additional capital through the sale of securities, the disposition of
assets or otherwise for any refinancing. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

The degree to which the Company is and will be leveraged could have
material consequences to the holders of shares of Class A Common Stock,
including, but not limited to, (a) increasing the Company's vulnerability to
general adverse economic and industry conditions, (b) limiting the Company's
ability to obtain additional financing to fund future acquisitions, working
capital, capital expenditures and other

18
<PAGE>

general corporate requirements, (c) requiring the dedication of a substantial
portion of the Company's cash flow from operations to the payment of principal
of, and interest on, its indebtedness, thereby reducing the availability of the
cash flow to fund working capital, capital expenditures or other general
corporate purposes, (d) limiting the Company's flexibility in planning for, or
reacting to, changes in its business and the industry and (e) placing the
Company at a competitive disadvantage to less leveraged competitors. In
addition, the indenture relating to the Notes (the "Indenture") and the Credit
Facility contain, financial and other restrictive covenants that limit the
ability of the Company to, among other things, borrow additional funds. Failure
by the Company to comply with these covenants could result in an event of
default that, if not cured or waived, could have a material adverse effect on
the Company's business, financial condition and results of operations. The
indebtedness incurred under the Credit Facility is secured by a pledge of the
stock of the Company's subsidiaries and by liens on substantially all of its
and its subsidiaries' tangible assets. In addition, the Notes and borrowings
under the Credit Facility are guaranteed by the Company's subsidiaries. See
"--Restrictions Imposed by the Company's Indebtedness" and "Description of
Indebtedness."

DISCRETIONARY USE OF FUNDS

While the Company expects to use the proceeds of the Offering as set forth
in "Use of Proceeds," the expectation is based on, the anticipated timing for
the tax indemnity payment, its ability to consummate the Pending Acquisitions
on the terms contemplated or at all, and on certain other factors beyond its
control, including the ability to borrow sufficient funds under the Credit
Facility. If the Company does not utilize the proceeds as set forth herein or
utilizes different amounts than presently contemplated, the Company could use
any remaining cash, subject to the terms of the Indenture and the Credit
Facility, to fund other development projects or acquisitions and for general
corporate purposes, including working capital. See "Use of Proceeds."

EXPANSION STRATEGY; NEED FOR ADDITIONAL FUNDS

The Company is currently negotiating additional acquisitions and expects
to pursue additional acquisitions of live entertainment businesses in the
future. However, it may be unable to identify and acquire additional suitable
businesses or obtain the financing necessary to acquire the businesses. Future
acquisitions by the Company could result in (a) potentially dilutive issuance
of equity securities, (b) the incurrence of substantial additional indebtedness
and/or (c) the amortization of expenses related to goodwill and other
intangible assets, any or all of which could materially adversely affect the
Company's business, financial condition and results of operations. Acquisitions
involve numerous risks, including difficulties in the assimilation of the
operations, technologies, services and products of the acquired companies and
the diversion of management's attention from other business concerns. If any
acquisition occurs, the Company's business, financial condition and results of
operations may be materially adversely affected. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Recent Developments" and "--Future
Acquisitions."

Each acquisition is subject to the prior approval of the Company's lenders
under the Credit Facility, and financing for any future acquisitions may be
unavailable or restricted by the terms of the Credit Facility and the
Indenture.

RESTRICTIONS IMPOSED BY THE COMPANY'S INDEBTEDNESS

Pursuant to the terms of the Credit Facility, a "Change of Control" will
be deemed to occur if, among other things, Mr. Sillerman beneficially owns less
than 35% of the combined voting power of the outstanding Common Stock. Upon
consummation of the Offering and the Pending Acquisitions, Mr. Sillerman will
beneficially own approximately 38.5% of the combined voting power of the
Company. In addition, pursuant to the terms of the Indenture, a change of
control will be deemed to occur if any party, other than Mr. Sillerman, becomes
the beneficial owner of more than 35% of the combined voting power of the
outstanding Common Stock. In the event of a "Change of Control" under the
Credit Facility, the

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<PAGE>

Company will be required to repay all amounts outstanding under the Credit
Facility, and, in the event of a "Change of Control" under the Indenture, the
Company will be required to offer to repurchase the outstanding Notes.

The Indenture and the Credit Facility also contain a number of significant
covenants that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, repay other
indebtedness, pay dividends, make certain investments or acquisitions,
repurchase or redeem capital stock, engage in mergers or consolidations, or
engage in certain transactions with subsidiaries and affiliates and otherwise
restrict corporate activities. These restrictions may adversely affect the
Company's ability to finance its future operations or capital needs or to
engage in other business activities that may be in the interest of the Company.
In addition, the Indenture and the Credit Facility require the Company to
maintain compliance with certain financial ratios, such as a maximum total
leverage ratio, a maximum senior leverage ratio, a minimum fixed charges ratio,
a minimum pro forma interest expense ratio and a minimum debt service ratio.
The Company's ability to comply with these ratios and limits may be affected by
events beyond its control. A breach of any of these covenants or the inability
of the Company to comply with the required financial ratios or limits could
result in an event of default under the Credit Facility. Such an event of
default could permit the lenders to declare all borrowings outstanding to be
due and payable, to require the Company to apply all of its available cash to
repay its borrowings or to prevent the Company from making debt service
payments on certain portions of its outstanding indebtedness. If the Company
were unable to repay any borrowings when due, the lenders could proceed against
their collateral. The Credit Facility requires the Company and its subsidiaries
to grant the lenders thereunder a continuing security interest in all of their
tangible assets and in the capital stock of the guaranteeing subsidiaries. If
the Company's indebtedness were to be accelerated, there can be no assurance
that the assets of the Company would be sufficient to repay its indebtedness in
full. See "Description of Indebtedness."

There can be no assurance that the Company will be able to obtain a waiver
of these provisions or that sufficient funds will be available at the time of
any Change of Control to refinance its indebtedness. The failure to either
obtain waivers or refinance its indebtedness will result in a material adverse
effect to the Company's business, results of operations and financial
condition. See "--Substantial Leverage," "Principal Stockholders" and
"Description of Indebtedness."

CONTROL BY MANAGEMENT

Upon the consummation of the Offering and the Pending Acquisitions, Mr.
Sillerman will beneficially own approximately 38.5% of the total voting power
of the Common Stock, and all directors and executive officers together will
beneficially own approximately 45.0% of the total voting power of the Common
Stock. Accordingly, these persons will have substantial influence over the
affairs of the Company, including the ability to control the election of a
majority of the Company's Board of Directors (the "Board"), the decision
whether to effect or prevent a merger or sale of assets (except in certain
"going private transactions") and other matters requiring stockholder approval.
Moreover, control by management may have the effect of discouraging certain
types of "change of control" transactions, including transactions in which the
holders of Class A Common Stock might otherwise receive a premium for their
shares. See "--Anti-Takeover Effects," "Management," "Principal Stockholders"
and "Description of Capital Stock."

Mr. Sillerman beneficially owns 1,524,168 shares of Class B Common Stock
representing approximately 34.2% of the total voting power of the Common Stock,
which will allow him to exert substantial control in the election of directors.
Each share of Class B Common Stock automatically converts into a share of Class
A Common Stock upon (a) its sale, gift, or other transfer, voluntary or
involuntary, to a party that is not an Affiliate (as defined in the Certificate
of Incorporation) of Mr. Sillerman or of the Company or (b) upon the death of
Mr. Sillerman, in the case of any shares of Class B Common Stock held by Mr.
Sillerman or any Affiliate of Mr. Sillerman. The terms of the Certificate of
Incorporation contemplate that, absent an event of automatic conversion, the
shares of Class B Common Stock held by Mr. Sillerman could be transferred to a
third-party without losing their special voting rights under certain
circumstances.

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<PAGE>

DEPENDENCE ON KEY PERSONNEL

The success of the Company depends substantially on the abilities and
continued service of certain of its (and its subsidiaries') executive officers
and directors. In particular, the Company will depend on the continued services
of Robert F.X. Sillerman, Michael G. Ferrel, Brian Becker, Howard J. Tytel,
Thomas P. Benson and, upon the consummation of the acquisition of FAME, David
Falk. Although many of these individuals generally have greater experience in
the radio broadcasting business than the live entertainment industry, they do
have significant expertise in selecting, negotiating and financing acquisitions
and in operating and managing public companies. In addition, most of the
Company's directors and executive officers are also currently acting as
directors and executive officers of SFX Broadcasting. Until the consummation of
the SFX Merger, most of these directors and executive officers can be
anticipated to expend substantial time and effort in managing the business of
SFX Broadcasting (which may detract from their performance with respect to the
Company). If the SFX Merger is not consummated, there can be no assurance that
the Company will be able to retain the services of these directors and
executive officers. The Company entered into an employment agreement with Mr.
Becker, and has entered into employment agreements with Messrs. Sillerman,
Ferrel and Benson which will be effective upon consummation of the SFX Merger.
In addition, the Company has agreed in principle to enter into an employment
agreement with Mr. Tytel and has entered into an employment agreement with Mr.
Falk that becomes effective upon the consummation of the acquisition of FAME.
See "--Potential Conflicts of Interest" and "Management."

Furthermore, the operations of each of the Acquired Businesses and the
businesses to be acquired in the Pending Acquisitions are local in nature and
depend to a significant degree on the continued services of certain individuals
at each business. See "Management" and "Certain Relationships and Related
Transactions." The loss of any of these individuals' services could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Absence of Combined Operating History; Potential
Inability to Integrate Acquired Businesses."

POTENTIAL CONFLICTS OF INTEREST

Marquee is a publicly-traded company that, among other things, provides
talent representation services to professional athletes and acts as booking
agent for tours and appearances for musicians and other entertainers. The
Company has indicated to Marquee its potential interest in acquiring Marquee.
Mr. Sillerman has an aggregate equity interest of approximately 9.1% in Marquee
and Mr. Sillerman is the chairman of its board of directors, and Mr. Tytel is
one of its directors. Upon the consummation of the acquisition of FAME, the
Company may directly compete with Marquee in obtaining representation
agreements with particular athletes and endorsement opportunities for its
clients. In addition, the Company anticipates that, from time to time, it will
enter into transactions and arrangements (particularly booking arrangements)
with Marquee and Marquee's clients. In any transaction or arrangement with
Marquee, Messrs. Sillerman and Tytel are likely to have conflicts of interest
as officers and directors of the Company. These transactions or arrangements
will be subject to the approval of a committee of independent members of the
boards of directors of each of the Company and Marquee, except that booking
arrangements in the ordinary course of business will be subject to periodic
review but not the approval of each particular arrangement. Marquee also acts
as a promoter of various sporting events and sports personalities and the
Company produces ice skating and gymnastics events that may compete with events
in which Marquee is involved. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Developments" and
"Certain Relationships and Related Transactions--Potential Conflicts of
Interest."

The Sillerman Companies, Inc. ("TSC"), an entity controlled by Mr.
Sillerman and in which Mr. Tytel also has an equity interest, provides
financial consulting services to Marquee. TSC's services are provided by
certain directors, officers and employees of the Company who are not separately
compensated for their services by TSC. In any transaction, arrangement or
competition with Marquee, Messrs. Sillerman and Tytel are likely to have
conflicts of interest between their duties as officers and directors of the
Company, on the one hand, and their duties as directors of Marquee and their
interests in TSC and Marquee, on the other hand. See "Certain Relationships and
Related Transactions--Triathlon Fees."

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<PAGE>

In addition, prior to the consummation of the SFX Merger, Mr. Sillerman
and other members of the Company's management team will have management
obligations to both SFX Broadcasting and the Company that may cause them to
have conflicts of interest. See "Management" and "Certain Relationships and
Related Transactions--Potential Conflicts of Interest."

RIGHTS TO PURCHASE CERTAIN SUBSIDIARIES

Pursuant to the employment agreement entered into between Brian Becker and
the Company in connection with the PACE acquisition, Mr. Becker has the option,
exercisable within 15 days after February 25, 2000 to acquire the Company's
then existing motor sports line of business (or, if that line of business has
previously been sold, the Company's then existing theatrical line of business)
at its then fair market value. Mr. Becker's exercise of this option could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, during the period between February 25, 1999
and February 25, 2000, Mr. Becker also has a right of first refusal under
certain circumstances to acquire the theatrical or motor sports line of
business at a price equal to 95% of the proposed purchase price. On a pro forma
basis, specialized motor sports would have comprised approximately 6%, and
theater would have comprised approximately 13%, of the Company's total net
revenues for the year ended March 31, 1998. The Don Law seller and the Company
have also agreed to enter into an agreement pursuant to which the assets to be
acquired in the Don Law Acquisition, with certain exceptions, will be subject
to a right of first offer and refusal of the Don Law seller if the Company
elects to sell such assets within two years after the closing of the Don Law
Acquisition. These rights of first refusal may have the effect of discouraging
potential bidders for such lines of business from negotiating with the Company.
See "Management--Employment Agreements and Arrangements with Certain Officers
and Directors" and "Agreements Related to the Pending Acquisitions."

In addition, after the consummation of the Spin-Off or the SFX Merger, the
senior management of Concerts may have the right pursuant to their employment
agreements (a) to purchase the outstanding capital stock of Concerts (a
subsidiary of the Company holding a significant amount of the assets of the
Company) for Fair Market Value (as defined in their employment agreements) or
(b) to receive a cash payment equal to 15% of the amount by which the Fair
Market Value of Concerts exceeds the fixed payment portion of the cash purchase
price of the acquisition of Concerts, plus 20% interest thereon. The senior
management of Concerts and SFX Broadcasting have reached an agreement in
principle to waive the above rights in connection with the Spin-Off, the SFX
Merger and related transactions; however, there can be no assurance that the
rights will be waived on terms acceptable to SFX Broadcasting and the Company
or at all. In addition, although the Company is in the process of negotiating
amendments to these agreements, these and certain other rights described in the
agreements may continue to apply to transactions after, or unrelated to, the
Spin-Off or the SFX Merger. See "Certain Relationships and Related
Transactions--Delsener/Slater Employment Agreements."

The Company has also agreed that it will not sell all, or substantially
all, of BGP's assets prior to February 24, 2001 without offering the BGP
sellers the opportunity to purchase the assets on the same terms as those
included in any bona fide offer received by the Company from any third party.
BGP's right of first refusal may have the effect of discouraging potential
bidders for BGP's assets from negotiating with the Company.

ECONOMIC CONDITIONS AND CONSUMER TASTES; AVAILABILITY OF ARTISTS AND EVENTS

The Company's operations are affected by general economic conditions and
consumer tastes. The demand for live entertainment tends to be highly sensitive
to consumers' disposable incomes, and thus a decline in general economic
conditions that generally reduces consumers' disposable incomes can, in turn,
materially adversely affect the Company's revenues. In addition, the
profitability of events promoted or produced by the Company is directly related
to the ancillary revenues generated by those events, and the ancillary revenues
decrease with lower attendance levels. The success of a music concert,
theatrical show or motor sports event depends on public tastes, which are
unpredictable and susceptible to change, and may also be significantly affected
by the number and popularity of competitive productions, concerts or events as
well as other forms of entertainment. It is impossible for the Company to
predict

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<PAGE>

the success of any music concert, theatrical show or motor sports event. In
addition, decreased attendance, a change in public tastes or an increase in
competition could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company's success and ability to sell tickets (including
subscriptions) is also highly dependent on the availability of popular musical
artists, Touring Broadway Shows and specialized motor sports talent, among
other performers of live entertainment. The Company's results of operations
have been adversely affected in periods where fewer popular musical artists
and/or popular theatrical productions were available for presentation. There
can be no assurance that popular musical artists, theatrical shows or
specialized motor sports talent will be available to the Company in the future.
The lack of availability of these artists and productions could have a material
adverse effect on the Company's business, financial condition and results of
operations.

RISKS RELATED TO THE REPRESENTATION OF ATHLETES

Upon the consummation of the acquisition of FAME, the Company will become
a leading full-service marketing and management company specializing in the
representation of team sports athletes, primarily in professional basketball. A
significant portion of FAME's revenues to date has been derived from a small
number of clients. The Company estimates that five of FAME's clients accounted
for approximately 78% of FAME's revenues for the twelve months ended March 31,
1998 and, on a pro forma basis, FAME's EBITDA would have comprised
approximately 7% of the Company's EBITDA for the same period. The amount of
endorsement and other revenues which these clients generate is a function of,
among other things, such clients' professional performance and public appeal.
Factors beyond the Company's control, such as a client's injury, declining
skill, declining public appeal or conduct in violation of team or league
policy, as well as labor unrest in the sports industry, could have a material
adverse affect on the Company's operations. In the event of a labor
interruption, for example, FAME's revenues related to the negotiation of a
client's contract (absent a retroactive payment for games missed as part of any
settlement) would generally cease for the duration of the stoppage. Endorsement
revenues, which generally require that a player be on an active roster, might
also be affected in the event of a labor interruption. FAME's representation
agreements with its clients are generally for a term equal to the term of the
player's professional sports contract, but are terminable on 15 days' notice
(although FAME would continue to be entitled to the revenue streams generated
during the remaining term of any contracts which it negotiated). The
termination or expiration of FAME's contracts with certain clients could also
have a material adverse effect on the Company's operations and results of
operations.

FUTURE CHARGES TO EARNINGS

Consummation of the Recent Acquisitions and the Pending Acquisitions will
result in substantial charges to earnings relating to interest expense and the
recognition and amortization of goodwill and other intangible assets; these
charges will increase the Company's losses or reduce or eliminate its earnings,
if any. As of March 31, 1998 the Company had goodwill and other intangible
assets of approximately $470.7 million. This balance will substantially
increase due to the Pending Acquisitions. Goodwill and other intangible assets
are being amortized using the straight line method over 15 years. See
"Unaudited Pro Forma Condensed Combined Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Future Charges to Earnings."

In connection with employment agreements entered into, or expected to be
entered into, with certain of its executive officers, the Company sold to such
executive officers an aggregate of 650,000 shares of Class B Common Stock and
190,000 shares of Class A Common Stock at a purchase price of $2.00 per share.
The Company will record a non-cash compensation charge in the second quarter of
1998 of approximately $24 million associated with this sale. In addition, the
Company will recognize a non-cash charge to earnings in the second quarter of
1998 of approximately $7.5 million resulting from the issuance of 247,177
shares of Class A Common Stock to Mr. Sillerman in connection with the Meadows
Repurchase (as defined herein). The amount of such charge is equal to the fair
value of Class A Common Stock received by Mr. Sillerman at the time of the
Meadows Repurchase. Further, the Board, on the

23
<PAGE>

recommendation of its Compensation Committee, also has approved the issuance of
certain "below market" stock options exercisable for an aggregate of 252,500
shares of Class A Common Stock. These options will vest over three years and
will have an exercise price of $5.50 per share. The Company will record
non-cash compensation charges over the three-year exercise period of
approximately $2.0 million annually. The Company will also record non-cash
charges in connection with an anticipated deferred compensation plan for its
non-employee directors equal to the fair market value (on the date of credit)
of the shares of Class A Common Stock which are credited pursuant to such plan.
These substantial non-cash charges to earnings will increase the Company's
losses or reduce or eliminate its earnings, if any. See "--Future Contingent
Payments," "Certain Relationships and Related Transactions,"
"Management--Employment Agreements and Arrangements with Certain Officers and
Directors" and "--Compensation of Directors."

COMPETITION

Competition in the live entertainment industry is intense, and is
fragmented among a wide variety of entities. The Company competes on a local,
regional and national basis with a number of large venue owners and
entertainment promoters for the hosting, booking, promoting and producing of
music concerts, theatrical shows, motor sports events and other live
entertainment events. Moreover, the Company's marketing and consulting
operations compete with advertising agencies and other marketing organizations.
The Company and the businesses to be acquired in the Pending Acquisitions,
compete not only with other live entertainment events, including sporting
events and theatrical presentations, but also with non-live forms of
entertainment, such as television, radio and motion pictures. The talent
representation industry is also highly competitive. The Company competes with
both larger and smaller entities. A number of the Company's competitors have
substantially greater resources than the Company. Certain of the Company's
competitors may also operate on a less leveraged basis, and have greater
operating and financial flexibility, than the Company. In addition, many of
these competitors also have long standing relationships with performers,
producers, and promoters and may offer other services that are not provided by
the Company. There can be no assurance that the Company will be able to compete
successfully in this market or against these competitors.

CONTROL OF VENUES

The Company operates a number of its live entertainment venues under
leasing or booking agreements, and accordingly the Company's long-term success
will depend in part on its ability to renew these agreements when they expire
or terminate. There can be no assurance that the Company will be able to renew
these agreements on acceptable terms or at all, or that it will be able to
obtain attractive agreements with substitute venues. See "Business--The
Company's Live Entertainment Activities--Venue Operations."

REGULATORY MATTERS

The business of the Company is not generally subject to material
governmental regulation. However, if the Company seeks to acquire or construct
new venue operations, its ability to do so will be subject to extensive local,
state and federal governmental licensing, approval and permit requirements,
including, among other things, approvals of state and local land-use and
environmental authorities, building permits, zoning permits and liquor
licenses. Significant acquisitions may also be subject to the requirements of
the HSR Act. Other types of licenses, approvals and permits from governmental
or quasi-governmental agencies might also be required for other opportunities
that the Company may pursue in the future. There can be no assurance that the
Company will be able to obtain the licenses, approvals and permits it may
require from time to time in order to operate its business.

The Company has real property relating to its business, consisting of fee
interests, leasehold interests and other contractual interests. The Company's
properties are subject to foreign, federal, state and local environmental laws
and regulations regarding the use, storage, disposal, emission, release and
remediation of hazardous and non-hazardous substances, materials or wastes,
including laws relating to noise emissions (which may affect, among other
things, the hours of operation of the

24
<PAGE>

Company's venues). Further, under certain of these laws and regulations, the
Company could be held strictly, jointly and severally liable for the
remediation of hazardous substance contamination at its facilities or at
third-party waste disposal sites, and could also be held liable for any
personal or property damage related to any contamination. The Company believes
that it is in substantial compliance with all of these laws and regulations,
and has performed preliminary environmental assessments of all of the
properties that are wholly-owned, without identifying material environmental
hazards. Although the level of future expenditures cannot be determined with
certainty, the Company does not anticipate, based on currently known facts,
that its environmental costs are likely to have a material adverse effect on
the Company's business, financial condition and results of operations.

POTENTIAL VOLATILITY OF STOCK PRICE

As a result of the Spin-Off, stockholders of SFX Broadcasting received
14,626,061 shares of Common Stock that are freely tradeable at the time of the
Offering without restrictions or further registration under the Securities Act,
except that any shares held by "affiliates" of the Company within the meaning
of the Securities Act will be subject to the resale limitations of Rule 144
promulgated under the Securities Act. Because the Spin-Off was made to
stockholders of SFX Broadcasting, who did not make an affirmative decision to
invest in the Class A Common Stock, there can be no assurance that some or all
of these shareholders will not sell the shares of Class A Common Stock into the
market shortly after the Spin-Off. Such trading could increase the volatility
of, and adversely affect the market price of, the Class A Common Stock. See
"Price Range of Class A Common Stock" and "Shares Eligible for Future Sale."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Class A Common Stock in the public market,
or the possibility that these sales may occur, could adversely affect market
prices for Class A Common Stock or the future ability of the Company to raise
capital through an offering of equity securities. Upon consummation of the
Offering and the Pending Acquisitions, the Company will have 27,539,423 shares
of Class A Common Stock and 1,697,037 shares of Class B Common Stock
outstanding (not including shares issuable upon the exercise of outstanding
options). Of those shares, a total of 23,157,843 shares will be freely
tradeable in the public market without restriction under the Securities Act,
unless the shares are held by "affiliates" of the Company (as that term is
defined in Rule 144 under the Securities Act). Under the Underwriting Agreement
and certain agreements entered into between the representatives of the
Underwriters and each of the Company's officers and directors (the "Lock-Up
Agreements") who beneficially hold, in the aggregate 2,388,186 shares of Class
A Common Stock and 1,697,037 shares of Class B Common Stock, such officers and
directors will not, without the prior written consent of Goldman, Sachs & Co.,
during the period commencing on the date hereof and ending 180 days after the
date of this Prospectus, (i) offer, pledge, sell or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
any right to acquire Common Stock, or (ii) enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership
of the Common Stock. The foregoing provisions will not apply to (i) exercise of
options or warrants, or (ii) transfers, without consideration to family members
or to one or more trusts established for the benefit of one or more family
members, provided that the transferee executes and delivers to Goldman, Sachs &
Co., an agreement whereby the transferee agrees to be bound by all of the
foregoing terms and provisions. Goldman, Sachs & Co. in its sole discretion and
at any time without notice, may release all or any portion of the securities
subject to the Lock-Up Agreements or may waive the covenants contained in the
Underwriting Agreement. Any such decision to release securities would likely be
based upon individual stockholder circumstances, prevailing market conditions
and other relevant factors. Any such release could have a material adverse
effect upon the price of the Class A Common Stock. Upon the expiration or
termination of the Lock-Up Agreements, the shares held by affiliates will be
eligible for sale subject to compliance with the provisions of Rule 144 or
pursuant to an effective registration statement filed with the Securities and
Exchange Commission. See "Underwriting."

25
<PAGE>

The 4,216,680 shares of Class A Common Stock issued in connection with the
Recent Acquisitions are "restricted securities" under Rule 144; however, the
Company has obligations to register all or a portion of these shares.

Additionally, pursuant to the acquisition agreement relating to the Don
Law Acquisition, the Company and the Don Law seller have agreed that they (and
the members of the Don Law seller) will enter into a registration rights
agreement regarding the 531,782 shares of Class A Common Stock of the Company
to be issued to the Don Law seller, which agreement will provide for, among
other things: (a) a twelve month lock-up period (provided that the Don Law
seller and its members may continue to engage in hedging other derivative
transactions and other transactions with Affiliates (as defined in such
agreement), (b) a single demand registration right, (c) unlimited piggyback
registration rights (unless sales under Rule 144 and 145 of the Securities Act
are available to the members) and (d) usual and customary underwriting
restrictions with respect to the foregoing. Pursuant to the Underwriting
Agreement, the Company has agreed not to waive these provisions without the
consent of Goldman, Sachs & Co.

In addition, the Company has adopted a stock option plan providing for the
issuance of options to purchase up to 2,000,000 shares of Class A Common Stock.
The Company has granted options to purchase an aggregate of 1,002,500 shares of
Class A Common Stock under such plan. All shares acquired by persons subject to
the Lock-Up Agreements upon exercise of such options will be subject to the
Lock-Up Agreements. The Company anticipates that in the future it will file a
registration statement with the SEC to register the shares issuable upon
exercise of options granted under the plan. See "Management--Employment
Agreements and Arrangements with Certain Officers and Directors" and "Shares
Eligible for Future Sale."

DIVIDEND POLICY

The Company has no present plans to declare any dividends on Class A
Common Stock. The terms of the Indenture and Credit Facility restrict the
Company's ability to pay dividends on Class A Common Stock in the future. The
decision to declare a dividend and the amount thereof, if any, will be in the
sole discretion of the Board.

ANTI-TAKEOVER EFFECTS

The Amended and Restated Certificate of Incorporation of the Company (the
"Company Certificate"), the By-laws of the Company and the Delaware General
Corporation Law (the "DGCL") contain several provisions that could have the
effect of delaying, deferring or preventing a change of control of the Company
in a transaction not approved by the Board. The Company Certificate provides
for the issuance of shares of Class B Common Stock (with 10 votes per share in
most matters), and the holders of these shares will generally be able to
prevent a change of control of the Company if they so desire. In addition, the
Company Certificate authorizes the Board to issue up to 25,000,000 shares of
preferred stock in one or more series and to fix the number of shares and the
relative designations and powers, preferences, and rights, and qualifications,
limitations, and restrictions thereof, without further vote or action by the
stockholders. Issuances of preferred stock could, under certain circumstances,
have the effect of delaying or preventing a change in control of the Company
and may adversely affect the rights of holders of the Common Stock.
Furthermore, the Company is subject to the anti-takeover provisions of Section
203 of the DGCL, which prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for three years after the date of
the transaction in which the person became an interested stockholder (unless
the business combination is approved in a prescribed manner). The application
of Section 203 could also have the effect of delaying or preventing a change in
control of the Company. The Board has also adopted certain other programs,
plans and agreements with the Company's management and/or employees that may
make a change of control more expensive. See "Management," "Principal
Stockholders" and "Description of Capital Stock."

DILUTION

Purchasers of Class A Common Stock in the Offering will be subject to a
substantial and immediate dilution of $55.68 per share (determined by
subtracting the Company's pro forma net tangible book value

26
<PAGE>

per share as of March 31, 1998, adjusted to give effect to the Financing and
the Pending Acquisitions, from the public offering price of $43.25 per share).
On a pro forma basis, as of March 31, 1998, the Company's net tangible book
deficit was $363.4 million as a result of the substantial goodwill and other
intangibles which the Company has acquired in the Recent Acquisitions and
expects to acquire in the Pending Acquisitions.

FRAUDULENT CONVEYANCE

The Board of Directors of SFX Broadcasting determined that at the time of
the Spin-Off and after giving effect thereto, SFX Broadcasting was solvent.
There can be no assurance, however that a court would find the facts relied on
and the judgments made by the Board of Directors of SFX Broadcasting in
determining that SFX Broadcasting was solvent at the time of, and after giving
effect to, the Spin-Off would be binding on creditors of SFX Broadcasting or
that a court would reach the same conclusions as the Board of Directors of SFX
Broadcasting. If a court in a lawsuit filed by an unpaid creditor or
representative of unpaid creditors, such as a trustee in bankruptcy, were to
find that, at the time the Spin-Off was consummated or after giving effect
thereto, SFX Broadcasting (a) was insolvent, (b) was rendered insolvent by
reason of the Spin-Off, (c) was engaged in a business or transaction for which
the remaining assets of SFX Broadcasting constituted unreasonably small capital
or (d) intended to incur, or believed it would incur, debts beyond its ability
to pay as the debts matured, then the court might require the Company to fund
certain liabilities of SFX Broadcasting for the benefit of SFX Broadcasting's
creditors. If the assets of the Company were recovered as fraudulent transfers
by a creditor or trustee of SFX Broadcasting, the relative priority of right to
payment between any financing and any fraudulent transfer claimant would be
unclear, and the Company could be rendered insolvent. In addition, a
corporation generally makes distributions to its stockholders only out of its
surplus (net assets minus capital) and not out of capital. The foregoing
consequences would also apply were a court to find that the Spin-Off was not
made out of SFX Broadcasting's surplus. The Company incurred indebtedness to
finance the Recent Acquisitions, to refinance certain indebtedness of the
Company and the Recent Acquisitions, to pay related fees and expenses, and for
general corporate purposes. Management believes that the indebtedness of the
Company incurred in financing the Recent Acquisitions and the Pending
Acquisitions was for proper purposes and in good faith, and that, based on
present forecasts and other financial information, the Company is solvent, has
sufficient capital for carrying on its business and will be able to pay its
debts as they mature.

The Company believes that, (a) SFX Broadcasting and the Company were
solvent at the time of the Spin-Off, (b) the Company was solvent at the time of
the financing for the Recent Acquisitions and (c) the Spin-Off was made
entirely out of SFX Broadcasting surplus in accordance with applicable law.
However, the Company cannot predict what standard a court might apply in
evaluating these matters, and it is possible that the court would disagree with
the Company's conclusions.

27
<PAGE>

USE OF PROCEEDS

The net proceeds received by the Company from the Offering, after
deducting the underwriting discount and estimated Offering expenses, are
estimated to be approximately $283.6 million (approximately $326.5 million if
the Underwriters' over-allotment option is exercised in full), at a public
offering price of $43.25 per share. The Company intends to use the net proceeds
from the Offering, together with expected borrowings under the Credit Facility,
to make an anticipated tax indemnity payment, to pay the cash portion of the
purchase price of the Pending Acquisitions, to pay certain fees and expenses
and to make certain other payments described below. The following table
represents the Company's best estimate of the allocation of the net proceeds of
the Offering based on the current status of its business. Future events,
including the actual amount of the tax indemnity payment, the timing of the tax
indemnity payment, the actual amount of the cash purchase price of the Pending
Acquisitions or any other potential acquisitions, the availability of other
financing and funds generated from operations and the status of the Company's
business from time to time, may make changes in the allocation of the net
proceeds of the Offering necessary or desirable. See "Risk
Factors--Discretionary Use of Funds."

(5) Includes approximately $300,000 which the Company paid to the Avalon
seller to reimburse their third party out of pocket expenses incurred in
the development of the Camarillo Creek Amphitheater. The Avalon
acquisition was consummated on May 14, 1998. See "Agreements Related to
the Pending Acquisitions."

(7) Includes a loan to be made by the Company to the EMI sellers, expected to
be approximately $750,000. See "Agreements Related to the Pending
Acquisitions."

28
<PAGE>

Certain of the Company's agreements provide for future contingent payments
in certain circumstances. There can be no assurance that the Company will have
sufficient sources of funds to make such payments should they come due. In
addition, the Company is currently negotiating additional acquisitions which,
if consummated, are likely to require additional financing. See "Risk
Factors--Future Contingent Payments," "--Risks Related to the Pending
Acquisitions" and "--Expansion Strategy; Need for Additional Funds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Relationships and Related
Transactions--Indemnification of Mr. Sillerman."

Pending the application of the proceeds of the Financing as provided
herein, such proceeds will be invested in interest bearing U.S. government
securities.

PRICE RANGE OF CLASS A COMMON STOCK

Since April 21, 1998, the Class A Common Stock has been quoted on Nasdaq
National Market under the symbol "SFXE" (between April 21, 1998 and April 27,
1998 the Class A Common Stock traded on a when-issued basis (in which shares
can be traded before certificates are actually available or issued)). Between
February 18, 1998 and April 20, 1998, the Class A Common Stock traded on a
when-issued basis on the over-the-counter market under the symbol "SFXAV." See
"Risk Factors--Potential Volatility of Stock Price." The Class B Common Stock
is not publicly traded.

The following table sets forth the high and the low closing bid
information for the shares of Class A Common Stock as reported on the
over-the-counter market through April 20, 1998 and as reported by the Nasdaq
National Market subsequent to such date. Bid quotations reflect interdealer
prices, without retail mark-up, mark-down or commissions, and may not represent
actual transactions.

<TABLE>
<CAPTION>
CLASS A COMMON STOCK
-------------------------
YEAR ENDING DECEMBER 31, 1998 HIGH LOW
- ------------------------------------------------- ----------- -----------
<S> <C> <C>
First Quarter (since February 18, 1998) ......... $ 25.75 $ 18.50
Second Quarter (through May 20, 1998) ........... 43.63 24.36
</TABLE>

On May 20, 1998, the last reported sales price of the Class A Common Stock
on the Nasdaq National Market was $44.25 per share. As of May 14, 1998, the
Company had 143 holders of record of the Class A Common Stock and two holders
of record of the Class B Common Stock.

DIVIDEND POLICY

The Company has no present plans to declare any dividends on Common Stock.
The terms of the Indenture and Credit Facility restrict the Company's ability
to pay dividends on Common Stock in the future. The decision to declare a
dividend and the amount thereof, if any, will be in the sole discretion of the
Board.

29
<PAGE>

CAPITALIZATION

The following table sets forth, as of March 31, 1998, (a) the historical
capitalization of the Company (giving effect to the recapitalization of the
Company in connection with the Spin-Off) and (b) the pro forma capitalization
of the Company to reflect the Pending Acquisitions, the Financing and the
application of the proceeds therefrom, the Spin-Off and the SFX Merger. This
information should be read in conjunction with the financial statements and the
related notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------
(IN THOUSANDS)
PRO FORMA FOR
THE PENDING
ACQUISITIONS,
THE FINANCING, THE
SPIN-OFF AND
ACTUAL THE SFX MERGER
(UNAUDITED) (UNAUDITED)
------------- -------------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS ..................................................... $ 93,992 $ 105,694
========= =========
DEBT:
Credit Facility ............................................................... $ 150,000 $ 212,990
Notes ......................................................................... 350,000 350,000
Other long-term debt .......................................................... 30,701 30,701
Capital lease obligations ..................................................... 12,302 12,302
--------- ---------
Total debt ................................................................... $ 543,003 $ 605,993
--------- ---------
TEMPORARY EQUITY--STOCK SUBJECT TO REDEMPTION(1) .............................. 16,500 16,500
STOCKHOLDERS' EQUITY(2):
Net capital transferred from SFX Broadcasting ................................. (21,410) --
Preferred Stock, $.01 par value, 25,000,000 shares authorized, 10 shares issued
and outstanding as of March 31, 1998 actual, and none outstanding pro
forma(3) ..................................................................... -- --
Class A Common Stock, $.01 par value, 100,000,000 shares authorized,
13,579,024 shares issued and outstanding as of March 31, 1998 actual, and
27,539,423 shares issued and outstanding pro forma(4) ........................ 136 275
Class B Common Stock, $.01 par value, 10,000,000 shares authorized,
1,047,037 shares issued and outstanding as of March 31, 1998 actual, and
1,697,037 shares issued and outstanding pro forma(4) ......................... 10 17
Paid-in capital ............................................................... 39,975 359,480
Accumulated deficit(5) ........................................................ (23,757) (23,757)
--------- ---------
Total stockholders' (deficit) equity ......................................... $ (5,046) $ 336,015
--------- ---------
Total capitalization ......................................................... $ 554,457 $ 958,508
========= =========
</TABLE>

- ----------
(1) The PACE agreement provides that each PACE seller shall have a Fifth Year
Put Option, exercisable during a period beginning on February 25, 2003
and ending 90 days thereafter, to require the Company to purchase up to
one-third of the Class A Common Stock received by such PACE seller
(representing 500,000 shares in the aggregate) for a cash purchase price
of $33.00 per share. With certain limited exceptions, the Fifth Year Put
Option rights are not assignable by the PACE sellers. The maximum amount
payable under the Fifth Year Put Option ($16.5 million) has been
presented as temporary equity on the pro forma balance sheet.

(2) In connection with the Spin-Off, the Company amended and restated its
certificate of incorporation to, among other things, (a) increase the
authorized number of shares of Class A Common Stock and Class B Common
Stock to 100,000,000 shares and 10,000,000, respectively, and (b)
recapitalize the outstanding shares of Common Stock in order to permit
the distribution of shares in the Spin-Off. See "Description of Capital
Stock."

(3) In February 1998, the Company issued 10 shares of preferred stock in
connection with the Contemporary acquisition, which were converted into
1,402,850 shares of Class A Common Stock at the time of the Spin-Off.

(4) Gives effect on a pro forma basis to the issuance of (a) an aggregate of
13,579,024 shares of Class A Common Stock and 1,047,037 shares of Class B
Common Stock issued in the Spin-Off, (b) an aggregate of 4,216,680 shares
of Class A Common Stock issued pursuant to the Recent Acquisitions, (c)
an aggregate of 522,941 shares of Class A Common Stock issued to the
holders of stock options and SARs issued by SFX Broadcasting, (d) an
aggregate of 395,000 shares of Class A Common Stock issued to Messrs.
Sillermen and Ferrel with respect to the options to be issued pursuant to
their employment agreements with SFX Broadcasting, (e) 75,019 shares of
Class A Common Stock which the Company agreed to issue in connection with
its acquisition of Westbury Music Fair, (f) 7,000,000 shares anticipated
to be issued pursuant to the Offering, (g) 190,000 shares of Class A
Common Stock and 650,000 shares of Class B Common Stock issued to certain
officers of the Company in connection with their employment agreements
and (h) 1,531,782 shares to be issued pursuant to the Pending
Acquisitions. Does not include (a) shares issuable, subject to certain
conditions, upon conversion of the Class B Common Stock, (b) shares
issuable upon exercise of outstanding options and (c) 1,050,000 shares of
Class A Common Stock issuable upon exercise of the Underwriters'
over-allotment option. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors" and "Certain
Relationships and Related Transactions--Issuance of Stock to Holders of
SFX Broadcasting's Options and SARs."

(5) Retained earnings on a pro forma basis have not been adjusted for future
charges to earnings which will result from the issuance of stock and
options granted to certain executive officers and other employees of the
Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources--Future
Charges to Earnings."

30
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Selected Consolidated Financial Data of the Company includes the
historical financial statements of Delsener/
Slater and affiliated companies, the predecessor of the Company, for each of
the four years ended December 31, 1996 and the three months ended March 31,
1998 and the historical financial statements of the Company for the year ended
December 31, 1997 and the three months ended March 31, 1998. The statement of
operations data with respect to Delsener/Slater for the year ended December 31,
1993 and the balance sheet data as of December 31, 1993 and 1994 is unaudited.
The financial information presented below should be read in conjunction with
the information set forth in "Unaudited Pro Forma Condensed Combined Financial
Statements" and the notes thereto and the historical financial statements and
the notes thereto of the Company, the 1997 Acquisitions, the Recent
Acquisitions and the Pending Acquisitions included herein. The financial
information has been derived from the audited and unaudited financial
statements of the Company, the 1997 Acquisitions, the Recent Acquisitions and
the Pending Acquisitions. The pro forma summary data for the year ended
December 31, 1997 and the three months ended March 31, 1998 are derived from
the unaudited pro forma condensed combined financial statements, which, in the
opinion of management, reflect all adjustments necessary for a fair
presentation of the transactions for which such pro forma financial information
is given.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
PREDECESSOR
------------------------------------------------
1997
PRO FORMA
FOR THE
TRANSACTIONS,
1997 THE PENDING
PRO FORMA ACQUISITIONS
FOR THE AND THE
TRANSACTIONS FINANCING
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
---------- ------------- ---------- ------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue ................... $46,526 $92,785 $47,566 $ 50,362 $ 96,144 $ 646,719 $ 779,014
Operating expenses ........ 45,635 90,598 47,178 50,686 83,417 576,913 688,430
Depreciation &
amortization ............. 762 755 750 747 5,431 39,639 56,681
Corporate expenses (1)..... -- -- -- -- 2,206 4,206 5,206
------- ------- ------- -------- ---------- --------- ---------
Operating income
(loss) ................... $ 129 $1,432 $ (362) $ (1,071) $ 5,090 $ 25,961 $ 28,697
Interest expense .......... (148) (144) (144) (60) (1,590) (47,296) (52,414)
Other income
(expense) ................ 85 138 178 198 295 633 1,226
Equity income (loss)
from investments ......... -- (9) 488 524 509 5,417 5,347
------- --------- ------- -------- ---------- --------- ---------
Income (loss) before
income taxes ............. $ 66 $1,417 $ 160 $ (409) $ 4,304 $ (15,285) $ (17,144)
Income tax provision ...... (57) (5) (13) (106) (490) (3,500) (4,200)
------- --------- ------- -------- ---------- --------- ---------
Net income (loss) ......... $ 9 $1,412 $ 147 $ (515) $ 3,814 $ (18,785) $ (21,344)
======= ======== ======= ======== ==========
Accretion on
temporary
equity--stock
subject to
redemption (2) ........... (3,300) (3,300)
--------- ---------
Net loss applicable to
common shares ............ $ (22,085) $ (24,644)
========= =========
Net loss per common
share (3) ................ $ (0.86)
=========
Weighted average
common shares
outstanding (3)(4) ....... 29,236
=========
OTHER OPERATING
DATA:
EBITDA (5) ................ $ 891 $2,187 $ 388 $ (324) $ 10,521 $ 65,600 $ 85,378
======= ======== ======= ======== ========== ========= =========
Cash flow from:
Operating activities...... $2,959 $ (453) $ 4,214 $ 1,005
Investing activities ..... -- -- (435) (73,296)
Financing activities...... (477) (216) (1,431) 78,270
</TABLE>

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED
THREE MONTHS ENDED MARCH 31, MARCH 31,
------------------------------------------- --------------
1998 1998
PRO FORMA PRO FORMA
FOR THE FOR THE
TRANSACTIONS, TRANSACTIONS,
THE PENDING THE PENDING
ACQUISITIONS ACQUISITIONS
AND THE AND THE
1997 1998 FINANCING FINANCING
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue ................... $ 7,789 $ 60,994 $ 187,345 $ 827,916
Operating expenses ........ 7,738 58,175 172,422 729,485
Depreciation &
amortization ............. 660 4,428 14,171 56,681
Corporate expenses (1)..... 858 1,314 1,617 5,565
--------- ---------- --------- ---------
Operating income
(loss) ................... $ (1,467) $ (2,923) $ (865) $ 36,185
Interest expense .......... (103) (6,748) (13,103) (52,414)
Other income
(expense) ................ 26 (17,570) (17,250) (17,136)
Equity income (loss)
from investments ......... -- 445 77 6,362
--------- ---------- --------- ---------
Income (loss) before
income taxes ............. $ (1,544) $ (26,796) $ (31,141) $ (27,003)
Income tax provision ...... -- (500) (650) (3,000)
--------- ---------- --------- ---------
Net income (loss) ......... $ (1,544) $ (27,296) $ (31,141) $ (30,003)
=========
Accretion on
temporary
equity--stock
subject to
redemption (2) ........... (275) (825) (3,300)
---------- --------- ---------
Net loss applicable to
common shares ............ $ (27,571) $ (32,616) $ (33,303)
========== ========= =========
Net loss per common
share (3) ................ $ (1.14) $ (1.16)
========= =========
Weighted average
common shares
outstanding (3)(4) ....... 29,236 29,236
========= =========
OTHER OPERATING
DATA:
EBITDA (5) ................ $ (807) $ 1,505 $ 13,306 $ 92,866
========= ========== ========= =========
Cash flow from:
Operating activities...... $ 307 $ 9,140
Investing activities ..... (22,612) (379,782)
Financing activities...... 24,927 458,654
</TABLE>

31
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
-------------------------------------------------- -----------------------------
PRO FORMA
FOR THE
SPIN-OFF, THE
SFX MERGER, THE
PENDING
ACQUISITIONS
PREDECESSOR AND THE
--------------------------------------- ACTUAL FINANCING
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
--------- --------- --------- --------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets ...................... $1,823 $4,453 $3,022 $6,191 $ 11,220 $149,375 $ 167,021
Property and equipment, net ......... 4,484 3,728 2,978 2,231 59,685 196,732 243,824
Intangible assets, net .............. -- -- -- -- 60,306 470,721 699,430
Total assets ........................ 6,420 8,222 6,037 8,879 146,942 858,426 1,162,199
Current liabilities ................. 4,356 3,423 3,138 7,973 21,514 260,165 140,046
Long-term debt, including current
portion ............................ -- 1,830 -- -- 16,178 543,003 605,993
Temporary equity--stock subject
to redemption(2) ................... -- -- -- -- -- 16,500 16,500
Shareholders' equity (deficit) ...... 6,420 2,969 2,900 907 102,144 (5,046) 336,015(6)
</TABLE>

- --------
(1) Corporate expenses are reduced by $1,794,000 and $1,286,000 for fees
earned from Triathlon for the year ended December 31, 1997 and for the
twelve months ended March 31, 1998, respectively. The right to receive
fees payable under the agreement with Triathlon was assigned to the
Company by SFX Broadcasting in connection with the Spin-Off. Future fees
may vary, above the minimum fee of $500,000, depending upon the level of
acquisition and financing activities of Triathlon. Triathlon has
previously announced that it is exploring ways of maximizing stockholder
value, including possible sale to a third party. In the event that
Triathlon were acquired by a third party, there can be no assurance that
the agreement would continue for the remainder of its term. See "Certain
Relationships and Related Transactions--Triathlon Fees."
(2) The PACE acquisition agreement provides that each PACE seller shall have
a Fifth Year Put Option, exercisable during a period beginning on the
fifth anniversary of the closing of the PACE Acquisition and ending 90
days thereafter, to require the Company to purchase up to one-third of
the Class A Common Stock received by that PACE seller (representing
500,000 shares in the aggregate) for a cash purchase price of $33.00 per
share. With certain limited exceptions, the Fifth Year Put Option rights
are not assignable by the sellers. The maximum amount payable under all
Fifth Year Put Options ($16,500,000) has been presented as temporary
equity on the pro forma balance sheet. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."
(3) Includes 500,000 shares of Class A Common Stock issued to the PACE
sellers in connection with the Fifth Year Put Option; these shares are
not included in calculating the net loss per common share.
(4) Reflects the assumed issuance of 7,000,000 shares of Class A Common Stock
in connection with the Offering and the 1,531,782 shares of Class A
Common Stock to be issued in connection with the Pending Acquisitions.
(5) "EBITDA" is defined as earnings before interest, taxes, other income,
net, equity income (loss) from investments and depreciation and
amortization. Although EBITDA is not a measure of performance calculated
in accordance with GAAP, the Company believes that EBITDA is accepted by
the entertainment industry as a generally recognized measure of
performance and is used by analysts who report publicly on the
performance of entertainment companies. Nevertheless, this measure should
not be considered in isolation or as a substitute for operating income,
net income, net cash provided by operating activities or any other
measure for determining the Company's operating performance or liquidity
which is calculated in accordance with GAAP.
There are other adjustments that could affect EBITDA but have not been
reflected herein. Had such adjustments been made, Adjusted EBITDA on a
pro forma basis would have been approximately $96,465,000 for the year
ended December 31, 1997 and $104,883,000 for the twelve months ended
March 31, 1998, an increase of $8,418,000. The adjustments include the
expected cost savings in connection with the Recent Acquisitions
associated with the elimination of duplicative staffing and general and
administrative expenses of $5,740,000 and $5,655,000, and include equity
income from investments of $5,347,000 and $6,362,000, for the year ended
December 31, 1997 and the twelve months ended March 31, 1998,
respectively. While management believes that such cost savings are
achievable, the Company's ability to fully achieve such cost savings is
subject to numerous factors, certain of which may be beyond the Company's
control.
(6) Stockholders' equity on a pro forma basis have not been adjusted for
future charges to earnings which will result from the issuance of stock
and options granted to certain executive officers and other employees of
the Company or certain other costs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Future Charges to Earnings."

32
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following financial statements (the "Unaudited Pro Forma Condensed
Combined Financial Statements") and notes thereto contain forward-looking
statements that involve risks and uncertainties. The actual results of the
Company may differ materially from those discussed herein for the reasons
identified herein. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.

In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The Unaudited Pro Forma Condensed
Combined Financial Statements are based upon, and should be read in conjunction
with, the historical financial statements of the Company and the businesses
acquired or to be acquired in the 1997 Acquisitions, Recent Acquisitions and
the Pending Acquisitions and the respective notes to such financial statements
included herein. The pro forma information is based upon tentative allocations
of purchase price for the Recent Acquisitions and the Pending Acquisitions, and
does not purport to be indicative of the results that would have been reported
had such events actually occurred on the date specified, nor is it indicative
of the Company's future results. Purchase accounting is based upon preliminary
asset valuations, which are subject to change.

The Unaudited Pro Forma Condensed Combined Balance Sheet at March 31, 1998
is presented as if the Pending Acquisitions, the Financing, the Spin-Off and
the SFX Merger were completed as of March 31, 1998.

The Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1997, the three months ended March 31, 1998 and the
twelve months ended March 31, 1998 are presented as if the Company had
completed the Transactions, the Pending Acquisitions and the Financing as of
January 1, 1997.

In addition, the Unaudited Pro Forma Condensed Combined Financial
Statements do not reflect certain purchase price adjustments and future
contingent payments contained in the agreements relating to the Recent and
Pending Acquisitions. See "Risk Factors--Risks Related to Pending Acquisitions"
and "--Future Contingent Payments" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

The pro forma financial statements do not include the effect of certain
immaterial acquisitions. No adjustments have been made to the Pro Forma
Condensed Combined Statement of Operations relating to charges to earnings that
are non-recurring and related to the transactions presented. See "Risk
Factors--Future Charges to Earnings."

33
<PAGE>

SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA FOR PENDING ACQUISITIONS
------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
SFX OTHER FOR PENDING
ENTERTAINMENT FAME DON LAW ACQUISITIONS(1) ACQUISITIONS
(ACTUAL) I II III IV
--------------- ------------- ------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets ........ $149,375 $ (80,497) $ (66,855) $ (53,803) $ (6,000)
Property and
equipment, net ....... 196,732 60 32,000 15,032
Intangible assets,
net .................. 470,721 127,155 57,479 35,675 6,000
2,400
Other assets .......... 41,598 348 -- 11,357 (1,379)
-------- --------- --------- --------- --------
TOTAL ASSETS .......... $858,426 $ 47,066 $ 22,624 $ 8,261 $ 1,021
======== ========= ========= ========= ========
LIABILITIES &
STOCKHOLDERS'
EQUITY:
Current liabilities ... 245,982 2,405 6,574 5,085
Deferred taxes ........ 50,559 2,400
Senior Subordinated
Notes ................ 350,000
Credit Facility ....... 150,000
Other long-term
debt ................. 30,701
Capital lease
obligations .......... 12,302
Other liabilities ..... 5,858 1,411 50 97
Minority interest ..... 1,570 3,079 (1,379)
Temporary equity--
stock subject to
redemption ........... 16,500
Stockholders' Equity... (5,046) 43,250 16,000
-------- --------- --------- --------- --------
TOTAL LIABILITIES &
STOCKHOLDERS'
EQUITY ............... $858,426 $ 47,066 $ 22,624 $ 8,261 $ 1,021
======== ========= ========= ========= ========
</TABLE>

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA PRO FORMA FOR
THE SPIN-OFF ADJUSTMENTS FOR THE SPIN-OFF, THE SFX MERGER,
AND THE SFX MERGER THE FINANCING(1) THE PENDING ACQUISITIONS
V VI AND THE FINANCING
-------------------- ------------------ ------------------------------
<S> <C> <C> <C>
ASSETS:
Current assets ........ $ (121,739) $283,550 $ 167,021
62,990
--
Property and
equipment, net ....... 243,824
Intangible assets,
net .................. 699,430
Other assets .......... 51,924
----------
TOTAL ASSETS .......... $ (121,739) $346,540 $1,162,199
========== ============= ==========
LIABILITIES &
STOCKHOLDERS'
EQUITY:
Current liabilities ... (120,000) 140,046
Deferred taxes ........ 52,959
Senior Subordinated
Notes ................ 350,000
Credit Facility ....... 62,990 212,990
Other long-term
debt ................. 30,701
Capital lease
obligations .......... 12,302
Other liabilities ..... 7,416
Minority interest ..... 3,270
Temporary equity--
stock subject to
redemption ........... 16,500
Stockholders' Equity... (5,000) 283,550 336,015
3,261
---------- -------- -------
TOTAL LIABILITIES &
STOCKHOLDERS'
EQUITY ............... $ (121,739) $346,540 $1,162,199
========== ============= ==========
</TABLE>

- -------
(1) On May 14, 1998, the Company consummated the acquisition of Avalon and
borrowed $27,500,000 under the Credit Facility in connection with such
acquisition.

34
<PAGE>

I. FAME ACQUISITION

<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 (IN THOUSANDS)
--------------------------------------------------
PRO FORMA FAME
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------------- ------------
<S> <C> <C> <C>
ASSETS:
Current assets ................................... $ 1,743 $ (82,240)(a) $ (80,497)
Property and equipment, net ...................... 60 -- 60
Intangible assets, net ........................... -- 127,155 (b) 127,155
Other assets ..................................... 348 -- 348
-------- ---------- ---------
TOTAL ASSETS ..................................... $ 2,151 $ 44,915 $ 47,066
======== ========== =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities .............................. 2,405 -- 2,405
Other long-term debt ............................. 344 (344)(c) --
Other liabilities ................................ 1,411 1,411
Stockholders' Equity ............................. (2,009) 2,009 (d) 43,250
43,250
----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ......... $ 2,151 $ 44,915 $ 47,066
======== ========== =========
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) To reflect the FAME acquisition for $82,240,000 in cash (including
$7,900,000 which the Company anticipates paying in connection with
certain taxes to be incurred by FAME and the FAME sellers) and the
issuance of 1.0 million shares of Class A Common Stock.

(b) To reflect the excess of the purchase price over the net tangible
assets acquired.

(d) To reflect the elimination of FAME's stockholders' equity.

35
<PAGE>

II. DON LAW ACQUISITION

<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 (IN THOUSANDS)
-----------------------------------------------
PRO FORMA DON LAW
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------------- ------------
<S> <C> <C> <C>
ASSETS:
Current assets ................................... $ 7,145 $ (74,000)(a) $ (66,855)
Property and equipment, net ...................... 13,025 18,975 (b) 32,000
Intangible assets, net ........................... 157 57,322 (c) 57,479
------- ---------- ---------
TOTAL ASSETS ..................................... $20,327 $ 2,297 $ 22,624
======= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities .............................. $ 6,574 6,574
Long-term debt ................................... 10,514 (10,000)(a) --
(514)(d)
Other liabilities ................................ 50 -- 50
Stockholders' Equity ............................. 3,189 (3,189)(e) 16,000
16,000 (a)
------- ---------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ......... $20,327 $ 2,297 $ 22,624
======= ========== =========
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS

(a) To reflect the Don Law acquisition for $74,000,000 in cash
(including the repayment of up to $10,000,000 of the seller's debt)
and the issuance of shares of Class A Common Stock valued at
$16,000,000 (531,782 shares based on a negotiated per-share price of
$30.0875). The Company may, at its option, elect to pay the full
purchase price in cash in lieu of capital stock.

(b) To reflect the increase in fair value allocated to fixed assets.

(d) To reflect the repayment by the seller of the remaining long-term
debt at closing.

(e) To reflect the elimination of Don Law's stockholders' equity.

36
<PAGE>

III. OTHER ACQUISITIONS

<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 (IN THOUSANDS)
---------------------------------------------------------------------------
TOTAL
AVALON OAKDALE EMI PRO FORMA OTHER
ACQUISITION ACQUISITION ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- ------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets ......................... $2,871 $4,997 $1,300 $ (26,800)(a) $ (53,803)
(23,250)(a)
(9,250)(a)
(2,871)(c)
(800)(f)
Property and equipment, net ............ 3,505 364 11,163 (b) 15,032
Intangible assets, net ................. 257 11,001 (b) 35,675
24,417 (b)
Other assets ........................... 2,337 7 11,350 (a) 11,357
(2,337)(c)
------ ------ ------ ---------- ---------
TOTAL ASSETS ........................... $8,970 $5,361 $1,307 $ (7,377) $ 8,261
====== ====== ====== ========== =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities .................... $2,493 $4,624 $ 461 $ (2,493)(c) $ 5,085
Long term debt ......................... 1,124 800 (1,124)(c) --
(800)(f)
Other liabilities ...................... -- 97 -- 97
Minority interest ...................... 1,379 1,700 (g) 3,079
Stockholders' Equity ................... 3,974 737 (51) (737)(d) --
51 (e)
(3,974)(c)
------ ------ ------ ---------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $8,970 $5,361 $1,307 $ (7,377) $ 8,261
====== ====== ====== ========== =========
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) To reflect the consummation of the Avalon acquisition on May 14,
1998 for $26,800,000 in cash (including reimbursement of $300,000 in
out-of-pocket costs and expenses incurred in connection with the
development of the Camarillo Creek Amphitheatre and to reflect the
Oakdale acquisition for $23,250,000 in cash (including a
non-recourse loan to the sellers of Oakdale in the amount of
$11,350,000 a portion of which will be used to repay outstanding
indebtedness), and the EMI acquisition for $9,250,000 in cash
(including a loan to the EMI sellers of approximately $750,000).

(b) To reflect the excess of the purchase price paid over the fair value
of net tangible assets of $24,417,000 and $11,001,000 for the Avalon
and EMI acquisitions, respectively. Also to reflect the increase in
fair value allocated to fixed assets of $11,163,000 associated with
the Oakdale acquisition.

(c) To reflect the elimination of the historical balances of current
assets, current liabilities, other assets, long term debt, and
stockholders' equity of the Avalon acquisition.

(d) To reflect the elimination of Oakdale stockholders' equity.

(e) To reflect the elimination of EMI's stockholders' deficiency.

(f) To reflect the repayment by the Company of EMI's long-term debt at
closing.

(g) To record minority interest for the 20% of EMI not purchased by the
Company.

37
<PAGE>

IV. PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS

Reflects $6,000,000 in estimated fees and expenses associated with the Pending
Acquisitions.

Reflects deferred taxes of $2,400,000 associated with the differences between
the book and tax bases of assets and liabilities acquired in the Avalon
acquisition.

Reflects the elimination of $1,379,000 of minority interest recorded by Avalon
related to its investment in a partnership which operates the Irvine and Glen
Helen Amphitheatres. The Company currently owns the remaining 50% of the
partnership.

V. PRO FORMA ADJUSTMENTS FOR THE SPIN-OFF AND THE SFX MERGER

To reflect (i) the assumption of the obligation to pay an estimated $120.0
million of certain taxes resulting from the Spin-Off and (ii) the payment of
Working Capital by SFX Broadcasting to the Company upon consummation of the SFX
Merger. On a pro forma basis, as of March 31, 1998, the amount of Working
Capital to be paid by SFX Broadcasting to the Company would have been
$3,261,000. Also reflects $5.0 million of change of control payments under the
employment agreements of Messrs. Sillerman, Ferrel and Benson assumed by the
Company pursuant to the Distribution Agreement.

VI. PRO FORMA ADJUSTMENTS FOR THE FINANCING

Represents amounts used to finance the Pending Acquisitions including the
estimated net proceeds from the Offering of $283,550,000 and additional
borrowings under the Credit Facility of $62,990,000 (including $27,500,000
which the Company borrowed in order to complete to the Avalon acquisition).

38
<PAGE>

SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA FOR THE PENDING ACQUISITIONS
---------------------------------------------------
PRO FORMA
SFX ADJUSTMENTS
ENTERTAINMENT PRO FORMA FOR FOR THE PENDING
(ACTUAL) THE TRANSACTIONS FAME DON LAW OTHER(2) ACQUISITIONS
I II III IV V VI
-------------- ------------------ ---------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .......................... $96,144 $ 646,719 $10,881 $50,588 $70,826
Operating expenses ............... 83,417 576,913 3,457 43,741 64,319
Depreciation & amortization ...... 5,431 39,639 115 2,033 461 $ 14,433
Corporate expenses ............... 2,206 4,206 -- -- -- 1,000
------- --------- ------- ------- ------- ---------
Operating income (loss) .......... 5,090 25,961 7,309 4,814 6,046 (15,433)
Interest expense ................. 1,590 47,296 79 1,072 1,643 (2,794)
Other (income) expenses .......... (295) (595) (143) (329) (121)
Equity (income) loss from
investments ..................... (509) (5,417) -- -- 70
Other expenses ................... (38)
---------
Income/(loss) before income
tax expense ..................... 4,304 (15,285) 7,373 4,071 4,454 (12,639)
Income tax expense (benefit) 490 3,500 700 -- 949 (949)
------- --------- ------- ------- ------- ---------
Net income (loss) ................ $ 3,814 $ (18,785) $ 6,673 $ 4,071 $ 3,505 $ (11,690)
======= ======= ======= ======= =========
Accretion on temporary equity (3,300)
---------
Net loss applicable to
common shares ................... $ (22,085)
=========
Net loss per common share ........
Weighted average common
shares outstanding (1) ..........
</TABLE>

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA FOR
ADJUSTMENTS FOR THE TRANSACTIONS, THE
THE FINANCING(2) PENDING ACQUISITIONS
VII AND THE FINANCING
------------------ ----------------------
<S> <C> <C>
Revenue .......................... $ -- $ 779,014
Operating expenses ............... -- 688,430
Depreciation & amortization ...... -- 56,681
Corporate expenses ............... -- 5,206
-------- ---------
Operating income (loss) .......... -- 28,697
Interest expense ................. 5,118 52,414
Other (income) expenses .......... -- (1,188)
Equity (income) loss from
investments ..................... -- (5,347)
Other expenses ................... (38)
---------
Income/(loss) before income
tax expense ..................... (5,118) (17,144)
Income tax expense (benefit) -- 4,200
-------- ---------
Net income (loss) ................ $ (5,118) $ (21,344)
========
Accretion on temporary equity (3,300)
---------
Net loss applicable to
common shares ................... $ (24,644)
=========
Net loss per common share ........ $ (0.86)
=========
Weighted average common
shares outstanding (1) .......... 29,236
=========
</TABLE>

- -------
(1) Includes 500,000 shares of Class A Common Stock issued to the PACE
sellers in connection with the Fifth Year Put Option (such shares are not
included in calculating the net loss per common share) and the assumed
issuance of 7.0 million and approximately 1.5 million shares of Class A
Common Stock in connection with the Offering and the Pending
Acquisitions, respectively.

(2) On May 14, 1998, the Company consummated the acquisition of Avalon and
borrowed $27,500,000 under the Credit Facility in connection with such
acquisition.

39
<PAGE>

NOTES TO PRO FORMA INCOME STATEMENT:

I.Represents the Company's actual operating results for the year ended
December 31, 1997.

EBITDA for the year ended December 31, 1997 was $10,521,000 and $85,378,000
for the Company on an actual basis and a pro forma basis, respectively.
EBITDA is defined as earnings before interest, taxes, other income, net,
equity income (loss) from investments and depreciation and amortization.
Although EBITDA is not a measure of performance calculated in accordance
with GAAP, the Company believes that EBITDA is accepted by the entertainment
industry as a generally recognized measure of performance and is used by
analysts who report publicly on the performance of entertainment companies.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining the Company's operating
performance or liquidity which is calculated in accordance with GAAP. Cash
flows from operating, investing and financing activities for the Company for
the year ended December 31, 1997 were $1,005,000, ($73,296,000) and
$78,270,000, respectively.

There are other adjustments that could affect EBITDA but have not been
reflected herein. Had such adjustments been made, Adjusted EBITDA on a pro
forma basis would have been approximately $96,465,000 for the year ended
December 31, 1997. The adjustments include the expected cost savings in
connection with the Recent Acquisitions associated with the elimination of
duplicative staffing and general and administrative expenses of $5,740,000,
and include equity income from investments of $5,347,000. While management
believes that such cost savings are achievable, the Company's ability to
fully achieve such cost savings is subject to numerous factors, certain of
which may be beyond the Company's control.

Corporate expenses are net of fees from Triathlon of $1,794,000. These fees
will vary, above the minimum level of $500,000, based on the level of
acquisition and financing activities of Triathlon. Sillerman Communications
Management Corporation ("SCMC") previously assigned its rights to receive
fees payable under its agreement with Triathlon to SFX Broadcasting.
Pursuant to the terms of the Distribution Agreement, SFX Broadcasting
assigned its rights to receive such fees to the Company. Triathlon has
previously announced that it is exploring ways of maximizing stockholder
value, including possible sale to a third party. In the event that Triathlon
were acquired by a third party, there can be no assurance that the agreement
would continue for the remainder of its term.

II. PRO FORMA FOR THE TRANSACTIONS

The Transactions consist of the 1997 Acquisitions, the Recent
Acquisitions, the Offering, the Spin-Off and the SFX Merger. It is assumed that
7,000,000 shares of the Class A Common Stock will be issued in connection with
the Offering.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
------------------------------------------------------------
PRO FORMA PACE
SFX FOR 1997 AND PAVILION CONTEMPORARY
ENTERTAINMENT ACQUISITIONS ACQUISITIONS ACQUISITION
(ACTUAL) A B C
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue ........................... $96,144 $14,243 $284,360 $103,300
Operating expenses ................ 83,417 13,293 260,256 91,220
Depreciation & amortization ....... 5,431 1,402 6,053 1,320
Corporate expenses ................ 2,206 -- --
Other expenses .................... -- -- --
------- -------- --------
Operating income (loss) ........... 5,090 (452) 18,051 10,760
Interest expense .................. 1,590 171 6,772 266
Other (income) expenses ........... (295) (1) 1,328 (357)
Equity (income) loss from
investments ...................... (509) -- (7,399) --
Other expenses .................... -- -- (38) --
------- -------- -------- --------
Income (loss) before income tax
expense .......................... 4,304 (622) 17,388 10,851
Income tax expense (benefit) ...... 490 -- 3,569 --
------- -------- -------- --------
Net income (loss) ................. $ 3,814 $ (622) $ 13,819 $ 10,851
======= ======== ======== ========
Accretion on temporary equity .....
Net income (loss) applicable to
common share .....................
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
---------------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
PRO FORMA FOR THE
CONCERTS ADJUSTMENTS FINANCING OF
BGP NETWORK SOUTHERN FOR THE RECENT THE RECENT PRO FORMA
ACQUISITION ACQUISITION ACQUISITION ACQUISITIONS ACQUISITIONS FOR THE
D E F G H TRANSACTIONS
------------- ------------- ------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ........................... $105,553 $28,322 $14,797 $ -- $ 646,719
Operating expenses ................ 96,630 19,577 12,520 -- 576,913
Depreciation & amortization ....... 1,027 351 79 23,976 (a) 39,639
Corporate expenses ................ -- -- -- 2,000 (b) 4,206
Other expenses .................... -- -- -- -- --
-------- ------- ------- ---------- --------- ---------
Operating income (loss) ........... 7,896 8,394 2,198 (25,976) 25,961
Interest expense .................. 917 195 -- (8,150)(c) 45,535 47,296
--
Other (income) expenses ........... (270) (78) (60) (862)(d) (595)
Equity (income) loss from
investments ...................... -- -- 48 862 (d) (5,417)
1,581 (g)
Other expenses .................... -- -- -- (38)
-------- ------- ------- ---------- --------- ---------
Income (loss) before income tax
expense .......................... 7,249 8,277 2,210 (19,407) (45,535) (15,285)
Income tax expense (benefit) ...... 1,687 127 -- (2,373)(e) 3,500
-------- ------- ------- ---------- --------- ---------
Net income (loss) ................. $ 5,562 $ 8,150 $ 2,210 $ (17,034) $ (45,535) $ (18,785)
======== ======= ======= =========
Accretion on temporary equity ..... (3,300)(f) (3,300)
---------- ---------
Net income (loss) applicable to
common share ..................... $ (20,334) $ (22,085)
========== =========
</TABLE>

40
<PAGE>

A. The Company acquired Delsener/Slater, the Meadows Music Theater and
Sunshine Promotions on January 2, 1997, March 20, 1997 and June 24, 1997,
respectively. These adjustments represent the operating results of the
Meadows Music Theater and Sunshine Promotions prior to their acquisitions
by the Company.

B. PACE AND PAVILION ACQUISITIONS

Reflects the PACE acquisition, the separate acquisition of two partners'
interest in the Pavilion partnership that owns certain amphitheaters operated
by PACE and the acquisition of USA Motor Sports by PACE in March 1998.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1997 (IN THOUSANDS)
------------------------------------------------------------------------------
PACE PAVILION USA MOTOR PRO FORMA PACE
AS REPORTED AS REPORTED SPORTS ADJUSTMENTS ACQUISITION
------------- ------------- ----------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue .............................. $176,168 $ 98,632 $8,560 $ 1,000(a) $284,360
Operating expenses ................... 170,169 83,258 8,306 (1,477)(b) 260,256
Depreciation & amortization .......... 1,985 4,045 23 -- 6,053
Other expenses ....................... 1,139 -- -- (1,139)(c) --
-------- -------- ------ --------- --------
Operating income (loss) .............. $ 2,875 $ 11,329 $ 231 $ 3,616 $18,051
Interest expense ..................... 2,384 4,388 -- -- 6,772
Other (income) expenses .............. 53 1,304 (29) -- 1,328
Equity (income) loss from
investments ......................... (8,134) (1,831) -- 2,566 (d) (7,399)
Other expenses ....................... -- -- (38) -- (38)
-------- -------- ------ --------- --------
Income/(loss) before income tax
expense ............................. $ 8,572 $ 7,468 298 $ 1,050 $17,388
Income tax expense (benefit) ......... 3,569 -- -- -- 3,569
-------- -------- ------ --------- --------
Net income (loss) .................... $ 5,003 $ 7,468 $ 298 $ 1,050 $13,819
======== ======== ====== ========= ========
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) To reflect non-cash revenue resulting from the Company granting
Blockbuster naming rights to three venues for two years for no
future consideration as part of its agreement to acquire
Blockbuster's indirect 33 1/3% interest in Pavilion.

(b) Reflects the elimination of $570,000 of certain officers' salaries
and bonuses which will not be paid under the Company's new
employment contracts and of $907,000 of non-recurring costs incurred
in connection with PACE's previously planned initial public
offering, which was canceled. The amount of the pro forma adjustment
to eliminate salaries and bonuses is based on the Company's
agreements with the affected employees that a bonus will not be paid
unless there is a significant improvement in the results of the PACE
acquisition. Accordingly, no such bonus is reflected in the pro
forma statement of operations because, if PACE's results were
similar to those in these pro forma statements of operations, the
Company would not be contractually obligated to pay a bonus.

(d) To eliminate PACE's income from its 33 1/3% equity investment in
Pavilion Partners.

41
<PAGE>

C. CONTEMPORARY ACQUISITION

Reflects the Contemporary acquisition and the separate acquisition of the
remaining 50% interest in Riverport Amphitheater Partners, a partnership that
owns an amphitheater in St. Louis, Missouri that is operated by Contemporary.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-------------------------------------------------------------
CONTEMPORARY RIVERPORT PRO FORMA CONTEMPORARY
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITION
-------------- ------------- ------------------ -------------
<S> <C> <C> <C> <C>
Revenue ...................................... $ 89,053 $14,247 $ -- $103,300
Operating expenses ........................... 90,820 11,630 (11,230)(a) 91,220
Depreciation & amortization .................. 541 779 -- 1,320
-------- ------- ---------- --------
Operating income (loss) ...................... $ (2,308) $ 1,838 $ 11,230 $ 10,760
Interest expense ............................. 192 74 -- 266
Other (income) expenses ...................... (117) (240) -- (357)
Equity (income) from investments ............. (1,002) -- 1,002 (b) --
-------- ------- ---------- --------
Income/(loss) before income tax expense ...... $ (1,381) $ 2,004 $ 10,228 $ 10,851
Income tax expense (benefit) ................. -- -- -- --
-------- ------- ---------- --------
Net income (loss) ............................ $ (1,381) $ 2,004 $ 10,228 $ 10,851
======== ======= ========== ========
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) Reflects the elimination of certain officers' salaries and bonuses
and other consulting expenses which will not be paid under the
Company's new employment and other contracts. The amount of the pro
forma adjustment to eliminate salaries and bonuses is based on the
Company's agreements with the affected employees that a bonus will
not be paid unless there is a significant improvement in the results
of Contemporary. Accordingly, no such bonus is reflected in the pro
forma statement of operations because, if Contemporary's results
were similar to those in these pro forma statements of operations,
the Company would not be contractually obligated to pay a bonus.

(b) Reflects the elimination of Contemporary's equity income in
Riverport Amphitheater Partners. Contemporary has acquired its
partners' 50% interest in this venture.

D. BGP ACQUISITION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
----------------------------------------------------
PRO FORMA BGP
AS REPORTED (A) ADJUSTMENTS ACQUISITION
----------------- ----------------- ------------
<S> <C> <C> <C>
Revenue ......................................... $105,553 $ -- $105,553
Operating expenses .............................. 99,958 (3,328)(b) 96,630
Depreciation & amortization ..................... 1,027 -- 1,027
-------- --------- --------
Operating income ................................ $ 4,568 $ 3,328 $ 7,896
Interest expense ................................ 917 -- 917
Other (income) expenses ......................... (270) -- (270)
-------- --------- --------
Income/(loss) before income tax expense ......... $ 3,921 $ 3,328 $ 7,249
Income tax expense (benefit) .................... 1,687 -- 1,687
-------- --------- --------
Net income ...................................... $ 2,234 $ 3,328 $ 5,562
======== ========= ========
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) Reflects BGP's operating results for the twelve months ended January
31, 1998.

(b) Reflects the elimination of certain officers' salaries and bonuses
and other consulting expenses which will not be paid under the
Company's new employment and other contracts. The amount of the pro
forma adjustment to eliminate salaries and bonuses is based on the
Company's agreements with the affected employees that a bonus will
not be paid unless there is a significant improvement in the results
of BGP. Accordingly, no such bonus is reflected in the pro forma
statement of operations

42
<PAGE>

because, if BGP's results were similar to those in these pro forma
statements of operations, the Company would not be contractually obligated
to pay a bonus.

E. NETWORK ACQUISITION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
------------------------------------------------------------------
THE NETWORK
MAGAZINE SJS PRO FORMA NETWORK
AS REPORTED AS REPORTED ADJUSTMENTS ACQUISITIONS
------------- ------------- ------------------ -------------
<S> <C> <C> <C> <C>
Revenue ......................................... $16,274 $14,218 $ (2,170)(b) $28,322
Operating expenses .............................. 14,651 14,422 (2,170)(b) 19,577
(7,326)(a)
Depreciation & amortization ..................... 224 127 351
------- ------- --------- -------
Operating income (loss) ......................... $ 1,399 $ (331) $ 7,326 $ 8,394
Interest expense, net ........................... 159 36 -- 195
Other (income) expenses ......................... -- (78) -- (78)
------- ------- --------- -------
Income/(loss) before income tax expense ......... $ 1,240 $ (289) $ 7,326 $ 8,277
Income tax expense (benefit) .................... -- (127) -- (127)
------- ------- --------- -------
Net income (loss) ............................... $ 1,240 $ (416) $ 7,326 $ 8,150
======= ======= ========= =======
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) Reflects the elimination of certain officers' salaries and bonuses
which will not be paid under the Company's new employment contracts.
The amount of the pro forma adjustment to eliminate salaries and
bonuses is based on the Company's agreements with the affected
employees that a bonus will not be paid unless there is a
significant improvement in the results of the Network acquisitions.
Accordingly, no such bonus is reflected in the pro forma statement
of operations because, if Network's results were similar to those in
these pro forma statements of operations, the Company would not be
contractually obligated to pay a bonus.

(b) Reflects the elimination of transactions between Network Magazine
and SJS.

F. CONCERT/SOUTHERN ACQUISITION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
----------------------------------------------
CONCERT/
PRO FORMA SOUTHERN
AS REPORTED ADJUSTMENTS ACQUISITION
------------- --------------- ------------
<S> <C> <C> <C>
Revenue ....................................... $14,797 $ -- $14,797
Operating expenses ............................ 12,949 (429)(a) 12,520
Depreciation & amortization ................... 79 -- 79
------- ------- -------
Operating income .............................. $ 1,769 $ 429 $ 2,198
Other (income) expenses ....................... (60) -- (60)
Equity (income) loss from investments ......... 80 (32)(b) 48
------- ------- -------
Income before income tax expense .............. $ 1,749 $ 461 $ 2,210
Income tax expense (benefit) .................. -- -- --
------- ------- -------
Net income .................................... $ 1,749 $ 461 $ 2,210
======= ======= =======
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) Reflects the elimination of certain officers' salaries and bonuses
which will not be paid under the Company's new employment contracts.
The amount of the pro forma adjustment to eliminate salaries and
bonuses is based on the Company's agreements with the affected
employees that a bonus will not be paid unless there is a
significant improvement in the results of Concert/Southern.
Accordingly, no such bonus is reflected in the pro forma statement
of operations because, if Concert/Southern's results were similar to
those in these pro forma statements of operations, the Company would
not be contractually obligated to pay a bonus.

43
<PAGE>

(b) Reflects the elimination of equity loss of a non-entertainment
affiliated entity which was not acquired by the Company.

G. PRO FORMA ADJUSTMENTS

(a) Reflects the increase in depreciation and amortization resulting
from the preliminary purchase accounting treatment of the Recent
Acquisitions. The Company amortizes goodwill over 15 years.

(b) To record incremental corporate overhead charges associated with
headquarters personnel and general and administrative expenses that
management estimates will be necessary as a result of the Recent
Acquisitions.

(d) To reclassify Delsener/Slater's equity income in the PNC Bank Arts
Center venue following the acquisition of Pavilion Partners, which
owns the other 50% equity interest in the venue.

(e) Represents an adjustment to the provision for state and local income
taxes to reflect an approximate pro forma tax provision of
$3,500,000. The calculation treats all companies acquired pursuant
to the Recent Acquisitions as "C" Corporations. The tax provision
reflects the non-deductibility of approximately $17,000,000 of
goodwill amortization, and tax savings related to the pro forma
adjustments for the Financing.

(f) Represents the accretion on the Fifth Year Put Option issued to the
PACE sellers in connection with the PACE acquisition.

(g) To reclassify PACE's equity income in Avalon following the Avalon
acquisition.

H. PRO FORMA ADJUSTMENTS FOR THE FINANCING OF THE RECENT ACQUISITIONS

Reflects interest expense associated with the Notes, the initial
borrowings under the Credit Facility and other debt and deferred
compensation costs related to the 1997 and the Recent Acquisitions.

III. FAME ACQUISITION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
--------------------------------------------------
PRO FORMA FAME
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------------- ------------
<S> <C> <C> <C>
Revenue ......................................... $ 10,881 $10,881
Operating expenses .............................. 13,002 $ (10,595)(a) 3,457
1,050 (b)
Depreciation & amortization ..................... 115 115
-------- ---------- -------
Operating income (loss) ......................... (2,236) 9,545 7,309
Interest expense ................................ 79 79
Other (income) expenses ......................... (143) (143)
-------- ---------- -------
Income/(loss) before income tax expense ......... (2,172) 9,545 7,373
Income tax expense (benefit) .................... 700 (c) 700
---------- -------
Net income (loss) ............................... $ (2,172) $ 8,845 $ 6,673
======== ========== =======
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) Reflects the elimination of certain officers' distributions of
earnings which will not be paid under the Company's new employment
contracts. The FAME Agreement provides for payments by the Company
to the FAME sellers of additional amounts up to an aggregate of
$15.0 million in equal annual installments over 5 years contingent
on the achievement of certain EBITDA targets and for additional
payments by the Company if FAME's EBITDA performance exceeds the
target by certain amounts.

(b) Reflects salaries and officers' life insurance premiums to be paid
by the Company.

44
<PAGE>

IV. DON LAW ACQUISITION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
-----------------------------------------------
PRO FORMA DON LAW
AS REPORTED ADJUSTMENTS(C) ACQUISITION
------------- ---------------- ------------
<S> <C> <C> <C>
Revenue ......................................... $50,588 $50,588
Operating expenses .............................. 44,401 (610)(a) 43,741
(50)(b)
Depreciation & amortization ..................... 2,033 2,033
------- ------- -------
Operating income (loss) ......................... $ 4,154 660 $ 4,814
Interest expense ................................ 1,072 1,072
Other (income) expenses ......................... (329) (329)
------- ------- -------
Income/(loss) before income tax expense ......... $ 3,411 660 $ 4,071
Income tax expense (benefit) .................... --
-------
Net income (loss) ............................... $ 3,411 $ 660 $ 4,071
======= ======= =======
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) Reflects the elimination of payments made to employees by the
principal owner of Don Law in connection with the sale of membership
interests to a third party in 1997.

(b) Reflects the elimination of certain officers' bonuses and wages not
expected to be paid under the Company's new employment contracts.
The amount of the pro forma adjustment to eliminate salaries and
bonuses is based on the Company's agreements with the affected
employees that a bonus will not be paid unless there is a
significant improvement in the results of Don Law. Accordingly, no
such bonus is reflected in the pro forma statement of operations
because, if Don Law's results were similar to those in these pro
forma statements of operations, the Company would not be
contractually obligated to pay a bonus.

(c) The pro forma adjustments for Don Law do not reflect the impact of
certain new business opportunities in 1998 including an agreement to
provide ticketing services for the Boston Red Sox, a new long-term
concessions contract at Great Woods and an opportunity to sell the
naming rights at Harborlights Pavilion. These opportunities are
expected to have a significant positive impact on Don Law's 1998
operating results. However, there can be no assurance that the
Company will be able to achieve such improvements. See "Risk
Factors."

V. OTHER ACQUISITIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
------------------------------------------------------------------------
AVALON OAKDALE EMI PRO FORMA OTHER
ACQUISITION ACQUISITION ACQUISITION ADJUSTMENTS ACQUISITION
------------- ------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue ................................... $27,265 $16,435 $27,126 $70,826
Operating expenses ........................ 24,404 14,720 27,035 (1,840)(a) 64,319
Depreciation & amortization ............... 410 51 461
Corporate expenses ........................ --
Other expenses ............................ --
------- ------- ------- ------ -------
Operating income (loss) ................... 2,451 $ 1,664 $ 91 1,840 6,046
Interest expense .......................... 94 1,508 41 1,643
Other (income) expenses ................... -- (79) (42) (121)
Equity (income) loss from investments ..... 70 70
Other expenses ............................ 1,581 (1,581)(b) --
------- ------- ------- ------ -------
Income/(loss) before income tax
expense .................................. $ 776 $ 235 22 3,421 4,454
Income tax expense (benefit) .............. 249 700 (c) 949
------- ------- ------- ------ -------
Net income (loss) ......................... $ 527 $ 235 $ 22 $ 2,721 $ 3,505
======= ======= ======= ========= =======
</TABLE>

45
<PAGE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) Reflects the elimination of certain officers' bonuses and wages not
expected to be paid under the Company's new employment contracts for
Avalon. The amount of the pro forma adjustment to eliminate salaries and
bonuses is based on the Company's agreements with the affected employees
that a bonus will not be paid unless there is a significant improvement in
the results of Avalon. Accordingly, no such bonus is reflected in the pro
forma statement of operations because, if Avalon's results were similar to
those in these pro forma statements of operations, the Company would not
be contractually obligated to pay a bonus.

(b) To reclassify PACE's equity income in Avalon following the Avalon
acquisition.

VI. PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS

Reflects the $14,433,000 increase in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the Pending
Acquisitions. The Company amortizes goodwill over 15 years.

To record incremental corporate overhead charges of $1,000,000 associated
with incremental headquarters personnel and general and administrative
expenses that management estimates will be necessary as a result of the
Pending Acquisitions.

Reflects the elimination of $2,794,000 of historical interest expense.

Represents an adjustment to the provision for their state and local income
taxes to reflect an approximate pro forma tax provision of $4,200,000. The
calculation treats all companies to be acquired pursuant to the Pending
Acquisitions as "C" Corporations.

VII. PRO FORMA ADJUSTMENTS FOR THE FINANCING

Reflects interest expense of $5,118,000 to finance the Pending
Acquisitions associated with the additional borrowings under the Credit
Facility.

46
<PAGE>

SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA FOR THE PENDING ACQUISITIONS
------------------------------------------------
PRO FORMA
SFX ADJUSTMENTS
ENTERTAINMENT PRO FORMA FOR FOR THE PENDING
(ACTUAL) THE TRANSACTIONS FAME DON LAW OTHER(2) ACQUISITIONS
I II III IV V VI
--------------- ------------------ --------- --------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .................................... $ 60,994 $ 173,828 $1,813 $4,549 $7,155
Operating expenses ......................... 58,175 159,565 716 4,718 7,423
Depreciation & amortization ................ 4,428 9,910 14 475 124 $ 3,648
Corporate expenses ......................... 1,314 1,314 -- -- -- 303
Other expenses ............................. -- -- -- -- --
--------- --------- ------ ------ ------ --------
Operating income (loss) .................... $ (2,923) $ 3,039 $1,083 $ (644) $ (392) $ (3,951)
Interest expense ........................... 6,748 11,824 21 201 55 (277)
Other (income) expenses .................... (897) (1,274) (24) (30) (21)
Equity (income) loss from investments ...... (445) (77) -- -- --
Other expenses (principally relating to the
Spin-off) ................................. 18,467 18,599 -- -- --
--------- --------- ------ ------ ------ --------
Income/(loss) before income tax expense..... $ (26,796) $ (26,033) $1,086 $ (815) $ (426) $ (3,674)
Income tax expense (benefit) ............... 500 600 100 -- -- (50)
--------- --------- ------ ------ ------ --------
Net income (loss) .......................... (27,296) $ (26,633) $ 986 $ (815) $ (426) $ (3,624)
========= ========= ====== ====== ====== ========
Accretion on temporary equity .............. (275) (825)
--------- ---------
Net income (loss) applicable to common
shares .................................... $ (27,571) $ (27,458)
========= =========
Net income (loss) per common share .........
Weighted Average common shares
outstanding (1) ...........................
</TABLE>
<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
PRO FORMA
FOR THE
TRANSACTIONS,
PRO FORMA THE PENDING
FOR THE FINANCING(2) ACQUISITIONS,
VII AND THE FINANCING
---------------------- ------------------
<S> <C> <C>
Revenue .................................... $ -- $ 187,345
Operating expenses ......................... -- 172,422
Depreciation & amortization ................ -- 14,171
Corporate expenses ......................... -- 1,617
Other expenses ............................. -- --
-------- ---------
Operating income (loss) .................... -- (865)
Interest expense ........................... $ 1,279 13,103
Other (income) expenses .................... -- (1,349)
Equity (income) loss from investments ...... -- (77)
Other expenses (principally relating to the
Spin-off) ................................. -- 18,599
-------- ---------
Income/(loss) before income tax expense..... $ (1,279) $ (31,141)
Income tax expense (benefit) ............... -- 650
-------- ---------
Net income (loss) .......................... $ (1,279) $ (31,791)
======== =========
Accretion on temporary equity .............. (825)
---------
Net income (loss) applicable to common
shares .................................... $ (32,616)
=========
Net income (loss) per common share ......... $ (1.14)
=========
Weighted Average common shares
outstanding (1) ........................... 29,236
=========
</TABLE>

(2) On May 14, 1998, the Company consummated the acquisition of Avalon and
borrowed $27,500,000 under the Credit Facility in connection with such
acquisition.

47
<PAGE>

NOTE TO PRO FORMA INCOME STATEMENT:

I. Represents the Company's actual operating results for the three months ended
March 31, 1998.

EBITDA for the three months ended March 31, 1998 was $1,505,000 and
$14,006,000 for the Company on an actual basis and a pro forma basis,
respectively. EBITDA is defined as earnings before interest, taxes, other
income, net, equity income (loss) from investments and depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, the Company believes that EBITDA is accepted by the
entertainment industry as a generally recognized measure of performance and
is used by analysts who report publicly on the performance of entertainment
companies. Nevertheless, this measure should not be considered in isolation
or as a substitute for operating income, net income, net cash provided by
operating activities or any other measure for determining the Company's
operating performance or liquidity which is calculated in accordance with
GAAP. Cash flows from operating, investing and financing activities for the
Company for the three months ended March 31, 1998 were $9,140,000,
$379,782,000 and $458,654,000, respectively.

There are other adjustments that could affect EBITDA but have not been
reflected herein. Had such adjustment been made, Adjusted EBITDA on a pro
forma basis would have been approximately $15,466,000 for the three months
ended March 31, 1998. The adjustments include the expected cost savings in
connection with the Recent Acquisitions associated with the elimination of
duplicative staffing and general and administrative expenses of $1,383,000,
and include equity income from investments of $77,000. While management
believes that such cost savings are achievable, the Company's ability to
fully achieve such cost savings is subject to numerous factors, certain of
which may be beyond the Company's control.

Corporate expenses are net of fees from Triathlon of $133,000. These fees
will vary, above the minimum annual level of $500,000, based on the level
of acquisition and financing activities of Triathlon. SCMC previously
assigned its rights to receive fees payable under its agreement with
Triathlon to SFX Broadcasting. Pursuant to the terms of the Distribution
Agreement, SFX Broadcasting assigned its rights to receive such fees to the
Company. Triathlon has previously announced that it is exploring ways of
maximizing stockholder value, including possible sale to a third party. In
the event that Triathlon were acquired by a third party, there can be no
assurance that the agreement would continue for the remainder of its term.

II. PRO FORMA FOR THE TRANSACTIONS

The Company acquired PACE & Pavilion, Contemporary, BGP, Network, and
Concert/Southern on February 25, 1998, February 27, 1998, February 24,
1998, February 27, 1998, and March 4, 1998, respectively. The following
represent the operating results of these companies prior to their
acquisition by the Company.

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
-----------------------------------------------------------
SFX PACE &
ENTERTAINMENT PAVILION CONTEMPORARY BGP
(ACTUAL) ACQUISITIONS ACQUISITION ACQUISITION
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue ........................... $ 60,994 $ 84,199 $7,882 $ 16,075
Operating expenses ................ 58,175 83,643 8,255 16,801
Depreciation & amortization ....... 4,428 1,049 254 213
Corporate expenses ................ 1,314
Other expenses .................... --
--------- -------- ------ --------
Operating income (loss) ........... $ (2,923) (493) (627) (939)
Interest expense .................. 6,748 1,148 -- 165
Other (income) expenses ........... (897) (195) (122) (46)
Equity (income) loss from
investments ...................... (445) 549
Other expenses .................... 18,467 19 113
--------- -------- --------
Income/(loss) before income tax
expense .......................... $ (26,796) (2,014) (505) (1,171)
Income tax expense (benefit) ...... 500 (475)
--------- -------- ------ --------
Net income (loss) ................. $ (27,296) $ (1,539) $ (505) $ (1,171)
======== ====== ========
Accretion on temporary equity ..... (275)
---------
Net income (loss) applicable to
common share ..................... $ (27,571)
=========
</TABLE>

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
-----------------------------------------------------------------------------
PRO FORMA
PRO FORMA ADJUSTMENTS
ADJUSTMENTS FOR THE FINANCING
CONCERT/ FOR THE RECENT OF THE RECENT PRO FORMA
NETWORK SOUTHERN ACQUISITIONS ACQUISITIONS FOR THE
ACQUISITION ACQUISITION A B TRANSACTIONS
------------- ------------- ---------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue ........................... $4,154 $ 524 $ 173,828
Operating expenses ................ 3,949 638 $ (10,723) 159,565
(1,173)
Depreciation & amortization ....... 51 9 3,906 9,910
Corporate expenses ................ 1,314
Other expenses .................... --
---------
Operating income (loss) ........... 154 (123) 7,990 -- 3,039
Interest expense .................. 37 (8,098) 11,824 11,824
Other (income) expenses ........... (14) (1,274)
Equity (income) loss from
investments ...................... 20 (201) (77)
Other expenses .................... 18,599
---------
Income/(loss) before income tax
expense .......................... 131 (143) 16,289 (11,824) (26,033)
Income tax expense (benefit) ...... 3 572 600
------ ------ --------- --------- ---------
Net income (loss) ................. $ 128 $ (143) $ 15,717 $ (11,824) $ (26,633)
====== ====== =========
Accretion on temporary equity ..... (550) (825)
--------- ---------
Net income (loss) applicable to
common share ..................... $ 15,167 $ (27,458)
========= =========
</TABLE>

48
<PAGE>

A. PRO FORMA ADJUSTMENTS FOR THE RECENT ACQUISITIONS:

To reflect the elimination of $10,723,000 of PACE's non-cash stock and
other non-recurring compensation and $1,173,000 of Network's excess
compensation.

Reflects the increase of $3,906,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the Recent
Acquisitions. The Company amortizes goodwill over 15 years.

Reflects the elimination of $8,098,000 of historical interest expense.

To reclassify $201,000 of PACE's equity income in Avalon following the
Avalon acquisition.

Represents an adjustment to the provision for their state and local income
taxes to reflect an approximate pro forma tax provision of $600,000. The
calculation treats all companies to be acquired pursuant to the Recent
Acquisitions as "C" Corporations.

Represents the accretion of $550,000 on the Fifth Year Put Option issued to
the PACE sellers in connection with the PACE acquisition.

B. PRO FORMA ADJUSTMENTS FOR THE FINANCING OF THE RECENT ACQUISITIONS:

Reflects interest expense of $11,824,000 associated with the Notes, the
Credit Facility and other debt related to the Recent Acquisitions.

III. FAME ACQUISITION

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (IN
THOUSANDS)
---------------------------------------------
PRO FORMA FAME
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------------ ------------
<S> <C> <C> <C>
Revenue .................................. $1,813 $1,813
Operating expenses ....................... 1,742 $ (1,289)(a) 716
263 (b)
Depreciation & amortization .............. 14 14
------ --------- ------
Operating income ......................... 57 1,026 1,083
Interest expense ......................... 21 21
Other (income) expenses .................. (24) (24)
------ --------- ------
Income before income tax expense ......... 60 1,026 1,086
Income tax expense (benefit) ............. 100(c) 100
------ --------- ------
Net income ............................... $ 60 $ 926 $ 986
====== ========= ======
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) Reflects the elimination of certain officer's distributions of
earnings which will not be paid under the Company's new employment
contracts. The FAME Agreement provides for payments by the Company
to the FAME sellers of additional amounts up to an aggregate of
$15.0 million in equal annual installments over 5 years contingent
on the achievement of certain EBITDA targets and for additional
payments by the Company if FAME's EBITDA performance exceeds the
targets by certain amounts.

(b) Reflects salaries and officers' life insurance premiums to be paid
by the Company.

49
<PAGE>

IV. DON LAW ACQUISITION

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (IN
THOUSANDS)
--------------------------------------------
PRO FORMA DON LAW
AS REPORTED ADJUSTMENTS (A) ACQUISITION
------------- ----------------- ------------
<S> <C> <C> <C>
Revenue ................................ $4,549 $4,549
Operating expenses ..................... 4,718 4,718
Depreciation & amortization ............ 475 475
------ -- ------
Operating income (loss) ................ $ (644) -- $ (644)
Interest expense ....................... 201 201
Other (income) expenses ................ (30) (30)
------ -- ------
Income/(loss) before income tax expense $ (815) -- $ (815)
Income tax expense (benefit) ........... -- --
------ ------
Net income (loss) ...................... $ (815) -- $ (815)
====== == ======
</TABLE>

- ----------
(a) The pro forma adjustments for Don Law do not reflect the impact of
certain new business opportunities in 1998 including an agreement to
provide ticketing services for the Boston Red Sox, a new long-term
concessions contract at Great Woods and an opportunity to sell the
naming rights at Harborlights Pavilion. These opportunities are
expected to have a significant positive impact on Don Law's 1998
operating results. However, there can be no assurance that the
Company will be able to achieve such improvements. See "Risk
Factors."

V. OTHER ACQUISITIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS)
---------------------------------------------------------------------
AVALON OAKDALE EMI PRO FORMA OTHER
ACQUISITION ACQUISITION ACQUISITION ADJUSTMENTS ACQUISITIONS
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $ 1,071 $4,610 $1,474 $7,155
Operating expenses ......................... 2,043 3,838 1,542 7,423
Depreciation & amortization ................ 110 14 124
-------- ------ ------ ------ ------
Operating income (loss) .................... (1,082) $ 758 $ (68) -- $ (392)
Interest expense ........................... 20 31 4 55
Other (income) expenses .................... (21) (21)
Other expenses ............................. (201) $ 201(a) --
-------- ------ ------ ------- ------
Income/(loss) before income tax expense..... $ (901) $ 748 $ (72) $ (201) $ (426)
Income tax expense (benefit) ............... --
-------- ------ ------ ------- ------
Net income (loss) .......................... $ (901) $ 748 $ (72) $ (201) $ (426)
======== ====== ====== ======= ======
</TABLE>

- ----------
PRO FORMA ADJUSTMENTS:

(a) To reclassify PACE's equity income in Avalon following the Avalon
acquisition (which was consummated on May 14, 1998).

50
<PAGE>

VI. PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS

Reflects the increase of $3,648,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the
Pending Acquisitions. The Company amortizes goodwill over 15 years.

To record incremental corporate overhead charges of $303,000 associated
with incremental headquarters personnel and general and administrative
expenses that management estimates will be necessary as a result of the
Pending Acquisitions.

Reflects the elimination of $277,000 of historical interest expense.

Represents an adjustment to the provision for their state and local income
taxes to reflect an approximate pro forma tax benefit of $650,000. The
calculation treats all companies to be acquired pursuant to the Pending
Acquisitions as "C" Corporations.

VII. PRO FORMA ADJUSTMENTS FOR THE FINANCING

Reflects interest expense associated with the additional borrowings under
the Credit Facility to finance the Pending Acquisitions.

51
<PAGE>

SFX ENTERTAINMENT, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA FOR THE PENDING ACQUISITIONS
----------------------------------------------------
PRO FORMA
ADJUSTMENTS
SFX FOR THE
ENTERTAINMENT PRO FORMA FOR THE OTHER PENDING
(ACTUAL) TRANSACTIONS FAME DON LAW ACQUISITIONS ACQUISITIONS
I II III IV V(2) VI
--------------- ------------------- ---------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ............................. $ 149,349 $ 693,101 $11,475 $49,494 $73,846
Operating expenses .................. 133,854 615,343 2,814 42,894 68,434
Depreciation & amortization ......... 9,199 39,639 99 2,006 481 $ 14,456
Corporate expenses .................. 2,662 4,662 -- -- -- 903
Other expenses ...................... -- -- -- -- --
--------- --------- ------- ------- ------- ---------
Operating income (loss) ............. 3,634 33,457 8,562 4,594 4,931 (15,359)
Interest expense .................... 8,235 47,296 -- 1,055 304 (1,359)
Other (income) expenses ............. (1,166) (1,854) (54) (351) (137)
Equity (income) loss from
investments ........................ (954) (6,432) -- -- 70
Other expenses (primarily
related to the Spin-off) ........... 18,467 19,532 -- -- --
--------- --------- ------- ------- ------- ---------
Income/(loss) before income tax
expense ............................ (20,948) (25,085) 8,616 3,890 4,694 (14,000)
Income tax expense (benefit) ........ 870 2,500 900 -- 948 (1,348)
--------- --------- ------- ------- ------- ---------
Net income (loss) ................... $ (21,818) $ (27,585) $ 7,716 $ 3,890 $ 3,746 $ (12,652)
======= ======= ======= =========
Accretion on temporary equity ....... (275) (3,300)
--------- ---------
Net income (loss) applicable to
common shares ...................... $ (22,093) $ (30,885)
========= =========
Net income (loss) per common
share ..............................
Weighted average common
shares outstanding (1) .............
</TABLE>

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE TRANSACTIONS,
ADJUSTMENTS THE PENDING
FOR THE FINANCING(2) ACQUISITIONS
VII AND THE FINANCING
---------------------- ----------------------
<S> <C> <C>
Revenue ............................. $ -- $ 827,916
Operating expenses .................. -- 729,485
Depreciation & amortization ......... -- 56,681
Corporate expenses .................. -- 5,565
Other expenses ...................... -- --
-------- ---------
Operating income (loss) ............. -- 36,185
Interest expense .................... 5,118 52,414
Other (income) expenses ............. -- (2,396)
Equity (income) loss from
investments ........................ -- (6,362)
Other expenses (primarily
related to the Spin-off) ........... -- 19,532
-------- ---------
Income/(loss) before income tax
expense ............................ (5,118) (27,003)
Income tax expense (benefit) ........ -- 3,000
-------- ---------
Net income (loss) ................... $ (5,118) $ (30,003)
========
Accretion on temporary equity ....... (3,300)
---------
Net income (loss) applicable to
common shares ...................... $ (33,303)
=========
Net income (loss) per common
share .............................. $ (1.16)
=========
Weighted average common
shares outstanding (1) ............. 29,236
=========
</TABLE>

(2) On May 14, 1998, the Company consummated the acquisition of Avalon and
borrowed $27,500,000 under the Credit Facility in connection with such
acquisition.

52
<PAGE>

NOTES TO PRO FORMA INCOME STATEMENT:

I. Represents the Company's actual operating results for the twelve months
ended March 31, 1998.

EBITDA for the twelve months ended March 31, 1998 was $12,833,000 and
$92,866,000 for the Company on an actual basis and a pro forma basis,
respectively. EBITDA is defined as earnings before interest, taxes, other
income, net, equity income (loss) from investments and depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, the Company believes that EBITDA is accepted by the
entertainment industry as a generally recognized measure of performance and
is used by analysts who report publicly on the performance of entertainment
companies. Nevertheless, this measure should not be considered in isolation
or as a substitute for operating income, net income, net cash provided by
operating activities or any other measure for determining the Company's
operating performance or liquidity which is calculated in accordance with
GAAP. Cash flows from operating, investing and financing activities for the
Company for the twelve months ended March 31, 1998 were $9,838,000,
$430,466,000 and $511,997,000, respectively.

There are other adjustments that could affect EBITDA but have not been
reflected herein. Had such adjustments been made, Adjusted EBITDA on a pro
forma basis would have been approximately $104,883,000 for the twelve
months ended March 31, 1998. The adjustments include the expected cost
savings in connection with the Recent Acquisitions associated with the
elimination of duplicative staffing and general and administrative expenses
of $5,655,000, and include equity income from investments of $6,362,000.
While management believes that such cost savings are achievable, the
Company's ability to fully achieve such cost savings is subject to numerous
factors, certain of which may be beyond the Company's control. See "Risk
Factors."

Corporate expenses are net of fees from Triathlon of $1,286,000. These fees
will vary, above the minimum annual level of $500,000, based on the level
of acquisition and financing activities of Triathlon. SCMC previously
assigned its rights to receive fees payable under its agreement with
Triathlon to SFX Broadcasting. Pursuant to the terms of the Distribution
Agreement, SFX Broadcasting assigned its rights to receive such fees to the
Company. Triathlon has announced that it is exploring ways of maximizing
stockholder value, including possible sale to a third party. In the event
that Triathlon were acquired by a third party, there can be no assurance
that the agreement would continue for the remainder of its term.

53
<PAGE>

II. PRO FORMA FOR THE TRANSACTIONS

The Company acquired Sunshine Promotions, PACE & Pavilion, Contemporary,
BGP, Network, and Concert/Southern, on June 24, 1997, February 25, 1998,
February 27, 1998, February 24, 1998, February 27, 1998, March 4, 1998,
respectively. The following adjustments represents the operating results of
these companies prior to their acquisition by the Company.

<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
-------------------------------------------------------------------------
SFX SUNSHINE PACE &
ENTERTAINMENT PROMOTIONS PAVILION CONTEMPORARY BGP
(ACTUAL) ACQUISITION ACQUISITIONS ACQUISITION ACQUISITION
--------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue ....................... $149,349 $6,057 $295,607 $ 90,225 $110,745
Operating expenses ............ 133,854 5,553 279,891 90,162 102,918
Depreciation &
amortization ................. 9,199 299 5,649 1,225 857
Corporate expenses ............ 2,662 --
Other expenses ................ -- -- 1,139
-------- ------ -------- -------- -------
Operating income (loss) ....... 3,634 205 8,928 (1,162) 6,970
Interest expense .............. 8,235 447 6,325 (10) 989
Other (income) expenses........ (1,166) (34) (7) (368) (257)
Equity (income) loss from
investments .................. (954) -- (9,457) (1,002)
Other expenses (primarily
related to the Spin-off) ..... 18,467 -- 1,415 -- 156
-------- ------ -------- -------- --------
Income/(loss) before
income tax expenses .......... (20,948) (208) 10,652 218 6,082
Income tax expense
(benefit) .................... 870 -- 683
-------- ------ -------- -------- -------
Net income (loss) ............. $(21,818) $ (208) $ 9,969 $ 218 $ 6,082
====== ======== ======== ========
Accretion on put option ....... (275)
--------
Net income (loss)
applicable to common
shares ....................... $(22,093)
========
</TABLE>

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS
FOR THE
FINANCING
CONCERT/ PRO FORMA OF THE RECENT
NETWORK SOUTHERN ADJUSTMENTS ACQUISITIONS PRO FORMA
ACQUISITION ACQUISITION A B FOR THE TRANSACTIONS
------------- ------------- ------------- -------------- ---------------------
<S> <C> <C> <C> <C> <C>
Revenue ....................... $28,364 $13,924 $ 1,000 $ 693,101
(2,170)
Operating expenses ............ 28,321 12,027 (2,170) 615,343
(11,423)
(23,790)
Depreciation &
amortization ................. 378 72 21,960 39,639
Corporate expenses ............ 2,000 4,662
Other expenses ................ -- (1,139) --
------- ------- ------- ------ ---------
Operating income (loss) ....... (335) 1,825 13,392 -- 33,457
Interest expense .............. 151 (16,137) 47,296 47,296
Other (income) expenses........ 28 (50) (1,854)
Equity (income) loss from
investments .................. 65 2,566 (6,432)
1,380
1,002
(32)
Other expenses (primarily
related to the Spin-off) ..... (506) 19,532
------- ------- ------- -------- ---------
Income/(loss) before
income tax expenses .......... (8) 1,810 24,613 (47,296) (25,085)
Income tax expense
(benefit) .................... (503) 1,450 2,500
------- ------- ---------
Net income (loss) ............. $ 495 $1,810 $23,163 $(47,296) $ (27,585)
======= ======= ========
Accretion on put option ....... (3,025) (3,300)
------- ---------
Net income (loss)
applicable to common
shares ....................... $20,138 $ (30,885)
======= =========
</TABLE>

54
<PAGE>

A. PRO FORMA ADJUSTMENTS FOR RECENT ACQUISITIONS:

To reflect $1,000,000 of non-cash revenue resulting from the Company
granting naming rights to three venues for two years for no future
consideration as part of its agreement to acquire Blockbuster's indirect 33
1/3% interest in Pavilion.

Reflects the elimination of transactions of $2,170,000 between Network
Magazine and SJS.

To eliminate PACE's non-cash stock and other non-recurring compensation of
$11,423,000.

To record the elimination of certain officer's bonuses and wages not
expected to be paid under the Company's new employment contracts of
$1,477,000, $11,230,000, $3,328,000, $7,326,000, and $429,000 for the PACE,
Contemporary, BGP, Network, and Concert Southern Acquisitions, respectively.

Reflects the elimination of $1,139,000 of non-recurring restricted stock
compensation to PACE executives.

To eliminate $2,566,000 of PACE's income from its 33 1/3% equity investment
in Pavilion Partners, $1,380,000 of PACE's equity income in Avalon,
$1,002,000 of Contemporary's equity income in Riverport Amphitheatre
Partners and $32,000 of equity loss of a non-entertainment affiliated entity
of Concert/Southern which was not acquired by the Company.

Reflects the increase of $21,960,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the Recent
Acquisitions. The Company amortizes goodwill over 15 years.

To record incremental corporate overhead charges of $2,000,000 associated
with incremental headquarters personnel and general and administrative
expenses that management estimates will be necessary as a result of the
Recent Acquisitions.

To reflect the elimination of $16,137,000 of historical interest expense.

Represents an adjustment to the provision for their state and local income
taxes to reflect an approximate pro forma tax provision of $2,500,000. The
calculation treats all companies to be acquired pursuant to the Recent
Acquisitions as "C" Corporations.

To reflect the accretion of $3,025,000 on the Fifth Year Put Option issued
to the PACE sellers in connection with the PACE acquisition.

B. PRO FORMA FOR FINANCING OF THE RECENT ACQUISITIONS:

Reflects interest expense associated with the Notes, initial borrowings
under the Credit Facility and other debt and deferred compensation costs
related to the Recent Acquisitions.

55
<PAGE>

III. FAME ACQUISITION

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1998 (IN
THOUSANDS)
----------------------------------------------
PRO FORMA FAME
AS REPORTED ADJUSTMENTS ACQUISITION
------------- ------------------- ------------
<S> <C> <C> <C>
Revenue ......................................... $ 11,475 $ 11,475
Operating expenses .............................. 13,185 $ (10,711)(a) 2,814
340 (b)
Depreciation & amortization ..................... 99 99
Corporate expenses .............................. --
Other expenses .................................. --
-------- ---------- --------
Operating income (loss) ......................... (1,809) 10,371 8,562
Interest expense ................................ --
Other (income) expenses ......................... (54) (54)
Equity (income) loss from investments ........... --
Other expenses .................................. --
-------- ---------- --------
Income/(loss) before income tax expense ......... (1,755) 10,371 8,616
Income tax expense (benefit) .................... 900 (c) 900
---------- --------
Net income (loss) ............................... $ (1,755) $ 9,471 $ 7,716
======== ========== ========
</TABLE>

PRO FORMA ADJUSTMENTS:

(a) Reflects the elimination of certain officers' distributions of earnings
which will not be paid under the Company's new employment contracts. The
FAME Agreement provides for payments by the Company to the FAME sellers of
additional amounts up to an aggregate of $15.0 million in equal annual
installments over 5 years contingent on the achievement of certain EBITDA
targets and for additional payments by the Company if FAME's EBITDA
performance exceeds the targets by certain amounts.

(b) Reflects salaries and officers' life insurance premiums to be paid by the
Company.

IV. DON LAW ACQUISITION

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1998 (IN
THOUSANDS)
--------------------------------------------
PRO FORMA DON LAW
AS REPORTED ADJUSTMENTS (C) ACQUISITION
------------- ----------------- ------------
<S> <C> <C> <C>
Revenue ......................................... $49,494 $49,494
Operating expenses .............................. 43,554 $ (610)(a) 42,894
(50)(b)
Depreciation & amortization ..................... 2,006 2,006
------- ------- -------
Operating income (loss) ......................... 3,934 660 4,594
Interest expense ................................ 1,055 1,055
Other (income) expenses ......................... (351) (351)
------- ------- -------
Income (loss) before income tax expense ......... 3,230 660 3,890
Income tax expense (benefit) .................... -- --
------- ------- -------
Net income (loss) ............................... $ 3,230 $ 660 $ 3,890
======= ======= =======
</TABLE>

PRO FORMA ADJUSTMENTS:

(a) Reflects elimination of payments made to employees by the principal owner
of Don Law in connection with the sale of membership interests to a third
party in 1997.

(b) Reflects the elimination of certain officers' bonuses and wages not
expected to be paid under the Company's new employment contracts. The
amount of the pro forma adjustment to eliminate salaries and bonuses is
based on the Company's agreements with the affected employees that a bonus
will not be paid unless there is a significant improvement in the results
of FAME. Accordingly, no such bonus is reflected in the pro forma
statement of operations because, if FAME's results were similar to those
in these pro forma statements of operations, the Company would not be
contractually obligated to pay a bonus.

56
<PAGE>

(c) The pro forma adjustments for Don Law do not reflect the impact of certain
new business opportunities in 1998 including an agreement to provide
ticketing services for the Boston Red Sox and a new long-term concessions
contract at Great Woods. These opportunities are expected to have a
significant positive impact on Don Law's 1998 operating results. However,
there can be no assurance that the Company will be able to achieve such
improvements. See "Risk Factors."

V. OTHER ACQUISITIONS

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS)
---------------------------------------------------------------------------
TOTAL
AVALON OAKDALE EMI PRO FORMA OTHER
ACQUISITION ACQUISITIONS ACQUISITIONS ADJUSTMENTS ACQUISITIONS
------------- -------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $27,795 $17,756 $28,295 $73,846
Operating expenses ......................... 25,310 16,806 28,158 (1,840)(a) 68,434
Depreciation & amortization ................ 426 55 -- 481
Corporate expenses ......................... -- --
Other expenses ............................. -- --
------- ------- ------- ------ -------
Operating income (loss) .................... 2,059 895 137 1,840 4,931
Interest expense ........................... 99 160 45 304
Other (income) expenses .................... (95) (42) (137)
Equity (income) loss from investments ...... 70 70
Other expenses ............................. 1,380 -- (1,380)(b) --
------- ------- ------- ------ -------
Income/(loss) before income tax expense..... 580 830 64 3,220 4,694
Income tax expense (benefit) ............... 248 -- -- 700 (c) 948
------- ------- ------- ------ -------
Net income (loss) .......................... $ 332 $ 830 $ 64 $ 2,520 $ 3,746
======= ======= ======= ========= =======
</TABLE>

PRO FORMA ADJUSTMENTS:

(a) Reflects the elimination of certain officers' bonuses and wages not
expected to be paid under the Company's new employment contracts. The
amount of the pro forma adjustment to eliminate salaries and bonuses is
based on the Company's agreements with the affected employees that a bonus
will not be paid unless there is a significant improvement in the results
of EMI. Accordingly, no such bonus is reflected in the pro forma statement
of operations because, if EMI's results were similar to those in these pro
forma statements of operations, the Company would not be contractually
obligated to pay a bonus.

(b) To reclassify PACE's equity income in Avalon following the Avalon
acquisition (which was consummated on May 14, 1998).

VI. PRO FORMA ADJUSTMENTS FOR PENDING ACQUISITIONS:

Reflects the increase of $14,456,000 in depreciation and amortization
resulting from the preliminary purchase accounting treatment of the Pending
Acquisitions. The Company amortizes goodwill over 15 years.

To record incremental corporate overhead charges of $903,000 associated
with incremental headquarters personnel and general and administrative
expenses that management estimates will be necessary as a result of the
Pending Acquisitions.

To reflect the elimination of $1,359,000 of historical interest expense.

VII. PRO FORMA ADJUSTMENTS FOR THE FINANCING:

Reflects interest expense associated with the additional borrowings under
the Credit Facility and other debt to finance the Pending Acquisitions.

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to the differences are
discussed in "Risk Factors" and elsewhere in this Prospectus. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.

The performance of entertainment companies, such as the Company, is
measured, in part, by their ability to generate EBITDA. "EBITDA" is defined as
earnings before interest, taxes, other income, net equity income (loss) from
investments and depreciation and amortization. Although EBITDA is not a measure
of performance calculated in accordance with GAAP, the Company believes that
EBITDA is accepted by the industry as a generally recognized measure of
performance and is used by analysts who report publicly on the performance of
entertainment companies. Nevertheless, this measure should not be considered in
isolation or as a substitute for operating income, net income, net cash
provided by operating activities or any other measure for determining the
Company's operating performance or liquidity that is calculated in accordance
with GAAP.

The Company's core business is the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by the Company and in third-party
venues. In connection with all of its live entertainment events, the Company
seeks to maximize related revenue streams, including the sale of corporate
sponsorships, the sale of concessions and the merchandising of a broad range of
products. On a pro forma basis, the Company's music businesses comprised
approximately 67%, theater comprised approximately 13%, specialized motor
sports comprised approximately 6% and other operations comprised approximately
14% of the Company's total revenues for the twelve months ended March 31, 1998.

Promotion of events involves booking talent, renting or providing the
event venue, marketing the event to attract ticket buyers and providing for
local services required in the production of the event, such as security and
stage hands. Promoters generally receive revenues from the sale of tickets and
sponsorships. When an event is promoted at a venue owned or managed by the
promoter, the promoter also generally receives a percentage of revenues from
concessions, merchandising, parking and premium box seats. The Company earns
promotion revenues principally by promoting (a) music concerts, (b) Touring
Broadway Shows and (c) specialized motor sports events.

Production of events involves developing the event content, hiring
artistic talent and managing the actual production of the event (with the
assistance of the local promoter). Producers generally receive revenues from
guarantees and from profit sharing agreements with promoters, a percentage of
the promoters' ticket sales, merchandising, sponsorships, licensing and the
exploitation of other rights (including intellectual property rights) related
to the production. The Company earns revenues by producing (a) Touring Broadway
Shows, (b) specialized motor events and (c) other proprietary and
non-proprietary entertainment events.

1997 ACQUISITIONS

The Company entered the live entertainment business with SFX
Broadcasting's acquisition of Delsener/Slater, a New York-based concert
promotion company, in January 1997 for aggregate consideration of $27.6
million. Delsener/Slater has long-term leases or is the exclusive promoter for
many of the major concert venues in the New York City metropolitan area,
including the Jones Beach Amphitheater, a 14,000-seat complex located in
Wantagh, New York, and the PNC Bank Arts Center (formerly known as the Garden
State Arts Center), a 17,500-seat complex located in Holmdel, New Jersey. In
March 1997, Delsener/Slater acquired, for aggregate consideration of $23.8
million, companies which hold a 37-year lease to operate the Meadows Music
Theater, a 25,000-seat indoor/outdoor complex located in Hartford, Connecticut.
In June 1997, Delsener/Slater acquired

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Sunshine Promotions, a concert promoter in the Midwest, and certain other
related companies for an aggregate consideration of $57.5 million. As a result
of the acquisition of Sunshine Promotions, the Company owns the Deer Creek
Music Theater, a 21,000-seat complex located in Indianapolis, Indiana, the
Polaris Amphitheater, a 20,000-seat complex located in Columbus, Ohio, and has
a long-term lease to operate the Murat Centre, a 2,700-seat theater and
2,200-seat ballroom located in Indianapolis, Indiana. See "Certain
Relationships and Related Transactions--Delsener/Slater Employment Agreements."

The cash portion of the 1997 Acquisitions was financed through capital
contributions from SFX Broadcasting.

RECENT ACQUISITIONS

In January 1998, the Company acquired Westbury Music Theater. In February
1998, the Company acquired PACE, Pavilion Partners, Contemporary, BGP and
Network, and in March 1998, the Company acquired Concert/Southern and USA Motor
Sports. See "Business--Recent Acquisitions."

ACQUISITION OF PACE

On February 25, 1998, the Company acquired all of the outstanding capital
stock of PACE (the "PACE Acquisition"). In connection with the PACE
Acquisition, the Company acquired 100% of Pavilion Partners, a partnership that
owns interests in 10 venues ("Pavilion"), one-third through the acquisition of
PACE and two-thirds through separate agreements between PACE and Blockbuster
and between PACE and Sony (the acquisition of such two-thirds interest, the
"Pavilion Acquisition"). The total consideration for the PACE Acquisition was
approximately $109.5 million in cash, the repayment of approximately $20.6
million of debt and the issuance of 1.5 million shares of Class A Common Stock.
The total consideration for the Pavilion Acquisition was approximately $90.6
million, comprised of $41.4 million in cash, the repayment of $43.1 million of
debt and the assumption of approximately $6.1 million of debt related to a
capital lease. The purchase price was financed from borrowings under the Credit
Facility and with the proceeds of the Note Offering.

In addition, on March 25, 1998, PACE acquired a 67% interest in certain
assets and liabilities of USA Motor Sports for an aggregate cash consideration
of approximately $4.0 million. The remaining 33% interest is held by the
Contemporary Group.

In connection with its acquisition of partnership interests in Lakewood
Amphitheater in Atlanta, Georgia and Starplex Amphitheater in Dallas, Texas,
PACE entered into a co-promotion agreement with its partner that contains a
provision that purports, under certain circumstances, to require PACE to
co-promote (and share one-half of the profits and losses) with such partnership
certain concerts which are presented by PACE or any of its affiliates in
another venue located in either Atlanta, Georgia or Dallas, Texas. However, the
Company acquired an interest in Chastain Park Amphitheater, also in Atlanta, in
the Concert Southern acquisition described below. The Company is currently
negotiating with the third party to waive this restrictive provision; however,
it is possible that the Company will be unable to obtain the waiver. In
management's view, this provision will not materially affect the business or
prospects of the Company.

ACQUISITION OF CONTEMPORARY

On February 27, 1998, the Company acquired Contemporary (the "Contemporary
Acquisition"). The Contemporary Acquisition involved the merger of Contemporary
International Productions Corporation with and into the Company, the
acquisition by a wholly-owned subsidiary of the Company of substantially all of
the assets, excluding certain cash and receivables, of the remaining members of
Contemporary and the acquisition of the 50% interest in the Riverport
Amphitheatre Joint Venture not owned by Contemporary. The total consideration
of the Contemporary Acquisition was approximately $72.8 million in cash, a
payment for working capital of $9.9 million, and the issuance of 1,402,850
shares of Class A Common Stock. The purchase price was financed by borrowings
under the Credit Facility and the proceeds of the Note Offering.

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ACQUISITION OF BGP

On February 24, 1998, the Company, through the Company's wholly-owned
subsidiary, BGP Acquisition, LLC, acquired all of the outstanding capital stock
of BGP for a total consideration of $60.8 million in cash, $12.0 million in
repayment of debt, which amount was at least equal to BGP's working capital (as
defined in the acquisition agreement), and 562,640 shares of Class A Common
Stock (the "BGP Acquisition"). The purchase price was financed from borrowings
under the Credit Facility and with the proceeds of the Note Offering.

ACQUISITION OF NETWORK

On February 27, 1998, the Company acquired Network (the "Network
Acquisition"). In the Network Acquisition, the Company acquired all of the
outstanding capital stock of each of The Album Network, Inc. and SJS and
purchased substantially all of the assets and properties and assumed
substantially all of the liabilities and obligations of The Network 40, Inc.
The total purchase price was approximately $52.0 million in cash, a payment for
working capital of $1.8 million, reimbursed seller's costs of $500,000, the
purchase of an office building and related property for approximately $2.5
million and the issuance of approximately 750,000 shares of Class A Common
Stock. The purchase price is subject to increase based on Network's actual 1998
EBITDA (as defined in the acquisition agreement) by $4.0 million (if such
EBITDA equals or exceeds $9.0 million) to $14.0 million (if such EBITDA is
greater than $11.0 million), and is payable in stock, or in certain
circumstances in cash, by no later than March 20, 1999. The $2.5 million
purchase of the office building and related property used in connection with
Network's business was comprised of cash of $700,000 and the assumption of debt
of $1.8 million. The purchase price was financed by borrowings under the Credit
Facility and with the proceeds of the Note Offering. In connection with the
Network Acquisition, the selling stockholders were reimbursed working capital
(as defined in the acquisition agreement) in excess of $500,000.

ACQUISITION OF CONCERT/SOUTHERN

On March 4, 1998, the Company acquired Concert/Southern Promotions, a
promoter of live music entertainment in the Atlanta metropolitan area, for a
total consideration of $16.9 million (including the payments of the $1.6
million representing the present value of a deferred purchase obligation and
$300,000 for the working capital adjustment.) The purchase price was financed
by the borrowings under the Credit Facility and with the proceeds of the Note
Offering.

ACQUISITION OF WESTBURY

On January 8, 1998, the Company acquired a long-term lease for Westbury
Music Fair, located in Westbury, New York, for an aggregate consideration of
approximately $3.0 million and an agreement to issue 75,019 shares of Class A
Common Stock. During the period between the closing and January 8, 2000, the
Company has the right to repurchase all of such shares for an aggregate
consideration of $2.0 million, and the seller has the right to require the
Company to purchase all of such shares for an aggregate consideration of
$750,000. The purchase price was financed from the Company's cash on hand.

The foregoing descriptions do not purport to be complete descriptions of
the terms of the acquisition agreements and are qualified by reference to the
acquisition agreements, copies of which are attached as exhibits to the
Registration Statement on Form S-1 (File No. 333-50079) containing this
Prospectus (the "Registration Statement"), and are incorporated herein by
reference. Pursuant to the acquisition agreements and the agreements related
thereto, the Company, (a) under certain circumstances, may be required to
repurchase shares of its Class A Common Stock or make additional payments in
connection therewith, (b) has granted certain rights of first refusal certain
of which are exercisable at 95% of the proposed purchase price and (c) in
connection with the PACE Acquisition, has granted Brian Becker, an Executive
Vice President, a Member of the Office of the Chairman, and a director of the
Company, the option to acquire, after February 25, 2000, the Company's then
existing motor sports line of business (or, if that business has previously
been sold, the Company's then existing theatrical line of business) at its then
fair market value. See "Risk Factors--Future Contingent Payments" and "--Rights
to Purchase Certain Subsidiaries" and "Additional Information."

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The Recent Acquisitions were accounted for using the purchase method of
accounting, and the intangible assets created in the purchase transactions will
generally be amortized against future earnings, if any, over a 15-year period.
The amount of amortization will be substantial and will continue to affect the
Company's operating results in the future. These expenses, however, do not
result in an outflow of cash by the Company and do not impact EBITDA.

PENDING ACQUISITIONS

In April and May of 1998, the Company entered into agreements or letters
of intent to acquire all of the capital stock of FAME, certain assets of Don
Law, certain assets of Oakdale, 80% of the outstanding capital stock of EMI and
all of the capital stock of Avalon for an aggregate consideration consisting of
approximately $215.5 million in cash, including the repayment of approximately
$10.0 million in debt, and the issuance of 1,531,782 million shares of Class A
Common Stock. See "Agreements Related to the Pending Acquisitions."

ACQUISITION OF FAME

On April 29, 1998, the Company entered into an agreement to acquire all of
the outstanding capital stock of FAME (the "FAME Acquisition"). The aggregate
purchase price for FAME is approximately $82.2 million in cash (including
approximately $7.9 million which the Company anticipates paying in connection
with certain taxes which FAME and the FAME sellers will be subject to) and 1.0
million shares of Class A Common Stock. The agreement also provides for
payments by the Company to the FAME sellers of additional amounts up to an
aggregate of $15.0 million in equal annual installments over 5 years contingent
on the achievement of certain EBITDA targets. The agreement also provides for
additional payments by the Company if FAME's EBITDA performance exceeds the
targets by certain amounts. The additional payments are to be within 120 days
after the end of the year to which they relate.

ACQUISITION OF DON LAW

On April 29, 1998, the Company entered into an agreement to acquire
certain assets of Blackstone Entertainment, LLC (the "Don Law Acquisition").
The aggregate purchase price for the Don Law Acquisition is approximately $90.0
million, including the repayment of $10.0 million in debt. The Company may, at
its option, pay up to $16.0 million of the purchase price in 531,782 shares of
Class A Common Stock. The purchase price will be increased or decreased, as
applicable, to the extent that Don Law's Net Working Capital (as defined in the
acquisition agreement) is positive or negative at the closing. The Company has
made a $100,000 non-refundable deposit in connection with the Don Law
Acquisition.

ACQUISITION OF OAKDALE

On April 22, 1998, the Company entered into an agreement to acquire
certain assets of Oakdale for a purchase price of $11.9 million in cash (the
"Oakdale Acquisition"). At the closing, the Company will also make a
non-recourse loan to the Oakdale sellers in the amount of $11.3 million, a
portion of which will be used to repay outstanding indebtedness. In addition,
if the combined EBITDA (as defined in the acquisition agreement) for the
Oakdale Theater and Meadows exceeds $5.5 million in 1999, the Company will be
obligated to pay the amount of such excess multiplied by a factor of between
5.0 and 5.8.

ACQUISITION OF EMI

On May 1, 1998, the Company entered into an agreement to acquire an 80%
equity interest in EMI for $8.5 million in cash (the "EMI Acquisition"). In
addition, the Company is required to make a loan to the EMI sellers in an
amount equal to twenty percent of certain taxes incurred by the EMI sellers in
connection with the transaction. The Company expects that the amount of the
loan will be approximately $750,000.

ACQUISITION OF AVALON

On May 14, 1998, the Company acquired all the outstanding equity interests
in Avalon for a total cash purchase price of $26.8 million, including
approximately $300,000 that the Company paid to

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reimburse the Avalon sellers' third party out of pocket costs and expenses
incurred with the development of the Camarillo Creek Amphitheater (the "Avalon
Acquisition").

The Pending Acquisitions will be accounted for using the purchase method
of accounting and intangible assets created in the purchase transaction will
generally be amortized against future earnings over a fifteen-year period. The
amount of such amortization will be substantial and will continue to affect the
Company's operating results in the future. These expenses, however, do not
result in an outflow of cash by the Company and do not impact EBITDA.

The Company expects to complete all of the Pending Acquisitions as soon as
practicable after the consummation of the Offering. The Company anticipates
that it will consummate all of the Pending Acquisitions in the second quarter
of 1998. However, the timing and completion of the Pending Acquisitions are
subject to a number of conditions, certain of which are beyond the Company's
control, and there can be no assurance that any of the Pending Acquisitions
will be consummated during such periods, on the terms described herein, or at
all. See "Risk Factors--Risks Related to the Pending Acquisitions" and
"Agreements Related to the Pending Acquisitions."

THE SPIN-OFF AND THE SFX MERGER

SFX Broadcasting was formed in 1992 principally to acquire and operate
radio broadcasting stations. In August 1997, SFX Broadcasting agreed to merge
with a subsidiary of SFX Buyer, and to Spin-Off the Company to certain
stockholders of SFX Broadcasting on a pro rata basis. The Spin-Off was
consummated on April 27, 1998. The Spin-Off separated the entertainment
business from SFX Broadcasting's radio broadcasting business and will enable
SFX Buyer to acquire only SFX Broadcasting's radio broadcasting business in the
SFX Merger. SFX Broadcasting has indicated that it expects the SFX Merger to be
completed in the second quarter of 1998.

Prior to the Spin-Off, pursuant to the Distribution Agreement, SFX
Broadcasting contributed to the Company all of its assets relating to the
entertainment business. In addition, the Company, SFX Broadcasting and SFX
Buyer also entered into the Tax Sharing Agreement and the Employee Benefits
Agreement. Each of these agreements provides for certain indemnification
obligations by the Company and SFX Broadcasting. Pursuant to the Distribution
Agreement, at the time of the SFX Merger, if Working Capital is negative, the
Company must pay the amount of the shortfall to SFX Broadcasting, and if
positive, SFX Broadcasting must pay such Working Capital to the Company. Copies
of the Distribution Agreement (containing a description of the calculation of
Working Capital (the "Working Capital")), Tax Sharing Agreement and Employee
Benefits Agreement have been filed as exhibits to the Registration Statement.
See "Risk Factors--Future Contingent Payments," and "--Risks Related to the
Pending Acquisitions," "--Liquidity and Capital Resources" and "Additional
Information."

In the Spin-Off, shares of Common Stock were distributed pro rata to
holders on the Spin-Off record date of SFX Broadcasting's Class A common stock,
Class B common stock, Series D preferred stock and interests in SFX
Broadcasting's director deferred stock ownership plan, and the remaining shares
were placed in escrow to be issued upon the exercise of certain warrants of SFX
Broadcasting. See "Certain Relationships and Related Transactions--Common Stock
Received in the Spin-Off."

RECENT DEVELOPMENTS

The Company has indicated to Marquee, a publicly-traded company, its
potential interest in acquiring Marquee. Marquee provides integrated event
management, television production, marketing and consulting services in the
sports, news and entertainment industries. In addition, Marquee represents
various entertainers including athletes in team sports, and books tours and
appearances for a variety of entertainers. Mr. Sillerman, the Executive
Chairman of the Company, has an aggregate equity interest of approximately 9.1%
in Marquee and is the chairman of its board of directors, and Mr.

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Tytel, a Director and Executive Vice President of the Company, is one of its
directors. The Company has been informed that Marquee has formed a committee of
independent directors to consider the proposal, as well as other strategic
alternatives. However, the Company has not entered into any agreement,
arrangement or understanding with Marquee, and there can be no assurance that
the Company will enter into a definitive agreement with Marquee. See "Risk
Factors--Potential Conflicts of Interest" and "--Expansion Strategy; Need for
Additional Funds." In addition, on May 5, 1998, a class action complaint was
filed alleging that the proposed acquisition of Marquee by the Company will be
unfair to Marquee's stockholders. See "Business--Litigation."

RESULTS OF OPERATIONS

GENERAL

The Company's operations consist primarily of (a) concert promotion and
venue operation, (b) the promotion and production of theatrical events,
particularly Touring Broadway Shows, and (c) the promotion and production of
motor sports events. The Company and the Acquired Businesses also engage in
various other activities ancillary to their live entertainment businesses.

On a pro forma basis, the Company's revenues for the year ended December
31, 1997 and the three months ended March 31, 1998, would have been $779.0
million and $187.3 million, respectively.

On a pro forma basis, operating expenses for the year ended December 31,
1997 and the three months ended March 31, 1998, would have been $688.4 million
and $172.4 million, respectively. Pro forma operating expenses do not reflect
the Company's expectation that it will be able to achieve substantial economies
of scale upon completion of the Recent Acquisitions and reductions in operating
expenses as a result of the elimination of duplicative staffing and general and
administrative expenses.

On a pro forma basis, the Company's net loss as for the year ended
December 31, 1997 and the three months ended March 31, 1998, would have been
$21.3 million and $31.8 million, respectively. Net loss per share, after
accretion of the Fifth Year Put Option issued in connection with the PACE
Acquisition, would have been $0.86 and $1.14 for the year ended December 31,
1997 and three months ended March 31, 1998, respectively. The pro forma
operating results include the impact of significant non-cash amortization
expense arising from the Recent Acquisitions and interest expense relating to
the Financing.

As of March 31, 1998, the Company had net current assets of $167.0 million
(included in net current assets is cash and cash equivalents of $105.7
million), net property and equipment (principally concert venues) of $243.8
million, net intangible assets of $699.4 million and long-term debt of $606.0
million. The long-term debt is comprised of $350.0 million of Notes, borrowings
of $213.0 million under the Credit Facility and other debt obligations of $43.0
million.

Delsener/Slater (the Company's predecessor) had no federal tax provision
in 1996 or 1995 by virtue of the status of its profitable included companies as
S Corporations. No federal income taxes were paid by the Company in 1997 as a
result of the Company's inclusion in SFX Broadcasting's consolidated federal
income tax return. If the Company had filed on a stand alone basis, its federal
tax provision would have been approximately $2.1 million, consisting of
approximately $1.8 million in current taxes and approximately $290,000 of
deferred taxes.

CONCERT PROMOTION/VENUE OPERATION

The Company's concert promotion and venue operation business consist
primarily of the promotion of concerts and operation of venues primarily for
use in the presentation of musical events. The Company's primary source of
revenues from its concert promotion activities is from ticket sales at events
promoted by the Company. As a venue operator, the Company's primary sources of
revenue are sponsorships, concessions, parking and other ancillary services,
derived principally from events promoted by the Company.

Revenue from ticket sales is affected primarily by the number of events
the Company promotes, the average ticket price and the number of tickets sold.
The average ticket price depends on the popularity

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of the artist whom the Company is promoting, the size and type of venue and the
general economic conditions and consumer tastes in the market where the event
is being held. Revenue and margins are also affected significantly by the type
of contract entered into with the artist or the artist's representative.
Generally, the promoter or venue operator will agree to pay the artist the
greater of a minimum guarantee or a profit sharing payment based on ticket
revenue, less certain show expenses. The promoter or venue operator assumes the
financial risk of ticket sales and is responsible for local production and
advertising of the event. However, in certain instances, the promoter agrees to
accept a fixed fee from the artist for its services, and the artist assumes all
financial risk. When the promoter or venue operator assumes the financial risk,
all revenue and expenses associated with the event are recorded. When the
artist assumes the risk, only the fee is recorded. As a result, operating
margins would be significantly greater for fee-based events as opposed to
events for which the Company assumes the risk of ticket sales, although profits
per event would tend to be lower. Operating margins can vary from period to
period.

The Company's most significant operating expenses are talent fees,
production costs, venue operating expenses (including rent), advertising costs
and insurance expense. The booking of talent in the concert promotion business
generally involves contracts for limited engagements, often involving a small
number of performances. Talent fees depend primarily on the popularity of the
artist, the ticket price that the artist can command at a particular venue and
the expected level of ticket sales. Production costs and venue operating
expenses have substantial fixed cost components and lesser variable costs
primarily related to expected attendance.

THEATRICAL

The Company's theatrical operations are directed mainly towards the
promotion and production of Touring Broadway Shows, which generate revenues
primarily from ticket sales and sponsorships. The Company may also participate
in ancillary revenues, such as concessions and merchandise sales, depending on
its agreement with a particular local promoter/venue operator. Revenue from
ticket sales is primarily affected by the popularity of the production and the
general economic conditions and consumer tastes in the particular market and
venue where the production is presented. In order to reduce its dependency on
the success of any single touring production, the Company sells advance annual
subscriptions that provide the purchaser with tickets for all of the shows that
the Company intends to tour in the particular market during the touring season.
For the year ended December 31, 1997, on a pro forma basis approximately 34% of
ticket sales for Touring Broadway Shows presented by the Company were sold
through advance annual subscriptions. Subscription related revenues received
prior to the event date are initially recorded on the balance sheet as deferred
revenue; after the event occurs, they are recorded on the statement of
operations as gross revenue. Expenses are capitalized on the balance sheet as
prepaid expenses until the event occurs. Subscriptions for Touring Broadway
Shows typically cover approximately two-thirds of the Company's break-even cost
point for those shows.

Principal operating expenses related to touring shows include talent,
rent, advertising and royalties. Talent costs are generally fixed once a
production is cast. Rent and advertising expense may be either fixed or
variable based on the arrangement with the particular local promoter/venue
operator. Royalties are generally paid as a percentage of gross ticket sales.

The Company also makes minority equity investments in original Broadway
productions, principally as a means to obtain rights for touring shows, and in
certain Touring Broadway Shows. These investments are accounted for using
either the equity method or the cost method of accounting, based on the
relative size of the investment. The Company monitors the recoverability of
these investments on a regular basis, and the Company may be required to take
write-offs if the original production closes or if the Company determines that
the production will not recoup the investment. The timing of any write-off
could adversely affect operating results in a particular quarter.

MOTOR SPORTS

The Company's motor sports activities consist principally of the promotion
and production of specialized motor sports, which generate revenues primarily
from ticket sales and sponsorships, as well

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as merchandising and video rights associated with producing motor sports
events. Ticket prices for these events are generally lower than for theatrical
or music concert events, generally ranging from $5 to $30 in 1996. Revenue from
these sources is primarily affected by the type of event and the general
economic conditions and consumer tastes in the particular markets and venues
where the events are presented. Event-related revenues received prior to the
event date are initially recorded on the balance sheet as deferred revenue;
after the event occurs, they are recorded on the statement of operations as
gross revenue. Expenses are capitalized on the balance sheet as prepaid
expenses until the event occurs.

Operating expenses associated with motor sports activities include talent,
rent, track preparation costs, security and advertising. These operating
expenses are generally fixed costs that vary based on the type of event and
venue where the event is held.

Under certain circumstances, the Company may be required to sell either
its motor sports or theatrical lines of business. See "Risk Factors--Rights to
Purchase Certain Subsidiaries."

REPRESENTATION OF PROFESSIONAL ATHLETES

FAME's talent representation activities consist principally of the
representation of team sports athletes, primarily in the National Basketball
Association, in player contract and endorsement negotiations. FAME also
provides certain investment advisory services to its clients through an
affiliate. FAME typically receives a percentage of monies earned by a player,
generally approximately 4% of a player's sports contract and typically from 20%
to 25% of endorsement deals. Revenue from these sources is recognized as the
player receives his salary or endorsement payments based on the terms of the
negotiated agreement. Revenue from these sources is dependent upon a number of
variables, many of which are outside the Company's control, including a
player's skill, health, public appeal and the appeal of the sport in which the
player participates. Principal operating expenses include salaries, wages and
travel and entertainment expenses. See "Risk Factors--Risks Related to the
Representation of Athletes."

OTHER BUSINESSES

The Company's other principal businesses include (a) the production and
distribution of radio industry trade magazines, (b) the production of radio
programming content and show-prep material and (c) the provision of radio air
play and music retail research services. The primary sources of revenues from
these activities include (a) the sale of advertising space in its publications
and the sale of advertising time on radio stations that carry its syndicated
shows, (b) subscription fees for its trade publications and (c) subscription
fees for access to its database of radio play list and audience data. Revenues
generally vary based on the overall advertising environment and competition.

The Company also provides marketing and consulting services pursuant to
contracts with individual clients for specific projects. Revenues from and
costs related to these services vary based on the type of service being
provided and the incremental associated costs.

SEASONALITY

The Company's operations and revenues have been largely seasonal in
nature, with generally higher revenue generated in the second and third
quarters of the year. For example, on a pro forma basis for the 1997
Acquisitions, the Company generated approximately 68% of its revenues in the
second and third quarters for the twelve months ended December 31, 1997. The
Company's outdoor venues are primarily utilized in the summer months and do not
generate substantial revenue in the late fall, winter and early spring.
Similarly, the musical concerts that the Company promotes largely occur in the
second and third quarters. To the extent that the Company's entertainment
marketing and consulting relate to musical concerts, they also predominantly
generate revenues in the second and third quarters. Therefore, the seasonality
of the Company's business causes (and, upon consummation of the Pending
Acquisitions, will probably continue to cause) a significant variation in the
Company's quarterly operating results. These variations in demand could have a
material adverse effect on the timing of the Company's cash flows and,
therefore, on its ability to service its obligations with respect to its
indebtedness.

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However, the Company believes that this variation may be somewhat offset with
the acquisition of typically non-summer seasonal businesses in the Recent
Acquisitions, such as motor sports (which is winter-seasonal) and Touring
Broadway Shows (which typically tour between September and May).

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

The Company's revenue increased by $53.2 million to $61.0 million for the
three months ended March 31, 1998, compared to $7.8 million for three months
ended March 31, 1997, as a result of the acquisitions of Sunshine and Meadows
in 1997 and the Recent Acquisitions. On a pro forma basis, revenue for the
three months ended March 31, 1998 would have been $187.3 million.

Operating expenses increased by $50.5 million to $58.2 million for the
three month period ended March 31, 1998, compared to $7.7 million for three
months ended March 31, 1997, primarily as a result of the acquisition of
Sunshine and Meadows in 1997 and the Recent Acquisitions. On a pro forma basis,
operating expenses would have been $172.4 million for the three month period
ended March 31, 1998.

Depreciation and amortization expense increased to $4.4 million for the
three month period ended March 31, 1998 compared to $660,000 for the three
month period ended March 31, 1997, due to the inclusion of depreciation and
amortization expense related to the acquisitions of Sunshine and Meadows in
1997 and the Recent Acquisitions. The Company recorded the fixed assets from
these acquisitions at fair value and recorded intangible assets equal to the
excess of purchase price over the fair value of the net tangible assets, which
are being amortized over a 15 year period.

Corporate expenses were $1.3 million for the three month period ended
March 31, 1998, net of $133,000 fees received from Triathlon, compared to
$858,000 million for the three months ended March 31, 1997, net of Triathlon
fees of $651,000. The fees receivable from Triathlon are based on consulting
services provided by or on behalf of SCMC, a private investment company in
which Messrs. Sillerman and Tytel have economic interests, that makes
investments in and provides financial consulting services to companies engaged
in the media business. The fees will fluctuate (above the minimum annual fee of
$500,000) based on the level of acquisition financing activities of Triathlon.
SCMC previously assigned its rights to receive fees payable from Triathlon to
SFX Broadcasting, and SFX Broadcasting has assigned its rights to receive the
fees to the Company, pursuant to the Distribution Agreement. Triathlon has
announced that it is exploring ways of maximizing stockholder value, including
possible sale to a third party. If Triathlon is acquired by a third party, it
is possible that the consulting fees would not continue for the remainder of
the agreement's term.

Non-recurring and unusual charges relating to the Spin-Off included $16.6
million of consent fees and $1.8 million of legal, accounting and other costs.

The operating loss was $2.9 million for the three month period ended March
31, 1998, compared to a loss of $1.5 million for the three months March 31,
1997, due to the results discussed above.

Interest expense, net of investment income, was $5.9 million in the three
months ended March 31, 1998, compared to $77,000 for the three months ended
March 31, 1997, primarily as a result of assumption of additional debt related
to the Recent Acquisitions and the debt assumed in connection with the Meadows
and Sunshine acquisitions.

Equity income in unconsolidated subsidiaries was $445,000 for the three
months ended March 31, 1998 as a result of the Recent Acquisitions.

Income tax expense was $500,000 for the three month period ended March 31,
1998.

The Company's net loss increased to $27.3 million for the three month
period ended March 31, 1998, as compared to a net loss of $1.5 million for the
three months ended March 31, 1997, due to the factors discussed above.

EBITDA increased to $1.5 million for the three month period ended March
31, 1998, compared to negative $807,000 for the three months ended March 31,
1997, primarily as a result of the 1997 and Recent Acquisitions.

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

The Company's concert promotion revenue increased by 91% to $96.1 million
for the year ended December 31, 1997, compared to $50.4 million for the year
ended December 31, 1996, as a result of the acquisitions of Sunshine Promotions
and Meadows, which increased concert promotion revenue by $45.5 million. On a
pro forma basis, assuming the acquisitions had been completed as of January 1,
1997, revenue for the year ended December 31, 1997 would have been $110.4
million.

Concert promotion operating expenses increased by 65% to $83.4 million for
the year ended December 31, 1997, compared to $50.7 million for the year ended
December 31, 1996, primarily as a result of the acquisitions of Sunshine
Promotions and Meadows, which increased concert operating expenses revenue by
$37.1 million, which was offset in part by decreased officer salary expense
paid to the former owners of Delsener/Slater. On a pro forma basis, assuming
that those acquisitions had been completed as of January 1, 1997, operating
expenses would have been $96.7 million for the year ended December 31, 1997.

Depreciation and amortization expense increased to $5.4 million for the
year ended December 31, 1997, compared to $747,000 for the year ended December
31, 1996, due to the inclusion of $2.6 million of depreciation and amortization
expense related to the acquisitions of Sunshine Promotions and Meadows and the
additional depreciation and amortization recorded in 1997 related to the
purchase of Delsener/Slater on January 2, 1997. In 1997, the Company recorded
the fixed assets of Delsener/Slater at fair value and recorded an intangible
asset equal to the excess of purchase price over the fair value of net tangible
assets of Delsener/Slater, which was amortized over a 15 year period.

Corporate expenses were $2.2 million for the year ended December 31, 1997,
net of $1.8 million in fees received from Triathlon, compared to zero for the
year ended December 31, 1996. These expenses represent the incremental costs of
operating the Company's corporate offices, and therefore did not exist in 1996.
The fees receivable from Triathlon are based on consulting services provided by
or on behalf of SCMC, a private investment company in which Messrs. Sillerman
and Tytel have economic interests, that makes investments in and provides
financial consulting services to companies engaged in the media business. The
fees will fluctuate (above the minimum annual fee of $500,000) based on the
level of acquisition and financing activities of Triathlon. SCMC previously
assigned its rights to receive fees payable from Triathlon to SFX Broadcasting,
and SFX Broadcasting has assigned its rights to receive the fees to the
Company, pursuant to the Distribution Agreement. Triathlon has previously
announced that it is exploring ways of maximizing stockholder value, including
a possible sale to a third party. If Triathlon is acquired by a third party, it
is possible that the consulting fees would not continue for the remainder of
the agreement's term. See "Certain Relationships and Related
Transactions--Triathlon Fees."

Operating income was $5.1 million for the year ended December 31, 1997,
compared to a loss of $1.1 million for the year ended December 31, 1996, due to
the results discussed above.

Interest expense, net of investment income, was $1.3 million in the year
ended December 31, 1997, compared to net interest income of $138,000 for the
year ended December 31, 1996, primarily as a result of assumption of additional
debt related to the acquisitions of the Meadows Music Theater and Sunshine
Promotions.

Equity income in unconsolidated subsidiaries decreased 3% to $509,000 from
$524,000.

Income tax expense increased to $490,000 for the year ended December 31,
1997, compared to $106,000 for the year ended December 31, 1996, primarily as a
result of higher operating income.

The Company's net income increased to $3.8 million for the year ended
December 31, 1997, as compared to a net loss of $515,000 for the year ended
December 31, 1996, due to the factors discussed above.

EBITDA increased to $10.5 million for the year ended December 31, 1997,
compared to a negative $324,000 for the year ended December 31, 1996, as a
result of the 1997 Acquisitions, the reduction in officers' salary expense and
improved operating results.

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

The Company's concert promotion revenue increased by 5.9% to $50.4 million
for the year ended December 31, 1996, compared to $47.6 million for the year
ended December 31, 1995, primarily as a result of an increase in concerts
promoted and an increase in ticket prices.

Concert promotion operating expenses increased by 7.2% to $50.6 million
for the year ended December 31, 1996, compared to $47.2 million for the year
ended December 31, 1995, primarily as a result of an increase in concert
activity.

Depreciation and amortization expense decreased slightly to $747,000 for
the year ended December 31, 1996, compared to $750,000 for the year ended
December 31, 1995.

The Company's operating loss was $1.1 million for the year ended December
31, 1996, compared to an operating loss of $362,000 for the year ended December
31, 1995, due to the results discussed above.

Interest income, net of interest expense, increased by 306% to $138,000
for the year ended December 31, 1996, compared to $34,000 for the year ended
December 31, 1995.

Equity income in unconsolidated subsidiaries increased 8% to $524,000 from
$488,000, primarily as result of the investment in the PNC Bank Arts Center,
offset by lower income from the Company's other equity investments.

The Company's state and local income tax expense increased to $106,000 for
the year ended December 31, 1996, compared to $13,000 for the year ended
December 31, 1995. This increase was primarily the result of the higher
operating income.

The Company's net loss was $515,000 for the year ended December 31, 1996,
compared to net income of $147,000 for the year ended December 31, 1995, due to
the factors discussed above.

EBITDA was a negative $324,000 for the year ended December 31, 1996,
compared to $388,000 for the year ended December 31, 1995, primarily as a
result of higher officers' salary expense partially offset by lower general and
administrative expenses.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal need for funds has been for acquisitions, interest
expense, working capital needs, to make certain payments in connection with the
Spin-Off and, to a lesser extent, capital expenditures. The Company anticipates
that its principal sources of funds will be the proceeds from the Financing,
remaining proceeds from the Note Offering, additional borrowings under the
Credit Facility and cash flows from operations.

HISTORICAL CASH FLOWS

Net cash provided by operations was $9.1 million for the three months
ended March 31, 1998 as compared to $307,000 for the three months ended March
31, 1997. The increase was primarily attributable to changes in working
capital.

Net cash used in investing activities for the three months ended March 31,
1998 was $379.8 million as compared to $22.6 million for the three months ended
March 31, 1997. The increase was primarily the result of the Recent
Acquisitions. During the three months ended March 31, 1997, the Company
completed the acquisition of Delsener/Slater.

Net cash provided by financing activities for the three months ended March
31, 1998 was $458.7 million as compared to $24.9 million for the three months
ended March 31, 1997. During 1998, the Company completed the issuance of the
Notes for $350.0 million and borrowed $150.0 million under the Credit Facility,
offset by Spin-Off related payments of $17.1 million and the payment of debt
issuance costs of $16.9 million.

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by the Company in 1997 as a result of the Company's inclusion in SFX
Broadcasting's consolidated federal income tax return. If the Company had filed
on a stand alone basis, its federal tax provision would have been approximately
$2.1 million, consisting of approximately $1.8 million in current taxes and
approximately $290,000 of deferred taxes.

PENDING ACQUISITIONS

The aggregate consideration in the Pending Acquisitions is expected to
consist of approximately $215.5 million (including the repayment of
approximately $10 million in debt and the $26.8 million paid in connection with
the Avalon Acquisition, which was consummated on May 14, 1998) and 1,531,782
shares of Class A Common Stock. In addition, the Company expects to incur
approximately $6.0 million in fees and expenses related to the Pending
Acquisitions. In addition, the agreements relating to the Pending Acquisitions
provide for future contingent payments under certain circumstances. The Company
has also placed a deposit in connection with the Pending Acquisitions of
$100,000, which will be applied against the applicable purchase price at
closing. See "--Future Contingent Payments" and "--Pending Acquisitions."

The timing and completion of the Pending Acquisitions is subject to a
number of closing conditions certain of which are beyond the control of the
Company. No assurance can be given that the Company will be able to complete
any of the Pending Acquisitions on the terms described or at all, or that the
Company will have sufficient funds available to make any of the contingent
payments described above should they come due. See "Agreements Related to the
Pending Acquisitions."

FUTURE CONTINGENT PAYMENTS

Certain of the agreements relating to the Recent Acquisitions provide for
purchase price adjustments and other future contingent payments under certain
circumstances. The PACE acquisition agreement provides that each PACE seller
will have an option, exercisable for 90 days after the fifth anniversary of the
closing of the PACE acquisition, to require the Company to repurchase up to
500,000 shares of the Class A Common Stock received by that seller for $33.00
in cash per share (an aggregate of up to $1.5 million). Pursuant to the terms
of the Becker Employment Agreement (as defined herein), during the period
between December 12, 1999 and December 27, 1999, Mr. Becker, an Executive Vice
President, Director and a Member of the Office of the Chairman of the Company,
will have the option to, among other things, require the Company to purchase
any stock or portion thereof (including vested and unvested options) granted to
him by the Company and/or pay him an amount equal to the present value of the
compensation payable during the remaining term of his employment agreement. See
"Management--Employment Agreements and Arrangements with Certain Officers and
Directors." Moreover, pursuant to the Contemporary acquisition agreement, if
the average trading price of the 1,402,850 shares of Class A Common Stock
issued in the Contemporary acquisition is less than $13.33 during the twenty
days prior to the second anniversary of the Contemporary acquisition, the
Company will be required to pay one-half of such difference for each share held
by the sellers of Contemporary on such date. Pursuant to the Network
acquisition agreement, the Company has agreed to increase the purchase price
for Network based on Network's actual 1998 EBITDA (as defined in the
acquisition agreement) as follows: (a) by $4.0 million if the 1998 EBITDA
equals or exceeds $9.0 million; (b) by an additional $4 for each $1 of
additional 1998 EBITDA between $9.0 million and $10.0 million; and (c) by an
additional $6 for each $1 of additional 1998 EBITDA between $10.0 million and
$11.0 million. This contingent consideration of up to $14.0 million is payable
in shares of Class A Common Stock or, in certain circumstances, in cash by no
later than March 20, 1999. No assurance can be given that the Company will have
sufficient cash or other available sources of capital to make any or all of the
future or contingent payments described above.

In addition, certain of the agreements relating to the Pending
Acquisitions provide for future contingent payments under certain
circumstances. Pursuant to the agreement relating to the acquisition of FAME,
the Company is obligated to pay to the FAME sellers additional amounts up to an
aggregate of $15.0 million in equal annual installments over five years
contingent on the achievement by FAME of certain EBITDA targets. The FAME
agreement also provides for additional payments by the Company to

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the FAME sellers if FAME's EBITDA performance exceed the targets by certain
amounts. Futhermore, if the Company disposes of all or substantially all of the
assets or voting interests of FAME during the five years following the closing
of the FAME acquisition, certain payments may become due to the FAME sellers
out of the proceeds of such sale. See "Agreements Related to the Pending
Acquisitions." In addition, pursuant to the agreement relating to the
acquisition of certain assets of Oakdale, if the combined EBITDA (as defined in
the Oakdale acquisition agreement) of the Oakdale Music Theater and Meadows
exceeds $5.5 million in 1999, the Company will be obligated to pay the Oakdale
sellers between 5.0 and 5.8 times the amount of such excess. See "Risk
Factors--Future Contingent Payments."

FUTURE ACQUISITIONS

The Company is in the process of negotiating certain additional
acquisitions in the live entertainment and related businesses; however, it has
not yet entered into any definitive agreements with respect to such
acquisitions, and there can be no assurance that it will do so or have the
necessary resources to consummate any of such acquisitions. See "--Recent
Developments" and "Risk Factors--Expansion Strategy; Need for Additional
Funds."

SPIN-OFF

Pursuant to the Tax Sharing Agreement, the Company is responsible for
certain taxes of SFX Broadcasting, including taxes imposed with respect to
income generated by the Company for the periods prior to the Spin-Off and taxes
resulting from gain recognized in the Spin-Off. The Company will be allowed to
offset any gain or income by the net operating losses of SFX Broadcasting
(including net operating losses generated in the current year prior to the
Spin-Off) which are available to offset such gain or income. The Company
believes that the amount of taxes that it will be required to pay in connection
with the Spin-Off will be determined by reference to the average of the high
and low sales price of the Class A Common Stock on April 27, 1998 (the date of
the distribution of Common Stock pursuant to the Spin-Off). Increases or
decreases in the value of the Common Stock subsequent to such date will not
affect the tax liability. The average of the high and low sales price of the
Class A Common Stock on April 27, 1998 was $30.50 per share, and management
estimates that the Company will be required to pay approximately $120 million
pursuant to such indemnification obligation. Most of the tax liability relates
to certain deferred intercompany transactions creating taxable income for the
Company. Management believes that these deferred intercompany transactions will
give rise to additional tax basis which will be available to offset future
taxable income of the Company. Management's estimates of the amount of the
indemnity payment and additional taxable basis are based on certain assumptions
which management believes are reasonable. However, upon completion of the
relevant tax forms, including any potential audits, such assumptions could be
modified in a manner which would result in a significant variance in the actual
amount of the tax indemnity. The Company intends to use a substantial portion
of the net proceeds from the Offering to make such payment. Such payment will
not result in any corresponding increase in the Company's assets or cash flows
and, therefore, the purchasers of Class A Common Stock in the Offering will
experience substantial dilution. For a more complete description of the tax
indemnification obligations, see the Tax Sharing Agreement filed as an exhibit
to the Registration Statement. See "Risk Factors--Future Contingent Payments"
and "--Dilution," "Use of Proceeds" and "Additional Information."

The Company also incurred approximately $18.0 million in fees and expenses
in connection with the Spin-Off, which the Company will fund from its cash on
hand. In addition, pursuant to the SFX Merger Agreement, the Company has agreed
to assume SFX Broadcasting's obligations under the employment agreements of
certain employees and senior management, including the obligation to make
change of control payments to Messrs. Sillerman, Ferrel and Benson aggregating
approximately $3.3 million, $1.5 million and $0.2 million, respectively. The
assumed obligations will also include the duty to indemnify Messrs. Sillerman
and Ferrel for one-half of any excise taxes that may be assessed against them
in connection with the change of control payments. In addition, Mr. Sillerman's
employment agreement with the Company provides for certain indemnities relating
to the SFX Merger. See "Certain Relationships

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and Related Transactions--Assumption of Employment Agreements; Certain Change
of Control Payments" and "--Indemnification of Mr. Sillerman." In addition,
pursuant to the Distribution Agreement, the Company has agreed to indemnify SFX
Broadcasting and each of its directors, officers and employees for any losses
relating to the Company's assets and liabilities.

In addition, pursuant to the Distribution Agreement, the Company has
assumed certain obligations of SFX Broadcasting, including two real estate
leases on its executive offices. Such leases provide for annual rent of
approximately $1.4 million.

WORKING CAPITAL

As required by the Distribution Agreement, SFX Broadcasting contributed to
the Company all of its concert and other live entertainment assets. At that
time, the Company assumed all of SFX Broadcasting's liabilities relating to the
live entertainment businesses, along with certain other liabilities. At the
time of the SFX Merger, if Working Capital is negative, then the Company must
pay the amount of the shortfall to SFX Broadcasting. If positive, SFX
Broadcasting must pay such Working Capital to the Company. As of March 31,
1998, the Company estimates that Working Capital to be paid by SFX Broadcasting
to the Company would have been approximately $3.3 million. The actual amount of
Working Capital as of the SFX Merger will be a function of, among other things,
the operating results of SFX Broadcasting through the date of the SFX Merger,
the actual date of the closing of the SFX Merger and the actual cost of
consummating the SFX Merger and related transactions. For a more complete
description of the calculation of the Working Capital, see the Distribution
Agreement filed as an exhibit to the Registration Statement. See "Additional
Information." In February 1998, the Company reimbursed SFX Broadcasting
approximately $25.3 million for consent fees, capital expenditures and other
acquisition related fees previously funded by SFX Broadcasting. See "Risk
Factors--Future Contingent Payments."

INTEREST ON NOTES AND BORROWINGS UNDER THE CREDIT FACILITY

On February 11, 1998, the Company completed the private placement of
$350.0 million of 9 1/8% Senior Subordinated Notes. Interest is payable on the
Notes on February 1 and August 1 of each year. In addition, the Company has
borrowed $150.0 million under the term loan portion of the Credit Facility at
an interest rate of approximately 8.07%. The Company expects to borrow
approximately an additional $63.0 million under the revolving portion of Credit
Facility pursuant to the Financing (of which approximately $27.5 million was
borrowed on May 13, 1998 in connection with the consummation of the Avalon
Acquisition). See "--Sources of Liquidity," "Use of Proceeds," and "Description
of Indebtedness."

The degree to which the Company is leveraged will have material
consequences to the Company. The Company's ability to obtain additional
financing in the future for acquisitions, working capital, capital
expenditures, general corporate or other purposes are subject to the covenants
contained in the instruments governing its indebtedness. A substantial portion
of the Company's cash flow from operations will be required to be used to pay
principal and interest on its debt and will not be available for other
purposes. The Indenture and the credit agreement with respect to the Credit
Facility (the "Credit Agreement") contain restrictive financial and operating
covenants, and the failure by the Company to comply with those covenants would
result in an event of default under the applicable instruments, which in turn
would permit acceleration of the debt under the instruments (and in some cases
acceleration of debt under other instruments that contain cross-default or
cross-acceleration provisions). Although the Company believes that it is
currently in compliance with the covenants under the Indenture and the Credit
Agreement, there can be no assurance that it will be able to maintain such
compliance in the future. The Company will be more vulnerable to economic
downturns and could also be limited in its ability to withstand competitive
pressures and in its flexibility in reacting to changes in its industry and
general economic conditions. These consequences are not exhaustive; the
Company's indebtedness could also have other adverse consequences. See "Risk
Factors--Substantial Leverage."

The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its debt depends on its future financial
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond its
control, as well as

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the success of the businesses to be acquired and the integration of these
businesses into the Company's operations. There can be no assurance that the
Company will be able to make planned borrowings (including under the Credit
Facility), that the Company's business will generate sufficient cash flow from
operations, or that future borrowings will be available in an amount to enable
the Company to service its debt and to make necessary capital or other
expenditures. The Company may be required to refinance a portion of the
principal amount of its indebtedness prior to their respective maturities.
There can be no assurance that the Company will be able to raise additional
capital through the sale of securities, the disposition of assets or otherwise
for any refinancing. See "Risk Factors."

CAPITAL EXPENDITURES

Capital expenditures totaled $11.8 million for the three months ended
March 31, 1998 and $2.1 million in the year ended December 31, 1997. Capital
expenditures in 1997 included cash paid for expansion and renovations at the
Jones Beach Amphitheater, improvements at other venues and computer and other
operating equipment. The Company expects that capital expenditures in fiscal
year 1998 will be substantially higher than current levels, due to the planned
capital expenditures of approximately $29.0 million for 1998 at existing venues
(including $17.0 million for the expansion and renovation of the Jones Beach
Amphitheater and $12.0 million for the expansion and renovation of the PNC Bank
Arts Center) and capital expenditures requirements of the Acquired Businesses,
including $12.0 million for the construction of a new amphitheater serving the
Seattle, Washington market. As of March 31, 1998, the Company had paid
approximately $9.0 million of the $41.0 million which it expects to pay in
1998. The Company estimates that, of the remaining capital expenditures of
approximately $32.0 million, approximately $25.0 million will consist of major
projects and approximately $7.0 million will consist of other capital
expenditures. The Company expects to fund such capital expenditures from its
cash on hand.

FUTURE CHARGES TO EARNINGS

In connection with employment agreements entered into, or expected to be
entered into, with certain of the Company's executive officers, the Company
sold to such executive officers an aggregate of 650,000 shares of Class B
Common Stock and 190,000 shares of Class A Common Stock at a purchase price of
$2.00 per share. The Company will record a non-cash compensation charge in the
second quarter of approximately $24.0 million in connection with this sale. In
addition, the Company will recognize a charge to earnings of approximately $7.5
million in the second quarter associated with the Meadows Repurchase resulting
from 247,177 shares of Class A Common Stock issued to Mr. Sillerman in
connection with the Meadows Repurchase. The amount of such charge would be
equal to the fair value of Class A Common Stock to be received by Mr. Sillerman
at the time of the Meadows Repurchase. See "Certain Relationships and Related
Transactions--Meadows Repurchase."

Further, the Board, on the recommendation of its Compensation Committee,
also has approved the issuance of certain "below market" stock options
exercisable for an aggregate of 252,500 shares of Class A Common Stock. These
options will vest over three years and will have an exercise price of $5.50 per
share. The Company will record non-cash compensation charges of approximately
$2.0 million annually over the three-year exercise period. The Company will
also record non-cash charges in connection with an anticipated deferred
compensation plan for its non-employee directors equal to the fair market value
(on the date of credit) of the shares of Class A Common Stock which are
credited pursuant to such plan. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors" and "Certain Relationships
and Related Transactions."

The consummation of the Recent Acquisitions resulted in substantial
charges to earnings relating to interest expense and the recognition and
amortization of goodwill and other intangible assets. As of March 31, 1998, the
Company's goodwill was approximately $470.7 million. This balance will
substantially increase due to the Pending Acquisitions. Goodwill and other
intangible assets are being amortized using the straight line method over 15
years.

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YEAR 2000 COMPLIANCE

The Company has addressed the risks associated with Year 2000 compliance
with respect to its accounting and financial reporting systems and is in the
process of installing new accounting and reporting systems. These systems are
expected to provide better reporting, to allow for more detailed analysis, to
handle the 1997, Recent and Pending Acquisitions and to be Year 2000 compliant.
The Company anticipates that the cost of implementing these systems will be
approximately $3.0 million. The Company is in the process of examining Year
2000 compliance issues with respect to its vendors and does not anticipate that
it will be subject to a material impact in this area.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("FAS 131"), which is effective for years
beginning after December 15, 1997. FAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. FAS 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore
the Company will adopt the new requirements in 1998. Management has not yet
completed its review of FAS 131 but does not expect that its adoption will have
a material effect on the Company's statement of position or revenues, only on
the composition of its reportable segments.

SOURCES OF LIQUIDITY

As of March 31, 1998, the Company's cash and cash equivalents totaled
$94.0 million and its working capital deficit totaled $110.8 million. In
February of 1998, the Company received proceeds of $350.0 million from the Note
Offering and borrowed $150.0 million under the Credit Facility in order to
consummate the Recent Acquisitions (approximately $446.1 million) and pay
certain fees and expenses related to the Recent Acquisitions (approximately
$6.0 million). On May 13, 1998, the Company borrowed an additional $27.5
million under the Credit Facility to fund the Avalon Acquisition. On a pro
forma basis, the Company's working capital would have been approximately $27.8
million at March 31, 1998.

The Company has incurred and will continue to incur substantial amounts of
indebtedness. As of March 31, 1998, the Company's consolidated indebtedness
would have been approximately $606.0 million on a pro forma basis (assuming
that the SFX Merger occurs on the terms currently contemplated). The Company
may incur indebtedness from time to time to finance acquisitions, for capital
expenditures or for other purposes. See "Risk Factors--Substantial Leverage"
and "--Expansion Strategy; Need for Additional Funds."

The Credit Facility consists of a $150.0 million seven year reducing
revolving facility (the "Revolver") and a $150.0 million eight year term loan
(the "Term Loan"). Upon consummation of the Financing, the Company estimates
that it will have $87.0 million in remaining borrowing availability under the
Credit Facility. The Company has the ability to increase borrowing availability
by up to an additional $50.0 million under certain circumstances). Loans
outstanding under the Credit Facility will bear interest, at the Company's
option, at 1.875 to 2.375 percentage points over LIBOR or the greater of the
Federal Funds rate plus 0.50% or BNY's prime rate. The interest rate spreads on
the Term Loan and the Revolver will be adjusted based on the Company's Total
Leverage Ratio (as defined in the Credit Agreement). The Company will pay a per
annum commitment fee on unused availability under the Revolver of 0.50% (to the
extent that the Company's Leverage Ratio is greater than or equal to 4.0 to
1.0), or 0.375% (if such ratio is less than 4.0 to 1.0) and a per annum letter
of credit fee equal to the Applicable LIBOR Margin (as defined in the Credit
Agreement) for the Revolver then in effect. The Revolver and Term Loan contain
provisions providing that, at its option and subject to certain conditions, the
Company may increase the amount of either the Revolver or Term Loan by $50.0
million. The Revolver and Term Loan contain usual

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and customary covenants, including limitations on (a) line of business, (b)
additional indebtedness, (c) liens, (d) acquisitions, (e) asset sales, (f)
dividends, repurchases of stock and other cash distributions, (g) total
leverage, (h) senior leverage and (i) ratios of Operating Cash Flow (as defined
in the Credit Agreement) to pro forma interest expense, debt service and fixed
charges. The Company's obligations under the Revolver and Term Loan are secured
by substantially all of its assets, including property, stock of subsidiaries
and accounts receivable and are guaranteed by the Company's subsidiaries. See
"Description of Indebtedness--Credit Facility."

The net proceeds of the Offering, together with anticipated borrowings
under the Credit Facility, are expected to be approximately $346.5 million,
which the Company intends to use to pay the anticipated tax indemnification
obligation to SFX Broadcasting (approximately $120.0 million), to pay the cash
portion of the purchase price of the Pending Acquisitions (approximately $215.5
million), to pay certain fees and expenses related to the Financing
(approximately $19.2 million), to pay certain fees and expenses related to the
Pending Acquisitions (approximately $6.0 million) and to make certain change of
control payments to executive officers ($5.0 million). The foregoing represents
the Company's best estimate of the allocation of the net proceeds of the
Offering based on the current status of its business and, as noted elsewhere
herein, could be subject to significant change. On a pro forma basis for the
twelve months ended March 31, 1998, amounts available for borrowing under the
Credit Facility, plus the net proceeds from the Offering, would be sufficient
for the uses of funds described herein. However, there can be no assurance that
the Company will have sufficient cash flows at the time of borrowing to permit
it to make borrowings under the Credit Facility in the amounts required. See
"Description of Indebtedness."

Future events, including the actual amount of the tax indemnity payment,
the timing of the tax indemnity payment, the ability of the Company to identify
appropriate acquisition candidates, the availability of other financing and
funds generated from operations and the status of the Company's business from
time to time, may make changes in the allocation of the net proceeds of the
Offering necessary or desirable. See "Use of Proceeds."

Furthermore, certain agreements of the Company, including the Distribution
Agreement, the Tax Sharing Agreement, Employee Benefits Agreement, certain
employment agreements and the agreements relating to the Recent Acquisitions
and the Pending Acquisitions provide for tax and other indemnities, purchase
price adjustments and future contingent payments in certain circumstances.
There can be no assurance that the Company will have sufficient sources of
funds to make such payments should they come due. In addition, consistent with
its operating strategy, the Company is currently negotiating additional
acquisitions and expects to pursue additional acquisitions in the live
entertainment business in the future. See "Risk Factors--Risks Related to
Pending Acquisitions," "--Substantial Leverage," "--Future Contingent
Payments," "--Expansion Strategy; Need for Additional Funds" and
"--Restrictions Imposed by the Company's Indebtedness," "Certain Relationships
and Related Transactions--Indemnification of Mr. Sillerman" and "Description of
Indebtedness."

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OVERVIEW OF THE LIVE ENTERTAINMENT INDUSTRY

CONCERT PROMOTION INDUSTRY

The concert promotion industry consists primarily of regional promoters
focused generally in one or two major metropolitan markets. According to
Amusement Business, industry gross box office receipts for North American
concert tours totaled $1.1 billion in 1997, compared to $321.7 million in 1985,
representing a compounded annual growth rate of approximately 10.9%. The
Company believes that overall increases in ticket sales during the last several
years are in part due to the increasing popularity of amphitheaters as live
entertainment venues, as well as an increasing number of tours that attract
older audiences who did not previously attend musical concerts.

Typically, in order to initiate a music concert or other live
entertainment event or tour, a booking agent contracts with a performer to
arrange a venue and date, or series of venues and dates, for the performer's
event. The booking agent in turn contacts a promoter or promoters in the
locality or region of the relevant venue or venues. The promoter markets the
event, sells tickets, rents or otherwise provides the event venue or venues,
and arranges for local production services (such as stage, set, sound and
lighting). In certain instances, particularly in connection with music
festivals, a promoter may also provide limited production services. Individual
industry participants, such as the Company, often perform more than one of the
booking, promotion and venue operation functions.

The booking agent generally receives a fixed fee for its services, or in
some cases, a fee based on the success of the event or events, in each case
from the artist. The promoter typically agrees to pay the performer the greater
of a guaranteed amount and a profit-sharing payment based on gross ticket
revenues, therefore assuming the risk of an unsuccessful event. The promoter
sets ticket prices and advertises the event in order to cover expenses and
generate profits. In the case of an unprofitable event, a promoter will
sometimes renegotiate a lower guarantee in order to mitigate the promoter's
losses (in a process known as "settlement"). In some instances, the promoter
agrees to accept a fee from the booking agent for the promoter's services, and
the booking agent bears the financial risk of the event.

A venue operator typically contracts with a promoter to rent its venue for
a specific event on a specific date or dates. The venue operator provides
services such as concessions, parking, security, ushers and ticket-takers, and
receives revenues from concessions, merchandise, sponsorships, parking and
premium box seats. A venue operator will typically receive (for each event it
hosts) a fixed fee or percentage of ticket sales for use of the venue, as well
as a fee representing between 40-50% of total concession sales from the vendors
and 10-25% of total merchandise sales from the performer.

Concert venues are generally comprised of stadiums (typically 32,000 seats
or more), amphitheaters or arenas (typically 5,000 to 32,000 seats), clubs
(typically less than 2,000 seats) and theaters (typically 100 to 5,000 seats).
Amphitheaters are generally outdoor venues that are used primarily in the
summer season. They have become increasingly popular venues for concerts
because the seating configuration is designed specifically for concert events,
often resulting in more available seats, fewer obstructed seats, better lines
of sight to the stage and superior acoustics. In addition, because they
typically cost less to construct, maintain and operate than traditional
multi-purpose stadiums and arenas, amphitheaters often are able to host
concerts and other events that would not be profitable in a stadium or arena.

THEATRICAL INDUSTRY

The audience for live professional theater has increased significantly in
the last two decades. According to Variety Magazine, gross ticket sales for the
entire industry of Touring Broadway Shows and Broadway shows have increased
from $431.5 million during the 1986-7 season to $1.3 billion during the 1996-7
season, a compounded annual growth rate of 11.2%. During this time, the number
of touring weeks and markets where Touring Broadway Shows could profitably be
presented have expanded. Sales for Touring Broadway Shows have grown as a
percentage of total industry gross ticket sales, from approximately 52% in the
1986-7 season to approximately 60% in the 1996-7 season. The growth of the

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national theatrical industry has resulted, in part, from the development of
local subscription series for Touring Broadway Shows, the construction of new
performing arts centers with seating capacities of 2,500 or more in many
municipalities, and an increase in the quality of Touring Broadway Shows and in
the number of multiple-week engagements produced for presentation outside of
New York City. Touring Broadway Shows are typically revivals of previous
commercial successes or reproductions of theatrical shows currently playing on
Broadway in New York City ("Broadway Shows").

Live professional theater consists mainly of the production of existing
musical and dramatic works and the development of new works. In general,
musicals require more investment of time and capital than dramatic productions.
For an existing musical work (which is more likely to be presented as a Touring
Broadway Show), a period of 12 to 24 months typically elapses between the time
a producer acquires the theatrical stage rights and the date when the musical
is first performed before the public. During this time, a touring company is
assembled, and the show is readied for the road. By comparison, dramatic
productions typically have smaller production budgets, shorter pre-production
periods and lower operating costs, and tend to occupy smaller theaters for
shorter runs.

A producer of a Broadway Show or a Touring Broadway Show first acquires
the rights to the work from its owners, who typically receive royalty payments
in return. The producer then assembles the cast of the play, hires a director
and arranges for the design and construction of sets and costumes. The producer
of a Touring Broadway Show also must arrange transportation and schedule the
show with local promoters. The local promoter of a Touring Broadway Show, who
generally operates or has relationships with venues in individual markets,
provides all local services such as selling tickets, hiring local personnel,
buying advertising and paying a fixed guarantee (typically between $100,000 and
$400,000) to the producer of the show for each week that the show is presented.
The promoter is then entitled to recover the amount of the guarantee plus its
local costs from ticket revenues. Any remaining ticket revenues are shared by
the promoter and the producer, with the producer typically receiving
approximately 60% of the profits. Although Touring Broadway Shows are generally
substantially less expensive to produce than Broadway Shows, they may be
financed through a limited partnership with third-party investors who receive a
profit interest in the production. Often, investors in Touring Broadway Shows
will also invest in the underlying Broadway Show, in part to help secure
touring rights. After investors have received the complete return of their
investment, net profits are split between the limited partners and the show's
producer. The amount of net profits allocated to the show's producer, including
fees and royalties, varies somewhat, but is normally in the range of 50% after
certain profit participations are deducted. After certain net profits, a
producer may also receive a production fee and royalties. A typical Touring
Broadway Show requires 45 playing weeks with a weekly guarantee from the local
promoter of approximately $250,000 to recoup production and touring costs; more
elaborate touring productions with larger casts or sets, such as The Phantom of
the Opera or Miss Saigon, generally require significantly higher weekly
revenues and additional playing weeks in order to recoup production and touring
costs.

Tickets for Touring Broadway Shows often are sold through "subscription
series," which are pre-sold season tickets for a defined package of shows to be
presented in a given venue.

MOTOR SPORTS INDUSTRY

Specialized motor sports events make up a growing segment of the live
entertainment industry. This growth has resulted from additional demand in
existing markets and new demand in markets where new arenas and stadiums have
been built. The increasing popularity of specialized motor sports over the last
several years has coincided with (and, in part, been due to) the increased
popularity of other professional motor sports events, such as professional auto
racing (including NASCAR, CART and Indy Car Racing). A number of specialized
motor sports events are televised on several of the major television networks
and are also shown on television in markets outside of the United States.

In general, one to four motor sports events will be produced and presented
each year in a market, with larger markets hosting more performances. Stadiums
and arenas typically work with producers and promoters to manage the scheduling
of events to maximize each event's results and each season's revenues. The cost
of producing and promoting a typical single stadium event ranges from $300,000
to

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$600,000, and the cost of producing and presenting a typical single arena event
ranges from $50,000 to $150,000. Monster trucks, demolition derbies, thrill
acts, air shows and other motor sports concepts and events are typically
created and financed by third parties and hired to perform in an individual
event or season of events. As in other motor sports, corporate sponsorships and
television exposure are important financial components that contribute to the
success of a single event or season of events.

TALENT REPRESENTATION INDUSTRY

The talent representation industry generally encompasses the negotiation
of employment agreements and the creation and evaluation of endorsement,
promotional and other business opportunities for the client. A provider in this
industry may also provide ancillary services, such as financial advisory or
management services to its clients in the course of the representation.

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BUSINESS

GENERAL

SFX Entertainment is a leading integrated promoter, producer and venue
operator in the live entertainment industry. In addition, upon consummation of
the acquisition of FAME, the Company will be a leading full-service marketing
and management company specializing in the representation of team sports
athletes, primarily in professional basketball. The Company believes that it
currently controls the largest network of venues used principally for music
concerts and other live entertainment events in the United States, with 44
venues either directly owned or operated under lease or exclusive booking
arrangements in 22 of the top 50 markets on a pro forma basis, including 11
amphitheaters in 7 of the top 10 markets. Through its large number of venues,
its strong, branded presence in each market served and its long operating
history, the Company is able to provide an integrated offering of promotion and
production services across a broad variety of live entertainment events
locally, regionally and nationally. During 1997, approximately 27 million
people attended 9,600 events promoted and/or produced by the Company, the
Acquired Businesses and the businesses to be acquired in the Pending
Acquisitions, including approximately 4,200 music concerts, 4,900 theatrical
shows and over 190 specialized motor sports events. These events included: (a)
music concerts featuring artists such as The Rolling Stones, Phish, Fleetwood
Mac, Ozzy Osbourne and Alanis Morissette, (b) music festivals such as the
George Strait Country Music Festival, (c) touring theatrical productions such
as The Phantom of the Opera, Jekyll & Hyde, Rent and The Magic of David
Copperfield and (d) specialized motor sports events, such as Truck Fest and
American Motorcycle Association Supercross racing events. In addition, the
Company's event marketing programs interfaced with over 15 million people in
1997. The Company believes that its ability to provide integrated live
entertainment services will, among other things, encourage wider use of its
venues by performers and allow the Company to capture a greater percentage of
revenues from national tours and ancillary revenue sources. On a pro forma
basis, the Company would have had revenues and Adjusted EBITDA of $827.9
million and $104.9 million, respectively, for the twelve months ended March 31,
1998. For a description of Adjusted EBITDA, see footnote 5 to "Summary
Consolidated Financial Statements."

The Company's core business is the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by the Company and in third-party
venues. As promoter, the Company typically markets events and tours, sells
tickets, rents or otherwise provides event venues and arranges for local
production services (such as stage, set, sound and lighting). As producer, the
Company (a) creates tours for music concert, theatrical, specialized motor
sports and other events, (b) develops and manages Touring Broadway Shows and
(c) develops specialized motor sports and other live entertainment events. As
venue owner/operator, the Company books and promotes events in the venues which
it controls. The Company also derives ancillary revenues from operations
related to its live entertainment events, including the sale of corporate
sponsorships and advertising, the sale of concessions and the merchandising of
a broad range of products. In addition, upon consummation of the acquisition of
FAME, the Company will represent approximately 70 professional athletes,
primarily in professional basketball. On a pro forma basis, the Company's music
businesses, theater operations, specialized motor sports operations and other
operations would have comprised approximately 67%, 13%, 6% and 14%,
respectively, of the Company's total revenues for the twelve months ended March
31, 1998.

SFX MERGER AND THE SPIN-OFF

SFX Broadcasting was formed in 1992 principally to acquire and operate
radio broadcasting stations. In August 1997, SFX Broadcasting agreed to merge
with an affiliate of SFX Buyer, and to Spin-Off the Company to certain
stockholders of SFX Broadcasting on a pro rata basis. The Spin-Off was
consummated on April 27, 1998. The Spin-Off separated the entertainment
business from SFX Broadcasting's radio broadcasting business and will enable
SFX Buyer to acquire only SFX Broadcasting's radio broadcasting business in the
SFX Merger. SFX Broadcasting has indicated that it expects the SFX Merger to be
completed in the second quarter of 1998.

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Prior to the Spin-Off, pursuant to the Distribution Agreement, SFX
Broadcasting contributed to the Company all of its assets relating to the
entertainment business. In addition, the Company, SFX Broadcasting and SFX
Buyer also entered into a Tax Sharing Agreement and the Employee Benefits
Agreement. Each of the agreements provides for certain indemnification
obligations by the Company and SFX Broadcasting. Pursuant to the Distribution
Agreement, at the time of the SFX Merger, SFX Broadcasting will contribute any
positive Working Capital to the Company. If Working Capital is negative, the
Company must pay the amount of the shortfall to SFX Broadcasting. As of March
31, 1998, the Company estimates that Working Capital to be paid by SFX
Broadcasting to the Company would have been approximately $3.3 million.
Pursuant to the Tax Sharing Agreement, the Company is required to indemnify SFX
Broadcasting for certain tax obligations, including a tax obligation estimated
to be approximately $120.0 million in connection with the Spin-Off. The Company
intends to use a portion of the net proceeds of the Financing to make such
payments. See "Risk Factors--Future Contingent Payments," and "--Liquidity and
Capital Resources."

In the Spin-Off, (a) 13,579,024 shares of Class A Common Stock were
distributed to holders on the Spin-Off record date of SFX Broadcasting's Class
A common stock, Series D preferred stock and interests in SFX Broadcasting's
director deferred stock ownership plan, (b) 1,047,037 shares of Class B Common
Stock were distributed to holders on the Spin-Off record date of SFX
Broadcasting's Class B Common Stock, and (c) 609,856 shares were placed in
escrow to be issued upon the exercise of certain warrants of SFX Broadcasting.
See "Certain Relationships and Related Transactions--Employment Agreements."

1997 ACQUISITIONS

The Company was formed as a wholly-owned subsidiary of SFX Broadcasting in
December 1997 as the parent company of Concerts. Concerts was formed by SFX
Broadcasting in January of 1997 to acquire and hold SFX Broadcasting's live
entertainment operations.

DELSENER/SLATER

In January 1997, Concerts acquired Delsener/Slater, a leading concert
promotion company, for an aggregate consideration of approximately $27.6
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. Delsener/Slater
has long-term leases or is the exclusive promoter for several of the major
concert venues in the New York City metropolitan area, including the Jones
Beach Amphitheater, a 14,000-seat complex located in Wantagh, New York, and the
PNC Bank Arts Center (formerly known as the Garden State Arts Center), a
17,500-seat complex located in Holmdel, New Jersey.

MEADOWS

In March 1997, Concerts acquired the stock of certain companies which own
and operate the Meadows, a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut for $900,000 in cash, 250,838 shares of SFX Broadcasting
Class A common stock with a value of approximately $7.5 million and the
assumption of approximately $15.4 million in debt. See "Certain Relationships
and Related Transactions--Meadows Repurchase."

SUNSHINE PROMOTIONS

In June 1997, Concerts acquired the stock of Sunshine Promotions, one of
the largest concert promoters in the Midwest for $53.9 million in cash, $2.0
million payable over five years, shares of SFX Broadcasting Class A common
stock issued and issuable over a two year period with a value of approximately
$4.0 million and the assumption of approximately $1.6 million of debt. Sunshine
Promotions owns the Deer Creek Music Theater, a 21,000-seat complex located in
Indianapolis, Indiana, and the Polaris Amphitheater ("Polaris"), a 20,000-seat
complex located in Columbus, Ohio, and has a long-term lease to operate the
Murat Centre, a 2,700-seat theater and 2,200-seat ballroom located in
Indianapolis, Indiana.

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RECENT ACQUISITIONS

In February and March of 1998, the Company completed its acquisitions of
PACE, Contemporary, BGP, Network, Concert/Southern and certain related
entities. The aggregate purchase price of these Recent Acquisitions was
approximately $442.1 million in cash including repaid debt and payments for
working capital, $7.8 million in assumed debt and the issuance of an aggregate
of approximately 4.2 million shares of Class A Common Stock. Following is a
brief description of the Acquired Businesses. The following descriptions are
not intended to be complete descriptions of the terms of the acquisition
agreements and are qualified by reference to the acquisition agreements, copies
of which are filed as exhibits hereto and are incorporated herein by reference.
See "Additional Information."

PACE

On February 25, 1998, the Company acquired all of the outstanding capital
stock of PACE for a total purchase price of $109.5 million in cash, the
repayment of $20.6 million of debt and the issuance of 1.5 million shares of
Class A Common Stock. PACE is one of the largest diversified promoters and
producers of live entertainment in the United States, having what the Company
believes to be the largest distribution network in each of its music concerts,
theatrical shows and motor sports events business segments. In connection with
the acquisition of PACE, the Company has obtained 100% of Pavilion Partners, a
partnership that owns interests in 10 of the 41 venues owned by the Company, by
acquiring one-third of Pavilion Partners through the acquisition of PACE and
the remaining two-thirds of Pavilion Partners from Sony and Blockbuster, for a
combined consideration of $90.6 million (comprised of cash of $41.4 million,
the repayment of $43.1 million of debt related to the two-thirds interest and
the assumption of $6.1 million of debt related to a capital lease). Under
certain circumstances, the Company may be required to sell either its motor
sports or theatrical lines of business. See "Management--Employment Agreements
and Arrangements with Certain Officers and Directors."

In addition, on March 25, 1998, PACE acquired a 67% interest in certain
assets and liabilities of USA Motorsports for an aggregate cash consideration
of approximately $4.0 million. The remaining 33% interest is held by the
Contemporary Group.

CONTEMPORARY

On February 27, 1998, the Company acquired by merger and asset
acquisition, the music concert, live entertainment, event marketing,
computerized ticketing and related businesses of Contemporary and the 50%
interest in the Riverport Amphitheater Joint Venture not owned by Contemporary
for approximately $72.8 million in cash, a payment for working capital of $9.9
million, and the issuance of the 1,402,850 shares of Class A Common Stock.
Contemporary is a vertically-integrated live entertainment and special event
promoter and producer, venue operator and consumer marketer.

Contemporary is also one of the top special event sales promotion and
marketing companies in the country. Contemporary develops programs for national
consumer product companies and for demonstrating, sampling and selling products
to consumers. Contemporary's clients have included AT&T, CBS TV, Radio Shack,
Coca Cola USA, Reebok, Nabisco and the National Basketball Association.

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BGP

On February 24, 1998, the Company acquired BGP for total consideration of
$60.8 million in cash, $12.0 million in repayment of debt, which amount was at
least equal to BGP's working capital (as defined in the acquisition agreement)
and the issuance of 562,640 shares of Class A Common Stock. BGP is one of the
oldest promoters and producers of live entertainment in the United States and
is the principal promoter of live entertainment in the San Francisco Bay area.

NETWORK

On February 27, 1998, the Company acquired Album Network, Inc., SJS and
The Network 40 for a purchase price of $52.0 million in cash, a payment for
working capital of $1.8 million, reimbursed seller's costs of $500,000, the
purchase of an office building and related property for $2.5 million and the
issuance of 750,188 shares of Class A Common Stock upon consummation of the
Spin-Off. The $2.5 million purchase of the office building and related property
consisted of cash of $700,000 and the assumption of debt of $1.8 million.
Network is engaged in music marketing, research and artist development
activities and is a publisher of trade magazines for radio broadcasters, music
retailers, performers and record industry executives.

CONCERT/SOUTHERN

On March 4, 1998, the Company acquired Concert/Southern for a total cash
purchase price of $16.9 million (including a working capital payment of
$300,000). Concert/Southern is a promoter of live entertainment in the Atlanta
metropolitan area.

WESTBURY

On January 8, 1998, the Company acquired a long-term lease for Westbury
Music Fair, located in Westbury, New York, for an aggregate consideration of
approximately $3.0 million and an agreement to issue 75,019 shares of Class A
Common Stock. During the period between the closing and January 8, 2000, the
Company has the right to repurchase all of such shares for an aggregate
consideration of $2.0 million and the seller has the right to require the
Company to purchase all of such shares for an aggregate consideration of
$750,000.

PENDING ACQUISITIONS

In April and May of 1998, the Company entered into agreements to acquire
the following live entertainment and talent representation businesses (for a
more complete description of the material terms of the agreements relating to
these acquisitions, see "Agreements Related to the Pending Acquisitions"):

FAME

On April 29, 1998, the Company entered into an agreement (the "FAME
Agreement") to acquire all of the outstanding capital stock of FAME, a leading
full-service marketing and management company which specializes in the
representation of team sports athletes, primarily in professional basketball.
The aggregate purchase price for FAME will be approximately $82.2 million in
cash (including approximately $7.9 million which the Company anticipates paying
in connection with certain taxes expected to be incurred by FAME and the FAME
sellers) and 1.0 million shares of Class A Common Stock. The agreement also
provides for payments by the Company to the FAME sellers of additional amounts
up to an aggregate of $15.0 million in equal annual installments over five
years contingent on the achievement of certain EBITDA targets and additional
payments by the Company if FAME's EBITDA performance exceeds the targets by
certain amounts. FAME was founded in 1992 by David Falk and Curtis Polk and
currently represents some of the premier athletes in professional team sports,
including, among others, Michael Jordan, Patrick Ewing, Alonzo Mourning, Juwan
Howard and Allen Iverson. In addition, FAME provides specialized financial
advisory services to its clients. Upon the consummation of the FAME
acquisition, Mr. Falk will continue to serve as the Chairman of FAME and will
be appointed as a Member

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of the Office of the Chairman and a Director of the Company. The Company
believes that, through its acquisition of FAME, it will be able to capitalize
on the cross-marketing opportunities that may arise by virtue of representing
prominent team athletes while selling corporate sponsorships and other
marketing rights at its existing venues.

DON LAW

On April 29, 1998, the Company entered into an agreement (the "Don Law
Agreement") to acquire certain assets of Don Law. The Company proposes to
acquire such assets of Don Law for an aggregate consideration of approximately
$90.0 million, including the repayment of approximately $10.0 million in
indebtedness. The Company may, at its option, pay up to $16.0 million of the
purchase price in shares of Class A Common Stock. Don Law is a leading concert
and theater promoter in the New England area. In addition, Don Law acts as the
sole ticket operator for all of its own venues as well as several third party
venues. The definitive agreement is expected to provide for an employment
contract for Mr. Donald F. Law, Jr., the founder and president and chief
executive officer of Don Law.

OAKDALE

On April 22, 1998, the Company entered into an agreement (the "Oakdale
Agreement") to acquire certain assets of Oakdale for a purchase price of $11.9
million in cash. At the closing the Company will also make a non-recourse loan
to the Oakdale sellers in the amount of $11.4 million. Oakdale is a promoter
and producer of concerts in Connecticut and the owner of the Oakdale Theater, a
new 4,800 seat facility located in Wallingford, Connecticut. In addition,
pursuant to the Oakdale Agreement, if the combined EBITDA (as defined in the
Oakdale Agreement) of the Oakdale Theater and Meadows exceeds $5.5 million in
1999, the Company will be obligated to pay between 5.0 to 5.8 times the amount
of such excess to the Oakdale sellers.

EMI

On May 1, 1998, the Company entered into an agreement (the "EMI
Agreement") to acquire an 80% equity interest in EMI for $8.5 million in cash.
In addition, if the EMI sellers are required to pay any federal income taxes in
connection with the transaction, the Company has agreed to make a loan to them
in such amount (which the Company currently anticipates will be approximately
$750,000). The loan will bear interest at a rate of 10% and will be repaid when
the EMI sellers sell their remaining equity interests in EMI. EMI has long term
concession contracts with 26 amphitheaters, including 13 venues owned and/or
operated by the Company.

AVALON

On May 14, 1998, the Company acquired Avalon for an aggregate cash
purchase price of $26.8 million, including approximately $300,000 paid to the
Avalon sellers to reimburse them for their third party out of pocket costs and
expenses incurred in connection with the development of the Camarillo Creek
Amphitheater. Avalon is a leading music concert producer and promoter in the
Los Angeles area.

SERVICES PROVIDED BY THE COMPANY

The Company is engaged in (a) the booking, promotion and production of
live entertainment events and tours, (b) the ownership and/or operation of
concert and other entertainment venues, (c) the representation of professional
athletes and (d) the sale of corporate sponsorships and advertising and
provision of marketing and consulting services to third-parties.

BOOKING AND PROMOTION

The Company books and promotes music concert, theatrical, specialized
motor sports and other live entertainment events and tours such as music
festivals, comedy tours, figure skating shows, gymnastics tours, motivational
speaking tours and other special events. The Company books and promotes events
in a number of types of venues (including amphitheaters, theaters, clubs,
arenas and stadiums) that are

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<PAGE>

owned and/or operated by the Company or by third parties. See "--Venue
Operations." The Company primarily promotes concerts performed by newer groups
having widespread popularity (e.g., Phish, Dave Matthews and Hootie & the
Blowfish) and by more established groups having relatively long-standing and
more stable bases of popularity (e.g., James Taylor and Jimmy Buffett). The
Company believes that its large distribution network will enable it to set an
aggregate guarantee for a series of shows, mitigating the risk of loss
associated with a single show. The Company also believes that the market
research and audience demographics database that it acquired in the Recent
Acquisitions, when combined with its existing audience data collection efforts,
will permit highly-effective, targeted marketing, such as direct-mail and
subscription series campaigns, which the Company believes will increase ticket
pre-sales and overall sales in a cost-efficient manner. In addition, the
Company's Capital Tickets retail distribution outlets and Dialtix interactive,
voice-response automated phone ticket order system are currently operating in
three markets. The Company believes that expanding the markets where it can
utilize its own ticketing sources will permit the Company to promote its live
entertainment events more effectively.

The following table identifies artists whose events were recently promoted
by the Company:

<TABLE>
<CAPTION>
<S> <C> <C>
Aerosmith Elton John Phil Collins
Alabama Fleetwood Mac* Pink Floyd
Alanis Morissette James Taylor Phish
Bette Midler Jerry Seinfeld* R.E.M.
Billy Joel Jimmy Buffett Rod Stewart
Brooks & Dunn John Secada The Rolling Stones
Chris Rock* Live Seal
Clint Black Melissa Etheridge Sheryl Crow
Crosby, Stills & Nash Metallica Smashing Pumpkins
Dave Matthews Michael Bolton Stone Temple Pilots
Depeche Mode Ozzy Osbourne* Tim Allen*
The Eagles Pearl Jam Tina Turner
Earth, Wind & Fire Peter Gabriel U2
</TABLE>

* National tour produced by the Company.

PRODUCTION

The Company is currently involved in the creation of tours for music
concert and other live entertainment events. The Company's production
activities include (a) the creation of tours for music concert, theatrical,
specialized motor sports and other live entertainment events, (b) the
development and management of Touring Broadway Shows and (c) the development of
specialized motor sports shows, proprietary characters and television
programming. The Acquired Businesses produce tours on a national or regional
basis and, in 1997, structured national tours for Fleetwood Mac and Ozzy
Osbourne, among others. The Company plans to increase its production of
national music tours. PACE (one of the Acquired Businesses) also produces
Touring Broadway Shows, acquiring the stage and touring rights from a show's
owner, assembling the touring cast, hiring a director and arranging for the
construction and design of sets and costumes. Touring Broadway Shows are
typically revivals of previous commercial successes or reproductions of
theatrical shows currently playing on Broadway in New York City. PACE also
produces and makes small investments (i.e., from approximately $150,000 to
$600,000) as a limited partner in the creation of a small number of original
Broadway Shows in exchange for obtaining touring rights and favorable
scheduling for those shows.

The Touring Broadway Show production and promotion industry is highly
fragmented. The Company believes it is the largest of six multiple-market
promoters of Touring Broadway Shows in the United States, and that the
remainder of the industry is made up of single-market promoters. The Company
competes with other producers and promoters to obtain presentation arrangements
with venues and performing arts organizations in various markets, including in
markets that have more than one venue suitable for presenting a Touring
Broadway Show. The Company's competitors, some of whom have also

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<PAGE>

been partners of PACE in certain theater investments from time to time, include
a number of New York-based production companies that also promote Touring
Broadway Shows and a number of regional promoters. On a pro forma basis, the
Company would have had a producing interest or investment in the following
shows for 1997 and/or 1998:

<TABLE>
<CAPTION>
SHOW TITLE TYPE THE COMPANY'S INVOLVEMENT
- ----------------------------- -------------------- --------------------------
<S> <C> <C>
Big Touring Production
Damn Yankees Touring Production
David Copperfield Touring Production
Death Trap Touring Production
Funny Girl Touring Production
Harmony Development Production
Jekyll & Hyde Broadway Production
Kiss of the Spiderwoman Touring Production
Man of La Mancha Touring Production
Smokey Joe's Cafe Touring Production
The Sound of Music Touring Production
West Side Story Touring Production
A Chorus Line Touring (US & UK) Investment
Annie Broadway Investment
Carousel Touring Investment
Cirque Ingenieux Touring Investment
Grease Broadway & Touring Investment
Chicago Broadway & Touring Investment
How to Succeed in Business Broadway & Touring Investment
Martin Guerre West End (UK) Investment
Rent Broadway & Touring Investment
Steel Pier Broadway Investment
Triumph of Love Broadway Investment
West Side Story Touring (UK) Investment
</TABLE>

The Company believes that there are approximately 50 domestic markets that
can provide the potential audience and gross ticket revenues for a full scale
Touring Broadway Show to be profitable, and an additional 50 markets where
smaller scale productions with shorter runs can be presented profitably. In
most of these cities, there are a limited number of venues that can accommodate
a Touring Broadway Show.

The Company currently sells subscription series for its Touring Broadway
Shows in the following 31 of the approximately 60 markets that maintain active
touring schedules:

<TABLE>
<CAPTION>
<S> <C> <C>
Atlanta, GA Long Beach, CA Palm Beach, FL
Austin, TX Louisville, KY Phoenix, AZ
Baltimore, MD Miami, FL Pittsburgh, PA
Chicago, IL Milwaukee, WI Portland, OR
Cincinnati, OH Minneapolis, MN San Antonio, TX
Columbus, OH Myrtle Beach, SC Seattle, WA
Dallas, TX Nashville, TN Tampa, FL
Ft. Lauderdale, FL New Orleans, LA Ottawa, Canada
Green Bay, WI Omaha, NE Edmonton, Canada
Houston, TX Orange County, CA
Indianapolis, IN Orlando, FL
</TABLE>

Subscriptions historically have covered two-thirds of PACE's break-even
point for Touring Broadway Shows. In 1997, PACE had approximately 220,000
subscribers for its Touring Broadway Shows.

The Company also produces motor sports events such as monster truck
events, tractor pulls, mud races, demolition derbies and motorcross races, and
designs tracks and other elements for those events. Competition among producers
in the specialized motor sports industry is between three large companies

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<PAGE>

and a number of smaller regional companies. The Company believes that it is the
largest participant in the industry, on a pro forma basis having produced over
190 events in 1997. The Company also competes with several regional specialized
motor sports companies, which each present only a small number of events, as
well as a number of local promoters that present only one or two events per
year. See "Risk Factors--Rights to Purchase Certain Subsidiaries."

In addition, the Company produces a variety of other forms of live
entertainment, including music festivals, radio programs, air shows, figure
skating shows, gymnastics tours, comedy tours, motivational speaking tours and
television programming based on certain of its events and other events.

VENUE OPERATIONS

The Company's revenues from its venue operations are derived primarily
from corporate sponsorships and advertising, concessions, merchandise, parking
and other related items. A venue operator will typically receive for each event
it hosts a fixed fee or percentage of ticket sales for use of the venue, as
well as a fee representing between 40-50% of total concession sales from the
vendors and 10-25% of total merchandise sales from the performer. As a venue
owner, the Company typically receives 100% of sponsorship and advertising
revenues. Since few artists will play in every available market during a tour,
the Company competes with venues in other markets for dates of popular national
tours. The favorable cost structure of amphitheaters and their ability to draw
fans is often an important factor in the decision of a performer to choose to
perform in an amphitheater market. In certain cities, the Company also competes
with other venues to promote an artist in that city. The Company believes that
it controls the largest network of venues used principally for music concerts
and other live entertainment events in the United States. Upon consummation of
the Pending Acquisitions, the Company will own and/or operate 44 venues in 22
of the top 50 markets, including 11 amphitheaters in 7 of the top 10 markets.
The following chart sets forth certain information with respect to the venues
that are owned and/or operated by the Company:

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<PAGE>

<TABLE>
<CAPTION>
TOTAL
TOTAL AVG. NO. OF SEATS
MARKET TYPE OF THE COMPANY'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 1997
- ------------------------------- ---------- -------------- ---------------------- --------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Los Angeles--Riverside--
Orange County: 2
Glen Helen Blockbuster
Pavilion .................... amphitheater 25-year lease 25,000(3) 10,162 15 152,432
(expires July 1,
2018)
Irvine Meadows
Amphitheater ................ amphitheater 20-year lease 15,500 11,537 19 219,211
(expires February
28, 2017)
Thousand Oaks
Civic Arts Plaza ............. theater 5-year exclusive 1,800 1,164 24 27,929
booking agent for
contemporary
music events
(expires May 2003)
San Francisco--Oakland--
San Jose: 5
Shoreline Amphitheater ....... amphitheater facility owned; land 22,000 12,600 40 504,013
leased for 35 years
(expires November
30, 2021)
Concord Pavilion ............. amphitheater 10-year exclusive 12,500 6,226 42 261,479
outside booking
agent (expires
December 31,
2005)
Greek Theater ................ theater 4-year lease 8,500 6,191 9 55,718
(expires October
31, 1998)
Warfield Theatre ............. theater 10-year lease 2,250 1,677 77 129,129
(expires May 31,
2008)
Filmore Auditorium ........... theater 10-year lease 1,249 1,051 180 189,103
(expires August 31,
2007)
Punchline Comedy Club ........
club 5-year lease 175 97 422 41,138
(expires September
15, 2001)
Philadelphia--Wilmington--
Atlantic City: 6
Blockbuster/SONY
Music Entertainment
Centre on the
Waterfront .................. amphitheater 31-year lease 25,000 8,973 54 484,528
(expires February
9, 2025)
Boston--Mansfield: 7
Great Woods Center for
the Performing Arts(4) ....... amphitheater owned 19,900 11,943 54 644,875

Harborlights Pavilion(4) ..... amphitheater leased 4,800 3,180 45 143,100
Orpheum Theatre(4) ........... theater long-term 2,700 2,475 184 622,586
management
contract
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
TOTAL
TOTAL AVG. NO. OF SEATS
MARKET TYPE OF THE COMPANY'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 1997
- ----------------------------- ---------- -------------- ---------------------- --------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dallas--Ft. Worth: 9
Starplex Amphitheater ...... amphitheater 32.5% partnership 20,500 8,799 35 307,981
interest in 31 year
lease (expires
December 31,
2028)
Houston--Galveston--
Brazoria: 10
Cynthia Woods Mitchell
Pavilion .................. amphitheater 15-year 13,000 8,381 35 293,350
management
contract (expires
December 31,
2009)
Bayou Place
Performance Hall .......... theater 50% partnership 2,800 3,223 18 58,019
interest in 10-year
lease (expires
December 31,
2007)
Atlanta: 12
Lakewood Amphitheater ...... amphitheater 32.5% partnership 19,000 9,257 32 296,225
interest in 35-year
lease (expires
January 1, 2019)
Chastain Park
Amphitheater .............. amphitheater 10-year lease 7,000 5,777 28 161,755
(expires December
31, 2000)
Roxy Theater ............... theater 7-year lease 1,600 848 102 86,498
(expires March 31,
2004)
Cotton Club ................ theater 5-year lease 650 403 151 60,829
(expires June 12,
2000)
St. Louis: 17
Riverport Amphitheater ..... amphitheater owned 21,000 10,531 42 442,302
American Theater ........... theater 10-year lease 2,000 1,510 24 36,236
(expires July 31,
2004)
Westport Playhouse ......... theater 1-year lease 1,100 880 15 13,196
(expires May 31,
1998)
Phoenix--Mesa: 18
Desert Sky Blockbuster
Pavilion .................. amphitheater 60-year lease 19,900(2) 9,179 23 211,114
(expires June 30,
2049)
Pittsburgh: 19
Star Lake Amphitheater ..... amphitheater 45-year lease 22,500 12,361 42 519,182
(expires December
31, 2034)
Kansas City: 24
Sandstone Amphitheater ..... amphitheater 10-year lease 18,000 8,109 32 259,488
(expires December
31, 2002)
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
TOTAL
TOTAL AVG. NO. OF SEATS
MARKET TYPE OF THE COMPANY'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK (1) VENUE INTEREST CAPACITY IN 1997 IN 1997 1997
- ---------------------------- ---------- -------------- ---------------------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Starlight Theater ......... theater annual exclusive 9,000 3,772 9 33,948
booking agent
contract for 1998
(renewal under
negotiation)
Memorial Hall ............. theater 1998 contract 3,000 1,910 11 21,014
(renewal under
negotiation)
Sacramento--Yolo: 26
Punchline Comedy Club ..... club 9-year lease 245 355 90 31,834
(expires December
17, 1999)
Indianapolis: 28
Deer Creek Music
Center ................... amphitheater owned 21,000 11,348 42 476,617
Murat Centre .............. theater and 50-year lease 2,700 1,412 144 211,920
ballroom (expires August 31,
2045)
Columbus: 30
Polaris Amphitheater ..... amphitheater owned 20,000 7,732 39 301,555
Charlotte--Gastonia--
Rock Hill: 32
Charlotte Blockbuster
Pavilion ................. amphitheater owned 18,000 8,592 34 292,135
Hartford--Wallingford: 36
Meadows Music
Theater .................. amphitheater facility owned; land 25,000 9,807 26 254,982
leased for 37 years
(expires September
13, 2034)
Oakdale Theater(5) ........ theater facility owned; land 4,800 2,944 142 418,000
leased for 15 years
and the Company
will purchase land
upon expiration
Rochester: 39
Finger Lakes
Amphitheater ............. amphitheater co-promotion 12,700 6,123 15 91,845
agreement
Nashville: 41
Starwood Amphitheater ..... amphitheater 50% ownership 17,000 8,208 25 205,204
Oklahoma City: 43
Zoo Amphitheater .......... amphitheater year-to-year 9,000 6,412 4 25,648
exclusive booking
agent
Raleigh--Durham--
Chapel Hill: 50
Walnut Creek
Amphitheater ............. amphitheater 66 2/3% partnership 20,000 10,498 40 419,919
interest in 40-year
lease (expires
October 31, 2030)
West Palm Beach--
Boca Raton: 50
SONY Music/Blockbuster
Coral Sky
Amphitheater ............. amphitheater 75% partnership 20,000 11,244 26 292,340
interest in 10-year
lease (expires
January 4, 2005)
</TABLE>

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<PAGE>

- ----------
(1) Based on the July 1994 population of metropolitan statistical areas as
set forth in the 1997 Statistical Abstracts of the United States. Does
not include venues where the Company sells subscriptions for Touring
Broadway Shows.
(2) Assumes completion of current expansion projects, which are anticipated
to be completed by Summer 1998.
(3) Additional seating of approximately 40,000 is available for certain
events.
(4) Upon consummation of the Don Law Acquisition.
(5) Upon consummation of the Oakdale Acquisition.

Because the Company operates a number of its venues under leasing or
booking agreements, the Company's long-term success will depend on its ability
to renew these agreements when they expire or terminate. There can be no
assurance that the Company will be able to renew these agreements on acceptable
terms or at all, or that it will be able to obtain attractive agreements with
substitute venues.

REPRESENTATION OF PROFESSIONAL ATHLETES

Upon consummation of the FAME Acquisition, the Company will be a leading
full-service provider of marketing and management services, specializing in the
representation of team sports athletes (primarily in professional basketball).
The Company will generate revenues through the negotiation of professional
sports contracts (primarily basketball) and endorsement contracts for its
clients. FAME's clients have endorsed products for companies such as Nike,
McDonald's, Coca-Cola and Chevrolet. In addition, FAME generates a small
portion of its revenues by providing certain financial management and planning
services to its clients, through its investment affiliate (which will also be
acquired in the FAME Acquisition), which is a registered investment advisor.
The Company believes that it will be able to capitalize on the synergies which
exist between the representation of athletes in corporate marketing
opportunities and the sale of corporate sponsorships and other marketing rights
at its existing venues.

A significant portion of FAME's revenues to date has been derived from a
small number of clients. The Company estimates that five of FAME's clients
accounted for approximately 78% of FAME's revenue for the twelve months ended
March 31, 1998, and on a pro forma basis, FAME's EBITDA would have comprised
approximately 7% of the Company's EBITDA for the same period. The amount of
endorsement and other revenues which these clients generate is a function of,
among other things, such clients' professional performance and public appeal.
Factors beyond the Company's control, such as injuries to these clients,
declining skill or labor unrest, among others, could have a material adverse
affect on the Company's operations. FAME's representation agreements with its
clients are generally for a term equal to the term of the player's professional
sports contract but are terminable on 15 days' notice (although FAME would
continue to be entitled to the revenue streams generated during the remaining
term of any contracts which it negotiated). The termination or expiration of
FAME's contracts with certain clients could have a material adverse affect on
the Company's operations. See "Risk Factors--Risks Related to the
Representation of Athletes."

SPONSORSHIPS AND ADVERTISING; MARKETING AND OTHER SERVICES

In order to maximize revenues, the Company actively pursues the sale of
local, regional and national corporate sponsorships, including the naming of
venues (e.g., the PNC Bank Arts Center) and the designation of "official" event
or tour sponsors, concessions providers (e.g., beer and soda), credit card
companies, phone companies, film manufacturers and radio stations, among
others. Sponsorship arrangements can provide significant additional revenues at
negligible incremental cost, and many of the Company's venues currently have no
sponsorship arrangements in many of the available categories (including naming
rights). The Company believes that the national venue network assembled through
the Recent Acquisitions will likely (a) attract a larger number of major
corporate sponsors and (b) enable the Company to sell national sponsorship
rights at a premium over local or regional sponsorship rights. The

89
<PAGE>

Company also pursues the sale of corporate advertising at its venues, and
believes that it has substantial advertising space available (e.g., billboard
space) that it has not yet begun to utilize. The Company also believes that (a)
its relationships with advertisers will enable it to better utilize available
advertising space and (b) the aggregation of its audiences nationwide will
create the opportunity for advertisers to access a nationwide market.

The Company provides a variety of marketing and consulting services
derived from or complementary to its live entertainment operations, including
(a) local, regional and national live marketing programs and (b) subscription
or fee based radio and music industry data compilation and distribution. Live
marketing programs are generally specialized advertising campaigns designed to
promote a client's product or service by providing samples or demonstrations in
a live format, typically at malls and college campuses. For example,
Contemporary (one of the Acquired Businesses) presents live marketing events on
behalf of AT&T for the purposes of demonstrating the advantages of AT&T's long
distance service over that of its competitors. This program is in its third
year, and Contemporary is now the primary vendor for this service.
Additionally, the Company believes that Contemporary is one of the leading
producers of national mall touring events, producing over 65 events every year
in the country's shopping malls. These events, either in stores or mall
congregation areas, are designed to promote brand awareness and drive follow-up
sales. Contemporary recently had mall tour campaigns for Newsweek magazine (the
Newsweek Technology Tour) and for Radio Shack (The Rock and Roll Hall of
Fame/Radio Shack Tour). The Company believes that, along with mall events,
Contemporary is one of the industry leaders in events produced on college
campuses. Currently in its seventh year, the CBS College Tour will appear at 40
colleges in the U.S. In addition to promoting the image of the CBS Television
Network, these tours also create value-added tie-in promotions and marketing
programs for the network's top advertisers. During each year, Contemporary uses
over 100 vehicles (including semi-trailer trucks, vans and other vehicles)
traveling nationwide in support of these programs, and draws on over 1,000
independent marketing associates across the country with respect to its
marketing campaigns.

The Company is engaged in music marketing, research and artist development
activities, and is a publisher of trade magazines for radio broadcasters, music
retailers, performers and record industry executives. Each of the Company's
magazines focuses on research and insight common to a specific contemporary
radio format. The Company also provides radio airplay and music retail research
services to record labels, artist managers, retailers and radio broadcasters.
The Company gathers its information directly from nearly 1,100 radio
programmers and product buyers and in 1996 had more than 300 clients for these
services. Annual fees from these services during this period have ranged from
$2,500 to $250,000 per corporate client.

The Company, through Network (one of the Acquired Businesses), creates and
distributes network radio special events and live concert programming for over
400 music radio stations in the top 200 United States radio markets.
Additionally, the Company produces eight daily radio "show prep" services that
stations use to supplement in-house content production. In 1996, Network
delivered these services to approximately 1,100 radio stations in exchange for
commercial inventory or airtime, which in turn was sold to national network
advertisers. Network also provides consulting and entertainment marketing
services to corporate clients with music business interests.

OPERATING STRATEGY

OWN AND/OR OPERATE LEADING LIVE ENTERTAINMENT VENUES IN NATION'S TOP 50
MARKETS

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<PAGE>

products and maximize numerous other related revenue sources, (c) position
itself to produce national tours by leading music performers in order to
capture a greater percentage of revenues from those tours and (d) encourage
wider use by performers of the Company's venues by providing centralized access
to a nationwide network of venues. The Company believes that it controls the
largest network of venues used principally for music concerts and other live
entertainment events in the United States. Upon consummation of the Pending
Acquisitions, the Company will own and/or operate under exclusive booking
arrangements 44 venues in 22 of the top 50 markets, including 11 amphitheaters
in 7 of the top 10 markets.

MAXIMIZE ANCILLARY REVENUE OPPORTUNITIES

EXPLOIT SYNERGIES OF THE ACQUIRED BUSINESSES

The Company plans to maximize revenues by exploiting synergies among its
various existing businesses and the Acquired Businesses. The Company believes
that it can utilize the best business practices of the businesses acquired in
the 1997 Acquisitions, the Recent Acquisitions and the Pending Acquisitions on
a national scale. For example, the Atlanta-based regional Music Midtown
Festival, created and promoted by Concert/Southern (one of the Acquired
Businesses), is a highly successful music festival concept that drew
approximately 200,000 attendees in 1997; the Company believes that it can use
the event as a model for other markets. In addition, the Company believes that
the radio industry trade publications of Network (another of the Acquired
Businesses) will enable the Company to introduce new acts and new musical
releases to radio programming directors nationwide. This exposure can enhance
recorded music sales and, in turn, music concert attendance, particularly for
artists having relationships with the Company. In addition, upon consummation
of the FAME acquisition, the Company believes that it will be able to
capitalize on the cross-marketing opportunities that may arise by virtue of
representing prominent team athletes while selling corporate sponsorships and
other marketing rights at its existing venues.

INCREASE USE OF VENUES; DIVERSIFICATION OF ACTS AND VENUES

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INNOVATIVE EVENT MARKETING

The Company plans to use innovative event marketing to increase
admissions, sponsorship and advertising revenues, and, to a limited extent,
average ticket prices at its venues. In particular, the Company believes that
it can increase the profitability of its venues by offering premium ticket
packages, including (a) season ticket packages that include amenities such as
preferred seating, VIP parking, waiter service, private club and/or "upscale"
concession menus, (b) subscription series packages allowing customers to
purchase tickets for a set of performances and (c) preferred seating, such as
box seating and VIP seating areas, which typically generate higher revenues per
seat. Moreover, the market research and audience demographics databases that
the Company acquired through certain of the Recent Acquisitions, when combined
with the Company's existing audience data collection efforts, will permit
highly-effective targeted marketing, such as direct-mail and subscription
series campaigns, which the Company believes will increase ticket pre-sales and
overall sales in a cost-efficient manner.

STRICT COST CONTROLS; NATIONALLY COORDINATED BOOKING, MARKETING & ACCOUNTING

The Company's senior management imposes strict financial reporting
requirements and expense budget limitations on all of its businesses, enabling
senior management to monitor the performance and operations of all of its
businesses, to eliminate duplicative administrative costs and to realize
expense savings. Moreover, the Company believes that its size will enable it to
achieve substantial economies of scale by (a) implementing a nationally
coordinated booking system (for contracting for and scheduling acts), while
continuing to utilize the substantial local expertise of the Acquired
Businesses, (b) establishing a centralized marketing team to exploit ancillary
revenue streams on local, regional and national levels, including from
sponsorship, advertising and merchandising opportunities, and (c) implementing
a centralized accounting system.

PURSUE COMPLEMENTARY ACQUISITION OPPORTUNITIES

The live entertainment business is characterized by numerous participants,
including booking agents, promoters, producers, venue owners and venue
operators, many of which are entrepreneurial, capital-constrained local or
regional businesses that do not achieve significant economies of scale from
their operations. The Company believes that the fragmented nature of the
industry presents attractive acquisition opportunities, and that its larger
size will provide it with improved access to the capital markets that will give
it a competitive advantage in implementing its acquisition strategy. Through
consolidation, the Company believes that it will be better able to coordinate
negotiations with performers and talent agents, addressing what the Company
believes is a growing desire among performers and talent agents to deal with
fewer, more sophisticated promoters. The Company intends to pursue additional
strategic acquisitions of (a) amphitheater and other live entertainment venues,
(b) local and regional promoters and producers of music concert, theatrical,
specialized motor sports and other live entertainment events and (c) companies
in the talent representation industry. The Company is currently in the process
of negotiating certain additional acquisitions of live entertainment and
related businesses; however, it has not entered into definitive agreements with
respect to any of such acquisitions and there can be no assurance that it will
do so.

PROPERTIES

The Company's executive offices are located at 650 Madison Avenue, 16th
Floor, New York, New York 10022. Upon consummation of the Pending Acquisitions,
in addition to the properties described in "--The Company's Live Entertainment
Activities--Venue Operations," the Company leases or will lease office space in
New York, New York; Austin and Houston, Texas; Atlanta, Georgia; Chicago,
Illinois; Indianapolis, Indiana; Washington, DC; Miami, Florida; Gaithersburg,
Maryland; Cambridge, Mansfield and Boston, Massachusetts; Santa Monica and
Encino, California; Seattle, Washington; London, England; and St. Louis,
Missouri and owns office buildings in Burbank and San Francisco, California and
Mansfield, Massachusetts. These properties are generally leased for terms of 1
to 10 years.

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EMPLOYEES

As of March 31, 1998, the Company had approximately 950 full-time
employees. Upon consummation of the Pending Acquisitions, the Company expects
to have approximately 1,100 full-time employees. The Company will also, from
time to time, hire or contract for part-time or seasonal employees or
independent contractors, although its staffing needs will vary. Management
believes that its relations with its employees are good. A number of the
employees to be retained by the Company are covered by collective bargaining
agreements. See "Management."

LITIGATION

On May 5, 1998, a class action complaint was filed in Chancery Court in
the State of Delaware, New Castle County, CA #16355NC against the Company,
Robert F.X. Sillerman, Howard J. Tytel, Marquee and certain of Marquee's
directors. The complaint alleges that the Company has proposed an acquisition
of Marquee and that the proposed acquisition will be unfair to Marquee's public
stockholders. The complaint seeks an order enjoining the proposed transaction,
or, in the alternative, awarding rescissory and compensatory damages. To date
there have been no other proceedings in the case and the Company intends to
defend the action vigorously.

Although the Company is involved in several other suits and claims in the
ordinary course of business, it is not currently a party to any legal
proceeding that it believes would have a material adverse effect on its
business, financial condition or results of operations.

POTENTIAL CONFLICTS OF INTEREST

Marquee is a publicly-traded company that, among other things, provides
talent representation services to professional athletes and acts as booking
agent for tours and appearances for musicians and other entertainers. The
Company has indicated to Marquee its potential interest in acquiring Marquee.
Mr. Sillerman has an aggregate equity interest of approximately 9.1% in Marquee
and Mr. Sillerman is the chairman of its board of directors, and Mr. Tytel is
one of its directors. Upon the consummation of the acquisition of FAME, the
Company may directly compete with Marquee in obtaining representation
agreements with particular athletes and endorsement opportunities for its
clients. The Company anticipates that, from time to time, it will enter into
transactions and arrangements (particularly, booking arrangements) with Marquee
and Marquee's clients. In any transaction or arrangement with Marquee, Messrs.
Sillerman and Tytel are likely to have conflicts of interest as officers and
directors of the Company. These transactions or arrangements will be subject to
the approval of a committee of independent members of the boards of directors
of each of the Company and Marquee, except that booking arrangements in the
ordinary course of business will be subject to periodic review but not the
approval of each particular arrangement. Marquee also acts as a promoter of
various sporting events and sports personalities and the Company produces ice
skating and gymnastics events that may compete with events in which Marquee is
involved. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Recent Developments" and "Certain Relationships and
Related Transactions--Potential Conflicts of Interest."

TSC, an entity controlled by Mr. Sillerman and in which Mr. Tytel also has
an equity interest, provides financial consulting services to Marquee. TSC's
services are provided by certain directors, officers and employees of the
Company who are not separately compensated for their services by TSC. In any
transaction, arrangement or competition with Marquee, Messrs. Sillerman and
Tytel are likely to have conflicts of interest between their duties as officers
and directors of the Company, on the one hand, and their duties as directors of
Marquee and their interests in TSC and Marquee, on the other hand. See "Certain
Relationships and Related Transactions--Triathlon Fees."

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Pursuant to the employment agreement entered into between Brian Becker and
the Company in connection with the acquisition of PACE, Mr. Becker has the
option, exercisable within 15 days after the second anniversary of the
consummation of the PACE Acquisition, to purchase the Company's then existing
motor sports line of business (or, if that line of business has been sold, the
Company's then existing theatrical line of business) at its then fair market
value. Mr. Becker's option may present a conflict of interest in his role as a
director of the Company. See "Management--Employment Agreements and
Arrangements with Certain Officers and Directors."

SEASONALITY

The Company's operations and revenues are largely seasonal in nature, with
generally higher revenue generated in the second and third quarters of the
year. For example, on a pro forma basis for the 1997 Acquisitions, the Company
generated approximately 68% of its revenues in the second and third quarters
for the twelve months ended December 31, 1997. The Company's outdoor venues are
primarily utilized in the summer months and do not generate substantial revenue
in the late fall, winter and early spring. Similarly, the musical concerts that
the Company promotes largely occur in the second and third quarters. To the
extent that the Company's entertainment marketing and consulting relate to
musical concerts, they also predominantly generate revenues in the second and
third quarters. Therefore, the seasonality of the Company's business causes
(and, upon consummation of the Pending Acquisitions, will probably continue to
cause) a significant variation in the Company's quarterly operating results.
These variations in demand could have a material adverse effect on the timing
of the Company's cash flows and, therefore, on its ability to service its
obligations with respect to its indebtedness. However, the Company believes
that this variation may be somewhat offset with the acquisition of typically
non-summer seasonal businesses in the Recent Acquisitions, such as motor sports
(which is winter-seasonal) and Touring Broadway Shows (which typically tour
between September and May). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

COMPETITION

Competition in the live entertainment industry is intense, and competition
is fragmented among a wide variety of entities. The Company competes on a
local, regional and national basis with a number of large venue owners and
entertainment promoters for the hosting, booking, promoting and producing of
music concerts, theatrical shows, motor sports events and other live
entertainment events. Moreover, the Company's marketing and consulting
operations compete with advertising agencies and other marketing organizations.
The Company and the businesses to be acquired in the Pending Acquisitions
compete not only with other live entertainment events, including sporting
events and theatrical presentations, but also with non-live forms of
entertainment, such as television, radio and motion pictures. The talent
representation industry is also highly competitive. The Company competes with
both larger and smaller entities. A number of the Company's competitors have
substantially greater resources than the Company. Certain of the Company's
competitors may also operate on a less leveraged basis, and have greater
operating and financial flexibility, than the Company. In addition, many of
these competitors also have long standing relationships with performers,
producers, and promoters and may offer other services that are not provided by
the Company. There can be no assurance that the Company will be able to compete
successfully in this market or against these competitors.

REGULATORY MATTERS

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FORWARD-LOOKING STATEMENTS

Many of the statements, estimates, predictions and projections contained
in this "Business" section of the Prospectus, in addition to certain statements
contained elsewhere in this Prospectus, are "forward-looking statements"within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. These forward-looking statements are prospective, involving risks
and uncertainties. While these forward-looking statements, and any assumptions
on which they are based, are made in good faith and reflect the Company's
current judgment regarding the direction of its business, actual results will
almost always vary, sometimes materially, from any estimates, predictions,
projections, assumptions or other future performance suggested herein. Some
important factors (but not necessarily all factors) that could affect the
Company's revenues, growth strategies, future profitability and operating
results, or that otherwise could cause actual results to differ materially from
those expressed in or implied by any forward-looking statement, are discussed
under "Risk Factors" and elsewhere in this Prospectus. Readers are urged to
carefully consider these factors in connection with the forward-looking
statements. The Company does not undertake to release publicly any revisions to
forward-looking statements that may be made to reflect events or circumstances
after the date of this Prospectus or to reflect the occurrence of unanticipated
events.

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AGREEMENTS RELATED TO THE PENDING ACQUISITIONS

The following is a summary of the material terms of the agreements related
to the Pending Acquisitions. This summary is not intended to be complete and is
subject to, and qualified in its entirety by reference to, the agreements,
copies of which have been filed as exhibits to the Company's Registration
Statement on Form S-1 (File No. 333-50079) filed with the Commission and are
incorporated herein by reference. The Company will provide without charge to
each person to whom this Prospectus is delivered, upon written or oral request
of any such person, a copy of any or all documents incorporated herein by
reference (other than exhibits to such documents which are not specifically
incorporated by reference into such documents). Requests for such documents
should be directed to SFX Entertainment, Inc., 650 Madison Avenue, 16th Floor,
New York, New York 10022, Attention: Investor Relations, telephone (212)
838-3100.

FAME ACQUISITION

The Company has entered into an agreement to acquire all of the
outstanding capital stock of FAME (the "FAME Agreement"), for a total purchase
price of approximately $82.2 million (including $7.9 million which the Company
anticipates paying in order to reimburse the FAME sellers for certain taxes
which they will be subject to) and the issuance of 1.0 million shares of Class
A Common Stock (which, based upon the last reported sales price of the Class A
Common Stock on May 20, 1998, would have a value of approximately $42.3
million).

If FAME's EBITDA (as defined in the FAME Agreement) exceeds 105% of
specified targets in each of the years 1998 through 2002, the Company is
required to pay the FAME sellers $3.0 million (an "Earn-out Payment") within
120 days after the end of the year to which the payment relates. If EBITDA
exceeds 75% but is less than 105% of the target EBITDA, a portion of the
Earn-out Payment will be paid to one of the FAME sellers for such year. In any
year that FAME's EBITDA is less than 105% of the target EBITDA for that year,
Mr. Falk may direct that FAME's EBITDA in excess of 105% of the target EBITDA
for one or more prior years be added to the current year's EBITDA (a "Carry
Forward Amount") for purposes of paying the Earn-out Payment for the current
year (reducing such Earn-out Payment by any payment made in a prior year with
respect to the Carry Forward Amount). In any year FAME's EBITDA is greater than
105% of the target EBITDA for that year, Mr. Falk may direct that any portion
of any excess of EBITDA for any year over 105% of the target for that year (a
"Carry Back Amount") be added to the EBITDA for any prior year for purposes of
paying the Earn-out Payment for such prior year (which amount will be paid as
if it were due with respect to the current year). Any EBITDA in excess of 105%
of the target EBITDA for any year may be used as the basis for a Carry Forward
Amount or a Carry Back Amount, but no portion may be used as both. Mr. Falk is
entitled to 50% of the Earn-out Payments.

The FAME Agreement also provides for additional payments by the Company if
FAME's EBITDA performance exceed the targets by certain amounts from 1998 to
2002. During 1998 to 2000, the Earn-out Payment will be increased if FAME's
EBITDA exceeds 110%, 125% or 150% of the target and the increase will be equal
to 10%, 15% or 20%, respectively, of the excess of EBITDA for that year over
the corresponding target EBITDA. During 2001 and 2002, the Earn-out Payment
will be increased if FAME's EBITDA exceeds 125% or 150% of the target and the
increase will be equal to 15% or 20%, respectively, of the excess of EBITDA for
that year over the corresponding target EBITDA. Mr. Falk is entitled to
one-third of such increases to any Earn-out Payment as described in the
foregoing paragraph.

The FAME Agreement also provides that, if in a transaction or series of
related transactions, all or substantially all of the assets of FAME or 50% or
more of the voting power or equity interests of FAME is transferred to any
person that is not a wholly owned subsidiary of the Company (a "Business
Disposition"), the Company will be obligated to pay, in lieu of an Earn-out
Payment, certain amounts on the date of consummation of such Business
Disposition. If a Business Disposition is consummated on or prior to the first
anniversary of the closing of the FAME Acquisition, the Company will be
obligated to pay one-third of the first $45.0 million of disposition profit (as
defined in the FAME Agreement) and 10% of any disposition profit in excess of
that amount. If a Business Disposition is consummated thereafter and prior to
the end of 2002, the Company will be obligated to pay any Earn-out Payments
earned but unpaid and the greater of (a) the average Earn-out Payment made or
to be made for any completed fiscal

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years since the closing of the FAME Acquisition, multiplied by the number of
years remaining until the end of 2002 and (b) 10% of any disposition profit.
Mr. Falk will be entitled to 50% of any payments made by the Company upon the
occurrence of a Business Disposition.

REGISTRATION RIGHTS

Beginning on the first anniversary of the closing of the FAME Acquisition,
the FAME sellers have certain demand and "piggy-back" registration rights with
respect to the shares of Class A Common Stock issuable pursuant to the FAME
Agreement. However, pursuant to the Recission Offer, the Class A Common Stock
to be issued to the FAME sellers has become freely tradeable in the public
market, subject to applicable limitations on affiliates.

INDEMNIFICATION

Pursuant to the FAME Agreement, the FAME sellers agree to indemnify,
defend and hold harmless the Company and its respective officers, directors,
stockholders, employees and agents after the closing of the FAME Acquisition
from and against, among other things, any liability or expense arising or
resulting from any inaccuracy in or breach of certain representations and
warranties. The Company will not be entitled to any such indemnity unless the
aggregate of all losses incurred by the Company exceeds $100,000 (other than
for breach of certain representations and warranties relating to the capital
stock of FAME for which there is no such threshold), in which event the FAME
sellers will be responsible for all such losses, provided however, that the
aggregate liability of the FAME sellers shall not exceed $12.5 million. The
Company agrees to indemnify, defend and hold harmless the FAME sellers after
the closing of the FAME Acquisition from and against, among other things, any
liability or expense arising or resulting from any inaccuracy in or breach of
any representation or warranty contained in the FAME Agreement.

CLOSING CONDITIONS; TERMINATION

The closing of the FAME Acquisition is subject to certain closing
conditions, including a requirement that the employment agreements entered into
by the Company with certain executive officers of FAME continue to be in effect
and that certain stock appreciation rights with respect to the capital stock of
FAME and a shareholders' agreement among the FAME sellers be cancelled. The
FAME Agreement may be terminated by mutual consent or by the Company or Mr.
Falk (i) if any closing condition for the benefit of the Company or the FAME
sellers, respectively, has not been timely met or has become incapable of
fulfilment (unless such condition is waived) or (ii) if the FAME Acquisition
has not closed by July 15, 1998, unless the sole reason that the closing has
not occurred by that time is related to certain matters under the HSR Act
(including the failure of the waiting period under the HSR Act to have expired
or been terminated), in which case the FAME Agreement may not be terminated by
the Company or Mr. Falk unless the closing has not occurred on or before
September 15, 1998.

FALK EMPLOYMENT AGREEMENT

On April 29, 1998, the Company entered into an employment agreement with
Mr. Falk (the "Falk Employment Agreement"). The Falk Employment Agreement has a
term of five years commencing as of the closing of the FAME Acquisition. The
Company will employ Mr. Falk as the Chairman of FAME and the Company's Sports
Group and as a Member of the Office of Chairman of the Company and will appoint
him a Director of the Company. Pursuant to the Falk Employment Agreement, Mr.
Falk will direct the day to day operations of FAME and the Company's Sports
Group and any other sports businesses acquired by the Company. The Falk
Employment Agreement provides for an annual base salary of $315,000, reviewed
annually and increased (but in no event decreased) by a minimum of 4.0% per
year. In addition, Mr. Falk will be considered for an annual bonus consistent
with the bonuses given to other senior executives of the Company. Mr. Falk will
receive an option to purchase 100,000 shares of Class A Common Stock at an
exercise price equal to the closing price of the Class A Common Stock on the
closing date of the FAME Acquisition (subject to adjustment under certain
circumstances). Such option will fully vest on the first anniversary of the
closing. In addition, the Company has agreed to make annual stock option grants
to Mr. Falk of at least 30,000 shares of Class A Common Stock in the first four
years of the Falk Employment Agreement.

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The Company may terminate Mr. Falk's employment at any time with or
without cause (as defined in the Falk Employment Agreement). In the event that
the Falk Employment Agreement is terminated for any reason other than a
voluntary termination or termination for cause, all stock options granted
pursuant to the Falk Employment Agreement will immediately vest and become
exercisable, and any remaining stock options to be granted pursuant to the Falk
Employment Agreement will immediately be granted and will vest and become
exercisable. In such case, the Company will also be obligated to pay Mr. Falk
his (a) base salary and (b) annual bonuses at a rate equal to 50% of his base
salary through the original term of the Falk Employment Agreement, as well as
certain additional benefits. In addition, in the event of a change in control
(as defined in the Falk Employment Agreement), the Company may be required to
pay a portion of certain taxes incurred by Mr. Falk as a result of the change
of control.

For one year following the termination of the Falk Employment Agreement
for cause (as defined in the Falk Employment Agreement) or by Mr. Falk, except
in the event of a constructive termination event (as defined in the Falk
Employment Agreement), Mr. Falk has agreed that (i) he will not become employed
in any capacity by, or become an officer, director, shareholder or general
partner of any entity that competes with any material business of FAME as
conducted as of the closing date of the FAME Acquisition and (ii) he will not
solicit any employee of the Company or any entities that are directly or
indirectly controlled by the Company to leave such employment.

DON LAW ACQUISITION

The Company has also entered into the Don Law Agreement, pursuant to which
the Company will acquire certain assets of Don Law for an aggregate purchase
price of $90.0 million (subject to adjustment based on the working capital of
Don Law as described more fully below), including the repayment of $10.0
million in debt. The Company may at its option pay up to $16.0 million of the
purchase price in shares of Class A Common Stock at a negotiated per share
price of approximately $30.09. At the closing, the Company will have the option
to either include or exclude the lease on the Harborlights Pavilion (the
"Harborlights") and related assets (collectively, the "Harborlights Assets")
from the Don Law Acquisition. If the Harborlights Assets are so excluded, the
purchase price will be reduced by $8.0 million.

EXCLUDED ASSETS

Certain assets of Don Law are to be excluded from the Don Law Acquisition,
including (a) Don Law's ownership interests in certain nightclubs in Boston,
Massachusetts (as long as such nightclubs do not materially compete with the
Company's efforts to attract performing artists), (b) the name "Blackstone",
(c) the name "Don Law", which the Company will have the right to use during the
term of the employment agreement to be executed between the Company and Donald
F. Law, Jr. at the closing, (d) the land and improvements located in Mansfield,
Massachusetts that have been designated for a waterpark facility and (e) a
lease for certain office space in Cambridge, Massachusetts.

RIGHT OF FIRST OFFER AND REFUSAL; NON-COMPETE

As a condition to closing, the Don Law seller and the Company will enter
into an agreement pursuant to which the assets to be acquired in the Don Law
Acquisition, with certain exceptions, will be subject to a right of first offer
and refusal by the members of Don Law if the Company elects to sell such assets
within two years after the closing of the Don Law Acquisition. In addition, the
Company and Mr. Law have agreed to enter into a non-competition agreement at
the closing to restrict employees of the Company and its affiliates that are
responsible for the day to day operation or management of the concert promotion
business in the New York metropolitan area from participating in the management
of the assets acquired in the Don Law Acquisition. The agreement also imposes
certain restrictions on transfers of the Company's assets (including the assets
to acquired in the Don Law Acquisition) in Maine, Massachusetts and Rhode
Island to such employees.

CLOSING CONDITIONS; TERMINATION

The closing of the Don Law Acquisition is subject to certain conditions,
including a requirement to obtain certain third party consents. Both parties
will have the right to terminate the Don Law Agreement

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if the closing has not occurred by July 1, 1998 or such other date as mutually
agreed; however, if the Don Law seller has not entered into a new lease with
respect to the Harborlights on terms and conditions acceptable to the Company,
the Company may extend the termination date to August 1, 1998.

REGISTRATION RIGHTS

If the Company issues any Class A Common Stock as part of the purchase
price, then the Don Law Agreement provides that the parties will enter into a
registration rights agreement providing for certain demand and piggy-back
registration rights and a twelve month lock-up period.

INDEMNITY

The Don Law seller, including its members (pro rata according to their
respective ownership interests in Don Law), and the Company have agreed to
indemnify each other from all costs and expenses with respect to any breach of
any representation, warranty, covenant or obligation pursuant to the Don Law
Agreement. In most cases, each party will be obligated to indemnify the other
to the extent that the other party has indemnifiable expenses in excess of
$100,000. Each party's indemnity obligations generally terminate after one
year. The Don Law seller's indemnity obligation is generally limited to 5% of
the purchase price (as adjusted), but in no event in excess of the purchase
price (as adjusted) with respect to claims relating to title to assets and
excluded assets. Indemnity obligations of the Don Law seller and its members
are payable in cash and shares of Class A Common Stock (issued at fair market
value) in specified proportions.

DON LAW EMPLOYMENT AGREEMENT

The closing is conditioned upon the execution by the Company and Mr. Law
of a five-year employment agreement.

OAKDALE ACQUISITION

The Company has entered into the Oakdale Agreement, pursuant to which the
Company will acquire certain assets of Oakdale, including the Oakdale Theater,
a new 4,800 seat facility located in Wallingford, Connecticut, for a purchase
price of $11.9 million in cash. In addition, the Company will be obligated to
pay Oakdale an additional payment on March 30, 2000 if the combined EBITDA for
the Oakdale Theater and Meadows for 1999 exceeds $5.5 million (subject to
adjustment for the operating deficit (as defined in the Oakdale Agreement) of
the Oakdale Theater). In such case the Company will be obligated to pay Oakdale
between 5.0 and 5.8 times the amount of such excess.

SUBJECT RIGHTS; CLOSING CONDITIONS

The Oakdale Acquisition is subject to the rights and restrictions of the
Financial Assistance Agreement, dated December 21, 1995 (the "FAA"), between
the Connecticut Development Authority (the "CDA") and Oakdale Ventures, Inc.
and the Use Agreement, dated December 21, 1995 (the "Use Agreement"), among the
CDA, Oakdale, and Oakdale Ventures. The closing of the Oakdale Acquisition is
subject to certain closing conditions, including obtaining certain third party
consents and obtaining the CDA Consent (as defined in the Oakdale Agreement) in
a form reasonably acceptable to the Company and containing certain agreed upon
terms, including the following: (a) a certification with respect to the FAA and
the performance of certain obligations thereunder; (b) a consent with regard to
the transactions contemplated pursuant to the Oakdale Agreement; and (c)
certain amendments to the FAA.

INDEMNIFICATION

The Oakdale Agreement provides that each party will indemnify the other
for damages arising from breaches of any of their respective representations,
warranties and covenants contained in the Oakdale Agreement. Oakdale's
indemnity obligation will be limited to the amount received by Oakdale pursuant
to the Oakdale Agreement for a period of two years from closing. In addition,
the Company and Oakdale have also agreed to enter into an environmental
agreement in which Oakdale will make representations

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and warranties to the Company concerning the operation of the premises upon
which the Oakdale Theater is located in material compliance with all applicable
environmental laws and in which Oakdale will agree to unconditionally indemnify
the Company from and against all costs and expenses relating to any action
required to be taken with respect to any such environmental laws for a period
of six years.

TERMINATION

The Oakdale Agreement may be terminated if the closing of the Oakdale
Acquisition does not occur by June 11, 1998. In addition, if the closing does
not occur because of the Company's breach of any material representation,
warranty, covenant or condition contained in the Oakdale Agreement, then the
Company will be obligated to pay the Oakdale sellers liquidated damages in the
amount of $1.6 million.

LEASE AND OWNERSHIP OF REAL ESTATE

At the closing, the Company and the sellers of Oakdale will enter into a
non-recourse secured loan agreement (the "Mortgage Loan"), pursuant to which
the Company will loan the Oakdale sellers approximately $11.4 million, a
portion of the proceeds of which will be used to repay all outstanding senior
mortgage indebtedness on all real estate owned by Oakdale. The loan will bear
interest at an annual interest rate of approximately 5.7% and will have a term
of fifteen years. The loan will be secured by a first priority non-recourse
mortgage on certain parcels of real estate used in the operations of the
Oakdale Theater. In addition, the Company and Oakdale will enter into a master
lease with respect to such real estate which will provide for an annual rent of
$900,000 and a purchase agreement which will provide that the Company will
purchase such real estate on the fifteenth anniversary of the closing of the
transaction for approximately $15.4 million. Amounts outstanding under the
Mortgage Loan will be credited against such purchase price. The real estate
purchase is conditioned on the assumption by the Company of the FAA and the Use
Agreement.

EMI ACQUISITION

On May 1, 1998, the Company entered into the EMI Agreement to acquire
approximately an 80% equity interest in EMI for an aggregate purchase price of
$8.5 million in cash. In addition, the Company has agreed to make a loan to the
EMI sellers in an amount equal to 20% of certain taxes which the EMI sellers
will be subject to as a result of the transaction. The Company currently
anticipates the amount of such loan will be approximately $750,000. The loan
will bear interest at a rate of 10% and, subject to certain conditions, will be
repaid when the EMI sellers sell their equity interests in EMI.

CLOSING CONDITIONS; TERMINATION

The parties have the right to terminate the EMI Agreement if the closing
has not occurred by June 30, 1998. The EMI Agreement provides that the Company
and the EMI sellers will enter into a shareholders agreement reasonably
satisfactory to the parties and a management services agreement. The Company
expects that the management services agreement will provide that the EMI
sellers will be entitled to compensation for providing services pursuant to
such agreement in an amount equal to 20% of EMI's adjusted EBDA (which will be
defined in the management services agreement).

INDEMNITY

The Company and the EMI sellers have agreed to indemnify each other for,
among other things, any costs or expenses with respect to any breach of a
representation, warranty, covenant or other obligation under the EMI Agreement.
The indemnity obligations of the EMI sellers is subject to certain limitations,
including a limitation of approximately $4.3 million on the amount of the
sellers liability with respect to a breach of any representation or warranty
and to approximately $8.5 million in all other cases.

AVALON ACQUISITION

On May 14, 1998, the Company acquired all of the outstanding equity
interests in Avalon for a purchase price of $26.8 million, including
approximately $300,000 (subject to upward adjustment) that

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the Company paid to reimburse the Avalon sellers for certain third party out of
pocket expenses incurred in the development of the Camarillo Creek
Amphitheater. Pursuant to the agreements relating to the Avalon Acquisition
(the "Avalon Agreements"), the Company and the Avalon sellers have agreed to
indemnify each other for damages arising from any breach of their respective
representations, warranties or other agreements contained in the Avalon
Agreement to the extent that the aggregate of such damages exceeds $50,000. The
parties' representations and warranties generally survive for a period of two
years from the date of the closing or, in certain cases, for the applicable
statute of limitations. In addition, the Company has agreed to indemnify the
Avalon sellers for all losses in excess of $50,000 relating to any of Avalon's
liabilities which were disclosed to, and assumed by, the Company.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Pursuant to the Company's Certificate of Incorporation and By-laws, the
business of the Company is managed by the Board. The Board conducts its
business through meetings of the board and its committees. The standing
committees of the Board are described below.

The By-laws of the Company authorize the Board to fix the number of
directors from time to time. The number of directors of the Company is
currently ten; however, it is anticipated that, upon consummation of the FAME
Acquisition, the number of directors will be increased to eleven. All directors
hold office until the next annual meeting of stockholders following their
election or until their successors are elected and qualified. Officers of the
Company are to be elected annually by the Board and serve at the Board's
discretion. In the election of directors, the holders of the Class A Common
Stock will be entitled by class vote, exclusive of all other stockholders, to
elect two-sevenths (rounded up) of the directors to serve on the Board, with
each share of the Class A Common Stock entitled to one vote.

Currently, the Board consists of the individuals who are currently serving
as directors of SFX Broadcasting and Brian Becker, who was appointed to the
Board upon the consummation of the PACE Acquisition. In addition, it is
anticipated that, upon the consummation of the FAME Acquisition, Mr. Falk, the
Chairman and a founder of FAME, will be appointed as a Director and a Member of
the Office of the Chairman of the Company. All of the individuals who currently
serve as directors of SFX Broadcasting will cease to be directors of SFX
Broadcasting at the time of the consummation of the SFX Merger. If the SFX
Merger Agreement is terminated, Messrs. Dugan, Kramer and O'Grady have
indicated that they will promptly resign from their positions as directors of
the Company, and the Board will appoint three new independent directors, to
serve until the next annual meeting of the stockholders of the Company.

All of the executive officers of the Company other than Mr. Becker (the
"Executive Officers") are currently responsible for the management of SFX
Broadcasting. Such Executive Officers entered into five year employment
agreements with the Company that are similar to their existing employment
agreements with SFX Broadcasting (except Mr. Armstrong, who will no longer
serve as an executive officer of the Company, effective as of September 1,
1998, in order to continue to pursue a career in radio broadcasting). See
"--Employment Agreements and Arrangements with Certain Officers and Directors."
These employment agreements will become effective immediately at the time of
consummation of the SFX Merger. Prior to the consummation of the SFX Merger,
the Executive Officers who currently serve as officers of SFX Broadcasting will
continue to devote as much time as they deem necessary to conduct the
operations of the Company consistent with their obligations to SFX
Broadcasting. If the SFX Merger Agreement is terminated for any reason, such
Executive Officers will continue to perform services for both SFX Broadcasting
and the Company until SFX Broadcasting is able to hire suitable replacements
for these Executive Officers. If the SFX Merger Agreement is terminated, SFX
Broadcasting intends to seek another buyer for its radio broadcasting business.

The following table sets forth information as to the directors and the
executive officers of the Company:

102
<PAGE>

<TABLE>
<CAPTION>
AGE AS OF
POSITION(S) HELD WITH DECEMBER 31,
NAME SFX ENTERTAINMENT 1997
- ---------------------------------- ------------------------------------- -------------
<S> <C> <C>
Robert F.X. Sillerman ............ Director, Executive Chairman and 49
Member of the Office of the
Chairman
Michael G. Ferrel ................ Director, President, Chief 48
Executive Office and Member of
the Office of the Chairman
Brian Becker ..................... Director, Executive Vice President 41
and Member of the Office of the
Chairman
Howard J. Tytel .................. Director, Executive Vice President, 50
General Counsel and Secretary
Thomas P. Benson ................. Director, Vice President and Chief 35
Financial Officer
Richard A. Liese.................. Director, Vice President and 47
Assistant General Counsel
D. Geoffrey Armstrong(1) ......... Director and Executive Vice 40
President
James F. O'Grady, Jr. ............ Director 69
Paul Kramer ...................... Director 65
Edward F. Dugan .................. Director 63
David Falk(2) .................... Director and Member of the Office 47
of the Chairman
</TABLE>

- ----------
(1) While Mr. Armstrong will remain as a director of the Company, it is
anticipated that, effective as of September 1, 1998, he will no longer
serve as an executive officer of the Company in order to continue to
pursue a career in radio broadcasting.
(2) Anticipated to be appointed immediately upon consummation of the FAME
Acquisition.

ROBERT F.X. SILLERMAN has served as the Executive Chairman, a Member of
the Office of the Chairman and a Director of the Company since its formation in
December 1997. Mr. Sillerman also presently serves as the Executive Chairman of
SFX Broadcasting, having served in such capacity since July 1, 1995. From 1992
through June 30, 1995, Mr. Sillerman served as Chairman of the Board of
Directors and Chief Executive Officer of SFX Broadcasting. Mr. Sillerman is
Chairman of the Board of Directors and Chief Executive Officer of SCMC, a
private company that makes investments in and provides financial consulting
services to companies engaged in the media business, and of TSC, a private
company that makes investments in and provides financial advisory services to
media-related companies. Through privately held entities, Mr. Sillerman
controls the general partner of Sillerman Communications Partners, L.P., an
investment partnership. Mr. Sillerman is also the Chairman of the Board and a
founding stockholder of Marquee, a publicly-traded company organized in 1995,
which is engaged in various aspects of the sports, news and other entertainment
industries. Mr. Sillerman is also a founder and a significant stockholder of
Triathlon, a publicly-traded company that owns and operates radio stations in
medium and small-sized markets in the mid-western and western United States.
For the last twenty years, Mr. Sillerman has been a senior executive of and
principal investor in numerous entities operating in the broadcasting business.
In 1993, Mr. Sillerman became the Chancellor of the Southampton campus of Long
Island University.

MICHAEL G. FERREL has served as the President, Chief Executive Officer, a
Member of the Office of the Chairman and a Director of the Company since its
formation in December 1997. Mr. Ferrel also presently serves as the President,
Chief Executive Officer and a director of SFX Broadcasting, having served in
such capacity since November 22, 1996. Mr. Ferrel served as President and Chief
Operating Officer of MMR, a wholly-owned subsidiary of SFX Broadcasting, and a
member of MMR's board of directors since MMR's inception in August 1992 and as
Co-Chief Executive Officer of MMR from January 1994 to January 1996, when he
became the Chief Executive Officer. From 1990 to 1993, Mr. Ferrel served as
Vice President of Goldenberg Broadcasting, Inc., the former owner of radio
station WPKX-FM, Springfield, Massachusetts, which was acquired by MMR in July
1993.

103
<PAGE>

BRIAN E. BECKER has served as an Executive Vice President, a Member of the
Office of the Chairman and a Director of the Company since the consummation of
the PACE acquisition in February 1998. Mr. Becker has served as Chief Executive
Officer of PACE since 1994 and was appointed as President of PACE in 1996. He
first joined PACE as the Vice President and General Manager of PACE's
theatrical division at the time of that division's formation in 1982, and
subsequently directed PACE's amphitheater development efforts. He served as
Vice Chairman of PACE from 1992 until he was named its Chief Executive Officer
in 1994.

HOWARD J. TYTEL has served as an Executive Vice President, General
Counsel, Secretary and a Director of the Company since its formation in
December 1997. Mr. Tytel also presently serves as a Director, General Counsel,
Executive Vice President and Secretary of SFX Broadcasting, having served in
such capacity since 1992. Mr. Tytel is Executive Vice President, General
Counsel and a Director of SCMC and TSC and holds an economic interest in those
companies. Mr. Tytel is a Director and a founder of Marquee and a founder of
Triathlon. Mr. Tytel was a Director of Country Music Television from 1988 to
1991. From March 1995 until March 1997, Mr. Tytel was a Director of Interactive
Flight Technologies, Inc., a publicly-traded company providing computer-based
in-flight entertainment. For the last twenty years, Mr. Tytel has been
associated with Mr. Sillerman in various capacities with entities operating in
the broadcasting business. Since 1993, Mr. Tytel has been Of Counsel to the law
firm of Baker & McKenzie, which currently represents SFX Broadcasting, the
Company and other entities with which Messrs. Sillerman and Tytel are
affiliated, on various matters.

THOMAS P. BENSON has served as the Vice President, Chief Financial Officer
and a Director of the Company since its formation in December 1997. Mr. Benson
also presently serves as the Chief Financial Officer and a Director of SFX
Broadcasting, having served in such capacity since November 22, 1996. Mr.
Benson became the Vice President of Financial Affairs of SFX Broadcasting in
June 1996. He was the Vice President--External and International Reporting for
American Express Travel Related Services Company from September 1995 to June
1996. From 1984 through September 1995, Mr. Benson worked at Ernst & Young LLP
as a staff accountant, senior accountant, manager and senior manager.

RICHARD A. LIESE has served as a Vice President, Associate General Counsel
and a Director of the Company since its formation in December 1997. Mr. Liese
also presently serves as a Director, Vice President and Associate General
Counsel of SFX Broadcasting, having served in such capacity since 1995. Mr.
Liese has also been the Assistant General Counsel and Assistant Secretary of
SCMC since 1988. In addition, from 1993 until April 1995, he served as
Secretary of MMR.

D. GEOFFREY ARMSTRONG has served as an Executive Vice President and a
Director of the Company since its formation in December 1997. It is anticipated
that, effective as of September 1, 1998, Mr. Armstrong will no longer serve as
an executive officer of the Company but will remain as a Director. Mr.
Armstrong also presently serves as the Chief Operating Officer and an Executive
Vice President of SFX Broadcasting, having served in such capacity since
November 22, 1996. Mr. Armstrong has served as a Director of SFX Broadcasting
since 1993. Mr. Armstrong became the Chief Operating Officer of SFX
Broadcasting in June 1996 and the Chief Financial Officer, Executive Vice
President and Treasurer of SFX Broadcasting in April 1995. Mr. Armstrong was
Vice President, Chief Financial Officer and Treasurer of SFX Broadcasting from
1992 until March 1995. He had been Executive Vice President and Chief Financial
Officer of Capstar, a predecessor of SFX Broadcasting, since 1989. From 1988 to
1989, Mr. Armstrong was the Chief Executive Officer of Sterling Communications
Corporation.

JAMES F. O'GRADY, JR. has served as a Director of the Company since its
formation in December 1997. Mr. O'Grady also serves as a Director of SFX
Broadcasting. Mr. O'Grady has been President of O'Grady and Associates, a media
brokerage and consulting company, since 1979. Mr. O'Grady has been a Director
of Orange and Rockland Utilities, Inc. and of Video for Broadcast, Inc. since
1980 and 1991, respectively. Mr. O'Grady has been the co-owner of Allcom
Marketing Corp., a corporation that provides marketing and public relations
services for a variety of clients, since 1985, and has been Of Counsel to
Cahill and Cahill, Brooklyn, New York, since 1986. He also served on the Board
of Trustees of St. John's University from 1984 to 1996, and has served as a
Director of The Insurance Broadcast System, Inc. since 1994.

104
<PAGE>

PAUL KRAMER has served as a Director of the Company since its formation in
December 1997. Mr. Kramer also serves as a Director of SFX Broadcasting and
Nations Flooring, Inc. Mr. Kramer has been a partner in Kramer & Love,
financial consultants specializing in acquisitions, reorganizations and dispute
resolution, since 1994. From 1992 to 1994, Mr. Kramer was an independent
financial consultant. Mr. Kramer was a partner in the New York office of Ernst
& Young LLP from 1968 to 1992.

EDWARD F. DUGAN has served as a Director of the Company since its
formation in December 1997. Mr. Dugan also serves as a Director of SFX
Broadcasting. Mr. Dugan is President of Dugan Associates Inc., a financial
advisory firm to media and entertainment companies, which he founded in 1991.
Mr. Dugan was an investment banker with Paine Webber Inc., as a Managing
Director, from 1978 to 1990, with Warburg Paribas Becker Inc., as President,
from 1975 to 1978 and with Smith Barney Harris Upham & Co., as a Managing
Director, from 1961 to 1975.

DAVID FALK will serve as a Member of the Office of the Chairman and a
Director of the Company upon consummation of the FAME Acquisition. Mr. Falk
will also serve as a Director and as Chairman of both FAME and the Company's
sports group and each subsidiary of the Company's sports group (which includes
FAME). Mr. Falk, who has represented professional athletes for over twenty
years, is presently a director, Chairman and Chief Executive Officer of FAME,
positions he has held since he founded FAME in 1992. Mr. Falk also serves as
Chairman of the HTS Sports-a-Thon to benefit the Leukemia Society of America,
is a member of the Executive Committee of the College Fund and is on the Board
of Directors of the Juvenile Diabetes Foundation and Share the Care for
Children.

AUDIT COMMITTEE

The Audit Committee will review (and report to the Board) on various
auditing and accounting matters, including the selection, quality and
performance of the Company's internal and external accountants and auditors,
the adequacy of its financial controls, and the reliability of financial
information reported to the public. The Audit Committee will also review
certain related-party transactions and potential conflict-of-interest
situations involving officers, directors or stockholders of the Company. The
members of the Audit Committee are Messrs. Kramer, O'Grady and Dugan.

COMPENSATION COMMITTEE

The Compensation Committee will review and make recommendations with
respect to certain of the Company's compensation programs and compensation
arrangements with respect to certain officers, including Messrs. Sillerman,
Ferrel, Tytel, Benson and Liese. The members of the Compensation Committee are
Messrs. Kramer, O'Grady and Dugan, none of whom is a current or former employee
or officer of SFX Broadcasting or the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is comprised of Messrs. Kramer, O'Grady and
Dugan. The Board approved the issuance of shares of Class A Common Stock to
holders as of the Spin-Off record date of stock options or SARs of SFX
Broadcasting , whether or not vested. The issuance was approved to allow the
holders of these options and SARs to participate in the Spin-Off in a similar
manner to holders of SFX Broadcasting's Class A common stock and as
consideration for past services to the Company. In connection with this
issuance, Messrs. Kramer, O'Grady and Dugan received 13,000, 13,000 and 3,000
shares of Class A Common Stock, respectively.

STOCK OPTION COMMITTEE

The Stock Option Committee will grant options, determine which employees
and other individuals performing substantial services to the Company may be
granted options and determine the rights and limitations of options granted
under the Company's plans. The members of the Stock Option Committee are
Messrs. Kramer, O'Grady and Dugan.

STOCK OPTION AND RESTRICTED STOCK PLAN

The Company's 1998 Stock Option and Restricted Stock Plan, provides for
the issuance of up to 2,000,000 shares of Class A Common Stock. The purpose of
the plan is to provide additional incentive

105
<PAGE>

to officers and employees of the Company. Each option granted under the plan
will be designated at the time of grant as either an "incentive stock option"
or a "non-qualified stock option." The plan will be administered by the Stock
Option Committee. The Board has approved the issuance of stock options
exercisable for an aggregate of 1,002,500 shares under the plan. See
"--Employment Agreements and Arrangements with Certain Officers and Directors."

COMPENSATION OF DIRECTORS

Directors employed by the Company will receive no compensation for
meetings they attend. Each director not employed by the Company will receive a
fee of $1,500 for each Board meeting he attends, in addition to reimbursement
of travel expenses. Each non-employee director who is a member of a committee
will also receive $1,500 for each committee meeting he attends that is not held
in conjunction with a Board meeting. If the committee meeting occurs in
conjunction with a Board meeting, each committee member will receive an
additional $500 for each committee meeting he attends. In addition, the Company
anticipates adopting a deferred compensation plan for the non-employee
directors which shall be effective as of January 1, 1998. Pursuant to such
plan, the Company will pay each non-employee director an annual retainer of
$30,000, at least one-half of which shall be paid in shares of Class A Common
Stock which will be credited to a book-entry account maintained by the Company
for each participant. It is expected that each non-employee director's account
will initially be credited with 5,455 shares of Class A Common Stock
representing one year's annual retainer fee (based upon $5.50 per share).

EXECUTIVE COMPENSATION

The Company did not pay any compensation to the current Executive Officers
in 1997. The Company anticipates that during 1998 its most highly compensated
executive officers will be Messrs. Sillerman, Ferrel, Becker and Tytel. See
"--Employment Agreements and Arrangements with Certain Officers and Directors."

The Company has issued shares of Class A Common Stock to holders as of the
Spin-Off record date of stock options or SARs of SFX Broadcasting, whether or
not vested. See "Certain Relationships and Related Transactions--Issuance of
Stock to Holders of SFX Broadcasting's Options and SARs."

EMPLOYMENT AGREEMENTS AND ARRANGEMENTS WITH CERTAIN OFFICERS AND DIRECTORS

The Company has entered into employment agreements with each of the
executive officers, except for Mr. Armstrong and Mr. Tytel (who has agreed in
principle to enter into an employment agreement with the Company). Such
employment agreements will become effective immediately after the consummation
of the SFX Merger (except for Mr. Becker's employment agreement which is
described below). The employment agreements provide for annual base salaries of
$500,000 for Mr. Sillerman, $350,000 for Mr. Ferrel and $235,000 for Mr.
Benson, increased annually by the greater of five percent or the rate of
inflation. Each executive officer will receive a bonus to be determined
annually in the discretion of the Board, on the recommendation of the
Compensation Committee. Each employment agreement is for a term of five years,
and unless terminated or not renewed by the Company or the employee, the term
will continue thereafter on a year-to-year basis on the same terms existing at
the time of renewal. Each employment agreement provides that, in the event the
employee is terminated following a change of control, he will be entitled to
receive specified payments from the Company and additional options to purchase
shares of Class A Common Stock.

In connection with entering into the employment agreements, the Company
sold the following restricted stock: 500,000 shares of Class B Common Stock to
Mr. Sillerman, 150,000 shares of Class B Common Stock to Mr. Ferrel, 80,000
shares of Class A Common Stock to Mr. Tytel and 10,000 shares of Class A Common
Stock to Mr. Benson. The shares of restricted stock were sold to the officers
at a purchase price of $2.00 per share. In addition, the Board (on the review
and recommendation of the Compensation Committee) also approved the issuance of
the following stock options exercisable for shares of Class A Common Stock:
options to purchase 120,000 shares to Mr. Sillerman, options to

106
<PAGE>

purchase 50,000 shares to Mr. Ferrel, options to purchase 40,000 shares to Mr.
Armstrong, options to purchase 25,000 shares to Mr. Tytel, options to purchase
10,000 shares to Mr. Benson and options to purchase 2,500 shares to each of
Messrs. Kramer, O'Grady, and Dugan. The options will vest over three years and
will have an exercise price of $5.50 per share. See "Risk Factors--Future
Charges to Earnings."

Until the closing date of the SFX Merger, the Executive Officers will
continue to be employed by SFX Broadcasting (at SFX Broadcasting's expense),
but will devote as much time as they deem reasonably necessary, consistent with
their obligations to SFX Broadcasting, in support of the Company on a basis
consistent with the time and scope of services that they devoted to the live
entertainment business prior to the Spin-Off. Effective immediately prior to
the consummation of the SFX Merger, the Company will assume all obligations
arising under any employment agreement or arrangement (written or oral) between
SFX Broadcasting or any of its subsidiaries and the Executive Officers, other
than the rights, if any, of the Executive Officers to receive options at the
time of their termination following a change of control of SFX Broadcasting (as
defined in their respective employment agreements) and all existing rights to
indemnification. The Company will assume the obligation to make change of
control payments under Messrs. Sillerman's, Ferrel's and Benson's existing
employment agreements with SFX Broadcasting of approximately $3.3 million, $1.5
million and $0.2 million, respectively. The Company will also indemnify SFX
Broadcasting and its subsidiaries from all obligations arising under the
assumed employment agreements or arrangements (except in respect of the
termination options and all existing rights to indemnification).

BECKER EMPLOYMENT AGREEMENT

As a condition to the execution of the PACE Agreement, the Company entered
into an employment agreement with the Chief Executive Officer and President of
PACE, Mr. Brian Becker (the "Becker Employment Agreement"). The Becker
Employment Agreement has a term of five years commencing on February 25, 1998.
Mr. Becker will continue as President and Chief Executive Officer of PACE. In
addition, for the term of his employment, Mr. Becker will serve as (a) a member
of the Company's Office of the Chairman, (b) an Executive Vice President of the
Company and (c) a director of each of PACE and the Company (subject to
shareholder approval). During the term of his employment, Mr. Becker will
receive (a) a base salary of $294,000 for the first year, $313,760 for each of
the second and third years and $334,310 for each of the fourth and fifth years
and (b) an annual bonus in the discretion of the Board.

The Company has agreed that it will not sell either the theatrical or
motor sports line of business of PACE prior February 25, 1999. If the Company
sells either line of business after the first anniversary, it has agreed not to
sell the other line of business prior to 15 days past the second anniversary of
the PACE Acquisition. The Becker Employment Agreement provides that Mr. Becker
will have a right of first refusal (the "Becker Right of First Refusal") if,
between the first and second anniversary of the PACE Acquisition, the Company
receives a bona fide offer from a third party to purchase all or substantially
all of either the theatrical or motor sports lines of business at a price equal
to 95% of the proposed purchase price. The Fifth Year Put Option (as defined in
the PACE acquisition agreement) will also be immediately exercisable as of such
closing. If that Mr. Becker does not exercise his right of first refusal and
either of the theatrical or motor sports line of business is sold, then he will
have an identical right of first refusal for the sale of the remaining line of
business beginning on the second anniversary of the PACE Acquisition and ending
six months thereafter. Mr. Becker will be paid an administrative fee of
$100,000 if he does not exercise his right of first refusal and the Company
does not consummate the proposed sale. Mr. Becker would thereafter retain all
rights to the Becker Right of First Refusal.

Beginning on the second anniversary of the date of the Becker Employment
Agreement (December 12, 1999), Mr. Becker will have the option (the "Becker
Second Year Option"), exercisable within 15 days thereafter, to elect one or
more of the following: to (a) put any stock or portion thereof (including any
vested and unvested options to purchase stock) and/or any compensation to be
paid to Mr. Becker by the Company; (b) become a consultant to the Company for
no more than an average of 20 hours per

107
<PAGE>

week for the remainder of the term and with the same level of compensation set
forth in the Becker Employment Agreement; or (c) acquire PACE's motor sports
line of business (or, if that line of business was previously sold, PACE's
theatrical line of business) at its fair market value as determined in the
Becker Employment Agreement.

The Becker Employment Agreement may be terminated (a) by the Company for
Cause (as defined in the Becker Employment Agreement), (b) by the Company for
Mr. Becker's death or permanent disability or (c) by Mr. Becker at any time for
any reason or upon exercise of the Becker Second Year Option.

In addition, Mr. Becker's employment may be terminated by the Company any
time in the Company's sole discretion or by Mr. Becker at any time following,
among other things, (a) failure to elect or re-elect Mr. Becker as a director
of the Company, (b) a reduction in Mr. Becker's base salary or in the formula
to calculate his bonus, (c) discontinuation of Mr. Becker's participation in
any stock option, bonus or other employee benefit plan, (d) prior to two years
and fifteen days after consummation of the PACE Acquisition, the sale of either
the motor sports or theatrical line of business to any person other than Mr.
Becker (unless Mr. Becker elected not to exercise the Becker Right of First
Refusal (as defined below)), (e) the sale of all or substantially all of the
assets of PACE, (f) a change of control of the Company or (g) the failure by
the Company to contribute any acquired business (which derives a majority of
its revenues from either a theatrical or motor sports line of business) to
PACE. If Mr. Becker's employment is terminated, then, among other things, (a)
for the period from the date of termination until the fifth anniversary of the
closing of the PACE Acquisition, the Company must pay Mr. Becker the base
salary and any bonus to which he would otherwise be entitled and Mr. Becker
will be entitled to participate in any and all of the profit-sharing,
retirement income, stock purchase, savings and executive compensation plans to
the same extent he would otherwise have been entitled to participate, (b) for a
period of one year after the date of termination, the Company will maintain Mr.
Becker's life, accident, medical, health care and disability programs or
arrangements and provide Mr. Becker with use of the same office and related
facilities and (c) if the termination occurs prior to two years and 15 days
after consummation of the PACE Acquisition, Mr. Becker will retain the Becker
Second Year Option and the Becker Right of First Refusal.

Throughout the term of his employment and for a period of 18 months
thereafter, Mr. Becker has agreed not to, directly or indirectly, engage in any
activity or business that is directly competitive with the Company (or its
affiliates) or solicit any of its employees to leave the Company (or its
affiliates). However, these restrictions will not apply if Mr. Becker exercises
his rights, or the Company breaches its obligations, with respect to the Becker
Right of First Refusal or the Becker Second Year Option

The Company has agreed to indemnify, defend and hold Mr. Becker harmless
to the maximum extent permitted by law against expenses, including attorney's
fees, incurred in connection with the fact that Mr. Becker is or was an
officer, employee or director of the Company or any of its affiliates.

In addition, the Company has entered into an employment agreement with
David Falk which will be effective upon the consummation of the FAME
Acquisition. See "Agreements Related to the Pending Acquisitions."

POSSIBLE AMENDMENTS TO DELSENER/SLATER EMPLOYMENT AGREEMENTS

Messrs. Delsener and Slater (the former owners of Delsener/Slater) and the
Company are in the process of negotiating amendments to their employment
agreements to reflect, among other things, the changes to the Company's
business as a result of the Recent Acquisitions, the Spin-Off and the SFX
Merger. Messrs. Delsener and Slater have agreed in principle to waive any
rights to repurchase (or to offer to repurchase) Concerts, and any rights to
receive a portion of the proceeds of a Return Event (as defined in their
employment agreements) that they might otherwise have in connection with the
SFX Merger or the Spin-Off. However, there can be no assurance that Messrs.
Delsener and Slater will waive these rights on terms acceptable to the Company
or that, if not so waived, neither Mr. Delsener nor Mr. Slater will exercise
these rights. These rights may continue to apply in certain circumstances to
transactions after, or unrelated to, the Spin-Off and the SFX Merger. The
Company also expects, in

108
<PAGE>

connection with the foregoing, to negotiate mutually satisfactory amendments to
certain of Messrs. Delsener's and Slater's compensation arrangements, including
bonus and profit-sharing provisions. See "Risk Factors--Rights to Purchase
Certain Subsidiaries" and "Certain Relationships and Related
Transactions--Delsener/Slater Employment Agreements."

The Company and SFX Broadcasting have also entered into certain agreements
and arrangements with their officers and directors from time to time in the
past. See "Certain Relationships and Related Transactions."

109
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of shares of Common Stock as of May 14, 1998, as adjusted to give
effect to the Offering (assuming no exercise of the Underwriters over-allotment
option) and the Pending Acquisitions, with respect to (a) each director of the
Company, (b) each executive officers of the Company, (c) the directors and
executive officers of the Company as a group and (d) each person known by the
Company to own beneficially more than five percent of the outstanding shares of
any class of Common Stock.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING AND
THE PENDING ACQUISITIONS(1)
------------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK
---------------------------- ---------------------
PERCENT
OF
NUMBER PERCENT NUMBER PERCENT TOTAL
NAME AND ADDRESS OF OF OF OF OF VOTING
BENEFICIAL OWNER(2) SHARES CLASS SHARES CLASS POWER
- ------------------------ ------------------ --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Directors and
Executive Officers:
Robert F.X.
Sillerman ............ 1,904,714(3) 10.0% 1,524,168 89.8% 47.7%
Michael G. Ferrel ..... 98,637(4) * 172,869 10.2 5.1
Brian Becker .......... 29,402 * -- -- *
Howard J. Tytel ....... 137,897(5) * -- -- *
Thomas P. Benson 19,000(6) * -- -- *
Richard A. Liese ...... 2,800 * -- -- *
D. Geoffrey
Armstrong ............ 161,800 * -- -- *
James F. O'Grady,
Jr. .................. 14,772(7) * -- -- *
Paul Kramer ........... 15,922(7) * -- -- *
Edward F. Dugan ....... 5,922(7) * -- -- *
David Falk(8) ......... -- * -- -- *
All directors and
executive officers
as a group
(10 persons - 11
including David
Falk) ................. 2,388,186 12.6% 1,697,037 100.0% 53.8%
</TABLE>

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER THE OFFERING AND
THE PENDING ACQUISITIONS(1)
--------------------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK
---------------------------- ----------------------------
PERCENT
OF
NUMBER PERCENT NUMBER PERCENT TOTAL
NAME AND ADDRESS OF OF OF OF OF VOTING
BENEFICIAL OWNER(2) SHARES CLASS SHARES CLASS POWER
- ------------------------ ------------------ --------- ------------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Directors and
Executive Officers:
Robert F.X.
Sillerman ............ 1,902,034(3) 5.7% 1,524,168(3) 89.8% 38.5%
Michael G. Ferrel ..... 98,637 * 172,869(4) 10.2% 4.1
Brian Becker .......... 29,402 * -- -- *
Howard J. Tytel ....... 134,897(5) * -- -- *
Thomas P. Benson 19,000(6) * -- -- *
Richard A. Liese ...... 2,800 * -- -- *
D. Geoffrey
Armstrong ............ 161,800 * -- -- *
James F. O'Grady,
Jr. .................. 14,772(7) * -- -- *
Paul Kramer ........... 15,922(7) * -- -- *
Edward F. Dugan ....... 5,922(7) * -- -- *
David Falk(8) ......... 650,000 2.4 -- -- 1.5
All directors and
executive officers
as a group
(10 persons - 11
including David
Falk) ................. 3,038,186 11.0% 1,697,037 100.0% 45.0%
</TABLE>

- ---------
* Less than 1%
(1) Does not include 2,000,000 shares reserved for issuance pursuant to the
Company's 1998 Stock Option and Restricted Stock Plan. The Board has
approved the issuance of stock options for an aggregate of 1,002,500
shares of Class A Common Stock.

(2) Unless otherwise set forth above, the address of each stockholder is the
address of the Company, which is 650 Madison Avenue, 16th Floor, New
York, New York 10022. Pursuant to Rule 13d-3 of the Exchange Act, as used
in this table, (a) "beneficial ownership" means the sole or shared power
to vote, or to direct the disposition of, a security, and (b) a person is
deemed to have "beneficial ownership" of any security that the person has
the right to acquire within 60 days of May 14, 1998. Unless noted
otherwise, (a) information as to beneficial ownership is based on
statements furnished to the Company by the beneficial owners, and (b)
stockholders possess sole voting and dispositive power with respect to
shares listed on this table. As of May 14, 1998, there were issued and
outstanding 18,932,622 shares of Class A Common Stock and 1,697,037
shares of Class B Common Stock.

(3) Includes (a) 8,949 shares of Class A Common Stock held by TSC; (b)
warrants held by SCMC to purchase an aggregate of 600,000 shares of Class
A Common Stock and (c) an option to acquire an aggregate of 537,185
shares of Class A Common Stock from a third party. If the 1,524,168
shares of Class B Common Stock held by Mr. Sillerman were included in
calculating his ownership of the Class A Common Stock, then Mr. Sillerman
would beneficially own 3,428,882 shares of Class A Common Stock,
representing approximately 11.8% of the class upon consummation of the
Offering and the Pending Acquisitions. Does not include options to
purchase an aggregate of 120,000 shares of Class A Common Stock held by
Mr. Sillerman which are not exercisable within 60 days of May 14, 1998.
See "Management--Employment Agreements and Arrangements with Certain
Officers and Directors."

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(4) If the 172,869 shares of Class B Common Stock held by Mr. Ferrel were
included in calculating his ownership of the Class A Common Stock, then
Mr. Ferrel would beneficially own 271,506 shares of Class A Common Stock,
representing approximately 1.0% of the class upon consummation of the
Offering. Does not include options to purchase an aggregate of 50,000
shares of Class A Common Stock held by Mr. Ferrel which are not
exercisable within 60 days of May 14, 1998. See "Management--Employment
Agreements and Arrangements with Certain Officers and Directors."

(5) In addition to the shares that Mr. Tytel beneficially owns, he has
economic interests in a limited number of shares beneficially owned by
Mr. Sillerman. These interests do not impair Mr. Sillerman's ability to
vote and dispose of those shares. Mr. Tytel also has an economic interest
in SCMC and TSC, which together will beneficially own an aggregate of
608,949 shares of Class A Common Stock, although he does not have voting
or dispositive power with respect to the shares beneficially held by SCMC
and TSC. See "Certain Relationships and Related Transactions--Arrangement
Between Robert F.X. Sillerman and Howard J. Tytel." Does not include
options to purchase an aggregate of 25,000 shares of Class A Common Stock
held by Mr. Tytel which are not exercisable within 60 days of May 14,
1998. See "Management--Employment Agreements and Arrangements with
Certain Officers and Directors" and "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX Broadcasting's Options
and SARs."

(6) Does not include options to purchase an aggregate of 10,000 shares of
Class A Common Stock held by Mr. Benson which are not exercisable within
60 days of May 14, 1998.

(7) Does not include options to purchase an aggregate of 2,500 shares of
Class A Common Stock which are held by each of Messrs. Kramer, O'Grady
and Dugan which are not exercisable within 60 days of May 14, 1998.

(8) Anticipated to be appointed as a Director and a Member of the Office of
Chairman immediately upon the consummation of the FAME Acquisition.

(9) Pursuant to the FAME Agreement, Mr. Falk will receive 850,000 shares of
Class A Common Stock at the closing of the FAME Acquisition and will
simultaneously transfer 200,000 shares of such stock to certain other
officers of FAME.

POSSIBLE CHANGE IN CONTROL

Mr. Sillerman has pledged an aggregate of 793,401 of his shares of Class B
Common Stock as collateral for a line of credit, under which Mr. Sillerman
currently has no outstanding borrowings. Mr. Sillerman continues to be entitled
to exercise voting and consent rights with respect to the pledged shares, with
certain restrictions. However, if Mr. Sillerman defaults in the payment of any
future loans extended to him under the line of credit, the bank will be
entitled to sell the pledged shares. Although the Class B Common Stock has 10
votes per share in most matters, the pledged shares will automatically convert
into shares of Class A Common Stock upon such a sale. Such a sale of the
pledged shares would reduce Mr. Sillerman's share of the voting power of the
Common Stock, and would therefore be likely to result in a change of control of
the Company. See "Risk Factors--Restrictions Imposed by the Company's
Indebtedness."

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

POTENTIAL CONFLICTS OF INTEREST

Marquee is a publicly-traded company that, among other things, provides
talent representations services to professional athletes and acts as booking
agent for tours and appearances for musicians and other entertainers. The
Company has indicated to Marquee its potential interest in acquiring Marquee.
Mr. Sillerman has an aggregate equity interest of approximately 9.1% in Marquee
and Mr. Sillerman is the chairman of its board of directors, and Mr. Tytel is
one of its directors. Upon the consummation of the acquisition of FAME, the
Company may directly compete with Marquee in obtaining representation
agreements with particular athletes and endorsement opportunities for its
clients. The Company anticipates that, from time to time, it will enter into
transactions and arrangements (particularly, booking arrangements) with Marquee
and Marquee's clients, and it may compete with Marquee for specific concert
promotion engagements. In addition, the Company could in the future compete
with Marquee in the production or promotion of motor sports or other sporting
events. These transactions or arrangements will be subject to the approval of a
committee of independent members of the boards of directors of each of the
Company and Marquee, except that booking arrangements in the ordinary course of
business will be subject to periodic review, but not approval of each
particular arrangement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Developments" and "Certain
Relationships and Related Transactions--Potential Conflicts of Interest."

EMPLOYMENT AGREEMENTS

In January 1998, in order to retain the services of Messrs. Sillerman,
Ferrel, Tytel and Benson as officers of the Company, the Company reached an
agreement in principle with such individuals pursuant to which the individuals
waived their right to receive shares of the Company in connection with the
Spin-Off in return for the right to receive either a share of Common Stock or
$4.20 in cash for each share of SFX Broadcasting common stock held by them
directly or indirectly in the event that either the Spin-Off or an Alternate
Transaction (as defined in the SFX Merger Agreement) were to occur. The amount
of $4.20 was based on the value attributed to the Common Stock in the fairness
opinion obtained by SFX Broadcasting in connection with the SFX Merger. The
Company's obligation will be deemed satisfied by the receipt of shares of
Common Stock in the Spin-Off.

The Company entered into employment agreements with each of its executive
officers, except for Mr. Armstrong and Mr. Tytel (who has agreed in principle
to enter into an employment agreement with the Company). Such employment
agreements will become effective immediately after the consummation of the SFX
Merger (except for Mr. Becker's employment agreement which became effective in
February 1998). The employment agreements provide for annual base salaries of
$500,000 for Mr. Sillerman, $350,000 for Mr. Ferrel and $235,000 for Mr.
Benson. Mr. Tytel's employment agreement is expected to provide for an annual
base salary of $300,000. In connection with entering into the employment
agreements, the Company sold the following restricted stock: 500,000 shares of
Class B Common Stock

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to Mr. Sillerman, 150,000 shares of Class B Common Stock to Mr. Ferrel, 80,000
shares of Class A Common Stock to Mr. Tytel and 10,000 shares of Class A Common
Stock to Mr. Benson. The shares of restricted stock were sold to the officers
at a purchase of $2.00 per share. In addition, the Board, on the recommendation
of its Compensation Committee, also has approved the issuance of stock options
to its officers and directors exercisable for an aggregate of 252,500 shares of
Class A Common Stock. The options will vest over three years and will have an
exercise price of $5.50 per share. The Company will record non-cash
compensation charges over the three-year exercise period to the extent that the
fair value of the underlying Class A Common Stock of the Company exceeds the
exercise price. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Future
Charges to Earnings" and "Management--Employment Agreements and Arrangements
with Certain Officers and Directors."

The Company has entered into an employment agreement with Mr. Becker who
serves as a Director, Member of the Office of the Chairman and Executive Vice
President. Mr. Becker's employment agreement provides for (a) an annual salary
of $294,000 for the first year, $313,760 for each of the second and third years
and $334,310 for each of the fourth and fifth years, (b) an annual bonus in the
discretion of the Board and (c) the other terms described in
"Management--Employment Agreements and Arrangements with Certain Officers and
Directors."

The Company has entered into an employment agreement with David Falk which
will be effective upon consummation of the FAME Acquisition. See "Agreements
Related to the Pending Acquisitions."

ASSUMPTION OF EMPLOYMENT AGREEMENTS; CERTAIN CHANGE OF CONTROL PAYMENTS

Pursuant to the terms of the Distribution Agreement, at the time of the
consummation of the SFX Merger, the Company agreed to assume all obligations
under any employment agreement or arrangement (whether written or oral) between
SFX Broadcasting or any of its subsidiaries and any employee of the Company
(including Messrs. Sillerman and Ferrel), other than obligations relating to
Messrs. Sillerman's and Ferrel's change of control options and existing rights
to indemnification. These assumed obligations include the obligation to pay to
Messrs. Sillerman, Ferrel and Benson, after the termination of their employment
with SFX Broadcasting, cash payments aggregating approximately $3.3 million,
$1.5 million and $0.2 million, respectively. These payments will become due to
Messrs. Sillerman, Ferrel and Benson after the termination of their employment
with SFX Broadcasting following a change of control of SFX Broadcasting (as
would occur in the SFX Merger), pursuant to their employment agreements with
SFX Broadcasting. In addition, the Company's assumed obligations will include
the duty to indemnify Messrs. Sillerman and Ferrel (to the extent permitted by
law) for one-half of the cost of any excise tax that may be assessed against
them for any change-of-control payments made to them by SFX Broadcasting in
connection with the SFX Merger.

INDEMNIFICATION OF MR. SILLERMAN

On August 24, 1997, Mr. Sillerman entered into an agreement with SFX
Broadcasting, SFX Buyer and SFX Buyer Sub to waive his right to receive
indemnification (except to the extent covered by directors' and officers'
insurance) from SFX Broadcasting, its subsidiaries, SFX Buyer and SFX Buyer Sub
for claims and damages arising out of the SFX Merger and related transactions.
Mr. Sillerman's employment agreement with the Company provides that the Company
will indemnify Mr. Sillerman for these claims and damages to the fullest extent
permitted by applicable law.

DELSENER/SLATER EMPLOYMENT AGREEMENTS

In connection with the Delsener/Slater Acquisition, SFX Broadcasting
entered into employment agreements in January 1997 with Ron Delsener and Mitch
Slater (collectively, the "Delsener/Slater Employment Agreements"), pursuant to
which each of Messrs. Delsener and Slater serve as co-Presidents and co-Chief
Executive Officers of Delsener/Slater. The employment agreements will continue
until December 31, 2001 unless terminated earlier by the Company for Cause (as
defined in the employment agreements) or voluntarily by Messrs. Delsener or
Slater.

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After the consummation of the Spin-off or the SFX Merger, Messrs. Delsener
and Slater may have the right pursuant to their employment agreements (a) to
purchase the outstanding capital stock of Concerts (a subsidiary of the Company
holding a significant amount of the assets of the Company) for Fair Market
Value (as defined in their employment agreements) or (b) to receive a cash
payment equal to 15% of the amount by which the Fair Market Value of Concerts
exceeds the fixed payment portion of the cash purchase price of the acquisition
of Concerts, plus 20% interest thereon. The senior management of Concerts and
SFX Broadcasting have reached an agreement in principle to waive the above
rights in connection with the Spin-Off, the SFX Merger and related
transactions; however, there can be no assurance that the rights will be waived
on terms acceptable to SFX Broadcasting and the Company or at all. In addition,
although the Company is in the process of negotiating amendments to these
agreements, these and certain other rights described in the agreements may
continue to apply to transactions after, or unrelated to, the Spin-Off or the
SFX Merger.

Additionally, Messrs. Delsener's and Slater's employment agreements
provide for certain annual bonus arrangements.

Management believes that no bonuses were earned in 1997 pursuant to such
arrangements. However, any bonuses that may accrue to Messrs. Delsener and
Slater in the future will not be available for the Company's use to service its
debt or for other purposes.

RELATIONSHIP BETWEEN HOWARD J. TYTEL AND BAKER & MCKENZIE

Howard J. Tytel, who is the Executive Vice President, General Counsel,
Secretary and a Director of the Company, is "of counsel" to the law firm of
Baker & McKenzie. Mr. Tytel is also an executive vice president, the general
counsel and a director of SFX Broadcasting. Baker & McKenzie serves as counsel
to SFX Broadcasting, the Company and certain other affiliates of Mr. Sillerman.
Baker & McKenzie compensates Mr. Tytel based, in part, on the fees it receives
from providing legal services to SFX Broadcasting, other affiliates of Mr.
Sillerman and other clients introduced to the firm by Mr. Tytel.

ARRANGEMENT BETWEEN ROBERT F.X. SILLERMAN AND HOWARD J. TYTEL

Since 1978, Messrs. Sillerman and Tytel have been jointly involved in
numerous business ventures, including SCMC, TSC, MMR, Triathlon, Marquee, SFX
Broadcasting and the Company. In consideration for certain services provided by
Mr. Tytel in connection with those ventures, Mr. Tytel has received from Mr.
Sillerman either a minority equity interest in the businesses (with Mr.
Sillerman retaining the right to control the voting and disposition of Mr.
Tytel's interest) or cash fees in an amount mutually agreed upon. Although Mr.
Tytel has not been compensated directly by SFX Broadcasting (except for
ordinary fees paid to him in his capacity as a director), he receives
compensation from TSC and SCMC, companies controlled by Mr. Sillerman, as well
as from Mr. Sillerman personally, with respect to the services he provides to
various entities affiliated with Mr. Sillerman, including SFX Broadcasting. In
1997, these cash fees aggregated approximately $5.0 million, a portion of which
were paid from the proceeds of payments made by SFX Broadcasting to Mr.
Sillerman or entities controlled by Mr. Sillerman and the proceeds from Mr.
Sillerman's exercise for tax purposes of options granted to him by SFX
Broadcasting and subsequent sale of the underlying shares. It is anticipated
that, in connection with the consummation of the SFX Merger and certain related
transactions, Mr. Tytel will receive shares of the Company and cash fees from
TSC, SCMC and Mr. Sillerman personally in an amount to be determined in the
future. See "--Assumption of Employment Agreements; Certain Change of Control
Payments." It is also anticipated that Mr. Tytel will enter into an employment
agreement directly with the Company that will be effective at the time of
consummation of the SFX Merger. See "--Employment Agreements."

TRIATHLON FEES

SCMC, a corporation controlled by Mr. Sillerman and in which Mr. Tytel has
an equity interest, has an agreement to provide consulting and marketing
services to Triathlon, a publicly-traded company in which Mr. Sillerman is a
significant stockholder. Under the terms of the agreement, SCMC has agreed to
provide consulting and marketing services to Triathlon until June 1, 2005 for
an annual fee of

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$500,000, together with a refundable advance of $500,000 per year against fees
earned in respect of transactional investment banking services. Fees paid by
Triathlon for the years ended December 31, 1996 and December 31, 1997 were
$3,000,000 and $1,794,000, respectively. These fees will vary (above the
minimum annual fee of $500,000) depending on the level of acquisition and
financing activities of Triathlon. SCMC previously assigned its rights to
receive fees payable under this agreement to SFX Broadcasting. Pursuant to the
terms of the Distribution Agreement, SFX Broadcasting has assigned its rights
to receive these fees to the Company. Triathlon has announced that it is
exploring ways of maximizing stockholder value, including possible sale to a
third party. If Triathlon were acquired by a third party, the agreement might
not continue for the remainder of its term.

AGREEMENTS WITH SFX BROADCASTING

The Company and SFX Broadcasting have entered into various agreements with
respect to the Spin-Off and related matters. For a description of the material
terms of these agreements, see the Distribution Agreement, Tax Sharing
Agreement and the Employment Benefit Agreement, each filed as an exhibit to
this Registration Statement. See "Additional Information."

In addition, SFX Broadcasting has guaranteed certain payments in
connection with the PACE Acquisition, the Contemporary Acquisition and the
Network Acquisition.

COMMON STOCK RECEIVED IN THE SPIN-OFF

In the Spin-Off, the holders of SFX Broadcasting's Class A common stock,
Series D preferred stock and Warrants (upon exercise) received shares of Class
A Common Stock, whereas Messrs. Sillerman and Ferrel, as the holders of SFX
Broadcasting's Class B common stock (which is entitled to ten votes per share
on most matters), received shares of Class B Common Stock. The Class A Common
Stock and Class B Common Stock have similar rights and privileges, except that
the Class B Common Stock differs as to voting rights generally to the extent
that SFX Broadcasting's Class A common stock and Class B common stock presently
differ. The issuance of the Class B Common Stock in the Spin-Off was intended
to preserve Messrs. Sillerman's and Ferrel's relative voting power after the
Spin-Off. Upon consummation of the Offering and the Pending Acquisitions, Mr.
Sillerman will be deemed to beneficially own approximately 38.5% of the
combined voting power of the Company and Messrs. Sillerman and Ferrel will be
deemed to beneficially own approximately 42.6% of the combined voting power of
the Company. Accordingly, Mr. Sillerman, alone and together with the Company's
current directors and executive officers, will generally be able to control the
outcome of the votes of the stockholders of the Company on most matters. The
Company and Messrs. Sillerman and Ferrel have agreed in principle that Messrs.
Sillerman and Ferrel will continue to serve as officers and directors of the
Company. See "Principal Stockholders."

In addition, in August 1997, the board of directors of SFX Broadcasting
approved amendments to the SCMC Warrants (which represent the right to purchase
an aggregate of 600,000 shares of SFXBroadcasting's Class A common stock). The
SCMC Warrants had previously been issued to SCMC, an entity controlled by Mr.
Sillerman. The amendments memorialize the original intent of the directors of
SFX Broadcasting that SCMC receive the aggregate number of shares of Class A
Common Stock that it would have received if it had exercised the SCMC Warrants
immediately prior to the Spin-Off.

ISSUANCE OF STOCK TO HOLDERS OF SFX BROADCASTING'S OPTIONS AND SARS

On April 27, 1998, the Company issued 522,941 shares of Class A Common
Stock to holders as of the Spin-Off record date of the stock options or SARs of
SFX Broadcasting, whether or not vested, and 325,000 and 70,000 shares to
Messrs. Sillerman and Ferrel, respectively, with respect to the options to be
issued pursuant to their employment agreements with SFX Broadcasting. The
issuances were made in consideration for past services to the Company and to
allow holders of such options and SARs to participate in the Spin-Off in a
manner similar to holders of SFX Broadcasting's Class A common stock.
Additionally, many of the option and SAR holders are officers, directors or
employees of the Company. The members of the Company's Board, other than Mr.
Becker, received an aggregate of 850,479 shares pursuant to such issuance.

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MEADOWS REPURCHASE

In connection with the acquisition of Meadows Music Theater, SFX
Broadcasting obtained an option to repurchase 250,838 shares of its Class A
common stock (the "Meadows Shares") for an aggregate purchase price of $8.3
million (the "Meadows Repurchase"). Pursuant to the terms of the SFX Merger
Agreement, if the Meadows Shares are outstanding at the effective time of the
SFX Merger, Working Capital would be decreased by approximately $10.5 million.
However, SFX Broadcasting was restricted from exercising the Meadows Repurchase
by certain loan covenants and other restrictions.

In January 1998, Mr. Sillerman, the Executive Chairman of the Company,
committed to finance the $8.3 million exercise price of the Meadows Repurchase
in order to avoid the $10.5 million reduction to Working Capital. In
consideration for such commitment, the board of directors of SFX Broadcasting
agreed that Mr. Sillerman would receive approximately the number of shares of
Class A Common Stock to be issued in the Spin-Off with respect to the Meadows
Shares. At the time SFX Broadcasting accepted Mr. Sillerman's commitment, the
board of directors of SFX Broadcasting valued the Class A Common Stock to be
issued in the Spin-Off at $4.20 per share, the value attributed to such shares
in the fairness opinion obtained by SFX Broadcasting in connection with the SFX
Merger. In April 1998, SFX Broadcasting assigned the option for the Meadows
Shares to an unaffiliated third party and, in connection therewith, paid such
party a fee of $75,000. Mr. Sillerman subsequently advanced such party the $8.3
million exercise price for the Meadows Repurchase which will become due on the
earlier of the date on which the Meadows Shares are disposed of by the third
party of January 16, 1999. If the SFX Merger is consummated, the Meadows Shares
will be tendered in the SFX Merger without any gain or loss to the third party.
In the event that the SFX Merger is not consummated on or before December 31,
1998, SFX Broadcasting has the option, for a limited time, to repurchase the
Meadows Shares for an aggregate consideration of approximately $10.0 million.
The third party has transferred to Mr. Sillerman the Class A Common Stock
issued in the Spin-Off with respect to the Meadows Shares. The transaction has
been approved by SFX Broadcasting's board of directors, including the
independent directors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Future
Charges to Earnings."

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DESCRIPTION OF CAPITAL STOCK

In order to facilitate the Spin-Off, the Company recently revised its
capital structure to increase its authorized capital stock and to effect a
stock split. The authorized capital stock of the Company consists of
110,000,000 shares of Common Stock (comprised of 100,000,000 shares of Class A
Common Stock and 10,000,000 shares of Class B Common Stock), and 25,000,000
shares of preferred stock, par value $.01 per share. The following descriptions
of the Common Stock and the preferred stock are summaries, and are qualified in
their entirety by reference to the detailed provisions of the Company
Certificate and the Company By-laws (each of which are filed as exhibits to the
Registration Statement). See "Additional Information."

COMMON STOCK

SHARES OUTSTANDING

As of the date of this Prospectus, there are issued and outstanding
18,932,622 shares of Class A Common Stock and 1,697,037 shares of Class B
Common Stock. All of these shares are validly issued, fully paid and
nonassessable. Upon the consummation of the Offering and the Pending
Acquisitions, there will be issued and outstanding 27,539,423 shares of Class A
Common Stock and 1,697,037 shares of Class B Common Stock.

DIVIDENDS

Although no dividends are anticipated to be paid on the Common Stock in
the foreseeable future, holders of Common Stock are entitled to receive any
dividends (payable in cash, stock, or otherwise) that are declared thereon by
the Board at any time and from time to time out of funds legally available for
that purpose. No dividend may be declared or paid in cash or property on either
class of common stock, unless the same dividend is simultaneously declared or
paid on the other class of common stock. If dividends are declared that are
payable in shares of Common Stock, then the stock dividends will be payable at
the same rate on each class of Common Stock and will be payable only in shares
of Class A Common Stock to holders of Class A Common Stock and in shares of
Class B Common Stock to holders of Class B Common Stock. If dividends are
declared that are payable in shares of common stock of another corporation,
then the shares paid may differ as to voting rights to the extent that voting
rights differ among the Class A Common Stock and the Class B Common Stock.

VOTING RIGHTS

Holders of Class A Common Stock and Class B Common Stock vote as a single
class on all matters submitted to a vote of the stockholders, with each share
of Class A Common Stock entitled to one vote and each share of Class B Common
Stock entitled to ten votes, except (a) for the election of directors, (b) with
respect to any "going private" transaction between the Company and Robert F.X.
Sillerman or any of his affiliates and (c) as otherwise provided by law.

In the election of directors, the holders of shares of Class A Common
Stock, voting as a separate class, are entitled to elect two sevenths of the
Company's directors (each, a "Class A Director"). Any person nominated by the
Board for election by the holders of Class A Common Stock as a director of the
Company must be qualified to be an "Independent Director" (as defined in the
Company Certificate). If a Class A Director dies, is removed or resigns before
his term expires, then that director's vacancy on the Board may be filled by
any person appointed by a majority of the directors then in office, although
less than a quorum. Any person appointed to fill the vacancy must, however, be
qualified to be an Independent Director. The holders of Class A Common Stock
and Class B Common Stock, voting as a single class, with each share of Class A
Common Stock entitled to one vote and each share of Class B Common Stock
entitled to ten votes, are entitled to elect the remaining directors. The
holders of Common Stock are not entitled to cumulative votes in the election of
directors. Mr. Sillerman has agreed to abstain, and has agreed to cause each of
his affiliates to abstain, from voting in any election of Class A Directors.

The initial Class A Directors are Messrs. Dugan, Kramer and O'Grady. If
the SFX Merger Agreement is terminated, each of these individuals has indicated
that he will promptly resign from his position as a director of the Company,
and the board of directors of the Company will appoint three different Class A
Directors, to serve until the next annual meeting of the stockholders of the
Company.

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The holders of the Class A Common Stock and Class B Common Stock vote as a
single class with respect to any proposed "going private" transaction with Mr.
Sillerman or any of his affiliates, with each share of Class A Common Stock and
Class B Common Stock entitled to one vote.

Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of common stock is required to approve,
among other things, a change in the designations, preferences or limitations of
that class of common stock.

LIQUIDATION RIGHTS

Upon liquidation, dissolution or winding-up of the Company, after
distribution in full of any preferential amounts required to be distributed to
holders of preferred stock, the holders of Class A Common Stock will be
entitled to share ratably with the holders of Class B Common Stock all assets
available for distribution after payment in full of creditors.

CONVERSION

Each share of Class B Common Stock is convertible at any time, at the
holder's option, into one share of Class A Common Stock. Each share of Class B
Common Stock converts automatically into one share of Class A Common Stock (a)
at the time of its sale or transfer to a party not affiliated with the Company
or (b) in the case of shares held by Mr. Sillerman or any of his affiliates, at
the time of Mr. Sillerman's death.

OTHER PROVISIONS

The holders of Common Stock are not entitled to preemptive or subscription
rights. In any merger, consolidation or business combination, the consideration
to be received per share by holders of Class A Common Stock must be identical
to that received by holders of Class B Common Stock, except that in any such
transaction in which shares of common stock are to be distributed, the
distributed shares may differ as to voting rights to the extent that voting
rights now differ among the Class A Common Stock and the Class B Common Stock.
The Company may not subdivide (by any stock split, reclassification, stock
dividend, recapitalization, or otherwise) or combine the outstanding shares of
either class of Common Stock unless the outstanding shares of both classes are
proportionately subdivided or combined.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Class A Common Stock and the
Class B Common Stock is Chase Mellon Shareholder Services, L.L.C.

PREFERRED STOCK

As of the date of this Prospectus, there are no shares of the Company's
preferred stock, par value $.01 per share, outstanding and there are 25,000,000
shares of preferred stock authorized.

The Board has the authority to issue this preferred stock in one or more
series and to fix the number of shares and the relative designations and
powers, preferences, and rights, and qualifications, limitations, and
restrictions thereof, without further vote or action by the stockholders. If
shares of preferred stock with voting rights are issued, the voting rights of
the holders of Common Stock could be diluted by increasing the number of
outstanding shares having voting rights, and by creating class or series voting
rights. If the Board authorizes the issuance of shares of preferred stock with
conversion rights, the number of shares of common stock outstanding could
potentially be increased by up to the authorized amount. Issuances of preferred
stock could, under certain circumstances, have the effect of delaying or
preventing a change in control of the Company and may adversely affect the
rights of holders of Common Stock. Also, the preferred stock could have
preferences over the common stock (and other series of preferred stock) with
respect to dividend and liquidation rights.

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DESCRIPTION OF INDEBTEDNESS

NOTES

The following is a summary of the material terms contained in the
Indenture. This summary is not complete. It is subject to the terms of the
Indenture, which was filed as an exhibit to the Registration Statement. See
"Additional Information."

On February 11, 1998, the Company consummated the private placement of
$350.0 million in aggregate principal amount of 9 1/8% Senior Subordinated
Notes due 2008. The Notes bear interest at an annual interest rate of 9 1/8%,
and interest payments will be due semi-annually, commencing August 1, 1998. The
Notes will mature on February 1, 2008. The Notes do not contain any sinking
fund provision.

RANKING

The Notes are general unsecured obligations of the Company, subordinate in
right to all Senior Debt (as defined in the Indenture), whether outstanding on
the date of the Indenture or thereafter incurred, of the Company and senior in
right of payment to or pari passu with all other indebtedness of the Company.
See "Capitalization."

SUBSIDIARY GUARANTEES

The Company's payment obligations under the Notes are jointly and
severally guaranteed on a senior subordinated basis by all of its current and
future domestic subsidiaries, with certain specified exceptions.

OPTIONAL REDEMPTION

Except as noted below, the Notes are not redeemable at the Company's
option before February 1, 2003. Thereafter, the Notes will be subject to
redemption at any time at the option of the Company, in whole or in part, at
specified redemption prices plus accrued and unpaid interest and Liquidated
Damages (as defined in the Indenture), if any, thereon to the applicable
redemption date. In addition, at any time prior to February 1, 2001, the
Company may on any one or more occasions redeem up to 35.0% of the original
aggregate principal amount of Notes at a redemption price of 109.125% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of redemption, with the net proceeds of
one or more offerings of common equity of the Company. However, at least 65.0%
of the original aggregate principal amount of Notes must remain outstanding
immediately after each occurrence of redemption.

CHANGE OF CONTROL

After the occurrence of a Change of Control (as defined in the Indenture),
the Company will be required to make an offer to repurchase the Notes at a
price equal to 101% of their principal amount, together with accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase.

CERTAIN COVENANTS

The Indenture contains certain covenants that, among other things, limit
the ability of the Company and its subsidiaries to (a) incur additional
Indebtedness (as defined in the Indenture), (b) issue preferred stock, (c) pay
dividends, (d) make certain other restricted payments, (e) create certain Liens
(as defined in the Indenture), (f) enter into certain transactions with
affiliates, (g) sell assets of the Company or its Restricted Subsidiaries (as
defined in the Indenture), (h) issue or sell Equity Interests (as defined in
the Indenture) of the Company's Restricted Subsidiaries or (i) enter into
certain mergers and consolidations. In addition, under certain circumstances,
the Company will be required to offer to purchase Notes at a price equal to
100.0% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase, with the proceeds of
certain Asset Sales (as defined in the Indenture).

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EXCHANGE OFFER; REGISTRATION RIGHTS

Pursuant to a registration rights agreement among the Company and the
initial purchasers of the Notes, the Company must use its best efforts to file
a registration statement with the SEC with respect to an offer to exchange the
Notes for a new issue of debt securities registered under the Securities Act,
with terms identical in all material respects to those of the Notes. If (a)
this exchange offer is not permitted by applicable law or (b) any holder of
Transfer Restricted Securities (as defined in the Indenture) notifies the
Company that (i) it is prohibited by law or SEC policy from participating in
the exchange offer, (ii) it may not resell the new issue of debt securities to
be acquired by it in the exchange offer to the public without delivering a
prospectus, and the prospectus contained in the registration statement is not
appropriate or available for those resales, or (iii) it is a broker-dealer and
holds Notes acquired directly from the Company or an affiliate of the Company,
then the Company will be required to provide a shelf registration statement to
cover resales of the Notes by their holders. If the Company fails to satisfy
these registration obligations, it will be required to pay Liquidated Damages
to the holders of Notes under certain circumstances.

TRANSFER RESTRICTIONS

The Notes have not been registered under the Securities Act, and may not
be offered or sold except pursuant to an exemption from (or in a transaction
not subject to) the registration requirements of the Securities Act.

CREDIT FACILITY

The following is a summary of the material terms of the Credit Facility.
This summary is not complete. It is subject to, and qualified in its entirety
by reference to, the Credit and Guarantee Agreement, which has been filed as an
exhibit hereto.

In February of 1998, the Company entered into the Credit Agreement which
established a $300.0 million of senior secured credit facilities. The Credit
Facility is comprised of (a) the $150.0 million eight-year Term Loan and (b)
the $150.0 million seven-year reducing Revolver. Borrowings under the Credit
Facility are secured by substantially all the assets of the Company, including
a pledge of the outstanding stock of substantially all of its subsidiaries, and
are guaranteed by substantially all of the Company's subsidiaries. On February
27, 1998, the Company borrowed $150.0 million pursuant to the Term Loan in
connection with the Recent Acquisitions. The Company expects to borrow
approximately $63.0 million pursuant to the Revolver in connection with the
Financing. The Revolver and Term Loan contain provisions providing that, at its
option and subject to certain conditions, the Company may increase the amount
of either the Revolver or the Term Loan by $50.0 million.

GENERAL

The Credit Facility provides for borrowings in a principal amount of up to
$300.0 million, subject to certain covenants and conditions. Borrowings under
the Credit Facility may be used by the Company to finance Permitted
Acquisitions (as defined in the Credit Agreement), for working capital and for
general corporate purposes. Up to $20.0 million of the Revolver will be
available for the issuance of standby letters of credit. Each Permitted
Acquisition must be in the same line of business (or other business incidental
or related thereto) as the Company and must have the prior written consent of
the Required Lenders (as defined in the Credit Agreement) if the cost of the
Permitted Acquisition exceeds $50.0 million.

INTEREST RATES; FEES

Loans outstanding under the Credit Facility will bear interest, at the
Company's option, at certain spreads over LIBOR or the greater of the Federal
Funds rate plus 0.50% or BNY's prime rate. The interest rate spreads on the
Term Loan and the Revolver will be adjusted based on the Company's Total
Leverage Ratio (as defined below). The Company will pay an annual commitment
fee on unused

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availability under the Revolver of 0.50% if the Company's Total Leverage Ratio
is greater than or equal to 4.0 to 1.0, and 0.375% if that ratio is less than
4.0 to 1.0. The Company will also pay an annual letter of credit fee equal to
the Applicable LIBOR Margin (as defined in the Credit Agreement) for the
Revolver then in effect.

MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS

Commitments to lend under the Revolver will be reduced in equal quarterly
installments commencing March 31, 2000 in annual percentages of the borrowings
under the Revolver as of December 31, 1999 according to the following schedule:
by 10.0% in 2000; by 15.0% in 2001; by 20.0% in 2002; by 25.0% in 2003; by
25.0% in 2004; and by the remaining 5.0% upon final maturity. The Term Loan
will be reduced by $1.0 million per year until final maturity, at which point
the remaining balance will be due and payable. Amounts outstanding under the
Credit Facility will be subject to, among others, the following mandatory
prepayments, which will also permanently reduce commitments: (a) 100.0% of the
net cash proceeds received from permitted Asset Sales (as defined in the Credit
Agreement), subject to standard reinvestment provisions; (b) 50.0% of Excess
Cash Flow (as defined in the Credit Agreement), calculated for each fiscal year
beginning with the year ending December 31, 2000; and (c) 50.0% of net proceeds
of any equity issuance, to the extent that the Total Leverage Ratio is greater
than or equal to 5.0 to 1.0.

COLLATERAL AND GUARANTEES

Each of the Company's present and future direct and indirect domestic
subsidiaries (the "Senior Guarantors") must provide guarantees under the Credit
Facility. In order to secure its obligations under the Credit Facility, the
Company and each of the Senior Guarantors must also grant to the lenders a
continuing security interest in all of their tangible assets (subject to
certain non-material exceptions), all of the capital stock of each Senior
Guarantor and not less than 66 2/3% of the capital stock of the Company's
present and future direct and indirect foreign subsidiaries.

The Credit Facility contains various covenants that, subject to certain
specified exceptions, restrict the Company's and its subsidiaries' ability to:

o incur additional indebtedness and other obligations;

o grant liens;

o consummate mergers, acquisitions, investments and asset dispositions;

o declare or pay Restricted Payments (as defined in the Credit
Agreement);

o declare or pay dividends, distributions and other prepayments or
repurchases of other indebtedness;

o amend certain agreements, including the Company's organizational
documents, the Notes and the Indenture;

o make acquisitions and dispositions;

o engage in transactions with affiliates;

o engage in sale and leaseback transactions; and

o change lines of business.

The Credit Facility also includes covenants relating to compliance with ERISA,
environmental and other laws, payment of taxes, maintenance of corporate
existence and rights, maintenance of insurance and financial reporting. In
addition, the Credit Facility requires the Company to maintain compliance with
certain specified financial covenants relating to:

o a maximum ratio (the "Total Leverage Ratio") of (a) all outstanding
amounts under the Credit Facility and any other borrowed money and
similar type indebtedness (including capital lease obligations) of the
Company and its subsidiaries, on a consolidated basis ("Total Debt"),
less

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<PAGE>

cash and cash equivalents in excess of $5.0 million, to (b) for the
most recently completed four fiscal quarters, (i) revenues less (ii)
expenses (excluding depreciation, amortization other than capitalized
pre-production costs, interest expense and income tax expense), plus
(iii) non-recurring expense items or non-cash expense items mutually
agreed upon by the Company and the Required Lenders, plus (iv) the
lesser of (A) the equity income from Unconsolidated Investments (as
defined in the Credit Agreement) and (B) cash dividends and other cash
distributions from Unconsolidated Investments (however, the total
amount determined under this clause (iv) will not exceed 10.0% of
Operating Cash Flow before overhead) (the amount referred to in this
clause (b), "Operating Cash Flow"); Operating Cash Flow is to be
adjusted to reflect acquisitions and dispositions consummated during
the calculation period as if those transactions were consummated at
the beginning of the period (with adjustment, "Adjusted Operating Cash
Flow");

o a maximum ratio (the "Senior Leverage Ratio") of (a) Total Debt less
the principal amount outstanding under the Notes to, less cash and
cash equivalents in excess of $5.0 million, to (b) Operating Cash
Flow;

o a minimum ratio (the "Pro Forma Interest Expense Ratio") of (a)
Adjusted Operating Cash Flow to (b) the sum of all interest expense
and commitment fees calculated for the four fiscal quarters following
the calculation quarter, giving effect to the Total Debt outstanding
and the interest rates in effect as of the date of the determination
and the commitment reductions and debt amortization scheduled during
that period;

o a minimum ratio (the "Debt Service Ratio") of (a) Adjusted Operating
Cash Flow to (b) the sum of (i) the sum of all interest expense and
commitment fees calculated for the four fiscal quarters following the
calculation quarter, giving effect to the Total Debt outstanding and
the interest rates in effect as of the date of the determination and
the commitment reductions and debt amortization scheduled during that
period and (ii) the scheduled current maturities of Total Debt and
current commitment reductions with respect to the Revolver, each
measured for the four fiscal quarters immediately succeeding the date
of determination; and

o a minimum ratio (the "Fixed Charges Ratio") of (a) the sum of
Operating Cash Flow to (b) the sum of, for the four most recently
completed fiscal quarters, the following paid during that period: (i)
Interest Expense (as defined in the Credit Agreement) plus the
scheduled maturities of Total Debt and current commitment reductions
with respect to the Revolver, (ii) cash income taxes, (iii) capital
expenditures (excluding certain special capital expenditures to be
mutually agreed upon) and (iv) Unconsolidated Investments (as defined
in the Credit Agreement).

The Total Leverage Ratio for the most recently completed 12 month period
may not at any time exceed (a) 6.75x from the Credit Facility Closing Date to
September 29, 1998, (b) 6.50x from September 30, 1998 to December 30, 1998, (c)
6.25x from December 31, 1998 to June 29, 1999, (d) 5.75x from June 30, 1999 to
December 30, 1999, (e) 5.25x from December 31, 1999 to December 30, 2000, (f)
4.50x from December 31, 2000 to December 30, 2001 and (g) 3.75x on December 31,
2001 and thereafter.

The Senior Leverage Ratio for the most recently completed 12 month period
may not at any time exceed (a) 3.50x from the Credit Facility Closing Date to
September 29, 1998, (b) 3.25x from September 30, 1998 to December 30, 1999, (c)
3.00x from December 31, 1999 to December 30, 2000 and (d) 2.50x on December 31,
2000 and thereafter.

The Pro Forma Interest Expense Ratio may not at the end of any fiscal
quarter be less than (a) 1.50x from the Credit Facility Closing Date to
December 31, 1998 and (b) 2.00x on January 1, 1999 and thereafter.

The Pro Forma Debt Service Ratio may not at any fiscal quarter end be less
than (a) 1.25x from the Credit Facility Closing Date to December 31, 1998 and
(b) 1.50x on January 1, 1999 and thereafter.

The Fixed Charges Ratio may not at any quarter end be less than 1.05x.

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<PAGE>

The Credit Facility will also prohibit prepayment of any subordinated
notes, including the Notes.

EVENTS OF DEFAULT

The Credit Facility contains customary events of default, including
payment defaults, the occurrence of a Change of Control (as defined in the
Credit Agreement), the invalidity of guarantees or security documents under the
Credit Facility, any Material Adverse Change (as defined in the Credit
Agreement), breach of any representation or warranty under the Credit Facility
and any cross-default to other indebtedness of the Company and its
subsidiaries. The occurrence of any event of default could result in
termination of the commitments to extend credit under the Credit Facility and
foreclosure on the collateral securing those obligations, each of which,
individually, could have a material adverse effect on the Company.

Change of Control

"Change of Control" is defined in the Credit Facility as, inter alia: (i)
the failure of Mr. Sillerman, any Affiliate (as defined therein) of Mr.
Sillerman, or any Affiliate of Mr. Sillerman together with any executor, heir
or successor appointed to take control of Mr. Sillerman's affairs in the event
of his death, disability or incapacity, to own directly or indirectly, in the
aggregate, of record and beneficially, more than 35% of the voting power of all
issued and outstanding capital stock of the Company or (ii) the occurrence of
any Person (as defined in the Credit Facility), other than as provided in
clause (i) above, owning, beneficially, more than 10% of the voting power of
all issued and outstanding capital stock of the Company.

OTHER DEBT

In addition, the Company also has approximately $16.2 million of long-term
debt outstanding, which was incurred primarily in connection with the 1997
Acquisitions. See Note 5 to the Notes to the Consolidated Financial Statements
of the Company. The Company also assumed approximately $18.7 million of debt in
connection with the Recent Acquisitions.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Class A Common Stock in the public market,
or the possibility that these sales may occur, could adversely affect market
prices for Class A Common Stock or the future ability of the Company to raise
capital through an offering of equity securities. Upon consummation of the
Offering and the Pending Acquisitions, the Company will have 27,539,423 shares
of Class A Common Stock and 1,697,037 shares of Class B Common Stock
outstanding (not including shares issuable upon the exercise of outstanding
options). Of those shares, a total of 23,157,843 shares will be freely
tradeable in the public market without restriction under the Securities Act,
unless the shares are held by "affiliates" of the Company (as that term is
defined in Rule 144 under the Securities Act). Under the Underwriting Agreement
and certain agreements entered into between the representatives of the
Underwriters and each of the Company's officers and directors (the "Lock-Up
Agreements") who beneficially hold, in the aggregate 2,388,186 shares of Class
A Common Stock and 1,697,037 shares of Class B Common Stock, such officers and
directors will not, without the prior written consent of Goldman, Sachs & Co.,
during the period commencing on the date hereof and ending 180 days after the
date of this Prospectus, (i) offer, pledge, sell, or otherwise transfer or
dispose of, directly or indirectly, any shares of the Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
any right to acquire Common Stock, or (ii) enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership
of the Common Stock. The foregoing provisions shall not apply to (i) exercise
of options or warrants, or (ii) transfers, without consideration, of the Common
Stock or any securities convertible into, or exercisable or exchangeable for
Common Stock to family members or to one or more trusts established for the
benefit of one or more family members, provided that the transferee executes
and delivers to Goldman, Sachs & Co., an agreement whereby the transferee
agrees to be bound by all of the foregoing terms and provisions. Goldman, Sachs
& Co. in its sole discretion and at any time without notice, may release all or
any portion of the securities subject to the Lock-Up Agreements or many waive
the covenants contained in the Underwriting Agreement. Any

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<PAGE>

such decision to release securities would likely be based upon individual
stockholder circumstances, prevailing market conditions and other relevant
factors. Any such release could have a material adverse effect upon the price
of the Class A Common Stock. Upon the expiration or termination of the Lock-Up
Agreements, the shares held by affiliates will be eligible for sale subject to
compliance with the provisions of Rule 144 or pursuant to an effective
registration statement filed with the Securities and Exchange Commission. See
"Underwriting."

LEGAL MATTERS

The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Baker & McKenzie, New York, New York. Howard J.
Tytel, who is an executive officer and director of and has an equity interest
in the Company, and who has an equity interest in SFX Broadcasting, Marquee TSC
and SCMC and is an executive officer and director of those entities, is Of
Counsel to Baker & McKenzie. Certain legal matters relating to the Offering
will be passed upon for the Underwriters by Latham & Watkins, New York, New
York. See "Management," "Principal Stockholders" and "Certain Relationships and
Related Transactions."

EXPERTS

The consolidated financial statements of the Company as of December 31,
1997, and for the year ended December 31, 1997; the consolidated financial
statements of Delsener/Slater Enterprises, Ltd. and Affiliated Companies
(Predecessor) as of December 31, 1996, and for the years ended December 31,
1995 and 1996; the consolidated financial statements of PACE Entertainment
Corporation and Subsidiaries as of September 30, 1996, and for the years ended
September 30, 1996 and 1995; the combined financial statements of Contemporary
Group as of December 31, 1996 and 1997, and for the years ended December 31,
1996 and 1997; the combined financial statements of SJS Entertainment
Corporation as of December 31, 1996 and 1997, and for the years ended December
31, 1996 and 1997; the combined financial statements of The Album Network, Inc.
and Affiliated Companies as of September 30, 1996 and 1997, and for the years
ended September 30, 1996 and 1997; the consolidated financial statements of BG
Presents, Inc. and Subsidiaries as of January 31, 1997 and 1998 and for the
years ended January 31, 1996, 1997 and 1998; the combined financial statements
of Concert/Southern

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<PAGE>

Promotions and Affiliated Companies as of December 31, 1997, and for the year
ended December 31, 1997; the combined financial statements of Falk Associates
Management Enterprises, Inc. as of December 31, 1996 and 1997, and for the
years ended December 31, 1996 and 1997, and the consolidated financial
statements of Blackstone Entertainment LLC as of December 31, 1996 and 1997 and
for the years ended December 31, 1996 and 1997, included in the Prospectus and
Registration Statement of the Company have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance on such reports given on the authority of
such firm as experts in accounting and auditing.

Arthur Andersen LLP, independent public accountants, audited the following
financial statements (as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement), each appearing in this Prospectus
and the Registration Statement: the combined financial statements of
Connecticut Performing Arts, Inc. and Connecticut Performing Arts Partners as
of December 31, 1995 and 1996, and for the years ended December 31, 1995 and
1996; the combined financial statements of Deer Creek Partners, L.P. and Murat
Centre, L.P. as of December 31, 1995 and 1996, and for the years ended December
31, 1995 and 1996; the consolidated financial statements of PACE Entertainment
Corporation and Subsidiaries as of September 30, 1997, and for the year ended
September 30, 1997; the consolidated financial statements of Pavilion Partners
as of September 30, 1997, and for the year ended September 30, 1997; the
financial statements of Riverport Performing Arts Centre, Joint Venture as of
December 31, 1997 and 1996 and for the years ended December 31, 1997 and 1996,
which are included in reliance on such reports given on the authority of such
firm as experts in accounting and auditing.

The financial statements of Pavilion Partners for the year ended October
31, 1995, for the eleven months ended September 30, 1996 and as of September
30, 1996 included in this Prospectus and the Registration Statement have been
so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

The Board expects to appoint Ernst & Young LLP as the Company's
independent auditors to audit the Company's consolidated financial statements.

ADDITIONAL INFORMATION

The Company is a reporting company under the Exchange Act. The Company has
filed a Registration Statement on Form S-1 under the Securities Act with the
SEC with respect to the Common Stock described in this Prospectus. This
Prospectus, which is part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and its common
stock offered hereby, reference is hereby made to the Registration Statement
(No. 333-50079) and its exhibits, which may be inspected without charge at the
office of the SEC at 450 Fifth Street, NW, Washington, D.C. 20549 and at the
regional offices of the SEC located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and at 500 West Madison (Suite 1400), Chicago,
Illinois 60661. Copies of this material may also be obtained at prescribed
rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. Statements contained
in this Prospectus as to the contents of any contract or other document
referred to are not necessarily complete; in each instance, reference is made
to the copy of the contract or document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by this
reference.

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<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SFX ENTERTAINMENT, INC.
Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998 (unaudited) ..... F-4
Consolidated Statements of Operations for the three months ended March 31, 1997
and 1998 (unaudited)................................................................... F-5
Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and
1998 (unaudited)....................................................................... F-6
Notes to Consolidated Financial Statements (unaudited).................................. F-7
Reports of Independent Auditors......................................................... F-15
Consolidated Balance Sheets as of December 31, 1997 and 1996 (Predecessor) ............ F-17
Consolidated Statements of Operations for the years ended December 31, 1997, 1996
(Predecessor) and 1995 (Predecessor) .................................................. F-18
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996
(Predecessor) and 1995 (Predecessor) .................................................. F-19
Notes to Consolidated Financial Statements.............................................. F-20
CONNECTICUT PERFORMING ARTS, INC. AND CONNECTICUT PERFORMING ARTS PARTNERS
Report of Independent Public Accountants................................................ F-34
Combined Balance Sheets as of December 31, 1995 and 1996................................ F-35
Combined Statements of Operations for the years ended December 31, 1995
and 1996............................................................................... F-36
Combined Statements of Shareholders' and Partners' Equity (Deficit) for the years ended
December 31, 1995 and 1996............................................................. F-37
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996 ....... F-38
Notes to Combined Financial Statements.................................................. F-39
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
Report of Independent Public Accountants ............................................... F-47
Combined Balance Sheets as of December 31, 1995 and 1996................................ F-48
Combined Statements of Operations and Partners' Equity (Deficit) for the years ended
December 31, 1995 and 1996............................................................. F-50
Combined Statements of Cash Flows for the years ended December 31, 1995
and 1996............................................................................... F-51
Notes to Combined Financial Statements.................................................. F-52
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants ............................................... F-58
Report of Independent Auditors.......................................................... F-59
Consolidated Balance Sheets as of September 30, 1996 and 1997 and December 31, 1997
(unaudited) ........................................................................... F-60
Consolidated Statements of Operations for the years ended September 30, 1995, 1996 and
1997 and the three months ended December 31, 1996 and 1997 (unaudited) ............... F-61
Consolidated Statements of Shareholders' Equity for the years ended September 30, 1995,
1996 and 1997 and the three months ended December 31, 1997 (unaudited) ............... F-62
Consolidated Statements of Cash Flows for the years ended September 30, 1995, 1996 and
1997 and the three months ended December 31, 1996 and 1997 (unaudited) ............... F-63
Notes to Consolidated Financial Statements.............................................. F-64

F-1
<PAGE>
PAGE
---------
PAVILION PARTNERS
Report of Independent Public Accountants ............................................... F-78
Report of Independent Accountants ...................................................... F-79
Consolidated Balance Sheets as of September 30, 1996 and 1997 and December 31, 1997
(unaudited) ........................................................................... F-80
Consolidated Statements of Income for the year ended October 31, 1995, eleven months
ended September 30, 1996, the year ended September 30, 1997 and the three months ended
December 31, 1996 and 1997 (unaudited) ................................................ F-81
Consolidated Statements of Partners' Capital for the year ended October 31, 1995,
eleven months ended September 30, 1996, the year ended September 30, 1997 and the
three months ended December 31, 1997 (unaudited) ...................................... F-82
Consolidated Statements of Cash Flows for the year ended October 31, 1995, eleven
months ended September 30, 1996, the year ended September 30, 1997 and the three
months ended December 31, 1996 and 1997 (unaudited) ................................... F-83
Notes to Consolidated Financial Statements ............................................. F-84
CONTEMPORARY GROUP
Report of Independent Auditors ......................................................... F-93
Combined Balance Sheets as of December 31, 1996 and 1997 ............................... F-94
Combined Statements of Operations for the years ended December 31, 1996 and 1997 ....... F-95
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 ....... F-96
Combined Statements of Stockholders' Equity for the years ended December 31, 1996 and
1997 .................................................................................. F-97
Notes to Combined Financial Statements ................................................. F-98
RIVERPORT PERFORMING ART CENTRE, JOINT VENTURE
Report of Independent Public Accountants ............................................... F-102
Balance Sheets as of December 31, 1997 and 1996 ........................................ F-103
Statements of Income and Changes in Partners' Equity for the years ended December 31,
1997 and 1996 ......................................................................... F-104
Statements of Cash Flows for the years ended December 31, 1997 and 1996 ............... F-105
Notes to Financial Statements .......................................................... F-106
SJS ENTERTAINMENT CORPORATION
Report of Independent Auditors ......................................................... F-109
Combined Balance Sheets as of December 31, 1996 and 1997 ............................... F-110
Combined Statements of Operations and Retained Earnings for the years ended December
31, 1996 and 1997 ..................................................................... F-111
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 ....... F-112
Notes to Combined Financial Statements ................................................. F-113
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
Report of Independent Auditors ......................................................... F-117
Combined Balance Sheets as of September 30, 1996 and 1997 .............................. F-118
Combined Balance Sheet as of December 31, 1997 (unaudited) ............................. F-119
Combined Statements of Operations and Stockholders' Deficit for the years ended
September 30, 1996 and 1997 ........................................................... F-120
Combined Statements of Operations and Stockholders' Deficit for the three months ended
December 31, 1997 (unaudited) ......................................................... F-121

F-2
<PAGE>
PAGE
---------
Combined Statements of Cash Flows for the years ended September 30, 1996 and 1997 ...... F-122
Combined Statements of Cash Flows for the three months ended December 31, 1997
(unaudited) ........................................................................... F-123
Notes to Combined Financial Statements ................................................. F-124
BG PRESENTS, INC. AND SUBSIDIARIES
Report of Independent Auditors ......................................................... F-128
Consolidated Balance Sheets as of January 31, 1997 and 1998 ............................ F-129
Consolidated Statements of Operations for the years ended January 31, 1996, 1997 and
1998 .................................................................................. F-130
Consolidated Statements of Cash Flows for the years ended January 31, 1996, 1997 and
1998 .................................................................................. F-131
Consolidated Statements of Stockholders' Equity for the years ended January 31, 1996,
1997 and 1998 ......................................................................... F-132
Notes to Consolidated Financial Statements ............................................. F-133
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
Report of Independent Auditors ......................................................... F-139
Combined Balance Sheet as of December 31, 1997 ......................................... F-140
Combined Statement of Operations for the year ended December 31, 1997 ................. F-141
Combined Statement of Cash Flows for the year ended December 31, 1997 ................. F-142
Combined Statements of Stockholders' Equity for the year ended
December 31, 1997 ..................................................................... F-143
Notes to Combined Financial Statements ................................................. F-144
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
Report of Independent Auditors.......................................................... F-147
Combined Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited) F-148
Combined Statements of Operations and Stockholders' Equity (Deficit) for the years
ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998
(unaudited)............................................................................ F-149
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 and
the three months ended March 31, 1997 and 1998 (unaudited) ............................ F-150
Notes to Combined Financial Statements.................................................. F-151
BLACKSTONE ENTERTAINMENT LLC
Report of Independent Auditors.......................................................... F-155
Combined Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998
(unaudited)............................................................................ F-156
Combined Statements of Income for the years ended December 31, 1996 and 1997 and
for the three months ended March 31, 1997 and 1998 (unaudited)......................... F-157
Combined Statements of Cash Flows for the years ended December 31, 1996 and 1997 ....... F-158
Combined Statement of Members' Equity .................................................. F-159
Notes to Combined Financial Statements.................................................. F-160
</TABLE>

F-3
<PAGE>

SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 93,992 $ 5,979
Accounts receivable .......................................... 36,251 3,831
Prepaid expenses and other current assets .................... 19,132 1,410
--------------
Total current assets .......................................... 149,375 11,220
Property and equipment, net ................................... 196,732 59,685
Deferred acquisition costs .................................... -- 6,213
Goodwill and other intangible assets, net ..................... 470,721 60,306
Investment in equity investees ................................ 18,506 937
Note receivable from employees ................................ 4,060 900
Other assets .................................................. 19,032 7,681
----------- --------------
TOTAL ASSETS .................................................. $858,426 $146,942
=========== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ........................ $ 50,501 $ 2,715
Deferred revenue ............................................. 54,943 3,603
Income taxes payable ......................................... 15,160 1,707
Due to SFX Broadcasting ...................................... 125,378 11,539
Current portion of long-term debt ............................ 12,127 755
Current portion of capital lease obligations ................. 326 168
Current portion of deferred purchase consideration .......... 1,730 1,950
----------- --------------
Total current liabilities ..................................... 260,165 22,437

Long-term debt, less current portion .......................... 518,574 14,929
Capital lease obligations, less current portion ............... 11,976 326
Deferred purchase consideration, less current portion ........ 4,128 4,289
Deferred income taxes ......................................... 50,559 2,817
----------- --------------
Total liabilities ............................................. 845,402 44,798

Minority interest ............................................. 1,570 --
Temporary equity-Stock subject to redemption .................. 16,500 --
Shareholder's equity (deficit):
Net capital transferred from SFX Broadcasting ................. (21,410) 98,184
Preferred Stock, $.01 par value, 25,000,000 shares authorized,
10 shares issued and outstanding at March 31, 1998 and no
shares issued and outstanding at December 31, 1997 .......... -- --
Class A common stock, $.01 par value, 100,000,000 shares
authorized, 13,579,024 shares issued and outstanding ........ 136 136
Class B common stock, $.01 par value, 10,000,000 shares
authorized, 1,047,037 shares issued and outstanding ......... 10 10
Paid-in capital ............................................... 39,975 --
Accumulated (deficit) earnings ................................ (23,757) 3,814
----------- --------------
Total shareholder's equity (deficit)........................... (5,046) 102,144
----------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) .......... $858,426 $146,942
=========== ==============
</TABLE>

See accompanying notes.

F-4
<PAGE>

SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
----------- ---------
<S> <C> <C>
Revenue .................................................. $ 60,994 $ 7,789
Operating expenses:
Cost of revenue ......................................... 58,175 7,738
Depreciation and amortization............................ 4,428 660
Corporate expenses, net of Triathlon fees of $133 in
1998 and $641 in 1997 .................................. 1,314 858
----------- ---------
63,917 9,256
----------- ---------
Loss from operations ..................................... (2,923) (1,467)
Investment income ........................................ (897) (26)
Interest expense ......................................... 6,748 103
Other expenses, principally relating to the Spin-Off .... 18,385 --
Minority interest ........................................ 82 --
Pretax income of equity investees ........................ (445) --
----------- ---------
Loss before provision for income taxes ................... (26,796) (1,544)
Provision for income taxes ............................... 500 --
----------- ---------
Net loss ................................................. (27,296) (1,544)
Accretion on Stock subject to redemption.................. (275) --
----------- ---------
Net loss applicable to Common Shares...................... $(27,571) $(1,544)
=========== =========
</TABLE>

See accompanying notes.

F-5
<PAGE>
SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net loss ............................................................ $ (27,296) $ (1,544)
Adjustment to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ...................................... 4,428 660
Pretax income of equity investees, net of distributions received .. (351) --
Other expenses, principally relating to Spin-Off.................... 18,385 --
Minority interest................................................... 82 --
Changes in operating assets and liabilities, net of amounts
acquired:
Accounts receivable................................................ 3,390 (260)
Prepaid expenses and other current assets.......................... (1,207) (603)
Other assets....................................................... (1,150) 1,384
Accounts payable and accrued expenses.............................. 4,586 (81)
Deferred revenue................................................... 8,273 751
----------- -----------
Net cash provided by operating activities............................ 9,140 307
Investing activities:
Acquisition of businesses, net of cash acquired..................... (367,997) (22,590)
Purchase of property and equipment.................................. (11,785) (22)
----------- -----------
Net cash used in investing activities................................ (379,782) (22,612)
----------- -----------
Financing activities:
Capital transferred from SFX Broadcasting........................... -- 24,956
Repayment of debt................................................... (1,158) (29)
Proceeds from issuance of senior subordinated notes and borrowings
under credit agreement............................................. 500,000 --
Spin-Off related payments .......................................... (17,107) --
Due to SFX Broadcasting ............................................ (6,161) --
Other, principally debt issuance costs ............................. (16,920) --
----------- -----------
Net cash provided by financing activities............................ 458,654 24,927
Net increase in cash and cash equivalents............................ 88,012 2,622
Cash and cash equivalents at beginning of period..................... 5,980 0
----------- -----------
Cash and cash equivalents at end of period........................... $ 93,992 $ 2,622
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest............................................... $ 274 $ --
=========== ===========
Cash paid for income taxes........................................... $ -- $ --
=========== ===========
</TABLE>

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

Supplemental disclosure of non-cash investing and financing activities:

o Issuance of equity securities, including deferred equity security
issuance and assumption of debt in connection with certain acquisitions
(see Note 1).

o Agreements to pay future cash consideration in connection with certain
acquisitions (see Note 1).

o The balance sheet includes certain assets and liabilities which have
been contributed by SFX Broadcasting to the Company in connection with
the Spin-Off.

See accompanying notes.

F-6
<PAGE>
SFX ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

SFX Entertainment, Inc. ("SFX" or the "Company") was formed as a
wholly-owned subsidiary of SFX Broadcasting, Inc. ("SFX Broadcasting") in
December 1997 and as the parent company of SFX Concerts, Inc ("Concerts").
Concerts was formed in January of 1997 to acquire and hold SFX Broadcasting's
live entertainment operations. During 1997 and 1998, the Company made several
acquisitions as described below. The Company had no substantive operations
until its acquisition of Delsener/Slater Enterprises, Ltd. and Affiliated
Companies ("Delsener/Slater") in January 1997.

Information with respect to the three months ended March 31, 1998 and 1997
is unaudited. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the unaudited interim financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial position, results of
operations and cash flows of the Company, for the periods presented.

In June 1997, the Financial Accounting Standards Board issued Statement
No. 131 ("SFAS 131"), "Disclosure About Segments of an Enterprise and Related
Information," which establishes new standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that these enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for financial
statements for fiscal years beginning after December 31, 1997, and therefore
the Company will adopt the new requirements in 1998. Management has not yet
completed its review of SFAS 131 but does not expect that its adoption will
have a material effect on the Company's statement of position or revenues,
only on the composition of its reportable segments.

The Company's operations and revenues are largely seasonal in nature, with
generally higher revenue generated in the second and third quarters of the
year. The Company's outdoor venues are primarily utilized in the summer
months and do not generate substantial revenue in the late fall, winter and
early spring. Similarly, the musical concerts that the Company promotes
largely occur in the second and third quarters. To the extent that the
Company's entertainment marketing and consulting relate to musical concerts,
they also predominantly generate revenues in the second and third quarters.

In August 1997, SFX Broadcasting agreed to the merger (the "Broadcasting
Merger Agreement") among SBI Holdings, Inc. (the "Buyer"), SBI Radio
Acquisition Corporation, a wholly-owned subsidiary of the Buyer, and SFX
Broadcasting (the "Broadcasting Merger") and to the spin-off of the Company
to the shareholders of SFX Broadcasting (the "Spin-Off"). The Spin-Off was
completed on April 27, 1998 and the Broadcasting Merger is expected to be
completed in the second quarter of 1998.

Pursuant to the terms of the Spin-Off, SFX Broadcasting contributed to the
Company all of the assets relating to its live entertainment businesses and
the Company assumed all of SFX Broadcasting's liabilities pertaining to the
live entertainment businesses, as well as certain other liabilities including
the obligation to make change of control payments to certain employees of SFX
Broadcasting of approximately $5,000,000 as well as the obligation to
indemnify one-half of certain of these employees' excise tax. At the time of
the Broadcasting Merger, SFX Broadcasting will contribute its positive
Working Capital (as defined in the Broadcasting Merger Agreement) to the
Company. If Working Capital is negative, the Company must pay the amount of
the shortfall to SFX Broadcasting. As of March 31, 1998, SFX Broadcasting had
advanced approximately $5,378,000 to the Company for use in connection with
certain acquisitions and capital expenditures. This obligation and other
costs subsequently incurred in connection with the Spin-Off were reimbursed
in April 1998.

F-7
<PAGE>

SFX Broadcasting and the Company have entered into a tax sharing agreement,
pursuant to which the Company is responsible for certain taxes, including
income taxes imposed with respect to income generated by the Company for the
periods prior to the Spin-Off and taxes resulting from gain recognized in the
Spin-Off. The Company will be allowed to offset any gain or income by the net
operating losses of SFX Broadcasting (including net operating losses generated
in the current year prior to the Spin-Off) which are available to offset such
gain or income. The Company believes that the amount of taxes that it will be
required to pay in connection with the Spin-Off will be determined by reference
to the average of the high and low sales price of the Class A Common Stock on
April 27, 1998 (the date of the distribution of Common Stock pursuant to the
Spin-Off). Increases or decreases in the value of the Common Stock subsequent
to such date will not affect the tax liability. The average of the high and low
sales price of the Class A Common Stock on the Nasdaq National Market on April
27, 1998 was $30.50 per share and management estimates that the Company will be
required to pay approximately $120.0 million pursuant to such indemnification
obligation. Most of the tax liability relates to certain deferred intercompany
transactions creating taxable income for the Company. Management believes that
these deferred intercompany transactions will give rise to additional tax basis
which will be available to offset future taxable income of the Company.
Management's estimates of the amount of the indemnity payment and additional
taxable basis are based on certain assumptions which management believes are
reasonable. However, upon completion of the relevant tax forms, including any
potential audits, such assumptions could be modified in a manner which would
result in a significant variance in the actual amounts of the tax indemnity and
of the additional basis. The Company intends to use a substantial portion of
the net proceeds from an equity offering to make such payment and expects that
all or a portion of such payment will be due on or about June 15, 1998. Such
payment will not result in any corresponding increase in the Company's assets
or cash flows.

2. RECENT ACQUISITIONS

Delsener/Slater

In January 1997, SFX Broadcasting acquired Delsener/Slater, a leading
concert promotion company, for an aggregate consideration of approximately
$27,600,000, including $2,900,000 for working capital and the present value
of deferred payments of $3,000,000 to be paid without interest over five
years and $1,000,000 to be paid without interest over ten years.
Delsener/Slater has long-term leases or is the exclusive promoter for seven
of the major concert venues in the New York City metropolitan area, including
the Jones Beach Amphitheater, a 14,000-seat complex located in Wantagh, New
York, and the PNC Bank Arts Center (formerly known as the Garden State Arts
Center), a 17,500-seat complex located in Holmdel, New Jersey.

Meadows

In March 1997, the Company acquired the stock of certain companies which
own and operate the Meadows Music Theater (the "Meadows"), a 25,000-seat
indoor/outdoor complex located in Hartford, Connecticut for $900,000 in cash,
250,838 shares of SFX Broadcasting Class A Common Stock with a value of
approximately $7,500,000 and the assumption of approximately $15,400,000 in
debt.

In connection with the acquisition of the Meadows, SFX Broadcasting
obtained an option to repurchase 250,838 shares of its Class A common stock
(the "Meadows Shares") for an aggregate purchase price of $8.3 million (the
"Meadows Repurchase"). Pursuant to the terms of the SFX Merger Agreement, if
the Meadows Shares are outstanding at the effective time of the SFX Merger,
Working Capital would be decreased by approximately $10.5 million. However,
SFX Broadcasting was restricted from exercising the Meadows Repurchase by
certain loan covenants and other restrictions.

In January 1998, Robert F.X. Sillerman, the Executive Chairman of the
Company, committed to finance the $8.3 million exercise price of the Meadows
Repurchase in order to avoid the $10.5 million reduction to Working Capital.
In consideration for such commitment, the board of directors of SFX
Broadcasting agreed that Mr. Sillerman would receive approximately the number
of shares of Class A Common Stock to be issued in the Spin-Off with respect
to the Meadows Shares. At the time SFX

F-8
<PAGE>

Broadcasting accepted Mr. Sillerman's commitment, the board of directors of
SFX Broadcasting valued the Class A Common Stock to be issued in the Spin-Off
at $4.20 per share, the value attributed to such shares in the fairness
opinion obtained by SFX Broadcasting in connection with the Broadcasting
Merger. In April 1998, SFX Broadcasting assigned the option for the Meadows
Shares to an unaffiliated third party and, in connection therewith, paid such
party a fee of $75,000. Mr. Sillerman subsequently advanced such party the
$8.3 million exercise price for the Meadows Repurchase which will become due
on the earlier of the date on which the Meadows Shares are disposed of by the
third party or January 16, 1999. If the SFX Merger is consummated, the
Meadows Shares will be tendered in the SFX Merger without any gain or loss to
the third party. In the event that the SFX Merger is not consummated on or
before December 31, 1998, SFX Broadcasting has the option, for a limited
time, to repurchase the Meadows Shares for an aggregate consideration of
approximately $10.0 million. The third party has agreed to transfer to Mr.
Sillerman the Class A Common Stock to be issued in the Spin-Off with respect
to the Meadows Shares. The transaction has been approved by SFX
Broadcasting's board of directors, including the independent directors. A
non-cash charge to earnings of approximately $7.5 million will be recorded in
the second quarter of 1998 based on the fair value of the shares received by
Mr. Sillerman as of the date of the Meadows Repurchase.

Sunshine Promotions

In June 1997, the Company acquired the stock of Sunshine Promotions, Inc.
and certain other related Companies ("Sunshine Promotions"), one of the
largest concert promoters in the Midwest, for $53,900,000 in cash, of which
$2,000,000 is payable over five years, 62,792 shares of SFX Broadcasting
Class A Common Stock issued with a value of approximately $2,000,000, shares
of SFX Broadcasting stock issuable over a two year period with a value of
approximately $2,000,000 and the assumption of approximately $1,600,000 of
debt. The shares of stock to be issued in the future are classified as
deferred purchase consideration on the balance sheet. Sunshine Promotions
owns the Deer Creek Music Theater, a 21,000-seat complex located in
Indianapolis, Indiana, and the Polaris Amphitheater, a 20,000-seat complex
located in Columbus, Ohio, and has a long-term lease to operate the Murat
Centre (the "Murat"), a 2,700-seat theater and 2,200-seat ballroom located in
Indianapolis, Indiana. Pursuant to the Broadcasting Merger Agreement, the
Company is responsible for the payments owing under the Sunshine note, which
by its terms accelerates upon the change in control of SFX Broadcasting
resulting from the consummation of the Broadcasting Merger.

The Delsener/Slater, Meadows, and Sunshine Promotions acquisitions are
collectively referred to herein as the "1997 Acquisitions." The cash portion
of the 1997 Acquisitions were financed through capital contributions from SFX
Broadcasting and were accounted for under the purchase method of accounting.
The purchase price of Sunshine Promotions has been preliminarily allocated to
the assets acquired and liabilities assumed and is subject to change.

Westbury

On January 8, 1998, the Company acquired a long-term lease for Westbury
Music Fair, located in Westbury, New York, for an aggregate consideration of
approximately $3.0 million and an agreement to issue 75,019 shares of Class A
Common Stock. During the period between the closing and January 8, 2000, the
Company has the right to repurchase all of such shares for an aggregate
consideration of $2.0 million and the seller has the right to require the
Company to purchase all of such shares for an aggregate consideration of
$750,000. The purchase price was financed from the Company's cash on hand.

BGP

F-9
<PAGE>
the issuance upon the Spin-Off of 562,640 shares of common stock of the
Company valued by the parties at $7,500,000). The sellers of BGP provided net
working capital (as defined in the acquisition agreement) at the closing in
an amount equal to or greater than long-term debt.

PACE

On February 25, 1998, the Company acquired all of the outstanding capital
stock of PACE Entertainment Corporation ("PACE"), one of the largest
diversified producers and promoters of live entertainment in the United
States, having what the Company believes to be the largest distribution
network in the United States in each of its music, theater and specialized
motor sports businesses (the "PACE Acquisition"), for total consideration of
approximately $150,100,000 (including issuance upon the Spin-Off of 1,500,000
shares of the Company's common stock valued by the parties at $20,000,000 and
assumption of approximately $20,600,000 of debt). In related transactions,
the Company acquired, for total consideration of $90,600,000 comprised of
$41,400,000 in cash, the repayment of approximately $43,100,000 of debt and
the assumption of approximately $6,100,000 of debt related to a capital
lease, the 66 2/3% ownership interests of Blockbuster Entertainment
Corporation and Sony Music Entertainment, Inc. in Amphitheater Entertainment
Partnership, a partner of PACE in the Pavilion Partners venue partnership. As
a result, the Company owns 100% of Pavilion Partners.

The PACE acquisition agreement further provides that each seller of PACE
shall have an option, exercisable during a period beginning on the fifth
anniversary of the closing of the PACE acquisition and ending 90 days
thereafter, to require the Company to purchase up to one-third of the PACE
consideration stock received by such PACE seller for a cash purchase price of
$33.00 per share. With certain limited exceptions, these option rights are
not assignable by the PACE sellers.

Under the terms of an employment agreement entered into by the Company
with an officer of PACE, the officer will have the right, two years from the
date of the acquisition, to purchase PACE's motor sports division at fair
value. If the motor sports division has been sold by the Company, the officer
would be entitled to purchase PACE's theatrical division for the fair value.

In addition, on March 25, 1998 PACE paid $4,000,000 to acquire a 67%
interest in certain assets and liabilities of USA Motor Sports. The remaining
33% interest is owned by the Contemporary Group.

Contemporary

On February 27, 1998, the Company acquired the Contemporary Group
("Contemporary"), a fully-integrated live entertainment and special event
promoter and producer, venue owner and operator and consumer marketer, for
total consideration of approximately $101,400,000 comprised of $72,800,000 in
cash, a payment for working capital of approximately $9,900,000 and the
issuance of preferred stock of the Company valued by the parties at
$18,700,000 which, upon the Spin-Off, was converted into 1,402,850 shares of
common stock of the Company (the "Contemporary Acquisition"). The
Contemporary Acquisition involved the merger of Contemporary International
Productions Corporation with and into the Company, the acquisition by a
wholly owned subsidiary of the Company of substantially all of the assets,
excluding certain cash and receivables, of the remaining members of
Contemporary and the acquisition by Contemporary of the 50% interest in the
Riverport Amphitheater Joint Venture not owned by Contemporary. If any of the
Contemporary sellers owns any shares of the Company's Class A Common Stock
received in the Contemporary Acquisition on the second anniversary of the
closing date and the average trading price of such stock over the 20-day
period ending on such anniversary date is less than $13.33 per share, then
the Company will make a one-time cash payment to each individual holding any
such shares that is equal to the product of (i) the quotient of the
difference between (A) the actual average trading price per share over such
20-day period and (B) $13.33 divided by two, multiplied by (ii) the number of
shares of Class A Common Stock of the Company received by such individual in
the Contemporary Acquisition and owned as of such anniversary date.

Network

On February 27, 1998, the Company acquired the Network Magazine Group
("Network Magazine"), a publisher of trade magazines for the radio
broadcasting industry, and SJS Entertainment Corporation

F-10
<PAGE>
("SJS"), an independent creator, producer and distributor of music-related
radio programming, services and research which it exchanges with radio
broadcasters for commercial air-time sold, in turn, to national network
advertisers (the "Network Acquisition"), for total consideration of
approximately $66,800,000 comprised of $52,000,000 in cash, a payment for
working capital of approximately $1,800,000, reimbursed sellers costs of
$500,000, the purchase of an office building and property for $2,500,000 and
the issuance upon the Spin-Off of approximately 750,000 shares of common
stock of the Company valued by the parties at $10,000,000. The $2,500,000
purchase of the office building and property is comprised of cash of
approximately $700,000 and the assumption of debt of approximately
$1,800,000. The Company is also obligated to pay the sellers an additional
payment in common stock or, at the Company's option, cash based on future
operating results, as defined, generated on a combined basis by Network
Magazine and SJS in 1998, up to a maximum of $14,000,000. In the Network
Acquisition, the Company, through a wholly owned subsidiary, acquired all of
the outstanding capital stock of each of The Album Network, Inc. and SJS
Entertainment Corporation and purchased substantially all of the assets and
properties and assumed substantially all of the liabilities and obligations
of The Network 40, Inc.

Concert/Southern

On March 4, 1998, the Company acquired Concert/Southern Promotions
("Concert/Southern"), a promoter of live music events in the Atlanta, Georgia
metropolitan area (the "Concert/Southern Acquisition"), for total cash
consideration of approximately $16,900,000, which includes a $300,000 payment
for working capital.

The PACE Acquisition, the Contemporary Acquisition, the Network
Acquisition, the BGP Acquisition and the Concert/Southern Acquisition are
collectively referred to herein as the "1998 Acquisitions." The cash portion
of the 1998 Acquisitions were financed with the proceeds of the Notes
offering and Credit Agreement (see Note 3) and were accounted for under the
purchase method of accounting. The purchase prices of the 1998 Acquisitions
have been preliminarily allocated to the assets acquired and liabilities
assumed and are subject to change.

The accompanying consolidated financial statements as of March 31, 1998
include the accounts of the Company, its subsidiaries and certain assets and
liabilities which were contributed by SFX Broadcasting to the Company in the
Spin-Off. Operating results for the 1997 Acquisitions and the 1998
Acquisitions are included herein from their respective acquisition dates.
Operating results associated with the assets and liabilities to be
contributed by SFX Broadcasting are included herein. SFX Broadcasting
provides various administrative services to the Company. It is SFX
Broadcasting'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 the Company would have incurred on a
stand-alone basis. Intercompany transactions and balances have been
eliminated in consolidation.

The following pro forma summary represents the consolidated results for
the three months ended March 31, 1998 and 1997 as if the 1997 Acquisitions
and the 1998 Acquisitions had occurred at the beginning of such period after
giving effect to certain adjustments, including amortization of intangible
assets and interest expense on the acquisition debt. These pro forma results
have been included for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions been made as of
that date or of results which may occur in the future (in thousands).

<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Revenues .................... $173,828 $127,446
Net loss .................... $(25,933) $(17,129)
</TABLE>

3. FINANCING

On February 11, 1998, SFX completed an offering 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.

F-11

<PAGE>

On February 26, 1998 the Company 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. Loans outstanding under the Credit Facility bear interest, at the
Company's option, at 1.875 to 2.375 percentage points over LIBOR or the greater
of the Federal Funds rate plus 0.50% or BNY's prime rate. The interest rate
spreads on the Term Loan and the Revolver will be adjusted based on the
Company's Total Leverage Ratio (as defined in the Credit Agreement). The
Company will pay a per annum commitment fee on unused availability under the
Revolver of 0.50% to the extent that the Company's Leverage Ratio is greater
than or equal to 4.0 to 1.0, and 0.375% if such ratio is less than 4.0 to 1.0
and a per annum letter of credit fee equal to the Applicable LIBOR Margin (as
defined in the Credit Agreement) for the Revolver then in effect. The Revolver
and Term Loan contain provisions providing that, at its option and subject to
certain conditions, the Company may increase the amount of either the Revolver
or Term Loan by $50.0 million. Borrowings under the Credit Agreement are
secured by substantially all of the assets of the Company, including a pledge
of the outstanding stock of substantially all of its subsidiaries and
guaranteed by all of the Company's subsidiaries. On February 27, 1998, the
Company borrowed $150.0 million under the Term Loan. As of May 4, 1998 there
were no borrowings under the Revolver. The Company intends to draw down
approximately $63.0 million of the Revolver to fund the Pending Acquisitions
(see Note 6).

4. CAPITAL STOCK

In the Spin-Off, (a) 13,579,024 shares of Class A Common Stock were
distributed to holders on the Spin-Off record date of SFX Broadcasting's Class
A common stock, Series D preferred stock and interests in SFX Broadcasting's
director deferred stock ownership plan, (b) 1,047,037 shares of Class B Common
Stock were distributed to holders on the Spin-Off record date of SFX
Broadcasting Class B common stock and (c) 609,856 shares of Class A Common
Stock were placed in escrow to be issued upon the exercise of certain warrants
of SFX Broadcasting. The financial statements have been retroactively adjusted
to reflect this transaction.

Holders of Class A Common Stock and Class B Common Stock vote as a single
class on all matters submitted to a vote of the stockholders, with each share
of Class A Common Stock entitled to one vote and each share of Class B Common
Stock entitled to ten votes, except (a) for the election of directors, (b) with
respect to any "going private" transaction between the Company and Mr.
Sillerman or any of his affiliates and (c) as otherwise provided by law.

The Board of Directors has the authority to issue preferred stock and will
assign the designations and rights at the time of issuance.

During January 1998, the Board of Directors and SFX Broadcasting, as sole
stockholder, approved and adopted a stock option and restricted stock plan
providing for the issuance of restricted shares of the Company's Class A Common
Stock and options to purchase shares of the Company's Class A Common Stock
totaling up to 2,000,000 shares. In addition, the Board, upon recommendation of
the Compensation Committee, has approved the issuance of stock options
exercisable for 1,002,500 shares of the Company's Class A Common Stock. Of
these options, 252,500 will vest over three years and will have an exercise
price of $5.50 per share, and the remainder will vest over five years and will
have an exercise price of $30.50. The Company will record non-cash compensation
charges over the three-year period of approximately $2 million annually
relating to the 252,000 options to be issued.

During January 1998, in connection with the expectation of certain
executive officers entering into employment agreements with the Company, the
Board of Directors, upon recommendation of the Compensation Committee, approved
the sale of an aggregate of 650,000 shares of the Company's

F-12
<PAGE>

Class B Common Stock and 190,000 shares of the Company's Class A Common Stock
to certain officers for a purchase price of $2.00 per share. Such shares were
issued in April 1998. A non-cash charge to earnings will be recorded by the
Company in the second quarter of approximately $24 million associated with the
sale.

The Board of Directors has also approved the issuance of shares of the
Company's Class A Common Stock to holders of stock options or stock
appreciation rights ("SARs") of SFX Broadcasting as of the Spin-Off record
date, whether or not vested. The issuance was approved to allow such holders of
these options or SARs to participate in the Spin-Off in a similar manner to
holders of SFX Broadcasting's Class A Common Stock. Additionally, many of the
option holders will become officers, directors and employees of the Company.

5. COMMITMENTS AND CONTINGENCIES

While the Company is involved in several law suits and claims arising in
the ordinary course of business, the Company is not now a party to any legal
proceeding that the Company believes would have a material adverse effect on
its business, financial position or results of operations.

6. SUBSEQUENT EVENTS

In April and May of 1998, the Company entered into agreements and/or
letters of intent to acquire the following live entertainment and talent
representation businesses:

FAME

Don Law

Oakdale

The Company has entered into an agreement to acquire Oakdale Concerts, LLC
and Oakdale Development Limited Partnership (collectively, "Oakdale"), a
promoter and producer of concerts in Connecticut and the owner of the 4,800
seat Oakdale Music Theater, for a purchase price of $11.9 million in cash. At
the closing the Company will also make a non-recourse loan to Oakdale in the
amount of $11.4 million. In addition, the Company may be obligated to make an
additional payment based on the combined operating performance (as defined in
the acquisition agreement) of the Oakdale Music Theater and Meadows for 1999.

F-13
<PAGE>

EMI

The Company has entered into an agreement to acquire an approximately 80%
interest in Event Merchandising, Inc. ("EMI"), a leading event merchandising
contractor in the United States for approximately $8.5 million. In addition,
the Company is required to make a loan to the EMI sellers in an amount equal to
20% of certain taxes incurred by the EMI sellers in connection with the
transaction. The Company expects that the amount of the loan will be
approximately $750,000. EMI has concession contracts with 26 amphitheaters,
including 13 venues owned and/or operated by the Company.

Avalon

On May 14, 1998, the Company acquired all of the outstanding equity
interests of Irvine Meadows Amphitheater, New Avalon, Inc., TBA Media, Inc. and
West Coast Amphitheater (collectively, "Avalon") for a cash purchase price of
$26.8 million including approximately $300,000 (subject to upward adjustment)
that the Company paid to reimburse the Avalon sellers for certain third party
out of pocket expenses incurred in the development of the Camarillo Creek
Amphitheater. Avalon is a leading concert promoter and producer that operates
predominantly in the Los Angeles area.

The acquisitions of FAME, Don Law, Oakdale, EMI and Avalon are
collectively referred to herein as the "Pending Acquisitions." The Company
intends to use a portion of the proceeds from an equity offering and additional
borrowings under the Credit Agreement (collectively, the "Financing") to
consummate the Pending Acquisitions. The Company expects to complete all of the
Pending Acquisitions in the second quarter of 1998. However, the timing and
completion of the Pending Acquisitions are subject to a number of conditions,
certain of which are beyond the Company's control and there can be no assurance
that any of the Pending Acquisitions will be consummated during such period, on
the terms described herein, or at all. The Company is also currently pursuing
certain additional acquisitions; however, it has not entered into any
definitive agreements with respect to such acquisitions and there can be no
assurance that it will do so.

F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors
SFX Entertainment, Inc.

We have audited the accompanying consolidated balance sheet of SFX
Entertainment, Inc. as of December 31, 1997, and the related consolidated
statements of operations and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.

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 consolidated financial position
of SFX Entertainment, Inc. at December 31, 1997, and the consolidated results
of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
March 5, 1998, except
for Notes 1 and 11, as to
which the date is April 27, 1998

F-15
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors
Delsener/Slater Enterprises, Ltd.

We have audited the accompanying consolidated balance sheet of
Delsener/Slater Enterprises, Ltd. and Affiliated Companies as of December 31,
1996, and the related consolidated statements of operations and cash flows
for each of the two 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 Delsener/Slater Enterprises, Ltd. and Affiliated Companies at December 31,
1996, and the consolidated results of their operations and their cash flows
for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
October 2, 1997

F-16
<PAGE>

SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
PREDECESSOR
1997 1996
---------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 5,979 $5,253
Accounts receivable .................................................... 3,831 159
Prepaid expenses and other current assets .............................. 1,410 779
---------- -------------
Total current assets .................................................... 11,220 6,191
Property and equipment, net ............................................. 59,685 2,231
Deferred acquisition costs .............................................. 6,213 --
Goodwill, net ........................................................... 60,306 --
Investment in unconsolidated subsidiaries ............................... 937 458
Note receivable from employee ........................................... 900 --
Other assets ............................................................ 7,681 --
---------- -------------
Total assets ............................................................ $146,942 $8,880
=============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses................................... $ 2,715 $6,078
Deferred revenue ....................................................... 3,603 18
Income taxes payable ................................................... 1,707 --
Due to stockholder ..................................................... -- 1,877
Due to SFX Broadcasting ................................................ 11,539 --
Current portion of long-term debt ...................................... 923 --
Current portion of deferred purchase consideration ..................... 1,950 --
---------- -------------
Total current liabilities ............................................... 22,437 7,973
Long-term debt, less current portion .................................... 15,255 --
Deferred purchase consideration, less current portion ................... 4,289 --
Deferred income taxes ................................................... 2,817 --
Commitment and contingencies ............................................
Shareholder's equity (Note 11):
Capital contributed by SFX Broadcasting ................................. 98,184 --
Preferred Stock, $.01 par value, 25,000,000 shares authorized, none
issued and outstanding ................................................. -- --
Class A common stock, $.01 par value, 100,000,000 shares authorized,
13,579,024 issued and outstanding ...................................... 136 --
Class B common stock, $.01 par value, 10,000,000 shares authorized,
1,047,037 issued and outstanding ....................................... 10 --
Combined stockholder's equity--predecessor .............................. -- 907
Retained earnings ....................................................... 3,814 --
---------- -------------
Total shareholder's equity .............................................. 102,144 907
---------- -------------
Total Liabilities and shareholder's Equity .............................. $146,942 $8,880
========== =============
</TABLE>

See accompanying notes.

F-17
<PAGE>

SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
PREDECESSOR PREDECESSOR
1997 1996 1995
--------- ------------- -------------
<S> <C> <C> <C>
Concert revenue......................................... $96,144 $50,362 $47,566
Operating expenses:
Cost of concerts ...................................... 83,417 50,686 47,178
Depreciation and amortization ......................... 5,431 747 750
Corporate expenses, net of Triathlon fees of $1,794 in
1997 ................................................. 2,206 -- --
--------- ------------- -------------
$91,054 $51,433 $47,928
--------- ------------- -------------
Income (loss) from operations .......................... 5,090 (1,071) (362)
Investment income ...................................... 295 198 178
Interest expense ....................................... (1,590) (60) (144)
Equity in pretax income of unconsolidated subsidiaries 509 524 488
--------- ------------- -------------
Income (loss) before provision for income taxes ....... $ 4,304 $ (409) $ 160
Provision for income taxes ............................. 490 106 13
--------- ------------- -------------
Net income (loss)....................................... $ 3,814 $ (515) $ 147
========= ============= =============
</TABLE>

See accompanying notes.

F-18
<PAGE>

SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
PREDECESSOR PREDECESSOR
1997 1996 1995
---------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ..................................... $ 3,814 $ (515) $ 147
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation of property and equipment ............... 2,686 746 750
Amortization of goodwill.............................. 2,745 -- --
Equity in pretax income of unconsolidated
subsidiaries, net of distributions received ......... (479) 16 2
Deferred income taxes................................ (427) -- --
Changes in operating assets and liabilities, net of
amounts acquired:
Accounts receivable.................................. (923) (159) 384
Prepaid expenses and other current assets............ 419 (649) 374
Other assets......................................... (275) -- --
Accounts payable and accrued expenses................ (325) 4,759 (1,326)
Income taxes payable................................. 917 -- --
Deferred revenue..................................... (7,147) 16 (784)
---------- ------------- -------------
Net cash provided by (used in) operating activities .. 1,005 4,214 (453)
INVESTING ACTIVITIES:
Purchase of concert promotion businesses, net of cash
acquired ............................................ (71,213) -- --
Investment in GSAC Partnership ....................... -- (435) --
Purchase of property and equipment ................... (2,083) -- --
---------- ------------- -------------
Net cash used in investing activities ................. (73,296) (435) --
---------- ------------- -------------
FINANCING ACTIVITIES:
Capital contributed by SFX Broadcasting .............. 79,093 -- --
Payment of debt ...................................... (823) -- --
Proceeds from issuance of common stock and capital
contributions ....................................... -- 152 --
Loan from stockholder ................................ -- 47 --
Distributions paid ................................... -- (1,630) (216)
---------- ------------- -------------
Net cash provided by (used in) financing activities .. 78,270 (1,431) (216)
Net increase in cash and cash equivalents ............. 5,979 2,348 (669)
Cash and cash equivalents at beginning of period ..... -- 2,905 3,574
---------- ------------- -------------
Cash and cash equivalents at end of period ............ $ 5,979 $ 5,253 $ 2,905
========== ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ................................ $ 1,504 $ 60 $ 144
========== ============= =============
Cash paid for income taxes ............................ $ -- $ 106 $ 13
========== ============= =============
</TABLE>

SUPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

o Issuance of equity securities, including deferred equity security issuance
and assumption of debt in connection with certain acquisitions (see Note
1).

o Agreements to pay future cash consideration in connection with certain
acquisitions (see Note 1).

o The balance sheet includes certain assets and liabilities which have been
contributed by SFX Broadcasting to the Company in connection with the
Spin-Off.

See accompanying notes.

F-19
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

SFX Entertainment, Inc. ("SFX" or the "Company") was formed as a
wholly-owned subsidiary of SFX Broadcasting, Inc. ("SFX Broadcasting") in
December 1997 and as the parent company of SFX Concerts, Inc ("Concerts").
Concerts was formed in January of 1997 to acquire and hold SFX Broadcasting's
live entertainment operations. During 1997, the Company made several
acquisitions as described below. The Company had no substantive operations
until its acquisition of Delsener/Slater Enterprises, Ltd. and Affiliated
Companies ("Delsener/Slater" or the "Predecessor") in January 1997, and
Delsener/Slater is considered the Company's predecessor for financial
reporting purposes.

Delsener/Slater

Meadows

The Company may assume the obligation to exercise an option held by SFX
Broadcasting to repurchase 250,838 shares of SFX Broadcasting's Class A
Common Stock for an aggregate purchase price of $8.3 million (the "Meadows
Repurchase"). This option was granted in connection with the acquisition of
the Meadows Music Theater. If the option were exercised by SFX Broadcasting,
the exercise would result in a reduction of Working Capital as defined in the
Spin-Off (see below) by approximately $8.3 million. If the option were not
exercised, Working Capital would decrease by approximately $10.5 million.

Sunshine Promotions

The Delsener/Slater, Meadows, and Sunshine Promotions acquisitions are
collectively referred to herein as the "Completed Acquisitions." The cash
portion of the Completed Acquisitions were financed

F-20
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

through capital contributions from SFX Broadcasting and were accounted for
under the purchase method of accounting. The purchase prices have been
preliminarily allocated to the assets acquired and are subject to change.

The accompanying consolidated financial statements as of December 31, 1997
include the accounts of Delsener/Slater, Sunshine Promotions, the Meadows,
and certain assets and liabilities which have been contributed by SFX
Broadcasting to the Company in connection with the Spin-Off (as defined
herein) under the terms of the Broadcasting Merger (as defined herein)
Agreement. Operating results for the Completed Acquisitions are included
herein from their respective acquisition dates. Operating results associated
with the assets and liabilities to be contributed are included herein. SFX
Broadcasting provides various administrative services to the Company. It is
SFX Broadcasting'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 the Company would have incurred on a
stand-alone basis. Intercompany transactions and balances among these
companies have been eliminated in consolidation.

The following unaudited pro forma summary represents the consolidated
results for the years ended December 31, 1997 and 1996 as if the Completed
Acquisitions had occurred at the beginning of such year after giving effect
to certain adjustments, including amortization of goodwill and interest
expense on the acquisition debt. These pro forma results have been included
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 (in thousands).

<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Revenues..... $110,387 $104,784
Net income .. $ 734 $ 2,668
</TABLE>

Spin-Off

Pursuant to the terms of the Spin-Off, SFX Broadcasting contributed to the
Company all of its concert and other live entertainment assets along with an
allocation of working capital in an amount estimated by management of SFX
Broadcasting to be consistent with the proper operation of SFX Broadcasting,
and the Company assumed all of SFX Broadcasting's liabilities pertaining to
the live entertainment businesses, as well as certain other liabilities
including the obligation to make change of control payments to certain
employees of SFX Broadcasting of approximately $5,000,000 as well as the
obligation to indemnify one-half of certain of these employees' excise tax.
At the time of the Broadcasting Merger, SFX Broadcasting will contribute its
positive Working Capital (as defined in the Broadcasting Merger Agreement) to
the Company. If Working Capital is negative, the Company must pay the amount
of the shortfall to SFX Broadcasting. As of December 31, 1997, SFX
Broadcasting had advanced approximately $11,539,000 to the Company for use in
connection with certain acquisitions and capital expenditures. This
obligation and other costs subsequently incurred in connection with the
Spin-Off were reimbursed with the proceeds from the Senior Subordinated Notes
and the Credit Agreement (see Note 2). SFX Broadcasting advanced additional
amounts to the Company prior to the consummation of the Spin-Off which were
reimbursed in April 1998.

F-21

<PAGE>

SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SFX Broadcasting and the Company entered into a tax sharing agreement.
Under the tax sharing agreement, the Company will agree to pay to SFX
Broadcasting the amount of the tax liability of SFX Broadcasting and the
Company combined, to the extent properly attributable to the Company for the
period up to and including the Spin-Off, and will indemnify SFX Broadcasting
for any tax adjustment made in subsequent years that relates to taxes
properly attributable to the Company during the period prior to and including
the Spin-Off. SFX Broadcasting, in turn, will indemnify the Company for any
tax adjustment made in years subsequent to the Spin-Off that relates to taxes
properly attributable to the SFX Broadcasting during the period prior to and
including the Spin-Off. The Company also will be responsible for any taxes of
SFX Broadcasting resulting from the Spin-Off, including any income taxes but
only to the extent that the income taxes result from the gain on the
distribution that exceeds the net operating losses of SFX Broadcasting and
the Company available to offset such gain including net operating losses
generated in the current year prior to the Spin-Off.

The actual amount of the gain will be based on the excess of the value of
the Company's Common Stock on the date of the Spin-Off over the tax basis of
that stock. The Company believes that the value of the Company's Common Stock
for tax purposes will be determined by no later than the first trading day
following the date on which the Company's Common Stock is distributed in the
Spin-Off. Increases or decreases in the value of the Company's Common Stock
subsequent to such date will not effect the tax liability. The Company
expects that such indemnity payment will be due on or about June 15, 1998.

2. RECENT ACQUISITIONS AND FINANCING

On February 11, 1998, SFX 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 the Company 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. Loans outstanding under the Credit Facility bear interest, at the
Company's option, at 1.875 to 2.375 percentage points over LIBOR or the
greater of the Federal Funds rate plus 0.50% or BNY's prime rate. The
interest rate spreads on the Term Loan and the Revolver will be adjusted
based on the Company's Total Leverage Ratio (as defined in the Credit
Agreement). The Company will pay a per annum commitment fee on unused
availability under the Revolver of 0.50% to the extent that the Company's
Leverage Ratio is greater than or equal to 4.0 to 1.0, and 0.375% if such
ratio is less than 4.0 to 1.0 and a per annum letter of credit fee equal to
the Applicable LIBOR Margin (as defined in the Credit Agreement) for the
Revolver then in effect. The Revolver and Term Loan contain provisions
providing that, at its option and subject to certain conditions, the Company
may increase the amount of either the Revolver or Term Loan by $50.0 million.
Borrowings under the Credit Agreement are secured by substantially all of the
assets of the Company, including a pledge of the outstanding stock of
substantially all of its subsidiaries and guaranteed by all of the Company's
subsidiaries. On February 27, 1998, the Company 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 Recent Acquisitions (as defined
below.)

On February 24, 1998, the Company acquired all of the outstanding capital
stock of BG Presents ("BGP"), one of the oldest promoters of, and
owner-operators of venues for, live entertainment in the United States, and a
leading promoter in the San Francisco Bay area (the "BGP Acquisition"), for
total consideration of approximately $80,300,000 (including the repayment of
$12,000,000 in BGP debt and the issuance upon the Spin-Off of 562,640 shares
of common stock of the Company valued by the parties at $7,500,000). The
sellers of BGP provided net working capital (as defined in the acquisition
agreement) at the closing in an amount equal to or greater than long-term
debt.

F-22
<PAGE>

SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On February 25, 1998, the Company acquired all of the outstanding capital
stock of PACE Entertainment Corporation ("PACE"), one of the largest
diversified producers and promoters of live entertainment in the United
States, having what the Company believes to be the largest distribution
network in the United States in each of its music, theater and specialized
motor sports businesses (the "PACE Acquisition"), for total consideration of
approximately $150,100,000 (including issuance upon the Spin-Off of 1,500,000
shares of the Company's common stock valued by the parties at $20,000,000 and
assumption of approximately $20,600,000 of debt). Under the terms of the
agreement, additional cash consideration would be required if the deemed
value of the Company's common stock was less than $13.33 per share as a
result of changes in the consummation of acquisitions. In related
transactions, the Company acquired, for total consideration of $90,600,000
comprised of $41,400,000 in cash, the repayment of approximately $43,100,000
of debt and the assumption of approximately $6,100,000 of debt related to a
capital lease, the 66 2/3% ownership interests of Blockbuster Entertainment
Corporation and Sony Music Entertainment, Inc. in Amphitheater Entertainment
Partnership, a partner of PACE in the Pavilion Partners venue partnership. As
a result, the Company owns 100% of Pavilion Partners.

Under the terms of an employment agreement to be entered into by the
Company with an officer of PACE, the officer will have the right, two years
from the date of the acquisition, to purchase PACE's motor sports division at
fair value. If the motor sports division has been sold by the Company, the
officer would be entitled to purchase PACE's theatrical division for the fair
value.

On February 27, 1998, the Company acquired the Contemporary Group
("Contemporary"), a fully-integrated live entertainment and special event
promoter and producer, venue owner and operator and consumer marketer, for
total consideration of approximately $101,400,000 comprised of $72,800,000 in
cash, a payment for working capital of approximately $9,900,000 and the
issuance upon the Spin-Off of 1,402,850 shares of common stock of the Company
valued by the parties at $18,700,000. (the "Contemporary Acquisition"). The
Contemporary Acquisition involved the merger of Contemporary International
Productions Corporation with and into the Company, the acquisition by a
wholly owned subsidiary of the Company of substantially all of the assets,
excluding certain cash and receivables, of the remaining members of
Contemporary and the acquisition by Contemporary of the 50% interest in the
Riverport Amphitheater Joint Venture not owned by Contemporary. If any of the
Contemporary sellers owns any shares of the Company's Class A Common Stock
received in the Contemporary Acquisition on the second anniversary of the
closing date and the average trading price of such stock over the 20-day
period ending on such anniversary date is less than $13.33 per share, then
the Company will make a one-time cash payment to each individual holding any
such shares that is equal to the product of (i) the quotient of the
difference between (A) the actual average trading price per share over such
20-day period and (B) $13.33 divided by two, multiplied by (ii) the number of
shares of Class A Common Stock of the Company received by such individual in
the Contemporary Acquisition and owned as of such anniversary date.

On February 27, 1998, the Company acquired the Network Magazine Group
("Network Magazine"), a publisher of trade magazines for the radio
broadcasting industry, and SJS Entertainment Corporation ("SJS"), an
independent creator, producer and distributor of music-related radio
programming, services and research which it exchanges with radio broadcasters
for commercial air-time sold, in turn, to national network advertisers (the
"Network Acquisition"), for total consideration of approximately $66,800,000
comprised of $52,000,000 in cash, a payment for working capital of
approximately $1,800,000,

F-23

<PAGE>

SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

reimbursed sellers costs of $500,000, the purchase of an office building and
property for $2,500,000 and the issuance upon the Spin-Off of 750,188 shares
of common stock of the Company valued by the parties at $10,000,000. The
$2,500,000 purchase of the office building and property is comprised of cash
of approximately $700,000 and the assumption of debt of approximately
$1,800,000. The Company is also obligated to pay the sellers an additional
payment in common stock or, at the Company's option, cash based on future
operating results, as defined, generated on a combined basis by Network
Magazine and SJS in 1998, up to a maximum of $14,000,000. In the Network
Acquisition, the Company, through a wholly owned subsidiary, acquired all of
the outstanding capital stock of each of The Album Network, Inc. and SJS
Entertainment Corporation and purchased substantially all of the assets and
properties and assumed substantially all of the liabilities and obligations
of the Network 40, Inc.

The PACE Acquisition, the Contemporary Acquisition, the Network
Acquisition, the BGP Acquisition and the Concert/Southern Acquisition are
collectively referred to herein as the "Recent Acquisitions."

Each of the Recent Acquisition agreements other than Concert/Southern
provide that, should the Spin-Off not occur prior to July 1, 1998, the
sellers may require the Company to repurchase the shares of the Company's
common stock issued to the sellers for $13.33 each.

3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Cash and Cash Equivalents

The Company considers all investments purchased with a maturity of three
months or less to be cash equivalents. Included in cash and cash equivalents
at December 31, 1997 is $1,235,000 of cash which has been deposited in a
separate account and will be used to fund committed capital expenditures at
PNC Bank Arts Center.

PROPERTY AND EQUIPMENT

Land, buildings and improvements and furniture and equipment are stated at
cost. Depreciation is provided on a straight-line basis over the estimated
useful lives of the assets as follows:

<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements ....7-40 years
Furniture and equipment ........ 5-7 years
</TABLE>

Leasehold improvements represent the capitalized costs to renovate the
Jones Beach Theatre. The costs to renovate the theatre included permanent
seats, a new stage and lavatory facilities. These costs are being amortized
over the term of the lease.

Goodwill

Goodwill represents the excess of the purchase price over the fair market
value of the assets purchased in the Completed Acquisitions and is net of
accumulated amortization of $2,745,000. Goodwill is being amortized using the
straight-line method over 15 years. Management reviews the carrying value of
goodwill against anticipated cash flows on a non-discounted basis to
determine whether the carrying amount will be recoverable.

Other Assets

Other assets includes $4,928,000 of costs associated with acquiring the
right to receive fees from Triathlon Broadcasting Company ("Triathlon"), an
affiliate, for certain financial consulting, marketing and

F-24

<PAGE>

SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

administrative services provided by the Company to Triathlon. Under the terms
of the agreement, the Company has agreed to provide consulting and marketing
services to Triathlon for an annual fee of $500,000, together with a
refundable advance of $500,000 per year against fees to be earned in respect
of transactional investment banking services. These fees, which are recorded
as a reduction of corporate, general and administrative expenses, will
fluctuate based upon the level of acquisition and financing activity of
Triathlon. The cost of acquiring the fees is being amortized over the term of
the agreement which expires on June 1, 2005. Triathlon has announced its
intention to enhance shareholder value through a sale. The Company's
management believes that the capitalized cost of acquiring the right to
receive fees from Triathlon is recoverable.

Revenue Recognition

Revenue from ticket sales is recognized upon occurrence of the event.
Advance ticket sales are recorded as deferred revenue until the event occurs.

Risks and Uncertainties

Accounts receivable are due principally from ticket companies and venue
box offices. These amounts are typically collected within 20 days of a
performance. Generally, management considers these accounts receivable to be
fully collectible; accordingly, no allowance for doubtful accounts is
required. Certain other accounts receivable, arising from the normal course
of business, are reviewed for collectibility and allowances for doubtful
accounts are recorded as required. Management believes that no allowance for
doubtful accounts is required at December 31, 1996 or 1997.

The agreement governing the partnership through which PACE holds its
interest in the Lakewood Amphitheater in Atlanta, Georgia contains a
provision that purports to restrict PACE and its affiliates from directly or
indirectly owning or operating another amphitheater in Atlanta. In
management's view, this provision will not materially affect the business or
prospects of the Company. However, the Company acquired an interest in the
Chastain Park Amphitheater, also in Atlanta, in the Concert/Southern
acquisition. The Company intends to seek a waiver.

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.

Advertising Costs

Advertising costs are expensed as incurred and approximated $7,109,000,
$4,896,000 and $2,687,000 in 1997, 1996, and 1995, respectively.

Income Taxes

F-25

<PAGE>

SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company calculates its tax provision on a separate company basis.

Reclassification

Certain amounts in 1995 and 1996 have been reclassified to conform to the
1997 presentation.

4. CONNECTICUT DEVELOPMENT AUTHORITY ASSISTANCE AGREEMENT

On September 12, 1994, the Connecticut Development Authority ("CDA")
entered into a non-recourse assistance agreement with the Meadows whereby the
CDA provided grant funds for the construction and development of the Meadows
through the issuance of State of Connecticut General Fund Obligation Bonds
("GFO Bonds"). The Meadows received bond proceeds of $8,863,000. Pursuant to
such agreement, the annual tax revenues derived from the operation of the
amphitheater are utilized to satisfy the annual service requirements under
the GFO Bonds. In the event that annual tax revenues derived from the
operation of the amphitheater do not equal annual service requirements under
the GFO Bonds, the Company must deposit the lesser of the operating
shortfall, as defined, or 10% of the annual service under the GFO Bonds. An
operating shortfall has not existed since the inception of the CDA. The GFO
Bonds mature on October 15, 2024 and have an average coupon rate of 6.33%.
Annual service requirements, including interest, on the GFO Bonds for each of
the next five years and thereafter are as follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
1998.......... $ 739
1999 ......... 737
2000 ......... 739
2001 ......... 740
2002 ......... 741
Thereafter .. 16,399
--------
$20,095
========
</TABLE>

The assistance agreement requires an annual Meadows attendance of at least
400,000 for each of the first three years of operations. It will not be
considered an event of default if the annual Meadows attendance is less than
400,000 provided that no operating shortfall exists for that year or if an
operating shortfall exists such amount has been deposited by the Company. If
there is an event of default, the CDA may foreclose on the construction
mortgage loan (see Note 5). If the amphitheater's operations are relocated
outside of Connecticut during the ten year period subsequent to the beginning
of the assistance agreement or during the period of the construction mortgage
loan, the full amount of the grant funds plus a penalty of 5% must be repaid
to the State of Connecticut.

5. LONG-TERM DEBT

The Predecessor did not have any long-term debt as of December 31, 1996.
As of December 31, 1997, the company's long-term debt, which is recorded at
present value, consisted of the following (in thousands):

F-26
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
<S> <C>
Meadows CDA Mortgage Loan........... $ 7,411
Meadows Concession Agreement Loans 5,872
Meadows CDA Construction Loan ..... 700
Murat notes payable ................ 790
Meadows note payable ............... 694
Polaris note payable ............... 221
Capital lease obligations .......... 490
--------
16,178
Less current portion................ 923
--------
$15,255
========
</TABLE>

Meadows CDA Mortgage Loan

On September 12, 1994, the CDA entered into a construction mortgage loan
agreement for $7,685,000 with the Meadows. The purpose of the loan was to
finance a portion of the construction and development of the Meadows. The
loan agreement contains substantially the same covenants as the CDA
assistance agreement (see Note 4). The mortgage loan bears interest at 8.73%
and is payable in monthly installments of principal and interest. The
mortgage loan matures on October 15, 2019.

The loan is collateralized by a lien on the Meadows' assets. The loan is
secured by an irrevocable standby letter of credit issued by the Company in
the amount of $785,000.

Meadows Concession Agreement Loans

In connection with the Meadows' concession agreement, the concessionaire
loaned the Meadows $4,500,000 in 1995 to facilitate the construction of the
amphitheater. Principal and interest at the rate of 7.5% per annum on the
note is payable via withholdings of the first $31,299 from each monthly
concession commission payment. As of December 31, 1997, the outstanding
balance was $4,343,000.

During 1995, the concessionaire loaned the Meadows an additional
$1,000,000. This loan bears interest at a rate of 9.75% per annum and is
payable via withholdings of an additional $11,900 of principal, plus
interest, from each monthly concession commission payment through December
20, 2002. As of December 31, 1997, the outstanding balance was $679,000.

The concession agreement also required the Company to supply certain
equipment to the concessionaire at the Company's expense. The cost of the
equipment purchased by the concessionaire was converted to a note payable for
$884,000. The note bears interest at the rate of 9.25% per annum and provides
for monthly principal and interest payments of $10,185. However, the Company
is not required to make any principal or interest payments to the extent that
5% of receipts, as defined, in any month are less than the amount of the
payment due. As of December 31, 1997, the outstanding balance was $850,000.

Meadows CDA Construction Loan

In March 1997, the Meadows entered into a $1,500,000 loan agreement with
the CDA of which $1,000,000 was funded in March 1997. Principal payments of
$150,000 are due on July 1 and October 1 of each year commencing July 1, 1997
through October 1, 2001. The note bears interest at the rate of 8.9% per
annum through February 1, 1998, and thereafter at the index rate, as defined,
plus 2.5%. In addition, the Meadows is required to make principal payments in
an amount equal to 10% of the annual gross revenue, as defined, in excess of
$13,000,000 on or before the March 1 following each calendar year commencing
March 1, 1998. In 1997, gross revenues did not exceed the defined threshold
and thus no principal payment was made on March 1, 1998.

F-27
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Murat Notes Payable

The Company has two loans payable to the Massachusetts Avenue Community
Development Corporation (MAC), an $800,000 non-interest bearing note and a
$1,000,000 note. Principal payments on the non-interest bearing note are the
lesser of $0.15 per Murat ticket sold during fiscal year or remaining net
cash flow, as defined. Interest on the other note is calculated annually and
is equal to the lesser of (1) $0.10 per Murat ticket sold during the fiscal
year, (2) prime plus 1% or (3) remaining net cash flow, as defined. Interest
and principal on the $1,000,000 note is payable at the lesser of $0.10 per
Murat ticket sold during fiscal year or remaining net cash flow, as defined.

Provisions of the $800,000 note payable requires the Murat to continue
making payments after the principal has been paid down equal to the lesser of
$0.15 per Murat ticket sold during the fiscal year or remaining cash flow.
These payments are to be made to a not-for-profit foundation and will be
designated for remodeling and upkeep of the theatre.

Meadows Note Payable

Under the terms of a Meadows ticket and sales agreement, a vendor loaned
the Company $824,500 and pays the Company an annual fee of $140,000 for nine
years commencing in March 1996. Proceeds from the annual fee are used by the
Company to make the annual principal and interest payments.

Polaris Note Payable

In 1994, a concessionaire advanced Sunshine Promotions $500,000 to be used
in the construction of the Polaris Amphitheater. The advance is interest free
and is payable in annual installments of $25,000 beginning in 1994 for a
period of 20 years.

Capital Lease Obligations

The Company has entered into various equipment leases. Interest on the
leases range from 6.5% to 18.67%.

Principal maturities of the long-term debt, notes payable and capital
lease obligations over the next five years as of December 31, 1997 are as
follows (in thousands):

<TABLE>
<CAPTION>
LONG-TERM DEBT AND CAPITAL LEASE
NOTES PAYABLE OBLIGATIONS
------------------ ---------------
<S> <C> <C>
1998.... $756 $167
1999 ... 782 157
2000 ... 611 113
2001 ... 541 53
2002.... $537 --
</TABLE>

F-28

<PAGE>

SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. PROPERTY AND EQUIPMENT

The Company's property and equipment as of December 31, 1997 and 1996
consisted of the following (in thousands):

<TABLE>
<CAPTION>
PREDECESSOR
1997 1996
--------- -------------
<S> <C> <C>
Land...................... $ 8,752 --
Building and
improvements............. 44,364 --
Furniture and equipment .. 6,503 $ 131
Leasehold improvements ... 2,676 6,726
--------- -------------
62,295 6,857
Accumulated depreciation . (2,610) (4,626)
--------- -------------
$59,685 $ 2,231
========= =============
</TABLE>

7. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

The Company is a 49% partner in a general partnership which subleases a
theater located in New York City. Income associated with the promotion of
concerts at this theater is recorded as concert revenue. Any such promotion
revenue recognized reduces the Company's share of the partnership's profits.
The Company is also a one-third partner in GSAC Partners, a general
partnership through which it shares in the income or loss of the PNC Bank
Arts Center at varying percentages based on the partnership agreement. The
Company records these investments on the equity method. In connection with
the PACE Acquisition, the Company agreed to purchase the interest in GSAC
Partners that it did not already own and in 1998 completed the purchase.
Thus, the financial position and operations of GSAC Partners will be
consolidated into those of the Company beginning in 1998.

The following is a summary of the unaudited financial position and results
of operations of the Company's equity investees (GSAC Partners in 1997 and
1996 only) as of and for the years ended December 31, 1997, 1996 and 1995 (in
thousands):

<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
1997 1996 1995
--------- ------------- -------------
<S> <C> <C> <C>
Current assets.......................... $ 2,818 $ 756 $ 214
Property, plant and equipment .......... 1,427 239 122
Other assets ........................... 239 819 --
--------- ------------- -------------
Total assets............................ $ 4,484 $ 1,814 $ 336
========= ============= =============

Current liabilities..................... $ 1,621 $ 1,534 $ 264
Partners' capital ...................... 2,863 280 72
--------- ------------- -------------
Total liabilities and partners'
capital................................ $ 4,484 $ 1,814 $ 336
========= ============= =============
Revenue................................. $20,047 $16,037 $4,058
Expenses................................ 17,074 14,624 2,954
--------- ------------- -------------
Net income.............................. $ 2,973 1,413 $1,104
========= ============= =============
</TABLE>

The equity income recognized by the Company represents the appropriate
percentage of investment income less amounts reported in concert revenues for
shows promoted by the Company at these theaters. Such concert revenues of
unconsolidated subsidiaries was approximately $97,000, $205,000 and $110,000
for the years ended December 31, 1997, 1996 and 1995, respectively.

F-29
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES

The provisions for income taxes for the years ended December 31, 1997,
1996 and 1995 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
1997 1996 1995
-------- --------------- ---------------
<S> <C> <C> <C>
CURRENT:
Federal ...... -- -- --
State ........ $420 $106 $13
DEFERRED:
Federal ...... -- -- --
State ........ 70 -- --
-------- --------------- ---------------
Total ........ $490 $106 $13
======== =============== ===============
</TABLE>

No Federal income taxes were provided in 1997 as a result of the Company's
inclusion in the consolidated federal income tax return with SFX
Broadcasting. If the Company had filed on a stand alone basis, its federal
tax provision would have been approximately $2,050,000, consisting of
$1,760,000 in current taxes and approximately $290,000 of deferred taxes. The
Predecessor had no Federal tax provision in 1996 or 1995 by virtue of the
status of its profitable included companies as S Corporations. State income
taxes were provided to the extent that S Corporation status was not
recognized.

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax asset and liabilities as of December
31, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Deferred compensation....... $ 783
Deferred tax liabilities:
Depreciable assets ......... $3,600
--------
Net deferred tax liability $2,817
========
</TABLE>

The Predecessor had no deferred tax liabilities as of December 31, 1996.

The acquisition of the Meadows resulted in the recognition of deferred tax
liabilities of approximately $3,200,000 under the purchase method of
accounting. These amounts were based upon the excess of the financial
statement basis over the tax basis in assets, principally fixed assets. The
acquisition of Delsener/Slater resulted in the recognition of deferred tax
assets of approximately $1,200,000 under the purchase method of accounting.
These amounts were based upon the excess of the financial statements basis
over the tax basis in assets, principally deferred compensation.

F-30
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At December 31, 1997, 1996, and 1995 the effective rate varies from the
statutory Federal income tax rate as follows (in thousands):

<TABLE>
<CAPTION>
PREDECESSOR
----------------
1997 1996 1995
--------- -------- ------
<S> <C> <C> <C>
Income taxes at the statutory rate ................... $ 1,463 $(139) $ 54
Effect of Subchapter S status ........................ -- 139 (54)
Nondeductible amortization ........................... 800 -- --
Travel and entertainment ............................. 20 -- --
Effect of consolidated return loss ................... (2,283) -- --
State and local income taxes (net of Federal
benefit)............................................. 490 106 13
--------- -------- ------
Total provision ...................................... $ 490 $ 106 $ 13
========= ======== ======
</TABLE>

9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

Pursuant to the terms of the Spin-Off, upon the consummation of the
Broadcasting Merger, the Company will assume all obligations under any
employment agreements or arrangements between SFX Broadcasting and any
employee of the Company.

While the Company is involved in several suits and claims in the ordinary
course of business, the Company is not now a party to any legal proceeding
that the Company believes would have a material adverse effect on its
business.

The Company's operating leases includes primarily leases with respect to
venues, office space and land. Total rent expense was $2,753,000 , $875,000
and $835,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The lease terms range from 3 to 37 years. Prior to the
Spin-Off, the Company will enter into contracts with certain officers and
other key employees. No such contracts existed in 1997. The future minimum
payments for all noncancelable operating leases and employee agreements with
initial terms of one year or more are as follows (in thousands):

<TABLE>
<CAPTION>
EMPLOYMENT
OPERATING LEASES AGREEMENTS
---------------- ------------
<S> <C> <C>
1998 ................ $ 3,366 $1,900
1999 ................ 3,823 1,864
2000 ................ 1,648 1,624
2001 ................ 1,666 1,534
2002 ................ 1,678 300
2003 and thereafter 14,117 --
---------------- ------------
$26,298 $7,222
================ ============
</TABLE>

The Company has committed to expansion projects at the Jones Beach Theater
and PNC Bank Arts Center and, in connection with the BGP Acquisition, for the
construction of a new amphitheater in the Seattle, Washington market. The
Jones Beach Theater and PNC Bank Arts Center expansions are expected to be
completed in June 1998 and to cost approximately $15,000,000 and $10,500,000,
respectively. As of December 31, 1997, approximately $1,018,000 and
$1,500,000, respectively, of these costs have been incurred. The new
amphitheater in Seattle is expected to cost $10,000,000 and is expected to be
completed in the spring of 1999.

As of December 31, 1997 and 1996, outstanding letters of credit for
$1,110,000 and $400,000, respectively, were issued by banks on behalf of the
Company as security for loans and the rental of theaters.

In connection with the acquisition of Delsener/Slater, SFX Broadcasting
entered into an employment agreement with each of Ron Delsener and Mitch
Slater pursuant to which each of Messrs. Delsener and Slater serve as
Co-President and Co-Chief Executive Officer of Delsener/Slater. Each of the
employment agreements continues until December 31, 2001 unless terminated
earlier by the Company for cause or voluntarily by Mr. Delsener or Mr.
Slater.

F-31

<PAGE>

SFX ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In certain cases, Messrs. Delsener and Slater have rights to purchase the
outstanding capital stock of Delsener/Slater for fair market value as defined
in their employment agreements.

Additionally, in the case of a return event, as defined, which may be
deemed to include the Spin-Off, the Broadcasting Merger and related
transactions, Messrs. Delsener and Slater have the right to receive a portion
of the excess of the proceeds of the return event over a fixed amount
determined in reference to the original purchase price for Delsener/Slater, all
as calculated pursuant to the Delsener and Slater employment agreements.
Management believes that, with respect to the Spin-Off, the Broadcasting Merger
and related transactions, no payment will accrue to Mr. Delsener or Mr. Slater
pursuant to their employment agreements.

The employment agreements further provide that Messrs. Delsener and Slater
shall be paid annual bonuses determined with reference to Delsener/Slater
profits, as defined, for the immediately preceding year. Management believes
that no such bonus was earned for the year ended December 31, 1997.

Messrs. Delsener and Slater and the Company are in the process of
negotiating amendments to their employment agreements to reflect, among other
things, the changes to the business of the Company as a result of the Recent
Acquisitions and the Spin-Off, and each of Messrs. Delsener and Slater have
agreed in principle to waive any rights which may accrue in connection with the
Broadcasting Merger or the Spin-Off. The Company also expects, in connection
with the foregoing, to negotiate mutually satisfactory amendments to certain of
Messrs. Delsener's and Slater's compensation arrangements, including bonus and
profit sharing provisions.

10. RELATED PARTY TRANSACTIONS

The Company's Executive Vice President, General Counsel and Director is Of
Counsel to the law firm of Baker & McKenzie. Baker & McKenzie serves as counsel
to the Company in certain matters. Baker & McKenzie compensates the executive
based, in part, on the fees it receives from providing legal services to the
Company and other clients originated by the executive. In 1997, the Company
incurred fees of approximately $2,948,000 for legal services related to the
Recent Acquisitions. Such fees were funded by SFX Broadcasting on behalf of the
Company. In February 1998, the Company reimbursed SFX Broadcasting for these
fees.

Due to stockholder represents the balance due to Mr. Delsener on his
advances to renovate the Jones Beach Theatre (the "Jones Beach Loan") and the
PNC Bank Arts Center (the "PNC Loan"). Delsener /Slater paid interest at 8% per
annum on the Jones Beach Loan, which was repaid in May 1996. The PNC Loan,
which was originated in 1996 was repaid in connection with the acquisition of
Delsener/Slater by SFX Broadcasting in 1997 (See Note 1).

11. CAPITAL STOCK

In the Spin-Off, (a) 13,579,024 shares of Class A Common Stock were
distributed to holders on the Spin-Off record date of SFX Broadcasting's Class
A common stock, Series D preferred stock and interests in SFX Broadcasting's
director deferred stock ownership plan, (b) 1,047,037 shares of Class B Common
Stock were distributed to holders on the Spin-Off record date of SFX
Broadcasting Class B common stock and (c) 609,856 shares of Class A Common
Stock were placed in escrow to be issued upon the exercise of certain warrants
of SFX Broadcasting. The financial statements have been retroactively adjusted
to reflect this transaction.

F-32
<PAGE>
SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Holders of the Company's Class A Common Stock are entitled to one vote and
holders of the Company's Class B Common Stock are entitled to ten votes on
all matters submitted to a vote of shareholders except for (a) the election
of directors, (b) with respect to any "going private" transaction involving
the Chairman and (c) as otherwise provided by law.

The Board of Directors has the authority to issue preferred stock and will
assign the designations and rights at the time of issuance.

12. DEFINED CONTRIBUTION PLAN

The Company sponsors a 401(k) defined contribution plan in which most
full-time employees are eligible to participate. The Plan presently provides
for discretionary employer contributions. There were no contributions in
1997.

13. SUBSEQUENT EVENTS (UNAUDITED)

During January 1998, in connection with certain executive officers
entering into employment agreements with the Company, the Board of Directors,
upon recommendation of the Compensation Committee, approved the sale of an
aggregate of 650,000 shares of the Company's Class B Common Stock and 90,000
shares of the Company's Class A Common Stock to certain executive officers
for a purchase price of $2.00 per share. Such shares will be issued on or
about the effective date of the Spin-Off. A substantial non-cash charge to
earnings will be recorded by the Company at the time of the Spin-Off based on
then fair value of such shares.

In addition, the Board, upon recommendation of the Compensation Committee,
has approved the issuance of stock options exercisable for 1,002,500 shares of
the Company's Class A Common Stock. Of these options, 252,000 will vest over
three years and will have an exercise price of $5.50 per share, and the
remainder will vest over five years and will have an exercise price of $30.50.
The Company will record non-cash compensation charges over the three-year
period with respect to the 252,000 options to be issued to the extent that the
fair value of the Company's Class A Common Stock exceeds the exercise price
of such options.

Further, the Board of Directors has approved the issuance of shares of the
Company's Class A Common Stock to holders of stock options or stock
appreciation rights ("SARs") of SFX Broadcasting as of the Spin-Off record
date, whether or not vested. The issuance was approved to allow such holders
of these options or SARs to participate in the Spin-Off in a similar manner
to holders of SFX Broadcasting's Class A Common Stock. Additionally, many of
the option holders will become officers, directors and employees of the
Company.

In January 1998, Mr. Sillerman committed to finance the $8.3 million
exercise price of the Meadows Repurchase in order to avoid the $10.5 million
reduction to Working Capital. In consideration for such commitment, the board
of directors of SFX Broadcasting agreed that Mr. Sillerman would receive the
Company Class A Common Stock to be issued in the Spin-Off with respect to the
Meadows Shares. In April 1998, SFX Broadcasting assigned the option for the
Meadows Shares to an unaffiliated third party and, in connection therewith,
paid such party a fee of $75,000. Mr. Sillerman subsequently advanced such
party the $8.3 million exercise price for the Meadows Repurchase which will
become due on the earlier of the date on which the Meadows Shares are
disposed of by the third party or January 16, 1999. In the event the Meadows
Shares are tendered in the SFX Merger, the third party has agreed to pay
$10.5 million to the Company, which is an amount equal to the Meadows
Reduction. In the event that the SFX Merger is not consummated on or before
December 31, 1998, SFX Broadcasting has the option, for a limited time, to
repurchase the Meadows Shares for an aggregate consideration of approximately
$10.0 million. The third party has agreed to transfer to Mr. Sillerman the
Company Class A Common Stock to be issued in the Spin-Off with respect to the
Meadows Shares.

F-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Connecticut Performing Arts, Inc. and
the Partners of Connecticut Performing Arts Partners:

We have audited the accompanying combined balance sheets of Connecticut
Performing Arts, Inc. and Connecticut Performing Arts Partners (collectively,
the Company) as of December 31, 1995 and 1996, and the related combined
statements of operations, shareholders' and partners' equity (deficit) and
cash flows for the years then ended. These combined 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 Company as of
December 31, 1995 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Hartford, Connecticut
March 21, 1997

F-34
<PAGE>

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash ........................................................... $ 63,061 $ 6,778
Accounts receivable............................................. 192,382 152,205
Accounts receivable--related party.............................. 124,700 226,265
Prepaid interest ............................................... 54,982 54,279
Prepaid insurance .............................................. 69,797 87,869
Other current assets ........................................... 21,156 60,784
Deposit ........................................................ -- 110,000
Subscription receivable ........................................ 100 100
------------- -------------
Total current assets ......................................... 526,178 698,280
------------- -------------

Plant and equipment:
Building and building improvements ............................. 14,127,632 14,208,153
Furniture, fixtures and equipment .............................. 1,899,041 1,973,911
Leasehold improvements ......................................... 1,221,069 1,224,071
------------- -------------
17,247,742 17,406,135
Less: Accumulated depreciation and amortization ................ (408,897) (1,620,297)
------------- -------------
16,838,845 15,785,838
------------- -------------
Other assets:
Deferred costs, net of accumulated amortization of $165,300 and
$503,766 in 1995 and 1996, respectively ....................... 2,453,553 2,115,087
Deposit ........................................................ 110,000 --
Other .......................................................... -- 2,332
------------- -------------
Total other assets ........................................... 2,563,553 2,117,419
------------- -------------
$19,928,576 $18,601,537
============= =============
LIABILITIES AND SHAREHOLDERS' AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................... $ 915,280 $ 908,986
Accrued expenses ............................................... 1,356,132 655,207
Deferred income ................................................ 679,476 737,440
Notes payable .................................................. 1,100,000 1,450,000
Current portion of long-term debt and capital lease obligations 493,362 824,800
------------- -------------
Total current liabilities .................................... 4,544,250 4,576,433
------------- -------------
Long-term debt and capital lease obligations,
less current portion .......................................... 13,398,700 13,982,196
------------- -------------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 4, 5, 6, 9 and 10)

Shareholders' and Partners' Equity (Deficit):
Shareholders' equity--
Common stock................................................... 1,000 1,000
Series A Preferred Stock....................................... 1,346,341 1,372,174
Series B Preferred Stock....................................... 1,250,000 1,250,000
Accumulated deficit............................................ (273,114) (1,999,823)
Partners' equity (deficit)...................................... (338,601) (580,443)
------------- -------------
Total shareholders' and partners' equity (deficit) .......... 1,985,626 42,908
------------- -------------
$19,928,576 $18,601,537
============= =============
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-35
<PAGE>

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996
-------------- -------------
<S> <C> <C>
Operating revenues:
Concert revenue ............... $ 6,830,681 $ 8,122,797
Cost of concerts .............. (5,524,043) (6,191,777)
-------------- -------------
1,306,638 1,931,020
Ancillary income .............. 1,431,577 2,052,592
-------------- -------------
2,738,215 3,983,612
-------------- -------------
Operating expenses:
General and administrative .... 3,068,162 3,080,914
Depreciation and amortization 574,197 1,549,894
Other ......................... 20,046 33,577
-------------- -------------
3,662,405 4,664,385
-------------- -------------
Loss from operations......... (924,190) (680,773)
Other income (expense):
Interest income................ 428,869 30,015
Interest expense............... (509,225) (1,274,660)
-------------- -------------
Loss before income taxes ... (1,004,546) (1,925,418)
Provision for income taxes ... 10,796 17,300
-------------- -------------
Net loss .................... $(1,015,342) $(1,942,718)
============== =============
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-36
<PAGE>

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
COMBINED STATEMENTS OF SHAREHOLDERS'
AND PARTNERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
PARTNERS'
SHAREHOLDERS' EQUITY (DEFICIT) EQUITY
-------------------------------------- (DEFICIT)
COMMON PREFERRED ACCUMULATED
STOCK STOCK DEFICIT
-------- ------------ --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994............ $1,000 $2,500,000 $ (32) $ 500,000
Accretion of Series A Preferred
Stock................................ -- 96,341 (96,341) --
Net loss.............................. -- -- (176,741) (838,601)
-------- ------------ -------------- -----------
Balance, December 31, 1995............ 1,000 2,596,341 (273,114) (338,601)
Accretion of Series A Preferred
Stock................................ -- 25,833 (25,833) --
Net loss.............................. -- -- (1,700,876) (241,842)
-------- ------------ -------------- -----------
Balance, December 31, 1996............ $1,000 $2,622,174 $(1,999,823) $(580,443)
======== ============ ============== ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-37
<PAGE>

CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $ (1,015,342) $ (1,942,718)
Adjustments to reconcile net loss to net cash provided
by
(used in) operating activities:
Depreciation and amortization .......................... 574,197 1,549,894
Loss on disposal of equipment .......................... -- 1,031
Changes in operating assets and liabilities:
Accounts receivable .................................... (192,382) 40,177
Accounts receivable--related party ..................... -- (101,565)
Prepaid expenses and other assets ...................... (143,703) (59,329)
Accounts payable ....................................... -- (6,294)
Accrued expenses ....................................... 505,199 150,008
Deferred income ........................................ 679,476 57,964
--------------- ---------------
Net cash provided by (used in) operating activities .. 407,445 (310,832)
--------------- ---------------
Cash flows from investing activities:
Purchases of plant and equipment ....................... (23,242,858) (159,452)
Grant proceeds.......................................... 7,680,161 --
Deferred start-up costs ................................ (264,975) --
Accounts receivable--related party...................... 827,170 --
Accounts payable........................................ (438,350) --
--------------- ---------------
Net cash used in investing activities ................ (15,438,852) (159,452)
--------------- ---------------
Cash flows from financing activities:
Proceeds from borrowings on notes payable and long-term
debt .................................................. 13,943,316 1,278,068
Repayments of notes payable, long-term debt and capital
lease obligations...................................... (176,917) (864,067)
Proceeds from sales of common and preferred stock ...... 900 --
--------------- ---------------
Net cash provided by financing activities ............. 13,767,299 414,001
--------------- ---------------
Net decrease in cash .................................... (1,264,108) (56,283)
Cash, beginning of year ................................. 1,327,169 63,061
--------------- ---------------
Cash, end of year........................................ $ 63,061 $ 6,778
=============== ===============
Supplemental Disclosures:
Cash Paid For--
Interest................................................ $ 554,342 $ 1,108,291
=============== ===============
Income taxes............................................ $ 10,796 $ 17,300
=============== ===============
Noncash Transactions--
Capital lease obligations............................... $ 59,479 $ --
=============== ===============
Series A Preferred Stock accretion...................... $ 96,341 $ 25,833
=============== ===============
Conversion of accrued expense for equipment purchase to
note payable........................................... $ -- $ 850,933
=============== ===============
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-38
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS

1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Operations --

Connecticut Performing Arts, Inc. (the Company) and Connecticut Performing
Arts Partners (the Partnership) were incorporated and formed, respectively,
in 1993 pursuant to the laws of the State of Connecticut. The Company's
shareholders and the Partnership's partners are Nederlander of Connecticut,
Inc. and Connecticut Amphitheater Development Corporation. The Company's
shareholders and the Partnership's partners changed in March 1997 (see Note
10). The Company and Partnership are engaged in the ownership and operation
of an amphitheater in Hartford, Connecticut. The construction of the
amphitheater commenced in December 1994 and amphitheater operations commenced
in July 1995.

Principles of combination --

The combined financial statements include the accounts of the Company and
the Partnership after elimination of intercompany accounts and transactions.

Use of estimates in the preparation of financial statements --

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.

Plant and equipment --

Plant and equipment is carried at cost. Major additions and betterments
are capitalized, while replacements, maintenance and repairs which do not
extend the lives of the assets are charged to operations as incurred. Upon
the disposition of plant and equipment, any resulting gain or loss is
recognized in the statement of operations as a component of income.

The Company received grant funds from the City of Hartford and Connecticut
Development Authority related to the construction of the amphitheater (see
Note 4). Such amounts have been accounted for as a reduction in the cost of
the amphitheater.

Depreciation of plant and equipment is provided for, commencing when such
assets become operational, using straight-line and accelerated methods over
the following estimated useful lives:

<TABLE>
<CAPTION>
USEFUL LIVES
----------------------
<S> <C>
Building and building improvements .... 39 years
Furniture, fixtures and equipment ..... 4-7 years
Leasehold improvements ................. Shorter of asset
life or lease term

</TABLE>

Effective January 1, 1996, the Company and Partnership adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which had no
effect upon adoption. This statement requires that long-lived assets and
certain identifiable intangible assets to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.

F-39
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Deferred costs --

Deferred costs consist of start-up costs being amortized over a period of
5 years and deferred financing costs being amortized over the term of the
related debt (24 years and 4 months). As of December 31, 1995 and 1996
deferred costs were as follows:

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred start-up .............. $1,452,669 $1,452,669
Deferred financing ............. 1,166,184 1,166,184
------------ ------------
2,618,853 2,618,853
Less: Accumulated amortization (165,300) (503,766)
------------ ------------
$2,453,553 $2,115,087
============ ============
</TABLE>

Deposit --

The deposit represents a deposit held by the City of Hartford related to
an employment agreement between the Partnership and the City of Hartford for
priority hiring of Hartford residents and utilization of minority business
enterprise or women business enterprise contractors and vendors in the future
operation of the amphitheater. The deposit will be returned to the
Partnership in December 1997 if the Partnership is in compliance with the
employment agreement. As of December 31, 1996, the Partnership has
compensated the City of Hartford for noncompliance with the terms of the
agreement in connection with the construction of the facility and the hiring
of contractors and the City of Hartford has agreed to make no additional
claims with respect to this matter.

Income taxes --

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires a company to recognize deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized
in a company's financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement carrying amounts and the tax bases of assets
and liabilities and net operating loss carryforwards available for tax
reporting purposes, using the applicable tax rates for the years in which the
differences are expected to reverse. A valuation allowance is recorded on
deferred tax assets unless realization is more likely than not.

The income tax effects of the operations of the Partnership accrue to the
partners in accordance with the terms of the Partnership agreement and are
not reflected in the accompanying combined financial statements.

Revenue recognition --

Revenue from ticket sales is recognized upon occurrence of the event.
Advance ticket sales are recorded as deferred income until the event occurs.
Ticket revenue is recorded net of payments in lieu of taxes under the terms
of the City of Hartford lease (see Note 6) and admission taxes.

Advertising --

The Company expenses the cost of advertising when the specific event takes
place. Advertising expense was $639,424 and $689,160 for the years ended
December 31, 1996 and 1995, respectively.

F-40
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

2. SHAREHOLDERS' EQUITY:

Common stock --

The Company is authorized to issue 5,000 shares of common stock with no
par value. The subscription receivable of $100 as of December 31, 1996
represents the amount due from shareholders for 100 shares of common stock at
$10 per share, of which $900 was received in February 1995.

Preferred stock --

The Company is authorized to issue 295,000 shares of preferred stock at no
par value. As of December 31, 1996 and 1995, 125,000 of such shares have been
designated as Series A Preferred Stock and 125,000 of such shares have been
designated as Series B Preferred Stock. Series A and Series B Preferred Stock
are not entitled to dividends and have liquidation rights of $10 per share.

Series A Preferred Stock is mandatorily redeemable at the rate of 20,835
shares commencing December 31, 1995 (the Initial Redemption Date) and an
aggregate of 20,833 shares on each six month anniversary of the Initial
Redemption Date until all 125,000 shares of the Series A Preferred Stock have
been redeemed, at $11.445 per share. As of December 31, 1996, no shares of
Series A Preferred Stock had been redeemed. The Company is accreting the
difference between the redemption price and the proceeds per share over the
period from the issuance date to the respective scheduled redemption dates.

Series B Preferred Stock is mandatorily redeemable at a per share price of
$10 in whole or in part at the option of the Company at any such time as
legally available funds, as defined in the resolution establishing and
designating the preferred stock, are available. On the tenth anniversary of
the completion date of the amphitheater any Series B Preferred Stock
outstanding shall be redeemed by the Company at a per share price of $10.

The Series A and Series B Preferred Stock will not be redeemed if such
redemption would result in a violation of the provisions of the Connecticut
Development Authority assistance agreement (see Note 4) or the mortgage loan
agreement (see Note 5).

3. PARTNERS' EQUITY:

In 1993, Nederlander of Connecticut, Inc. and Connecticut Amphitheater
Development Corporation each made an initial capital contribution of
$250,000.

4. GRANT FUNDS:

Connecticut Development Authority (CDA) Assistance Agreement --

On September 12, 1994, the CDA entered into a non-recourse assistance
agreement with the Company whereby the CDA provided grant funds for the
construction and development of an amphitheater in the City of Hartford (the
Project) through the issuance of State of Connecticut General Fund Obligation
Bonds (GFO Bonds). The Company received bond proceeds of $8,863,000, which
amount is net of CDA bond issuance costs of $593,000 and withholdings of
$429,000 by the CDA to cover the expected operating shortfall, as discussed
below, through December 31, 1995. Commencing January 1, 1996, the annual tax
revenues derived from the operation of the amphitheater are utilized to
satisfy the annual debt service requirements under the GFO Bonds. In the
event that annual tax revenues derived from the operation of the amphitheater
do not equal annual debt service requirements under the GFO Bonds, the
Company must deposit the lesser of the operating shortfall, as defined, or
10% of the annual debt service under the GFO Bonds. An operating shortfall
did not exist for the year ended December 31, 1996. The GFO Bonds mature on
October 15, 2024 and have an average coupon rate of 6.33%. Annual debt
service requirements on the GFO Bonds for each of the next five years and
thereafter are as follows:

F-41
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. GRANT FUNDS: (Continued)

<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- ------------
<S> <C>
1997.......... $ 740,556
1998 ......... 738,906
1999 ......... 736,656
2000 ......... 738,856
2001 ......... 740,293
Thereafter .. 17,140,363
------------
$20,835,630
============
</TABLE>

The assistance agreement requires an annual attendance of at least 400,000
for each of the first three years of operations. It will not be considered an
event of default if the annual attendance is less than 400,000 provided that
no operating shortfall exists for that year or if an operating shortfall
exists such amount has been deposited by the Company. If there is an event of
default, the CDA may foreclose on the construction mortgage loan (see Note
5). If the amphitheater's operations are relocated outside of Connecticut
during the ten year period subsequent to the assistance agreement or during
the period of the construction mortgage loan, the full amount of the grant
funds plus a penalty of 5% must be repaid to the State of Connecticut.

City of Hartford Grant Funds --

On February 15, 1995 the Company entered into an agreement with the City
of Hartford whereby the City of Hartford provided grant funds of $2,050,000
for the remediation and closure of a solid waste disposal area near the
amphitheater. As of December 31, 1995 all funds had been received by the
Company.

5. NOTES PAYABLE AND LONG-TERM DEBT:

Notes payable --

In October 1995, the Company entered into two notes payable with related
parties for an aggregate of $2,000,000. As of December 31, 1996 and 1995,
$1,450,000 and $1,100,000, respectively was outstanding on these notes. The
notes bear interest at 6.6% per annum and are payable upon demand.

CDA mortgage loan --

On September 12, 1994, CDA entered into a construction mortgage loan
agreement for $7,685,000 with the Company. The purpose of the loan was to
finance a portion of the construction and development of the amphitheater.
The loan agreement contains substantially the same covenants as the CDA
assistance agreement (see Note 4). As of December 31, 1995, proceeds of
$6,519,000, which amount is net of deferred financing costs of approximately
$1,166,000, had been received by the Company.

F-42
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. NOTES PAYABLE AND LONG-TERM DEBT: (Continued)
The mortgage loan bears interest at 8.73% and is payable in monthly
installments of principal and interest. The mortgage loan matures on October
15, 2019. As of December 31, 1996, future principal payments are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- -----------
<S> <C>
1997.......... $ 111,667
1998 ......... 121,667
1999 ......... 131,667
2000 ......... 141,667
2001 ......... 152,500
Thereafter .. 6,854,498
-----------
$7,513,666
===========
</TABLE>

The loan is guaranteed by the Company's shareholders and is collateralized
by a lien on the Company's assets. As of December 31, 1996, the loan was
secured by an irrevocable standby letter of credit issued by a shareholder of
the Company in the amount of $785,000. The letter of credit was replaced in
March 1997 by a letter of credit issued by a new shareholder (see Note 10).

Ogden Entertainment, Inc. (OE) Concession Agreement --

In October 1994, the Partnership entered into a concession agreement with
OE which provides for the payment of concession commissions to the
Partnership. In connection with the concession agreement, OE loaned the
Partnership $4,500,000 in 1995 to facilitate the construction of the
amphitheater. On December 30, 1996, the concession agreement was amended and
restated retroactively to October 18, 1994. In accordance with the terms of
the amended agreement, which expires on July 7, 2025, interest only, at the
6-month LIBOR rate, through July 7, 1995 and principal and interest, at the
rate of 7.5% per annum, were due on the note payable via withholdings of the
first $41,716 from each monthly commission payment commencing July 20, 1995
through December 20, 1995. Effective January 2, 1996, and through the term of
the amended concession agreement, principal and interest, at the rate of 7.5%
per annum on the note is payable via withholdings of the first $31,299 from
each monthly commission payment.

OE loaned the Partnership an additional $1,000,000 during 1995. This loan
bears interest at a rate of 9.75% per annum and is payable via withholdings
of an additional $11,900 of principal, plus interest, from each monthly
commission payment through December 20, 2002. As of December 31, 1996,
aggregate future principal payments to OE are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- -----------
<S> <C>
1997.......... $ 190,722
1998 ......... 194,442
1999 ......... 198,451
2000 ......... 202,772
2001 ......... 207,427
Thereafter .. 4,218,234
-----------
$5,212,048
===========
</TABLE>

The concession agreement provided for the Partnership to supply certain
equipment to OE at the Partnership's expense. This equipment was installed
prior to the opening of the amphitheater (the Initial

F-43
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. NOTES PAYABLE AND LONG-TERM DEBT: (Continued)
Equipment). The Initial Equipment was purchased by OE at a cost of $850,933
and the Partnership was obligated to reimburse OE for the cost of the
equipment. Accordingly, this amount was reflected as an accrued expense in
the accompanying combined balance sheet as of December 31, 1995. In 1996, in
connection with the amended concession agreement, the $850,933, and an
additional $33,067 related to 1996 equipment purchases, was converted to a
note payable for $884,000. The note bears interest at the rate of 9.25% per
annum and provides for monthly principal and interest payments of $10,185 to
OE, however, the Partnership is not required to make any principal or
interest payments to the extent that 5% of receipts, as defined, in any month
are less than the amount of the payment due. As of December 31, 1996, future
principal payments to OE by the Partnership are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- ---------
<S> <C>
1997.......... $ 42,210
1998 ......... 46,284
1999 ......... 50,751
2000 ......... 55,650
2001 ......... 61,022
Thereafter .. 628,083
---------
$884,000
=========
</TABLE>

Conn Ticketing Company (CTC) Promissory Note Payable --

On April 1, 1995, CTC (a company related to the Company and the
Partnership via common ownership) entered into a promissory note agreement
with ProTix Connecticut General Partnership (PTCGP). Under the terms of the
agreement, CTC borrowed $825,000 at 9.375% per annum from PTCGP. Principal
and interest are repayable by CTC in nine annual installments of $139,714
which commenced March 31, 1996. In May 1995, CTC loaned $824,500 to the
Company which is also repayable in nine annual installments of principal and
interest of $139,714. The PTCGP loan to CTC is secured by CTC's receivable
from the Company. As of December 31, 1996, future principal payments to CTC
by the Company are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------- ---------
<S> <C>
1997.......... $ 68,217
1998 ......... 74,613
1999 ......... 81,608
2000 ......... 89,259
2001 ......... 97,627
Thereafter .. 351,306
---------
$762,630
=========
</TABLE>

In January 1995, the Partnership entered into a ticket and sales agreement
with PTCGP through December 31, 2004. Under the terms of the agreement, PTCGP
pays the Partnership an annual fee of $140,000 commencing in March 1996.
Proceeds from the annual fee for the first nine years will be used by the
Partnership to make the annual principal and interest payment to CTC.

Line of credit --

The Partnership has a line of credit in the amount of $2,000,000, which
bears interest at 8.25% per annum, with a bank. As of December 31, 1996,
$395,000 was outstanding on the line of credit.

F-44
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. NOTES PAYABLE AND LONG-TERM DEBT: (Continued)
Capital lease obligations --

The Partnership entered into capital leases for certain office equipment.
The leases expire in 1998 and 2000. As of December 31, 1996 future principal
payments are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ------- ---------
<S> <C>
1997 ... $16,984
1998 ... 13,905
1999 ... 4,550
2000 ... 4,213
---------
$39,652
=========
</TABLE>

6. LAND AND BUILDING LEASES:

Land lease agreement between the City of Hartford and the Partnership --

The Partnership entered into a 40 year lease agreement for certain land
with the City of Hartford, Connecticut on September 14, 1994. The lease
agreement provides for two successive options to extend the term of the lease
for a period of ten years each. The Partnership pays an annual basic rent of
$50,000 commencing July 1, 1995; and additional rent payments in lieu of real
estate taxes (PILOT) in an amount equal to 2% of all admission receipts, food
and beverage revenue, merchandise revenue and parking receipts that exceed
10% of the total admission receipts, which amount is to be net of any
surcharges and sales or like taxes levied by governmental authorities on the
price of such items.

Assignment of lease by the Partnership to the Company --

The above lease was subsequently assigned by the Partnership to the
Company on September 22, 1994 for consideration of $1.

Lease and sublease agreement between the Company and the Partnership --

On October 19, 1994, the Company subleased the land and buildings and
improvements thereon to the Partnership for a period of 40 years commencing
upon substantial completion of the amphitheater. The sublease agreement
provides for two successive options to extend the term of the lease for a
period of ten years each. The sublease agreement provides for the Partnership
to pay rent to the Company in amounts ranging from $804,000 to $831,100 per
annum for the first 25 years and $100,000 per annum thereafter including the
option periods. Additional rent of six semi-annual installments of $238,452
is also payable by the Partnership commencing six months after the start of
operations. Subsequent to the six semi-annual installments an aggregate of
$1,250,000 will be payable in semi-annual installments based on available
cash flow of the Partnership, as defined. Additionally, the Partnership is
also required to pay the annual basic rent ($50,000) and any additional
payments in lieu of taxes under the terms of the lease agreement between the
City of Hartford and the Partnership described above. The Partnership will
also pay additional rent equal to principal and interest payable by the
Company to the concession company for a previously arranged concessionaire
arrangement (see Note 5). The accompanying combined statement of operations
for the year ended December 31, 1996 includes rent expense of $50,000 which
represents the aggregate amount due to the City of Hartford under the terms
of the above agreements.

7. INCOME TAXES:

The provision for income taxes for the year ended December 31, 1996
represents minimum state income taxes for the Company. As of December 31,
1996, the Company has a net deferred tax asset of

F-45
<PAGE>
CONNECTICUT PERFORMING ARTS, INC. AND
CONNECTICUT PERFORMING ARTS PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES: (Continued)
approximately $750,000 primarily as a result of aggregate net operating
losses since inception. Usage of the net operating loss carryforwards is
restricted in the event of certain ownership changes. A valuation allowance
has been recorded for the same amount due to the uncertainty related to the
realization of this asset.

8. RELATED PARTY TRANSACTIONS:

Accounts receivable -related party as of December 31, 1996, includes net
amounts due from a shareholder of $121,265 and receivables from another
related party of $105,000.

9. CONTINGENCIES:

The Company and the Partnership are party to certain litigation arising in
the normal course of business. Management, after consultation with legal
counsel, believes the disposition of these matters will not have a material
adverse effect on the combined results of operations or financial condition.

10. SUBSEQUENT EVENTS:

Effective March 5, 1997, the Partnership and Company entered into a
$1,500,000 loan agreement with the CDA of which $1 million was funded in
March 1997. Principal payments of $150,000 are due on July 1 and October 1 of
each year commencing July 1, 1997 through October 1, 2001. The note bears
interest at the rate of 8.9% per annum through February 1, 1998, and
thereafter at the index rate, as defined, plus 2.5%. In addition, the
Partnership and Company are required to make principal payments in an amount
equal to 10% of the annual gross revenue, as defined, in excess of $13
million on or before March 1 of each calendar year commencing March 1, 1998.

In March 1997, three subsidiaries of SFX Broadcasting, Inc.
(Broadcasting), which were created for such purpose, were merged into
Nederlander of Connecticut, Inc., Connecticut Amphitheater Development
Corporation and QN Corp., a newly formed entity. In connection with the
merger, the name of Nederlander of Connecticut, Inc., was changed to NOC,
Inc. (NOC) and the directors of NOC, Inc., Connecticut Amphitheater
Development Corporation (CADCO) and QN Corp. (QN) were replaced with
directors of the Broadcasting acquisition subsidiaries. Each outstanding
share of stock of NOC, CADCO and QN was canceled and exchanged for an
aggregate of $1 million cash and shares of Broadcasting Class A Common Stock
valued at $9 million, subject to certain adjustments. The shares are subject
to a put provision between the second and seventh anniversary of the closing
whereby the holder can put each share back to Broadcasting for the per share
value of Broadcasting stock as of the merger closing date, as defined, less
10%. Additionally, the shares may be called by Broadcasting during the same
period for an amount equal to the per share value of the Broadcasting stock
as of the merger closing date, as defined, plus 10%. As consideration for
approval of the transaction, the CDA received shares of Broadcasting stock
valued at approximately $361,000.

F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
of SFX Broadcasting, Inc.:

We have audited the accompanying combined balance sheets of DEER CREEK
PARTNERS, L.P. (formerly Sand Creek Partners, L.P.) and MURAT CENTRE, L.P.,
as of December 31, 1996 and 1995, and the related combined statements of
operations and partners' equity (deficit) and cash flows for the years ended
December 31, 1996 and 1995. These financial statements are the responsibility
of the Partnerships' 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 combined financial position of Deer Creek
Partners, L.P. and Murat Centre, L.P. as of December 31, 1996 and 1995, and
the combined results of their operations and their cash flows for the years
ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Indianapolis, Indiana
September 29, 1997.

F-47
<PAGE>

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................. $ 1,894,533 $ 876,776
Accounts receivable........................ 138,548 155,929
Prepaid show expense....................... -- 42,114
Prepaid expenses........................... 91,919 118,152
------------- ------------
Total current assets..................... 2,125,000 1,192,971
------------- ------------
Property and equipment:
Land....................................... 2,428,770 2,428,770
Buildings.................................. 6,155,979 6,155,979
Site improvements.......................... 2,328,369 2,230,594
Leasehold improvements..................... 5,270,038 9,663,357
Furniture and equipment.................... 1,070,547 1,722,874
------------- ------------
17,253,703 22,201,574
Less: Accumulated depreciation............. 2,167,567 2,850,077
------------- ------------
Total property and equipment............. 15,086,136 19,351,497
------------- ------------
Other Assets:
Cash surrender value--life insurance
policy.................................... 62,819 71,815
Unamortized loan acquisition costs ....... 93,439 350,055
------------- ------------
Total other assets....................... 156,258 421,870
------------- ------------
TOTAL ASSETS ............................ $17,367,394 $20,966,338
============= ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-48
<PAGE>

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
LIABILITIES AND PARTNERS' EQUITY
Current Liabilities:
Current portion of notes and capital lease
obligation........................................... $ 796,391 $ 611,127
Current portion of deferred ticket revenue............ 542,420 841,476
Accounts payable...................................... 472,365 520,663
Accrued interest...................................... 663,391 299,600
Accrued property taxes................................ 125,524 280,734
Current portion of loan payable....................... -- 34,200
Construction payable and other accrued liabilities .. 3,341,284 50,641
------------- -------------
Total current liabilities .......................... 5,941,375 2,638,441
------------- -------------
Long-term Liabilities:
Notes payable and capital lease obligation,
net of current portion............................... 12,998,738 17,266,768
Loan, net of current portion (Note 5)................. -- 99,200
Deferred ticket revenue, net of current portion ...... -- 168,833
------------- -------------
Total long-term liabilities......................... 12,998,738 17,534,801
------------- -------------
Partners' equity (deficit):
Contributed capital .................................. -- 2,200,000
Undistributed earnings (loss) ........................ (1,572,719) (1,406,904)
------------- -------------
(1,572,719) 793,096
------------- -------------
TOTAL LIABILITIES AND PARTNERS' EQUITY.............. $17,367,394 $20,966,338
============= =============
</TABLE>

The accompanying notes are an integral part of these statements.

F-49
<PAGE>

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
--------------
<S> <C> <C>
Operating revenues:
Concert revenue.................................. $11,073,491 $14,194,502
Cost of concerts................................. 8,939,022 10,724,059
-------------- --------------
2,134,469 3,470,443
Ancillary income:
Royalty commissions.............................. 1,706,458 1,799,950
Corporate sponsorships........................... 959,518 1,056,161
Other ancillary income........................... 789,433 1,375,528
-------------- --------------
5,589,878 7,702,082
Operating expenses:
General & administrative......................... 2,419,679 3,452,990
Depreciation & amortization...................... 343,567 783,167
Other operating expenses......................... 249,812 471,126
-------------- --------------
3,013,058 4,707,283
Income from operations........................... 2,576,820 2,994,799
Other income (expense):
Interest income.................................. 86,034 84,123
Interest expense................................. (2,203,690) (1,549,579)
-------------- --------------
Net Income (Loss).............................. $ 459,164 $ 1,529,343
Partners' Equity (Deficit) at beginning of year $(1,857,603) $(1,572,719)
Contributions.................................... -- 2,200,000
Distributions.................................... (174,280) (1,363,528)
-------------- --------------
Partners' Equity (Deficit) at end of year ...... $(1,572,719) $ 793,096
============== ==============
</TABLE>

The accompanying notes are an integral part of these statements.

F-50
<PAGE>

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Operating Activities:
Net income .................................................... $ 459,164 $ 1,529,343
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 461,678 783,167
Decrease (increase) in certain assets:
Accounts receivable........................................... (45,317) (17,381)
Prepaid show expenses......................................... -- (42,114)
Prepaid expenses and other ................................... 746,307 (33,381)
Increase (decrease) in certain liabilities:
Accounts payable, construction payable and other accrued
liabilities.................................................. 3,424,461 (3,087,135)
Deferred ticket revenue....................................... (1,266,654) 467,889
Accrued interest.............................................. 389,251 (363,791)
Other......................................................... (75,407) 44,852
------------- -------------
Net cash provided by (used in) operating activities ........ 4,093,483 (718,551)
------------- -------------
Investing Activities:
Capital expenditures.......................................... (6,713,889) (5,197,260)
------------- -------------
Net cash used by investing activities......................... (6,713,889) (5,197,260)
------------- -------------
Financing Activities:
Net proceeds from borrowings.................................. 3,060,087 5,057,249
Capital contributions......................................... -- 2,200,000
Department of Metropolitan Development Grant.................. 761,014 338,986
Principal payments on notes and loan payable and capital
leases....................................................... (20,308) (1,334,653)
Distributions to partners..................................... (174,280) (1,363,528)
------------- -------------
Net cash provided by financing activities ................... 3,626,513 4,898,054
------------- -------------
Net increase (decrease) in cash and cash equivalents .......... 1,006,107 (1,017,757)
Cash and cash equivalents:
Beginning of period........................................... 888,426 1,894,533
------------- -------------
End of period................................................. $ 1,894,533 $ 876,776
============= =============
Supplemental disclosures:
Cash paid for interest........................................ $ 1,148,049 $ 1,912,494
Equipment acquired under capital leases....................... -- 139,000
============= =============
</TABLE>

The accompanying notes are an integral part of these statements.

F-51
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

Prior to 1997 (See Note 10) Deer Creek Partners, L.P. (the Deer Creek
Partnership) owned and operated Deer Creek Music Center (Deer Creek), a
concert amphitheater located in Hamilton County, near Indianapolis, Indiana
which commenced operations in 1989. Sand Creek Partners, L.P. (the general
partner) was a 50% general partner and is responsible for the management of
the Deer Creek Partnership. Conseco, Inc. (Conseco) was a 50% limited partner
of the Deer Creek Partnership. All distributable cash, as defined by the Deer
Creek partnership agreement, is to be distributed equally between the
Partners.

The Deer Creek Partnership was formed on January 5, 1996 as a result of
Conseco exercising its option to become a 50% owner of Deer Creek. Deer Creek
was previously 100% owned by Sand Creek Partners, L.P. This change in
ownership has been accounted for as a reorganization, and thus the carrying
value of the assets and liabilities related to Deer Creek remain unchanged as
a result of the reorganization.

Murat Centre, L.P. (Murat Partnership), formed on August 1, 1995, leases
and operates the Murat Theatre (Theatre), a renovated concert and
entertainment venue located in downtown Indianapolis, Indiana. The Theatre's
grand reopening was in March, 1996. The Theatre is currently owned by and was
previously operated by the Murat Temple Association, Inc. Murat Centre, Inc.
is the general partner and is responsible for management of the Theatre.
Profits and losses of the Murat Partnership are allocated 1% to the general
partner and 99% to the limited partners. Distributions to partners are
generally limited to the income taxes payable by the partners as a result of
taxable income generated by the Murat Partnership. To the extent that cash
flow for the applicable year exceeds all payment requirements as discussed in
Note 3, the excess shall be distributed to the partners.

In connection with reopening the Theatre, the Murat Partnership expended
approximately $11.7 million for renovations which began in 1995. Start-up and
organizational costs of approximately $85,000 in 1995 and $90,000 in 1996
were expensed as incurred and have been included in general and
administrative expenses in the combined statement of operations for the years
ended December 31, 1996 and 1995. The building is leased under a 50 year
operating lease with options for 5 additional consecutive 10 year periods
under the same terms and conditions as the initial 50 year lease.

b. Basis of Accounting

The financial statements have been prepared in accordance with generally
accepted accounting principles. Such principles require 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 financial statements and the amounts of income and expenses during the
reporting period. Actual results could differ from those estimated.

c. Property and Equipment

Property and equipment are carried at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Buildings are depreciated over forty years,
leasehold improvements over thirty years, site improvements over twenty
years, and furniture and equipment over five to seven years.

d. Loan Acquisition Costs

Loan acquisition costs represent agency and commitment fees paid to the
lenders, closing costs and legal fees incurred in connection with the notes
payable (see Note 2). These fees are being amortized on a straight-line basis
over a fifteen year period, which represented the approximate term of the
related debt.

F-52
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

e. Deferred Revenue

Deferred revenue includes individual show ticket revenue, season ticket
revenue, and corporate box seat revenue received in advance of events or the
next concert season and will be recognized over the period in which the shows
are held. A portion of the deferred revenue was derived from the bartering of
tickets for goods and services related to the Murat renovation. Barter
transactions are recorded at the estimated fair value of the materials or
service received.

f. Income Taxes

No provision for Federal or state income taxes is required because the
partners are taxed directly on their distributable shares of the
Partnerships' income or loss.

g. Cash Equivalents

The Partnerships consider all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

h. Advertising and Promotion

Advertising and promotion costs are expensed at the time the related
promotional event is held. The costs were approximately $930,000 in 1996 and
$595,000 in 1995.

2. NOTES PAYABLE

Notes payable and capital lease obligations as of December 31, 1995 and
1996 consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- --------------
<S> <C> <C>
MURAT PARTNERSHIP
- -----------------------------------------------------------------
Note payable to bank with 9.25% interest rate subject to
adjustment in 2001 and 2006; payable in monthly installments of
$30,876, including interest, in addition to annual contingent
principal payments based upon remaining net cash flow as defined
in Note 3; secured by assets of the Murat Partnership and
guaranteed by two of the limited partners for $375,000 each;
balance due no later than April 1, 2011. ........................ $ -- $2,928,053
Note payable with 9% non-compounding interest rate through
November 14, 1996, 12% non-compounding interest rate from
November 15, 1996 through November 14, 1998, 18% non-compounding
interest rate thereafter; all interest is cumulative; principal
and interest payments are based upon remaining net cash flow as
defined in Note 3; subordinate to above bank note payable. ..... 2,647,165 3,000,000
Note payable with 0% interest rate; principal payments the lesser
of $.15 per ticket sold during fiscal year or remaining net cash
flow as defined in Note 3; subordinate to above bank note
payable. ........................................................ -- 800,000

F-53
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31, DECEMBER 31,
1995 1996
-------------- --------------
Note payable with interest calculated annually and is equal to
the lesser of (1) $.10 per ticket sold during fiscal year, (2)
prime plus 1% or (3) remaining net cash flow as defined in Note
3; interest and principal is paid at the lesser of $.10 per
ticket sold during fiscal year or remaining net cash flow as
defined in Note 3; principal is also required to be paid down
upon sale of certain Partnership assets or the refinancing of
certain Partnership loans; subordinate to above bank note
payable ......................................................... $ -- $ 1,000,000
Other............................................................ 90,940 --
DEER CREEK PARTNERSHIP
Note payable with interest calculated annually at 9.5%; payable
in quarterly installments of approximately $353,000, including
interest, through the year 2010; secured by substantially all of
the assets of the partnership and is guaranteed up to 50%,
jointly and severally, by two officers of Sunshine Promotions,
Inc. (Sunshine), and by Sunshine (See Note 6.)................... -- 10,019,361
Note payable with interest at 11.18% payable in monthly
installments and contingent interest based upon net cash flow;
secured by substantially all of the assets of the Partnership;
principal due 1999 with the option for the holder to accelerate
the maturity date to 1996. ...................................... 11,041,024 --
Capital leases ................................................... 16,000 130,481
-------------- --------------
Total notes payable and capital lease obligations............... 13,795,129 17,877,894
Less--Current portion .......................................... 796,391 611,127
-------------- --------------
$12,998,738 $17,266,768
============== ==============
</TABLE>

Principal payments made on the Murat Partnership bank term note during
1996 totaled $71,947. The Murat Partnership's 1996 net cash flow (see Note 3)
did not require additional principal payments to be made on its notes
payable. The bank term note contains cash flow and leverage ratio covenants.
The Murat Partnership was not in compliance with the cash flow covenant as of
December 31, 1996, but received a waiver dated March 31, 1997 for the
December 31, 1996 calculation. Provisions of the $800,000 note payable
require the Murat Partnership to continue making payments after the principal
has been paid down equal to the lesser of $.15 per ticket sold during the
fiscal year or remaining cash flow, as defined in Note 3. These payments are
to be made to a not-for-profit foundation and will be designated for
remodeling and upkeep of the Theatre.

Under the terms of the note payable in 1995, the Deer Creek Partnership
incurred contingent interest, which was based on cash flow, of $885,000.
During 1995, Deer Creek Partnership's current lender (a related party)
purchased the note payable and entered into an amended and restated loan
agreement with the partnership on January 5, 1996. For each year until the
Deer Creek loan is repaid, net cash flow (as defined) in excess of $400,000
shall be paid as a principal payment on the loan, not to exceed $400,000. In
1995 and 1996, the Deer Creek Partnership's net cash flow was such that the
maximum principal payment of $400,000 was required for each year. In
addition, the promotional management fee paid to Sunshine (see Note 6) is
subordinate to the quarterly loan payments.

F-54
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Principal maturities of notes payable for the next 5 years, excluding
principal paydowns resulting from excess cash flow:

Future capital lease payments of principal and interest are as follows:

3. MURAT CASH FLOW PAYMENTS

Each of the Murat Partnership's debt agreements require certain principal
and interest to be paid in April of each year based upon the Murat
Partnership's net cash flow for the preceding year. The Murat Partnership's
building lease agreement provides for lease payments to be made based upon
the same net cash flow calculation. Net cash flow, as defined in each
agreement, approximates net income, plus depreciation and amortization, less
capital expenditures and partnership distributions necessary to pay
applicable income taxes. Net cash flow in each year will be used by the Murat
Partnership to pay principal, interest and lease payments in the following
order of priority:

1. Payment of interest on $1,000,000 note equal to the lesser of (a) $.10 per
ticket sold, (b) prime plus 1% or (c) remaining net cash flow;

2. Additional principal payments on bank note so that the total principal
paid each month (including mandatory term payments discussed in Note 2)
equals up to, but not exceeding, $16,667. If cash flow in any fiscal year
is not sufficient to meet these additional principal payments, the
obligation carries forward to the subsequent year;

3. For 1997 and beyond, building operating lease payments not to exceed
$50,000 per year, non-cumulative;

4. Interest related to the $3 million note (including previous years'
cumulative amounts not paid);

5. Principal payment on the $3 million note until paid in full;

6. Principal payment on $800,000 note equal to lesser of $.15 per ticket sold
during fiscal year or remaining net cash flow;

If cash flow is such that only a portion is paid on the obligation in 2.
above, Sunshine, Inc.'s management fee (see Note 6.) could be reduced by the
amount paid in 1. in order to maximize the amount available to fully pay the
obligation in 2.

4. DMD GRANT

As part of the original financing for renovation of the Theatre, the
Department of Metropolitan Development (DMD) contributed approximately
$760,000 in 1995 and $340,000 in 1996 to the Murat Partnership. The DMD
stipulated that the grant was to be used for leasehold improvements on the
Theatre. As such, the grant has been recorded on the balance sheet as a
reduction of leasehold improvements and is being amortized over 30 years.

F-55
<PAGE>
DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. AGREEMENTS WITH OUTSIDE VENDORS

Effective February 1996, the Murat Partnership entered into a ten year
agreement with a caterer to provide exclusive catering services at the
Theatre. The Murat Partnership is entitled to a commission based upon a
percentage of the caterer's net sales. As part of the agreement the caterer
loaned the Murat Partnership $165,000, at a nominal interest rate, for
leasehold improvements necessary to provide catering services. In February
1996 the Murat Partnership began repaying the loan ratably over 5 years.

Effective February 1996, the Murat Partnership entered into a ten year
agreement with a concessionaire for the exclusive license to sell concession
food and beverages at Theatre events. The Murat Partnership is entitled to
royalty commissions based upon a percentage of the concessionaire's gross
receipts. The concessionaire has paid the Murat Partnership $50,000 to be
used for leasehold improvements (which are being depreciated over 30 years)
which will be used by the concessionaire. This payment has been recorded as
deferred income and is being amortized over the term of the agreement. On
March 28, 1997 the rights to the concession agreement were acquired by the
caterer under the same terms as the original concession agreement.

Effective March 1996, the Murat Partnership entered into a five year
agreement with a stagehand union allowing the union to provide services at
all ticketed shows held in the main theater other than the broadway series.
The agreement, among other items, sets minimum hours per show and hourly
wages to be paid to union members. It also sets forth duties which must be
performed solely by union members. A separate agreement between the stagehand
union and Pace Theatrical Group, Inc. (see Note 7) governs the use of union
stagehands for the broadway series.

Effective February 1996, the Murat Partnership entered into a one year
agreement granting another party the right to manage and operate the Theatre
parking lot.

In July 1988, the Deer Creek Partnership entered into a ten-year agreement
with a concessionaire for the exclusive license to sell food and beverages at
Deer Creek events. The Deer Creek Partnership is entitled to royalty
commissions based upon a percentage of the concessionaire's gross receipts.

The Deer Creek Partnership has an agreement with another concessionaire
for an exclusive license to sell consigned nonconsumable novelties and
programs at Deer Creek events. The agreement expires on October 31, 2001. The
Deer Creek Partnership is entitled to royalty commissions based on the
concessionaire's gross receipts.

Total revenues related to the Deer Creek and Murat Center Partnership's
vendor agreements were approximately $1.8 million and $1.7 million in 1996
and 1995, respectively.

6. MANAGEMENT AGREEMENTS

The Deer Creek Partnership and Murat Partnership have entered into
agreements which expire in 2009 and 2015, respectively, with Sunshine whose
stockholders are also the limited partners of the general partner. Sunshine
provides the overall promotional management and booking of the entertainment
events held at respective venues, along with other general management
responsibilities. As compensation for Sunshine's services, the Deer Creek
Partnership pays Sunshine 4 percent of gross ticket sales, royalty income and
various other revenues. Total fees to Sunshine for these services were
approximately $581,000 in 1995 and $560,000 in 1996. The Murat pays Sunshine
an annual management fee of $300,000, adjusted annually each January 1 by the
greater of 4% or the annual increase in the consumer price index. In 1996 no
such fee was recognized by the Murat Partnership as Sunshine permanently
waived the $300,000 management fee due for 1996.

In June 1988, the Deer Creek Partnership entered into a ten-year agreement
with an unrelated management company to provide the on-site operations
management for Deer Creek. At the end of 1995, this agreement was terminated
by mutual consent of both parties. The Deer Creek Partnership

F-56

<PAGE>

DEER CREEK PARTNERS, L.P. AND MURAT CENTRE, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

entered into a new agreement with the former management company whereby it
agreed to pay $75,000 in 1996, 1997 and 1998 and also to provide to the
former management company selected season tickets at Deer Creek in 1997 and
1998. In return, for 1996, 1997 and 1998, the Deer Creek Partnership is to
receive advertising and promotion.

7. BROADWAY SERIES PARTNERSHIP

In 1996 the Murat Partnership entered into a 5 year partnership agreement
with Pace Theatrical Group, Inc. (Pace) and Broadway Series Management (BSMG)
to co-present a subscription series of touring Broadway type shows in
Indianapolis. This agreement calls for net profits and losses derived from
the series to be split, after the allocation of certain revenues to the Murat
Partnership and Pace, as follows: 45% Murat Partnership, 45% Pace, and 10%
BSMG. No capital was invested by any of the parties and all income has been
distributed to the parties. The Murat Partnership is responsible for the
local marketing and management of the series, while Pace is responsible for
booking, series management, and season ticket sales for the series. The Murat
Partnership recognized earnings related to this partnership of $270,000 in
1996.

8. RELATED PARTIES

In addition to the management agreement with Sunshine discussed in Note 6,
the Deer Creek Partnership and Murat Partnership have conducted business with
certain related parties in which the limited partners of the general partner
have significant interests. Fees paid to all other related parties for
catering, uniforms and marketing services totaled $249,000 in 1995 and
$65,000 in 1996 from the Deer Creek Partnership and $46,000 in 1996 from the
Murat Partnership.

9. SALE OF MURAT PARTNERSHIP AND DEER CREEK PARTNERSHIP

In June 1997, the partners of the Murat Partnership and the Deer Creek
Partnership agreed to sell all of the assets of the Murat Partnership and
Deer Creek Partnership to SFX Broadcasting, Inc. (Broadcasting). The total
sales price to Broadcasting of the combined partnership assets was
approximately $33 million. As a part of the sale, Broadcasting assumed or
retired virtually all liabilities and acquired all assets of the Murat
Partnership and the Deer Creek Partnership.

F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To PACE Entertainment Corporation:

We have audited the accompanying consolidated balance sheet of PACE
Entertainment Corporation (a Texas Corporation) and subsidiaries as of
September 30, 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended. 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 audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PACE
Entertainment Corporation and subsidiaries as of September 30, 1997, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
December 15, 1997 (except with respect
to the matters discussed in
Note 12, as to which the date
is December 22, 1997)

F-58
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
PACE Entertainment Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheet of PACE
Entertainment Corporation and subsidiaries as of September 30, 1996, and the
related consolidated statements of operations, cash flows, and shareholders'
equity for each of the two years in the period ended September 30, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PACE
Entertainment Corporation and subsidiaries at September 30, 1996, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

Houston, Texas
December 13, 1996

F-59
<PAGE>

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-------------------- -------------
1996 1997 1997
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $23,165 $23,784 $27,702
Trade receivables, net ............................... 4,097 4,562 6,741
Accounts receivable, related parties ................. 1,010 1,007 1,096
Notes receivable ..................................... 3,040 386 81
Prepaid expenses ..................................... 6,106 9,967 10,586
Investments in theatrical productions ................ 2,489 4,402 3,958
Deferred tax asset ................................... 1,872 979 943
--------- --------- -------------
Total current assets ................................ 41,779 45,087 51,107
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS ............ 8,816 13,899 15,613
NOTES RECEIVABLE, related parties ..................... 6,958 8,024 7,766
INTANGIBLE ASSETS, net ................................ 17,244 17,894 17,633
OTHER ASSETS, net ..................................... 4,484 4,933 6,047
--------- --------- -------------
Total assets ........................................ $79,281 $89,837 $98,166
========= ========= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ............. $10,285 $11,078 9,277
Deferred revenue ..................................... 26,909 32,093 33,208
Current maturities of long-term debt ................. 2,576 2,394 2,688
--------- --------- -------------
Total current liabilities ........................... 39,770 45,565 45,173
LONG-TERM DEBT ........................................ 21,863 23,129 31,543
OTHER NONCURRENT LIABILITIES .......................... 2,496 1,607 2,080
REDEEMABLE COMMON STOCK ............................... 3,264 2,456 2,983
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 500,000 shares
authorized,
2,579 shares issued as of September 30, 1996 and
1997 ................................................ 3 3 3
Additional paid-in capital ........................... 1,910 1,942 2,097
Retained earnings .................................... 10,115 15,275 14,427
Treasury stock, at cost, 544 shares .................. (140) (140) (140)
--------- --------- -------------
Total shareholders' equity .......................... 11,888 17,080 16,387
--------- --------- -------------
Total liabilities and shareholders' equity ......... $79,281 $89,837 $98,166
========= ========= =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-60
<PAGE>

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
-------------------------------------
1995 1996 1997
----------- ----------- -----------

<S> <C> <C> <C>
GROSS REVENUES ..................... $ 150,385 $ 156,325 $ 176,046
COST OF SALES ...................... (131,364) (135,925) (148,503)
EQUITY IN EARNINGS (LOSS) OF
UNCONSOLIDATED PARTNERSHIPS AND
THEATRICAL PRODUCTIONS ............ 2,183 3,048 6,838
----------- ----------- -----------
Gross profit ..................... 21,204 23,448 34,381
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .......................... (13,351) (15,951) (21,260)
STOCK COMPENSATION ................. (25) (3,675) (456)
LITIGATION SETTLEMENT .............. -- (3,657) --
DEPRECIATION AND AMORTIZATION ..... (1,223) (1,737) (1,896)
----------- ----------- -----------
Operating profit (loss) .......... 6,605 (1,572) 10,769
INTEREST INCOME, related parties .. 305 329 403
INTEREST INCOME, other ............. 147 176 60
INTEREST EXPENSE ................... (655) (1,206) (1,997)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST ............. 6,402 (2,273) 9,235
INCOME TAX (PROVISION) BENEFIT .... (2,575) 714 (3,529)
MINORITY INTEREST .................. (485) (446) (546)
----------- ----------- -----------
NET INCOME (LOSS) .................. $ 3,342 $ (2,005) $ 5,160
=========== =========== ===========
</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31
----------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
GROSS REVENUES ..................... $ 38,430 $ 38,552
COST OF SALES ...................... (34,221) (33,687)
EQUITY IN EARNINGS (LOSS) OF
UNCONSOLIDATED PARTNERSHIPS AND
THEATRICAL PRODUCTIONS ............ (111) 1,185
---------- ----------
Gross profit ..................... 4,098 6,050
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .......................... (4,072) (5,018)
STOCK COMPENSATION ................. (6) (683)
LITIGATION SETTLEMENT .............. -- --
DEPRECIATION AND AMORTIZATION ..... (434) (523)
---------- ----------
Operating profit (loss) .......... (414) (174)
INTEREST INCOME, related parties .. 75 178
INTEREST INCOME, other ............. 35 6
INTEREST EXPENSE ................... (480) (867)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTEREST ............. (784) (857)
INCOME TAX (PROVISION) BENEFIT .... 222 182
MINORITY INTEREST .................. (130) (173)
---------- ----------
NET INCOME (LOSS) .................. $ (692) $ (848)
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-61
<PAGE>

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
-------- ------------ ----------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 ................ $ 3 $1,465 $ 8,778
Amortization of deferred stock compensation . -- 25 --
Net income .................................. -- -- 3,342
-------- ------------ ----------
BALANCE AT SEPTEMBER 30, 1995 ................ 3 1,490 12,120
Issuance of restricted stock and
amortization of deferred stock compensation -- 420 --
Net loss .................................... -- -- (2,005)
-------- ------------ ----------
BALANCE AT SEPTEMBER 30, 1996 ................ 3 1,910 10,115
Issuance of restricted stock and
amortization of deferred stock compensation -- 32 --
Net income .................................. -- -- 5,160
-------- ------------ ----------
BALANCE AT SEPTEMBER 30, 1997 ................ 3 1,942 15,275
Issuance of restricted stock and
amortization of deferred stock compensation
(unaudited)................................. -- 155 --
Net loss (unaudited) ........................ -- -- (848)
-------- ------------ ----------
BALANCE AT DECEMBER 31, 1997 (unaudited) .... $ 3 $2,097 $14,427
======== ============ ==========
</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
TOTAL
TREASURY SHAREHOLDERS'
STOCK EQUITY
---------- ---------------
<S> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 ................ $(140) $10,106
Amortization of deferred stock compensation . -- 25
Net income .................................. -- 3,342
---------- ---------------
BALANCE AT SEPTEMBER 30, 1995 ................ (140) 13,473
Issuance of restricted stock and
amortization of deferred stock compensation -- 420
Net loss .................................... -- (2,005)
---------- ---------------
BALANCE AT SEPTEMBER 30, 1996 ................ (140) 11,888
Issuance of restricted stock and
amortization of deferred stock compensation -- 32
Net income .................................. -- 5,160
---------- ---------------
BALANCE AT SEPTEMBER 30, 1997 ................ (140) 17,080
Issuance of restricted stock and
amortization of deferred stock compensation
(unaudited)................................. -- 155
Net loss (unaudited) ........................ -- (848)
---------- ---------------
BALANCE AT DECEMBER 31, 1997 (unaudited) .... $(140) $16,387
========== ===============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-62
<PAGE>

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
---------------------------------
1995 1996 1997
--------- ---------- ----------

<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................... $ 3,342 $ (2,005) $ 5,160
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities-
Depreciation and amortization .................. 1,223 1,737 1,896
Equity in (earnings) loss of unconsolidated
partnerships .................................. (1,624) (486) (4,912)
Distributions from unconsolidated partnerships 1,297 1,090 2,354
Restricted stock compensation .................. 25 3,675 456
Deferred income tax expense (benefit) ......... 848 (4,541) 2,037
Changes in operating assets and liabilities- ...
Trade receivables ............................. 447 (826) (465)
Notes receivable .............................. (1,813) (1,227) 2,654
Prepaid expenses .............................. (221) 1,466 (3,861)
Investments in theatrical productions ........ 305 (335) (1,913)
Other assets .................................. (37) (1,130) (421)
Accounts payable and accrued liabilities ..... 947 (1,142) (920)
Deferred revenue .............................. (1,082) (1,008) 5,184
Other liabilities ............................. 171 1,601 (34)
--------- ---------- ----------
Net cash provided by (used in) operating
activities .................................. 3,828 (3,131) 7,215
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired .............. -- (13,233) (2,215)
Capital expenditures ............................ (728) (827) (1,008)
Loans and advances to related parties ........... (2,301) (535) (2,295)
Contributions to unconsolidated partnerships ... (1,212) (1,806) (2,162)
--------- ---------- ----------
Net cash used in investing activities ....... (4,241) (16,401) (7,680)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt additions .................... 8,927 24,043 24,287
Payments on debt ................................ (8,928) (6,512) (23,203)
--------- ---------- ----------
Net cash provided by (used in) financing
activities .................................. (1) 17,531 1,084
--------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...................................... (414) (2,001) 619
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .. 25,580 25,166 23,165
--------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....... $25,166 $ 23,165 $ 23,784
========= ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................... $ 620 $ 1,117 $ 1,900
Income taxes paid ............................... 2,276 2,804 2,103
</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31
--------------------
1996 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................... $ (692) $ (848)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities-
Depreciation and amortization .................. 434 522
Equity in (earnings) loss of unconsolidated
partnerships .................................. 607 (1,150)
Distributions from unconsolidated partnerships 1,073 411
Restricted stock compensation .................. 6 683
Deferred income tax expense (benefit) ......... 36 (574)
Changes in operating assets and liabilities- ...
Trade receivables ............................. 383 (2,179)
Notes receivable .............................. 1,140 305
Prepaid expenses .............................. (2,099) (619)
Investments in theatrical productions ........ (1,658) 444
Other assets .................................. (39) (469)
Accounts payable and accrued liabilities ..... (264) (2,626)
Deferred revenue .............................. (7,004) 1,115
Other liabilities ............................. 130 3,083
--------- ---------
Net cash provided by (used in) operating
activities .................................. (7,947) (1,902)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired .............. -- (178)
Capital expenditures ............................ (407) (900)
Loans and advances to related parties ........... 2 169
Contributions to unconsolidated partnerships ... (618) (1,980)
--------- ---------
Net cash used in investing activities ....... (1,023) (2,889)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt additions .................... 557 14,593
Payments on debt ................................ (873) (5,884)
--------- ---------
Net cash provided by (used in) financing
activities .................................. (316) 8,709
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...................................... (9,286) 3,918
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .. 23,165 23,784
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....... $13,879 $27,702
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................... $ 180 $ 644
Income taxes paid ............................... 565 93
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-63
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION:

Description of Business

PACE Entertainment Corporation (referred to herein as PACE or the
Company), a Texas corporation, is a diversified live entertainment company
operating principally in the United States. The Company presents and produces
theatrical shows, musical concerts and specialized motor sports events.
Through certain unconsolidated partnerships, the Company also owns interests
in and operates amphitheaters, which are used primarily for the presentation
of live performances by musical artists.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
PACE and its majority-owned subsidiaries. The Company accounts for its
investments in 50 percent or less owned entities, including theatrical
production partnerships, using the equity method. Intercompany balances are
eliminated.

The Company has various agreements related to the presentation of events
with other live entertainment organizations whereby the Company retains 50
percent to 80 percent of the profits from such events. The Company
consolidates the revenues and related costs from these events and records the
amounts paid to the other parties in cost of sales.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At September 30,
1997, the Company had restricted cash and cash equivalents of $2,950,000,
which secured letters of credit totaling $3,750,000.

Trade Receivables

Trade receivables are shown net of allowance for doubtful accounts of
$120,000 and $134,000 at September 30, 1996 and 1997, respectively.

Prepaid Expenses

Prepaid expenses include show advances and deposits, event advertising
costs and other costs directly related to future events. Such costs are
charged to operations upon completion of the related events.

As of September 30, 1996 and 1997, prepaid expenses included event
advertising costs of $1,337,000 and $1,498,000, respectively. The Company
recognized event advertising expenses of $13,818,000, $14,861,000 and
$13,802,000 in cost of sales for the years ended September 30, 1995, 1996 and
1997, respectively.

Investments in Theatrical Productions

Theatrical production partnerships are typically formed to invest in a
single theatrical production and, therefore, have limited lives which are
generally less than one year. Accordingly, the Company's investments in such
partnerships are generally shown as current assets. The partnerships amortize
production costs over the estimated life of each production based on the
percentage of revenues earned in relation to projected total revenues.

F-64
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Intangible Assets

Intangible assets consisted of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Goodwill .................................... $16,599 $17,851
Noncompete agreements and other intangibles 3,940 3,857
--------- ---------
20,539 21,708
Accumulated amortization .................... (3,295) (3,814)
--------- ---------
$17,244 $17,894
========= =========
</TABLE>

Goodwill, which represents the excess of costs of business acquisitions
over the fair value of net assets acquired, is being amortized on a
straight-line basis over periods not exceeding 40 years. The noncompete
agreements and other intangibles are being amortized on a straight-line basis
over periods generally not exceeding five years. The Company evaluates on an
ongoing basis whether events and circumstances indicate that the amortization
periods of intangibles warrant revision. Additionally, the Company
periodically assesses whether the carrying amounts of intangibles exceed
their expected future benefits and value, in which case an impairment loss
would be recognized. Such assessments are based on various analyses,
including cash flow and profitability projections.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following (in
thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------
1996 1997
--------- --------
<S> <C> <C>
Accounts payable .......... $ 1,192 $ 1,866
Accrued payroll ........... 2,384 2,936
Other accrued liabilities 6,709 6,276
--------- --------
$10,285 $11,078
========= ========
</TABLE>

Revenue Recognition

Revenues from the presentation and production of an event, including
interest on advance ticket sales, are recognized upon completion of the
event. Deferred revenue relates primarily to advance ticket sales.

The Company barters event tickets and sponsorship rights for products and
services, including event advertising. These barter transactions are not
recognized in the accompanying consolidated financial statements and are not
material to the Company's financial position or results of operations.

Stock-Based Compensation

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," during the year ended
September 30, 1997, and implemented its disclosure provisions. While SFAS No.
123 encourages companies to recognize expense for stock options at estimated
fair value based on an option-pricing model, the Company has elected to
continue to follow Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock options.

F-65
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Financial Instruments

The carrying amounts of cash equivalents approximate fair value because of
the short maturities of these investments. The carrying amount of long-term
debt approximates fair value as borrowings bear interest at current market
rates.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain 1995 and 1996 amounts have been reclassified to conform with the
1997 presentation.

Interim Financial Information

The interim financial data as of December 31, 1997 and for the three-month
periods ended December 31, 1996 and 1997 is unaudited and certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
However, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the entire year.

2. ACQUISITIONS:

On March 13, 1996, the Company acquired substantially all the assets of
SRO Motorsports (SRO), a division of Madison Square Garden, L.P., under an
asset purchase agreement for an aggregate initial purchase price of
approximately $13,300,000 in cash and $3,800,000 in assumed liabilities. The
agreement also provides for a contingent deferred purchase price not to
exceed $1,000,000, payable if annual earnings before interest, taxes,
depreciation and amortization of the Company's motor sports operations, as
defined, exceed $8,000,000 for any fiscal year through September 30, 2001. No
deferred purchase price costs had been incurred through September 30, 1997.

The acquisition of SRO was accounted for under the purchase method and the
assets acquired and liabilities assumed were recorded at fair value,
resulting in the recognition of $14,250,000 of goodwill and $400,000 of other
intangibles. The results of operations of SRO since March 13, 1996, have been
included in the accompanying consolidated financial statements.

The following unaudited pro forma information assumes that the Company had
acquired SRO as of October 1, 1994. The pro forma information includes
adjustments for interest expense that would have been incurred to finance the
acquisition, amortization of goodwill and other intangibles, the income tax
effects of the operations of SRO, and the elimination of certain intercompany
balances. The unaudited pro forma information, which is not necessarily
indicative of what actual results would have been, is as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30
----------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Gross revenues ... $167,422 $172,952
Net income (loss) 3,742 (257)
</TABLE>

F-66

<PAGE>

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS AND THEATRICAL
PRODUCTIONS:

Investments in unconsolidated partnerships and theatrical productions
consisted of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------
1996 1997
--------- --------
<S> <C> <C>
Investment in--
Pavilion Partners ......................... $ 3,131 $ 4,810
Universal/PACE Amphitheaters Group, L.P. . 3,380 3,991
Other ..................................... 2,305 5,098
--------- --------
Investments in unconsolidated partnerships 8,816 13,899
Investments in theatrical productions ..... 2,489 4,402
--------- --------
$11,305 $18,301
========= ========
</TABLE>

The Company's share of earnings and the distributions received from these
investments were as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Equity in earnings (losses) of--
Pavilion Partners ....................... $1,872 $ 103 $2,803
Universal/PACE Amphitheaters Group, L.P. 551 871 645
Other ................................... (799) (488) 1,464
-------- -------- --------
Equity in earnings of unconsolidated
partnerships ............................ 1,624 486 4,912
Equity in earnings of theatrical
productions ............................. 559 2,562 1,926
-------- -------- --------
$2,183 $3,048 $6,838
======== ======== ========
Distributions received from--
Pavilion Partners ....................... $ 992 $1,002 $1,124
Universal/PACE Amphitheaters Group, L.P. 166 78 34
Other ................................... 139 10 1,196
-------- -------- --------
Distributions from unconsolidated
partnerships ............................ 1,297 1,090 2,354
Distributions from theatrical
productions.............................. 4,240 5,836 6,803
-------- -------- --------
$5,537 $6,926 $9,157
======== ======== ========
</TABLE>

F-67
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Pavilion Partners

Pavilion Partners is a Delaware general partnership between the Company
and Amphitheater Entertainment Partnership (AEP). AEP is a partnership
between Sony Music Entertainment Inc. (Sony) and Blockbuster Entertainment
Corporation (Blockbuster). Pavilion Partners owns and operates amphitheaters,
which are used primarily for the presentation of live performances by musical
artists. Pavilion Partners had interests in 10 and 11 amphitheaters at
September 30, 1996 and 1997, respectively. The Company owns a 33-1/3 percent
interest in, and is the managing partner of, Pavilion Partners.

In general, all of Pavilion Partners' income is allocated to the partners
in proportion to their respective ownership interests. The partnership
agreement generally restricts cash distributions to 35 percent of cash flow
after scheduled debt service. Additionally, PACE has been entitled to certain
priority allocations of net income based, in part, on the cash flow from one
of the amphitheaters it contributed to Pavilion Partners. During the periods
ended September 30, 1995, 1996 and 1997, the priority allocations of net
income included in the Company's equity in earnings of Pavilion Partners were
$771,000, $725,000 and $119,000, respectively. The cumulative amount of the
priority allocations of net income was limited; PACE is not entitled to any
future priority allocations. AEP is entitled to receive priority allocations
of net income once a loan related to an amphitheater contributed by
Blockbuster is repaid. The cumulative priority allocations of net income to
AEP is limited to $7,000,000. The loan is scheduled to mature in 2004 and no
such allocation has yet been made.

PACE also received booking fees of $323,000, $235,000 and $395,000 from
Pavilion Partners for the years ended September 30, 1995, 1996 and 1997,
respectively. In addition, the Company is reimbursed for certain costs of
providing management services to Pavilion Partners. These reimbursements
totaled $1,629,000, $1,824,000 and $1,968,000 during the periods ended
September 30, 1995, 1996 and 1997, respectively, and offset general and
administrative expenses.

Summarized financial information as of and for the years ended September
30, 1995, 1996 and 1997, for Pavilion Partners follows (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Current assets .......................... $15,787 $20,700 $ 30,178
Noncurrent assets ....................... 64,619 72,793 72,598
--------- --------- ----------
Total assets ........................... $80,406 $93,493 $102,776
========= ========= ==========
Current liabilities ..................... $ 9,467 $17,194 $ 19,748
Noncurrent liabilities .................. 51,578 58,695 59,166
Partners' capital ....................... 19,361 17,604 23,862
--------- --------- ----------
Total liabilities and partners' capital $80,406 $93,493 $102,776
========= ========= ==========
Gross revenues .......................... $69,372 $89,223 $100,209
========= ========= ==========
Gross profit ............................ $19,440 $27,993 $ 36,157
========= ========= ==========
Net income (loss) ....................... $ 3,104 $ (839) $ 6,986
========= ========= ==========
</TABLE>

F-68
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Universal/PACE

The Company owns a 32.5 percent interest in Universal/PACE Amphitheaters
Group, L.P. (Universal/PACE), a limited partnership between the Company and
Universal Concerts, Inc., which controls two amphitheaters. PACE earned
management fees of $167,000, $79,000 and $34,000 from Universal/PACE for the
years ended September 30, 1995, 1996 and 1997, respectively. Summarized
financial information as of and for the years ended September 30, 1995, 1996
and 1997, for Universal/PACE follows (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current assets .......................... $ 4,085 $ 3,420 $ 6,659
Noncurrent assets ....................... 14,654 14,185 14,156
--------- --------- ---------
Total assets ........................... $18,739 $17,605 $20,815
========= ========= =========
Current liabilities ..................... $ 6,599 $ 3,876 $10,221
Noncurrent liabilities .................. 6,467 5,618 602
Partners' capital ....................... 5,673 8,111 9,992
--------- --------- ---------
Total liabilities and partners' capital $18,739 $17,605 $20,815
========= ========= =========
Gross revenues .......................... $24,070 $20,336 $25,299
========= ========= =========
Gross profit ............................ $ 5,968 $ 6,361 $ 5,817
========= ========= =========
Net income .............................. $ 1,183 $ 2,438 $ 1,880
========= ========= =========
</TABLE>

Other

The Company also has investments in numerous theatrical production and
other unconsolidated partnerships. Summarized financial information as of and
for the years ended September 30, 1995, 1996 and 1997, for these
partnerships, excluding Pavilion Partners and Universal/PACE, follows (in
thousands):

<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current assets .......................... $ 10,410 $ 12,433 $ 35,743
Noncurrent assets ....................... 5,668 7,267 14,050
---------- ---------- ----------
Total assets ........................... $ 16,078 $ 19,700 $ 49,793
========== ========== ==========
Current liabilities ..................... $ 7,539 $ 6,566 $ 19,134
Noncurrent liabilities .................. 2,315 2,250 2,957
Partners' capital ....................... 6,224 10,884 27,702
---------- ---------- ----------
Total liabilities and partners' capital $ 16,078 $ 19,700 $ 49,793
========== ========== ==========
Gross revenues .......................... $113,854 $111,715 $249,707
========== ========== ==========
Gross profit ............................ $ 221 $ 10,440 $ 34,454
========== ========== ==========
Net income (loss) ....................... $ (1,863) $ 9,823 $ 32,164
========== ========== ==========
</TABLE>

F-69

<PAGE>

PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT:

Long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Term loan ................ $14,464 $12,322
Revolving line of credit 9,250 12,950
Other notes payable ..... 725 251
--------- ---------
24,439 25,523
Less-Current portion .... (2,576) (2,394)
--------- ---------
$21,863 $23,129
========= =========
</TABLE>

In March 1996, the Company entered into a new credit agreement with
certain financial institutions. The credit agreement provides for a term loan
and a revolving line of credit, both of which bear interest at either LIBOR
plus 2 percent or prime, at the option of the Company. At September 30, 1997,
the weighted average interest rate was 7.8 percent. The term loan is
scheduled to mature in March 2001 and is payable in quarterly installments of
$536,000 plus interest, with a balloon payment at maturity. The Company may
borrow $27,000,000 under the revolving line of credit until February 1998;
subsequently, borrowings are limited to $13,000,000 until March 2001, when
the revolving line of credit expires. The Company must pay a quarterly
commitment fee equal to 0.375 percent per annum on the average daily unused
portion of the revolving line of credit. The term loan and the revolving line
of credit are secured by substantially all of the Company's assets, including
pledges of the capital stock of its subsidiaries. The credit agreement
contains various restrictions and requirements relating to, among other
things, mergers, sales of assets, investments and maintenance of certain
financial ratios.

At September 30, 1997, scheduled maturities of long-term debt were as
follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
For the year ending September
30--
1998 ............................ $ 2,394
1999 ............................ 2,143
2000 ............................ 2,143
2001............................. 18,843
--------
$25,523
========
</TABLE>

F-70
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAXES:

Deferred taxes reflect the tax effects of temporary differences between
the financial statement carrying amounts and the tax bases of assets and
liabilities. Significant components of the Company's deferred tax assets and
liabilities were as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------
1996 1997
-------- -------
<S> <C> <C>
Deferred tax assets--
Investments in unconsolidated partnerships
and theatrical productions .................. $ 286 $ 237
Accounts payable and accrued liabilities .... 1,014 1,480
Restricted stock compensation ................ 1,387 409
Other noncurrent liabilities ................. 1,717 --
Other ........................................ 107 281
-------- -------
Total deferred tax assets ................... 4,511 2,407
-------- -------
Deferred tax liabilities--
Investments in unconsolidated partnerships
and theatrical productions .................. 1,522 1,099
Prepaid expenses ............................. 907 1,237
Intangibles .................................. 646 672
-------- -------
Total deferred tax liabilities .............. 3,075 3,008
-------- -------
$1,436 $ (601)
======== =======
</TABLE>

Deferred taxes are included in the consolidated balance sheets as follows
(in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------
1996 1997
-------- ---------
<S> <C> <C>
Current deferred tax assets . $1,872 $ 979
Other noncurrent liabilities (436) (1,580)
-------- ---------
$1,436 $ (601)
======== =========
</TABLE>

The income tax (provision) benefit consisted of the following (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current--
Federal ...................... $(1,251) $(2,817) $(1,319)
State ........................ (476) (1,010) (173)
Deferred--
Federal ...................... (692) 3,705 (1,777)
State ........................ (156) 836 (260)
---------- ---------- ----------
Total tax (provision) benefit $(2,575) $ 714 $(3,529)
========== ========== ==========
Effective tax rate ............ 44% 26% 41%
========== ========== ==========
</TABLE>

F-71
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The reconciliation of income tax computed at the U.S. federal statutory
rates to the income tax (provision) benefit is as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------------
1995 1996 1997
---------- ------- ----------
<S> <C> <C> <C>
Tax at the federal statutory rate .... $(2,012) $ 924 $(2,954)
Increases resulting from--
State income taxes, net of federal
tax effect .......................... (417) (112) (286)
Nondeductible expenses ............... (60) (98) (185)
Other ................................ (86) -- (104)
---------- ------- ----------
Total income tax (provision) benefit $(2,575) $ 714 $(3,529)
========== ======= ==========
</TABLE>

6. REDEEMABLE COMMON STOCK:

At September 30, 1997, the Company had outstanding 155 shares of common
stock that are redeemable under conditions that are not solely within the
control of the Company. The Company granted this redeemable stock to certain
executives during the years ended September 30, 1996 and 1997. To the extent
that the grants related to prior service, the Company recognized compensation
costs on the grant date. Additionally, the Company recognizes compensation
costs for the change in value of certain shares that, as discussed below, the
Company may be required to purchase from the executives at fair market value.
Restricted stock compensation related to these grants totaled $3,260,000 and
$425,000 during the years ended September 30, 1996 and 1997, respectively.
The Company has the right of first refusal to purchase the redeemable common
stock at fair market value.

Agreements with one executive who received 140 shares of redeemable stock
provide that the Company will have call options to purchase these shares from
the executive for a total of $3,420,000. These agreements also provide that
the executive will have put options to sell such shares to the Company for
$3,420,000. The put and call options are only exercisable if the executive's
employment is terminated before an initial public offering of the Company's
common stock.

Of the redeemable stock granted to this executive, 123 shares were granted
during the year ended September 30, 1996, and vested during the year ended
September 30, 1997. Since the grant related to prior service, the Company
recognized compensation costs on the grant date. During the year ended
September 30, 1997, the Company executed a promissory note in the amount of
$1,232,000 with this executive. This note bears interest at 5.45 percent, is
secured by 140 shares of the Company's common stock, and is scheduled to
mature in October 2001. The proceeds of the note were used to pay the
executive's tax liability related to the 123 shares that vested during the
year ended September 30, 1997. Accordingly, the value of redeemable stock
outstanding has been reduced by this note receivable.

The remaining 17 shares of redeemable stock received by this executive
were granted during the year ended September 30, 1997, and vest ratably
during the years ending September 30, 1999 and 2000. To fund the executive's
tax liability related to these 17 shares, the Company may be required to
purchase up to 41 percent of the shares at fair market value when the shares
vest. The Company has similar agreements with the other executives who
received the remaining 15 shares of redeemable stock, which were granted
during the year ended September 30, 1996. In order to fund the executives'
tax liabilities related to these grants and related restricted common stock
grants, these 15 shares of redeemable stock must be purchased at fair market
value when the shares vest during the years ended September 30, 1998 and
1999. Although all 32 shares that the Company may be required to purchase in
order to satisfy executives' tax liabilities have future vesting
requirements, the Company recognized compensation costs on the grant dates to
the extent the grants related to prior service. The difference between such
expense recognition and recognition over the vesting periods is not material
to the Company's results of operations and financial position.

F-72
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. SHAREHOLDER'S EQUITY:

The Company granted 23 shares of restricted common stock to certain
executives during the year ended September 30, 1996. These shares vest
ratably during the years ended September 30, 1998 and 1999. Although the
shares have future vesting requirements, the Company recognized compensation
costs on the grant dates to the extent the grants related to prior service.
The difference between such expense recognition, which totaled $390,000 and
$6,000 during the years ended September 30, 1996 and 1997, respectively, and
recognition over the vesting periods is not material to the Company's results
of operations and financial position. The Company has the right of first
refusal to purchase at fair market value all of the shares granted during the
year ended September 30, 1996. Additionally, if the executives' employment is
terminated before an initial public offering of the Company's common stock,
the Company has a call option to purchase the vested shares at fair market
value.

Effective October 15, 1993, the Company and one of its officers entered
into an employment agreement which provided for the granting of 45 shares of
the Company's common stock. The shares vested over a five-year period and the
Company recorded related compensation expense of $25,000 for each of the
years ended September 30, 1995, 1996 and 1997.

8. STOCK OPTIONS:

The Company adopted the 1996 Stock Incentive Compensation Plan during the
year ended September 30, 1996. Under the plan, the Company may grant awards
based on its common stock to employees and directors. Such awards may
include, but are not limited to, restricted stock, stock options, stock
appreciation rights and convertible debentures. Up to 325 shares of common
stock may be issued under the plan. During the year ended September 30, 1996,
the Company granted options to purchase 117 shares of common stock at a
weighted average exercise price of $18,989 per share, which approximated fair
value on the date of grant. Such options vest and are generally exercisable
ratably over a four-year period. The options expire in 10 years.

An option to purchase 22 shares of common stock at $10,000 per share was
granted to an executive during the year ended September 30, 1994. This option
was canceled subsequent to September 30, 1997.

Because the exercise prices of the Company's employee stock options
equaled the fair market value of the underlying stock on the date of grant,
no compensation expense was recognized in accordance with APB Opinion No. 25.
Had compensation cost for the options been determined based on the fair value
at the grant date pursuant to SFAS No. 123, the Company's net income would
have decreased by $49,000 and $148,000 for the years ended September 30, 1996
and 1997, respectively. For this purpose, the fair value of the options was
estimated using the minimum value method assuming that the risk-free interest
rate was 6.7 percent and that no dividends will be paid.

9. RELATED-PARTY TRANSACTIONS:

The Company contracts with certain theatrical partnerships of which it is
a minority partner to obtain the rights to present theatrical productions in
the Company's markets. Approximately $20,000,000, $33,400,000 and $31,200,000
of expenses were incurred for such rights and included in cost of sales
during the years ended September 30, 1995, 1996 and 1997, respectively.

The Company contracts with certain unconsolidated partnerships to sell the
rights to present musical concerts. Approximately $2,446,000 of revenues was
earned from the sale of such rights during the year ended September 30, 1997.
No such rights were sold during the years ended September 30, 1995 and 1996.

As of September 30, 1997, notes receivable, related parties included
$6,453,000 due from executives and $1,571,000 due from other related parties.
Two of the notes receivable from executives

F-73
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

are promissory notes from the Company's principal shareholder. As of
September 30, 1997, these two notes totaled $5,961,000, including accrued
interest of $550,000. One note, in the original principal amount of
$2,911,000, bears interest at 5.83 percent, is secured by 254 shares of PACE
common stock and matures on March 28, 1999. The other note is for $2,500,000,
bears interest at 6.34 percent, is secured by 246 shares of PACE common stock
and was scheduled to mature on November 3, 1997. This note has been extended
to mature on November 4, 2000. Interest income on these two notes was
approximately $300,000 for each of the years ended September 30, 1995, 1996
and 1997. At September 30, 1997, the Company also had a $583,000 receivable
from its principal shareholder. The principal shareholder has represented his
intention to pay the outstanding loans and receivable balance from personal
assets or if necessary, the liquidation of certain ownership interests in the
Company.

At September 30, 1997, notes receivable from other related parties
included $945,000 due from a joint venture partner. The terms of the related
joint venture agreement provide for the Company to loan to the joint venture
partner any required capital contributions, to be repaid on a priority basis
from the profits allocated to the joint venture partner. The advances accrue
interest at the prime rate plus 4 percent (12.5 percent at September 30,
1997) and are secured by the joint venture partner's 50 percent interest in
the joint venture.

10. LITIGATION SETTLEMENT:

The Company was previously named as a defendant in a case filed in Wake
County, North Carolina (Promotion Litigation). There were several other
defendants named in the litigation, including Pavilion Partners, with various
causes of action asserted against one or more of each of the defendants,
including (a) breach of alleged contract, partnership, joint venture and
fiduciary duties between certain of the defendants and Pro Motion Concerts,
(b) constructive fraud, (c) interference with prospective advantage, (d)
unfair trade practices, (e) constructive trust and (f) unjust enrichment. The
essence of the plaintiffs' claims was that certain of the defendants agreed
to enter into a partnership with plaintiffs for the development and operation
of an amphitheater.

On May 1, 1997, the Promotion Litigation was settled. All defendants were
fully and finally released with prejudice from any and all claims and causes
of action. The defendants did not acknowledge or admit any liability. The
settlement called for payments from defendants totaling $4,500,000. The
Company was obligated to pay $1,500,000 immediately after the settlement and
is obligated to pay an additional $2,000,000 on or before May 1, 1998. To
guarantee payment of this $2,000,000 obligation, the Company had a standby
letter of credit outstanding at September 30, 1997. The remaining $1,000,000
of the settlement was paid by Pavilion Partners during the year ended
September 30, 1997. This expense and related legal expenses were charged to
operations for the year ended September 30, 1996.

F-74
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES:

Leases

The Company leases office facilities under noncancelable operating leases
with future minimum rent payments as follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
For the year ending September
30--
1998 ............................ $1,006
1999 ............................ 417
2000 ............................ 215
2001 ............................ 193
2002 ............................ 195
Thereafter ....................... 33
--------
Total ........................... $2,059
========
</TABLE>

Rent expense was $676,000, $765,000 and $1,084,000 for the years ended
September 30, 1995, 1996 and 1997, respectively.

Change in Control Provisions

The Company and its unconsolidated partnerships, including Pavilion
Partners, have entered into numerous leases and other contracts in the
ordinary course of business. Certain of these agreements either contain
restrictions on their assignability or would require third-party approval of
a change in control of the Company.

Employment Agreements

The Company has employment agreements with certain key employees. Such
agreements generally provide for minimum salary levels, guaranteed bonuses
and incentive bonuses which are payable if specified financial goals are
attained. As of September 30, 1997, the Company's minimum commitment under
these agreements were as follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
For the year ending September
30--
1998 ............................ $4,463
1999 ............................ 3,825
2000 ............................ 2,789
2001 ............................ 1,430
2002 ............................ 743
</TABLE>

The Company is currently negotiating certain other employment agreements
that may result in additional future commitments.

Insurance

The Company carries a broad range of insurance coverage, including general
liability, workers' compensation, stop-loss coverage for its employee health
plan and umbrella policies. The Company carries deductibles of up to $10,000
per occurrence for general liability claims and is self-insured for annual
healthcare costs of up to $25,000 per covered employee and family. The
Company has accrued for estimated potential claim costs in satisfying the
deductible and self-insurance provisions of the insurance policies for claims
occurring through September 30, 1997. The accrual is based on known facts and
historical trends, and management believes such accrual to be adequate.

F-75
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Legal Proceedings

Various legal actions and claims are pending against the Company, most of
which are covered by insurance. In the opinion of management, the ultimate
liability, if any, which may result from these actions and claims will not
materially affect the financial position or results of operations of the
Company.

Guarantees

The Company has guaranteed a $2,438,000 debt of a partnership in which
Pavilion Partners holds a 50 percent interest. PACE has agreements with its
partners whereby they would assume approximately 50 percent of any liability
arising from this guarantee. The debt matures June 1, 2003. Management does
not believe that the guarantee will result in a material liability to the
Company.

Income Taxes

The Internal Revenue Service is examining several years of returns of a
majority-owned subsidiary. Management is currently discussing a possible
settlement of approximately $600,000, which has been accrued in the Company's
financial statements.

Subscription Agreement

During April 1995, the Company acquired an interest in a company
incorporated in the United Kingdom. Pursuant to a subscription agreement, the
Company made payments totaling $1,355,000 prior to September 30, 1997. The
Company has agreed to pay an additional pounds sterling239,000 in April 1998.

Construction Commitments

An unconsolidated partnership has committed to certain renovation work at
its amphitheater. The Company may be obligated to fund up to approximately
$7.3 million of these renovations. Through its investment in another
unconsolidated partnership, the Company has an interest in a performance hall
being constructed for musical and theatrical presentations. The Company had
funded $0.4 million of the performance hall construction costs through
September 30, 1997; the Company's estimated additional funding commitments
are approximately $2.0 million. In addition, the Company and several third
parties are currently negotiating definitive agreements to develop a
theatrical venue. The Company may be obligated to fund approximately $3.0
million of the costs of this development over an undetermined period of time.

Put Option Agreement

The Company has entered into put option agreements with two banks whereby
the Company may be required to repurchase a total of 1,000 shares of the
Company's common stock held by an affiliate that collateralizes the personal
loans of the Company's principal shareholder at a per share price of $1,500.
The put options are effective only in the event of a loan default of the
shareholder prior to July 31, 1999. At September 30, 1997, the loans were not
in default.

12. SUBSEQUENT EVENTS:

Subsequent to September 30, 1997, the Company entered into certain
agreements with an executive who previously had been granted an option to
purchase 22 shares of common stock at $10,000 per share. Pursuant to the new
agreements, the option was canceled and the executive was granted 22 shares
of restricted common stock.

In December 1997, the Company and its shareholders entered into an
agreement with SFX Entertainment, Inc. (SFX), whereby the shareholders would
sell their interests in the Company to SFX (SFX Transaction). The purchase
price of $109 million in cash and 1,500,000 shares of SFX Class A Common
Stock is subject to adjustment prior to closing. Closing is subject to
certain conditions, including

F-76
<PAGE>
PACE ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

approval of certain third parties. Concurrent with closing, the agreement
requires, among other things, the repayment of all outstanding loans and
receivables due from the Company's principal shareholder (see Note 9) and the
repayment of the promissory note received from an executive in connection
with a stock grant (see Note 6). Additionally, the agreement provides for the
settlement of all restricted and redeemable stock, as well as all outstanding
stock options. This settlement is expected to result in a one-time charge by
the Company of approximately $4.7 million, net of related tax effects. The
agreement also requires SFX to provide the Company with a $25 million line of
credit (Acquisition Facility) to be used for certain acquisitions being
contemplated by the Company. If the acquisition of the Company is not
consummated, this line of credit will be converted to a term loan in the
amount of advances then outstanding or, under certain circumstances, will
become immediately due and payable. This bridge financing is secured by the
assets acquired and an option to purchase the Company's interest in Pavilion
Partners.

In December 1997, the Company entered into agreements to effectively
purchase substantially all of the assets of United Sports of America (USA
Transaction), a producer and presenter of demolition derbies, thrill shows,
air shows, monster truck shows, tractor pull events, motorcycle racing and
bull riding in the United States and Canada. Pursuant to the agreements, the
total purchase price is $6,000,000 in cash of which an option amount of
$500,000 was paid upon the execution of the agreement and closing is subject
to the satisfactory completion of due diligence by the Company. Management
does not expect this transaction to close until May 1998. In the event the
transaction does not close, the option amount will be forfeited if certain
conditions are not met.

In December 1997, the Company entered into an agreement to purchase
Blockbuster's 33 1/3 percent interest in Pavilion Partners (Blockbuster
Transaction) for $4,171,000 in cash, $2,940,000 in assumed liabilities and
the assumption of certain indemnification obligations of Blockbuster under
the Pavilion Partners Partnership Agreement. In addition, the Company has
agreed to purchase a note with a balance of $9,507,000, including accrued
interest of $1,601,000, at September 30, 1997. The transaction is contingent
on, among other things, obtaining acceptable financing including the release
of Blockbuster from certain debt obligations and the approval of Sony. (Note
3)

On December 22, 1997, the Company entered into an agreement to purchase
Sony's 33 1/3 percent interest in Pavilion Partners (Sony Transaction) for
$27,500,000 in cash. The transaction is contingent on, among other things,
government approval and obtaining acceptable financing including the release
of Sony from certain debt obligations. (see Note 3)

EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (Unaudited)

Effective February 25, 1998, the SFX Transaction, Blockbuster Transaction
and Sony Transaction closed. In conjunction with the closing, SFX retired the
Company's outstanding term loan and revolving line of credit and purchased or
retired a substantial portion of the indebtedness of Pavilion Partners,
including debt which was previously guaranteed by PACE. No borrowings had
been made under the Acquisition Facility, which expired with the closing of
the SFX Transaction. Additionally, all put option agreements related to the
Company's common stock were terminated.

During February 1998, the Company granted 40 shares of restricted common
stock to an executive. This grant combined with the settlement of all
restricted and redeemable stock, all outstanding stock options and certain
bonuses paid in conjunction with the SFX Transaction resulted in a one-time
charge during February 1998 of approximately $6.4 million, net of related tax
effects.

The USA Transaction closed on March 25, 1998. To effect the USA
Transaction, PACE contributed $4,000,000 to a newly formed partnership and
that partnership acquired a 67% interest in certain assets and liabilities of
United Sports of America from third parties. The remaining 33% interest in
those assets and liabilities was contributed to the partnership by a
subsidiary of SFX.

F-77
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of Pavilion Partners:

We have audited the accompanying consolidated balance sheet of Pavilion
Partners, a Delaware general partnership, as of September 30, 1997, and the
related consolidated statements of income, partners' capital and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pavilion
Partners as of September 30, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
December 15, 1997 (except with
respect to the matters discussed
in Note 11, as to which the date
is December 22, 1997)

F-78
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of Pavilion Partners

In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of partners' capital and of cash
flows present fairly, in all material respects, the financial position of
Pavilion Partners and its subsidiaries (the Partnership) at September 30,
1996 and the results of their operations and their cash flows for the year
ended October 31, 1995 and the eleven months ended September 30, 1996, in
conformity with generally accepted accounting principles. 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. 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.

PRICE WATERHOUSE LLP
Houston, Texas
December 12, 1996

F-79
<PAGE>

PAVILION PARTNERS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------- DECEMBER

1996 1997 1997
-------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 8,554 $ 17,898 $15,464
Accounts receivable ................................... 7,842 6,167 2,067
Accounts receivable, related parties .................. 1,878 3,878 1,687
Notes receivable, related parties ..................... 1,218 1,218 1,218
Prepaid expenses and other current assets ............. 1,208 1,017 622
--------- ---------- -------------
Total current assets ............................... 20,700 30,178 21,058
Prepaid rent .......................................... 7,075 6,938 6,898
Property and equipment, net ........................... 61,292 59,938 59,291
Other assets .......................................... 4,426 5,722 5,777
--------- ---------- -------------
Total assets ....................................... $93,493 $102,776 $93,024
========= ========== =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable ...................................... $ 1,404 $ 1,193 $ 260
Accounts payable, related parties ..................... 1,866 3,948 2,193
Accrued liabilities ................................... 8,112 7,032 5,614
Deferred revenue ...................................... 3,602 5,081 3,067
Current portion of notes payable and capital lease
obligation ........................................... 1,573 1,614 1,639
Current portion of note payable, related party ....... 637 880 945
--------- ---------- -------------
Total current liabilities .......................... 17,194 19,748 13,718
Notes payable ......................................... 43,680 42,192 41,879
Note payable, related party ........................... 7,268 7,025 6,961
Capital lease obligation .............................. 6,130 5,989 5,952
Other liabilities and minority interests in
consolidated subsidiaries ............................ 1,617 3,960 2,911
--------- ---------- -------------
Total liabilities .................................. 75,889 78,914 71,421
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL ...................................... 17,604 23,862 21,603
--------- ---------- -------------
Total liabilities and partners' capital ........... $93,493 $102,776 $93,024
========= ========== =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-80
<PAGE>

PAVILION PARTNERS
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997
--------- -------- ----------

TICKET REVENUES .......... $43,266 $50,151 $ 58,479
<S> <C> <C> <C>
OTHER OPERATING REVENUES 28,109 33,942 41,730
------------- --------------- ---------------
Total revenues ......... 71,375 84,093 100,209
COST OF SALES ............ 49,226 57,723 64,052
------------- --------------- ---------------
Gross profit ........... 22,149 26,370 36,157
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,329 9,774 10,858
DEPRECIATION AND
AMORTIZATION ............ 2,461 3,346 3,975
OTHER OPERATING COSTS ... 5,345 7,390 8,531
LITIGATION EXPENSES AND
SETTLEMENT .............. -- 2,380 --
------------- --------------- ---------------
Operating profit (loss) 6,014 3,480 12,793
INTEREST INCOME .......... 504 391 532
INTEREST EXPENSE ......... 2,793 3,855 4,413
------------- --------------- ---------------
INCOME (LOSS) BEFORE
MINORITY INTEREST ....... 3,725 16 8,912
MINORITY INTEREST ........ 276 308 1,926
------------- --------------- ---------------
NET INCOME (LOSS) ........ $ 3,449 $ (292) $ 6,986
============= =============== ===============
</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1996 1997
-------- --------
(Unaudited)
<S> <C> <C>
TICKET REVENUES .......... $ 4,186 $ 4,554
OTHER OPERATING REVENUES 3,254 3,141
---------- ---------
Total revenues ......... 7,440 7,695
COST OF SALES ............ 4,862 5,229
---------- ---------
Gross profit ........... 2,578 2,466
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,299 1,987
DEPRECIATION AND
AMORTIZATION ............ 961 1,031
OTHER OPERATING COSTS ... 961 723
LITIGATION EXPENSES AND
SETTLEMENT .............. -- --
---------- ---------
Operating profit (loss) (1,643) (1,275)
INTEREST INCOME .......... 74 167
INTEREST EXPENSE ......... 1,127 1,102
---------- ---------
INCOME (LOSS) BEFORE
MINORITY INTEREST ....... (2,696) (2,210)
MINORITY INTEREST ........ (63) (59)
---------- ---------
NET INCOME (LOSS) ........ $(2,633) $(2,151)
========== =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-81
<PAGE>

PAVILION PARTNERS
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)

<TABLE>
<CAPTION>
AMPHITHEATER
ENTERTAINMENT
PARTNERSHIP SM/PACE, INC. TOTAL
--------------- --------------- ---------
<S> <C> <C> <C>
BALANCE, October 31, 1994 .............. $13,108 $2,805 $15,913
Net income ............................ 1,788 1,661 3,449
Distributions ......................... -- (699) (699)
--------------- --------------- ---------
BALANCE, October 31, 1995 .............. 14,896 3,767 18,663
Net income (loss) ..................... (330) 38 (292)
Distributions ......................... -- (767) (767)
--------------- --------------- ---------
BALANCE, September 30, 1996 ............ 14,566 3,038 17,604
Net income ............................ 4,578 2,408 6,986
Distributions ......................... -- (728) (728)
--------------- --------------- ---------
BALANCE, September 30, 1997 ............ $19,144 $4,718 $23,862
Net loss (unaudited) .................. (1,435) (716) (2,151)
Distributions (unaudited) ............. -- (108) (108)
--------------- --------------- ---------
BALANCE, December 31, 1997 (unaudited) $17,709 $3,894 $21,603
=============== =============== =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-82
<PAGE>

PAVILION PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
FOR THE ELEVEN MONTHS FOR THE
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997
------------ ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ............... $ 3,449 $ (292) $ 6,986
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities--
Depreciation and amortization . 2,461 3,346 3,975
Minority interest .............. 276 308 1,926
Changes in assets and
liabilities--
Accounts receivable ........... (1,455) (3,647) 1,669
Accounts receivable and
payable, related parties .... 32 (756) 82
Prepaid expenses and other
current assets ............... 191 (296) 266
Accounts payable and accrued
liabilities .................. (512) 1,695 (2,184)
Deferred revenue and other
liabilities .................. 1,304 2,110 2,284
Other, net .................... (785) (1,259) (1,548)
------------- --------------- ---------------
Net cash provided by (used
in) operating activities ... 4,961 1,209 13,456
------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments of preoperating costs . (1,318) (1,114) (59)
Capital expenditures ............ (25,856) (7,483) (1,879)
------------- --------------- ---------------
Net cash used in investing
activities .................. (27,174) (8,597) (1,938)
------------- --------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Funding of capital commitments
by partners .................... 4,046 -- --
Distributions to partner ........ (699) (767) (728)
Proceeds from borrowings ........ 24,322 8,323 --
Repayments of borrowings ........ (639) (1,072) (1,446)
------------- --------------- ---------------
Net cash provided by (used
in) financing activities ... 27,030 6,484 (2,174)
------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............. 4,817 (904) 9,344
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ............. 4,641 9,458 8,554
------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD ....................... $ 9,458 $ 8,554 $17,898
============= =============== ===============
</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ............... $(2,633) $(2,151)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities--
Depreciation and amortization . 961 1,031
Minority interest .............. (63) (59)
Changes in assets and
liabilities--
Accounts receivable ........... 5,124 4,100
Accounts receivable and
payable, related parties .... (299) 436
Prepaid expenses and other
current assets ............... 774 435
Accounts payable and accrued
liabilities .................. (1,925) (2,350)
Deferred revenue and other
liabilities .................. (2,082) (2,092)
Other, net .................... (141) (1,210)
---------- ----------
Net cash provided by (used
in) operating activities ... (284) (1,860)
---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments of preoperating costs . (271) --
Capital expenditures ............ (15) (178)
---------- ----------
Net cash used in investing
activities .................. (286) (178)
---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Funding of capital commitments
by partners .................... -- --
Distributions to partner ........ (728) (108)
Proceeds from borrowings ........ -- --
Repayments of borrowings ........ (375) (288)
---------- ----------
Net cash provided by (used
in) financing activities ... (1,103) (396)
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............. (1,673) (2,434)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ............. 8,554 17,898
---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD ....................... $ 6,881 $15,464
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-83
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION:

Pavilion Partners (the Partnership) is a Delaware general partnership
between SM/PACE, Inc. (PACE), which is a wholly owned subsidiary of PACE
Entertainment Corporation, and Amphitheater Entertainment Partnership (AEP).
AEP is a partnership between a wholly owned subsidiary of Sony Music
Entertainment Inc. (Sony) and two wholly owned subsidiaries of Blockbuster
Entertainment Corporation (Blockbuster). PACE is the managing partner of the
Partnership. AEP owns a 66 2/3 percent interest in the Partnership, and PACE
owns a 33 1/3 percent interest in the Partnership.

In April 1990, Sony and PACE formed YM/PACE Partnership which changed its
name to the Sony Music/PACE Partnership. Effective April 1, 1994, the
partners entered into an agreement whereby Blockbuster obtained an indirect
33 1/3 percent interest in Sony Music/PACE Partnership, which was renamed
Pavilion Partners. In accordance with the agreement, Sony contributed an
interest-bearing note in the amount of $4,250,000 and its existing interest
in Sony Music/PACE Partnership to AEP. Concurrently, Blockbuster contributed
an interest-bearing note in the amount of $4,250,000 and its interest in
three existing amphitheaters to AEP. AEP in turn contributed these assets to
the Partnership. At the same time, PACE Entertainment Corporation contributed
its interest in two existing amphitheaters to the Partnership. Upon
completion of these contributions to the Partnership, AEP owned a 66 2/3
percent interest in the Partnership and PACE owned a 33 1/3 percent interest
in the Partnership.

The Partnership owns and operates amphitheaters, which are primarily used
for the presentation of live performances by musical artists. As of September
30, 1997, the Partnership owned interests in or leased 10 amphitheaters and
had a long-term management contract to operate an additional amphitheater.
All of the amphitheaters owned or operated by the Partnership are located in
the United States.

In April 1997, the Partnership entered into a new partnership agreement
with a third party to be known as Western Amphitheater Partners (WAP). The
Partnership contributed or licensed the assets and liabilities of the Glen
Helen Amphitheatre, and the other partner contributed or licensed the assets
and liabilities of the Irvine Meadows Amphitheatre. Each partner has a 50
percent interest in WAP. Under the terms of the Partnership agreement, the
partners are required to make an additional capital contribution of
approximately $850,000 each in WAP which was accrued by the Partnership at
September 30, 1997. The fiscal year-end for the WAP partnership will be
December 31.

During 1996, the Partnership changed its fiscal year-end from October 31
to September 30.

2. SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements of the Partnership include all of
its wholly owned subsidiaries and other partnerships in which Pavilion
Partners holds a controlling interest. All partnerships in which Pavilion
Partners holds less than a controlling interest are reported on the equity
method of accounting. All significant intercompany transactions have been
eliminated in consolidation.

Basis of Contributed Assets

All assets contributed to the Partnership by the partners were recorded at
the carrying values of the contributing entities.

Revenue Recognition

The Partnership records revenues from the presentation of events at the
completion of the related event. Advance ticket sales are classified as
deferred revenue until the event has occurred. Sponsorship and other revenues
that are not related to any single event are classified as deferred revenue
and amortized over each of the amphitheaters' various shows during the
operating season.

F-84
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Partnership barters event tickets and sponsorship rights for products
and services, including event advertising. These barter transactions are not
recognized in the accompanying consolidated financial statements and are not
material to the Partnership's financial position or results of operations.

Income Taxes

No provision for federal or state income taxes is necessary in the
financial statements of the Partnership because, as a partnership, it is not
subject to federal or state income taxes and the tax effect of its activities
accrues to the partners.

Prepaid Expenses

As of September 30, 1996 and 1997, prepaid expenses included event
advertising costs of $160,000 and $137,000, respectively. The Partnership
recognized event advertising expenses of $5,815,000, $6,439,000 and
$6,569,000 in cost of sales for the year ended October 31, 1995, the eleven
months ended September 30, 1996, and the year ended September 30, 1997,
respectively.

Other Assets

The Partnership incurs certain costs in identifying and selecting
potential sites for amphitheater development. All costs incurred by the
Partnership during the initial site selection phase are expensed as incurred.
Certain incremental start-up costs that are incurred after a decision has
been made to develop a site are capitalized as preoperating costs. After an
amphitheater is fully developed, these preoperating costs are amortized on a
straight-line basis over a five-year period.

Contract acquisition costs include fees associated with securing a
contract with a booking agent for one of the Partnership's amphitheaters.
These costs are amortized on a straight-line basis over the life of the
contract which is 10 years.

Property and Equipment

Property and equipment is stated at cost. Repair and maintenance costs are
expensed as incurred. Interest incurred in connection with the construction
of an amphitheater is capitalized as part of the cost of the amphitheater.
During 1995 and 1996, the Partnership capitalized interest in connection with
the construction of amphitheaters of $645,000 and $161,000, respectively. No
interest was capitalized in 1997.

Leasehold improvements are amortized on a straight-line basis over the
shorter of their estimated useful lives or the term of the lease. Other
property and equipment is depreciated on a straight-line basis over the
estimated useful lives of the assets. A summary of the principal ranges of
useful lives used in computing the annual provision for depreciation and
amortization is as follows:

<TABLE>
<CAPTION>
RANGE OF YEARS
--------------
<S> <C>
Buildings .............. 27-31.5
Leasehold improvements 5-31.5
Equipment .............. 3-7
Furniture and fixtures 5-10
</TABLE>

The Partnership evaluates on an ongoing basis whether events and
circumstances indicate that the estimated useful lives of property and
equipment warrant revision. The Partnership adopted Statement of Financial
Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in 1997. The
adoption of SFAS No. 121 did not have a material effect on the Partnership's
financial position or results of operations.

F-85
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Fair Value of Financial Instruments

The carrying amounts of the Partnership's financial instruments
approximate their fair value at September 30, 1996 and 1997.

Statement of Cash Flows

The Partnership considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Interest paid was
$2,319,000, $3,652,000 and $3,917,000 for 1995, 1996 and 1997, respectively.
During the year ended October 31, 1995, the Partnership issued a note payable
with a fair value of $1,300,000 to a vendor in exchange for certain equipment
with a fair value which approximated the amount of the note. During 1997, the
Partnership contributed or licensed the assets and liabilities of the Glen
Helen Amphitheatre into the new WAP Partnership in which it holds a 50
percent interest. The net book value of the investment made in the WAP
Partnership was $54,000.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Partnership to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain amounts in the 1995 and 1996 consolidated financial statements
have been reclassified to conform to the 1997 presentation.

Interim Financial Information

3. PARTNERSHIP AGREEMENT:

The Partnership agreement provides, among other things, for the following:

Contributions and Project Loans

In addition to the initial contributions as discussed in Note 1, the
partners are obligated to contribute, in proportion to their respective
Partnership interests, any deficiency in the funding for the construction of
each approved amphitheater development or any operational shortfall, as
defined in the Partnership agreement. No such funding was required in 1995,
1996 or 1997.

In addition, AEP is responsible for providing project financing, as
defined, for each approved amphitheater development. To the extent AEP does
not fulfill this responsibility, AEP must indemnify, defend and hold harmless
the Partnership from all claims, demands, liabilities or other losses
(including the loss of any earnest money deposits and any reasonable
attorneys' fees) which might result from AEP's failure to provide such
project loan.

Income Allocation

In general, all of the Partnership's income is allocated to the partners
in proportion to their respective Partnership interests. However, PACE
receives a priority allocation of net income, as defined in the Partnership
agreement, until the cumulative amount of such allocations is equal to
$2,000,000 increased

F-86
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

by 7 percent of the unpaid allocation on the last day of each fiscal year.
Any such allocation of net income to PACE is distributed in the following
year. The priority allocation of net income to PACE for 1995, 1996 and 1997
was approximately $767,000, $716,000 and $119,000, respectively. This
allocation obligation was fully satisfied with the distribution of the fiscal
1997 income allocation amount during October 1997.

AEP is entitled to receive a priority allocation of net income once a loan
related to an amphitheater contributed by Blockbuster is repaid. At September
30, 1997, the loan balance is $7,905,000 and is payable in quarterly
installments with a balloon payment due at its maturity on April 1, 2004. The
priority allocation of net income is equal to 65 percent of the cash flow
attributable to the amphitheater, as defined in the Partnership agreement.
The cumulative priority allocation of net income to AEP is limited to
$7,000,000. No such allocation was made in 1995, 1996 or 1997.

On November 1 of each calendar year, the executive committee of the
Partnership determines if any excess cash exists in the Partnership's
accounts above what is necessary to fund future operations and obligations.
Any such excess cash may be distributed to the partners in proportion to
their respective interests in the Partnership. No distributions of excess
cash flow have been made.

4. PROPERTY AND EQUIPMENT:

The components of the Partnership's property and equipment are as follows
(in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------
1996 1997
--------- --------
<S> <C> <C>
Property ....................................... $ 695 $ 695
Buildings ...................................... 10,817 10,817
Leasehold improvements ......................... 53,148 53,826
Equipment ...................................... 5,007 4,488
Furniture and fixtures ......................... 705 722
Construction in progress ....................... -- 786
--------- --------
70,372 71,334
Less--Accumulated depreciation and amortization 9,080 11,396
--------- --------
$61,292 $59,938
========= ========
</TABLE>

Depreciation and amortization expense associated with property and
equipment for 1995, 1996 and 1997 was $1,905,000, $2,693,000 and $3,179,000,
respectively.

Assets under capital lease included above are as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
------------------
1996 1997
-------- --------
<S> <C> <C>
Building ...................... $5,333 $5,333
Furniture and equipment ...... 841 841
-------- --------
6,174 6,174
Less--Accumulated depreciation 2,068 2,237
-------- --------
$4,106 $3,937
======== ========
</TABLE>

Amortization expense associated with assets under capital lease for 1995,
1996 and 1997 was $169,000, $156,000 and $169,000, respectively.

F-87
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. OTHER ASSETS:

Other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
------------------
1996 1997
-------- --------
<S> <C> <C>
Preoperating costs, net of accumulated amortization of $2,092,000 and
$1,094,000, respectively................................................. $2,153 $1,709
Investment in unconsolidated partnerships ................................ 1,302 2,797
Contract acquisition costs, net of accumulated amortization of $45,000
and $129,000, respectively .............................................. 624 815
Other .................................................................... 347 402
-------- --------
$4,426 $5,723
======== ========
</TABLE>

During 1995, 1996 and 1997, the Partnership recognized equity in earnings
of unconsolidated partnerships of $263,000, $129,000 and $1,592,000,
respectively, which is included in other operating revenues.

6. ACCRUED LIABILITIES:

Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------
1996 1997
-------- -------
<S> <C> <C>
Interest ........................... $ 544 $ 522
Rent ............................... 638 580
Taxes .............................. 748 613
Litigation expenses and settlement 1,873 --
Insurance .......................... 1,216 1,656
Other .............................. 3,093 3,660
-------- -------
$8,112 $7,031
======== =======
</TABLE>

Accrued liabilities do not include accrued interest on the notes payable
to Blockbuster (see Note 7). Such accrued interest, which is included in
accounts payable, related parties, was $1,082,000 and $1,601,000 as of
September 30, 1996 and 1997, respectively.

F-88
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. NOTES PAYABLE:

Notes payable to third parties consist of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Note payable to a bank, interest at LIBOR plus 0.18% (6% at
September 30, 1996 and 1997), payments due semiannually with
a balloon payment due on maturity in July 2005, guaranteed by
Sony ......................................................... $13,122 $12,573
Note payable to a bank, interest at 8.35% through July 2002
and LIBOR plus 0.18% thereafter, due in July 2005, guaranteed
by Sony....................................................... 10,000 10,000
Note payable to a bank, interest at LIBOR plus 0.85% (6.78% at
September 30, 1996 and 1997), payments due annually with a
balloon payment due on maturity in December 2005, guaranteed
by Blockbuster and Sony....................................... 7,732 7,575
Note payable to a bank, interest at prime minus 105 basis
points (7.2% and 7.45% at September 30, 1996 and 1997,
respectively), payments due quarterly with a balloon payment
due on maturity in April 2000, guaranteed by Sony............. 6,449 6,356
Note payable to a bank, interest at 9.46%, payments due
quarterly with a balloon payment due on maturity in December
1999, guaranteed by Sony...................................... 3,958 3,914
Note payable to a vendor, interest imputed at 8.98%, payments
due weekly through May 2005................................... 1,826 1,671
Other notes payable to vendors, interest at fixed rates
ranging from 8.2% to 10.72%, due in equal installments with
final maturities ranging from December 1996 through February
2006.......................................................... 2,040 1,591
--------- ---------
Total........................................................ 45,127 43,680
Less--Current maturities....................................... 1,447 1,488
--------- ---------
Noncurrent portion........................................... $43,680 $42,192
========= =========
Note payable to a related party consist of the following (in
thousands):
SEPTEMBER 30
--------------------
1996 1997
--------- ---------
Note payable to Blockbuster, interest at 7%, payments due
quarterly with a balloon payment due on maturity in April
2004, secured by property and equipment with a net book value
of $6,212 .................................................... $ 7,905 $ 7,905
Less--Current maturities....................................... 637 880
--------- ---------
Noncurrent portion........................................... $ 7,268 $ 7,025
========= =========
</TABLE>

The terms of contracts with concessionaires such as food and beverage
vendors generally require the vendors to make a significant initial payment
to the Partnership at the time of the construction of an amphitheater. These
advances are repayable in periodic installments from amounts otherwise due to
the Partnership under the concession contracts. As of September 30, 1997, the
notes payable to vendors

F-89

<PAGE>

PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

under such arrangements had a weighted-average effective interest rate of
9.15 percent. The Partnership's weighted-average interest rate on notes
payable to banks was 7.3 percent on September 30, 1997.

Interest expense on the note payable to a related party was $547,000,
$489,000 and $519,000 for 1995, 1996 and 1997, respectively. Principal and
interest on the note payable to a related party have not been paid as
accounts receivable, related parties from Blockbuster remain outstanding.

As of September 30, 1997, scheduled maturities of notes payable were as
follows:

<TABLE>
<CAPTION>
<S> <C>
1998 ......... $ 2,368
1999 ......... 1,841
2000 ......... 11,560
2001 ......... 1,751
2002 ......... 1,811
Thereafter .. 32,254
--------
$51,585
========
</TABLE>

8. LEASE COMMITMENTS:

The Partnership leases various amphitheaters under operating and capital
leases. Initial lease terms are 25 to 60 years with varying renewal periods
at the Partnership's option on most leases. A number of the amphitheater
leases provide for escalating rent over the lease term. Rental expense on
operating leases is recognized on a straight-line basis over the life of such
leases. The majority of the amphitheater leases provide for contingent
rentals, generally based upon a percentage of gross revenues, as defined in
the respective lease agreements. Minimum rental expense associated with
operating leases for 1995, 1996 and 1997 was $648,000, $2,353,000 and
$2,612,000, respectively. Contingent rental expense associated with operating
leases for 1995, 1996 and 1997 was $2,407,000, $2,515,000 and $2,571,000,
respectively. Contingent rental expense associated with capital leases for
1995, 1996 and 1997 was $144,000, $155,000 and $149,000, respectively.

Minimum rental commitments on long-term capital and operating leases at
September 30, 1997, were as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
Year ending September 30--
1998 .................................... $ 757 $ 2,902
1999 .................................... 757 3,056
2000 .................................... 756 3,148
2001 .................................... 757 3,248
2002 .................................... 757 3,297
Thereafter .............................. 9,714 54,693
--------- -----------
13,498 $70,344
===========
Less--Amount representing interest ...... 7,383
---------
Present value of minimum rental payments 6,115
Less--Current portion .................... 126
---------
Noncurrent portion........................ $ 5,989
=========
</TABLE>

9. RELATED PARTIES:

The responsibility for the day-to-day business and affairs of the
Partnership has been delegated by the partners to a managing director and
support staff employed by PACE Entertainment Corporation and

F-90
<PAGE>
PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

its subsidiaries. PACE Entertainment Corporation and its subsidiaries provide
the Partnership with management and consulting services in connection with
the development, construction, maintenance and operation of amphitheaters
owned or leased by the Partnership. The Partnership paid $1,650,000,
$1,687,000 and $1,968,000 during 1995, 1996 and 1997, respectively, to PACE
Entertainment Corporation as reimbursement for the costs of these services.

The Partnership paid PACE Music Group (PMG), a subsidiary of PACE
Entertainment Corporation, $289,000, $225,000 and $395,000 during 1995, 1996
and 1997, respectively, for services provided by PMG as a local presenter at
one of the Partnership's amphitheaters.

Accounts receivable from and accounts payable to related parties at
September 30, 1997, of $3,878,000 and $3,948,000, respectively, relate to
amounts owed to and due from the partners arising from the formation of the
Partnership and general and administrative expenses paid by or on behalf of
the Partnership.

Notes receivable, related parties consist of two notes due from AEP which
bear interest at 5.62 percent per annum and matured April 1, 1997. Principal
payments on the notes are due upon request by the Partnership in order to
fund the construction of proposed amphitheaters. Interest on the partners'
notes amounted to $192,000, $63,000 and $68,000 for 1995, 1996 and 1997,
respectively.

10. COMMITMENTS AND CONTINGENCIES:

Commitments

The Partnership guarantees 50 percent of a $2,305,000 promissory note
issued by its 50 percent equity partner in the Starwood Amphitheater. The
note matures on June 1, 2003.

The Partnership has committed to fund certain renovation work at one of
its amphitheaters in proportion to its 66 2/3 percent partnership interest in
that amphitheater. The renovations are to include increasing seating capacity
and upgrading the amphitheater's concession plazas and parking facilities.
The total budget for these renovations is approximately $11.0 million of
which $5.0 million will be funded by the minority partner and a note payable
to vendor, therefore the Partnership's funding commitment is approximately
$6.0 million.

The Partnership maintains cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Partnership has not experienced any
losses in such accounts. Management performs periodic evaluations of the
relative credit standards of the financial institutions with which it deals.
Additionally, the Partnership's cash management and investment policies
restrict investments to low-risk, highly liquid securities. Accordingly,
management does not believe that the Partnership is currently exposed to any
significant credit risk on cash and cash equivalents.

The Partnership is subject to other claims and litigation arising in the
normal course of its business. The Partnership does not believe that any of
these proceedings will have a material adverse effect on its financial
position or results of operations.

The Partnership was previously named as a defendant in a case filed in
Wake County, North Carolina (Promotion Litigation). There were several
defendants named in the litigation with various causes of action asserted
against one or more of each of the defendants, including (a) breach of
alleged contract, partnership, joint venture and fiduciary duties between
certain of the defendants and Pro Motion Concerts, (b) constructive fraud,
(c) interference with prospective advantage, (d) unfair trade practices, (e)
constructive trust and (f) unjust enrichment. The essence of the plaintiff's
claims was that certain of the defendants agreed to enter into a partnership
with the plaintiffs for the development and operation of an amphitheater. On
May 1, 1997, the Promotion Litigation was settled. All defendants were fully
and finally released with prejudice from any and all claims and causes of
action. Although the defendants believe that they would have prevailed at a
trial of the Promotion Litigation, the defendants chose to settle

F-91

<PAGE>

PAVILION PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

rather than risk the uncertainties of a trial. The defendants did not
acknowledge or admit any liability. The settlement called for payments to
plaintiffs totaling $4.5 million, of which $1.0 million was paid by the
Partnership. The Partnership recorded litigation settlement expense of $1.0
million at September 30, 1996. The settlement was paid during May 1997.

Change in Control Provisions

The Partnership has entered into numerous leases and other contracts in
the ordinary course of business. Certain of these agreements either contain
restrictions on their assignability or would require third-party approval of
a change in control of the Partnership.

Employment Agreements

The Partnership has employment agreements with certain key employees. Such
agreements generally provide for minimum salary levels, guaranteed bonuses
and incentive bonuses which are payable if specified financial goals are
attained. As of September 30, 1997, the Company's minimum commitment under
these agreements were as follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
For the year ending September
30--
1998 ............................. $335
1999 ............................. 177
</TABLE>

Insurance

The Partnership carries a broad range of insurance coverage, including
general liability, workers' compensation, employee health coverage and
umbrella policies. The Partnership carries deductibles of up to $10,000 per
occurrence for general liability claims. The Partnership has accrued for
estimated potential claim costs in satisfying the deductible provisions of
the insurance policies for claims occurring through September 30, 1997. The
accrual is based on known facts and historical trends, and management
believes such accrual to be adequate.

11. SUBSEQUENT EVENTS:

In December 1997, the managing partner and its shareholders entered into
an agreement whereby the shareholders would sell their interests in PACE
Entertainment Corporation to SFX Entertainment, Inc. (SFX Transaction).
Closing is subject to certain conditions, including the approval of third
parties.

On December 19, 1997, the PACE Entertainment Corporation entered into an
agreement to purchase Blockbuster's 33 1/3 percent interest in the
Partnership (Blockbuster Transaction) for $4,171,000 in cash, $2,940,000 in
assumed liabilities and the assumption of certain indemnification obligations
of Blockbuster under the Partnership agreement. In addition, PACE
Entertainment Corporation has agreed to purchase the note payable to
Blockbuster with a balance of $9,507,000, including accrued interest of
$1,601,000, at September 30, 1997. The transaction is contingent on, among
other things, obtaining acceptable financing including the release of
Blockbuster from certain debt obligations and the approval of Sony.

On December 22, 1997, PACE Entertainment Corporation entered into an
agreement to purchase Sony's 33 1/3 percent interest in the Partnership (Sony
Transaction) for $27,500,000 in cash. The transaction is contingent on, among
other things, government approval and obtaining acceptable financing
including the release of Sony from certain debt obligations (see Note 7).

12. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (Unaudited)

Effective February 25, 1998, the SFX Transaction, Blockbuster Transaction
and Sony Transaction closed. In conjunction with the closing, SFX purchased
or retired approximately $38 million of the Partnership's outstanding notes
payable.

F-92
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Boards of Directors
Contemporary Group

We have audited the accompanying combined balance sheets of Contemporary
Group as of December 31, 1996 and 1997 and the related combined statements of
operations, cash flows and stockholders' equity for the years then ended.
These financial statements are the responsibility of 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 combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Contemporary Group at December 31, 1996 and 1997 and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Ernst & Young LLP

New York, New York
March 20, 1998

F-93
<PAGE>

CONTEMPORARY GROUP
COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1996 1997
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................................ $ 2,972,409 $10,427,805
Accounts receivable ............................................. 4,067,444 7,672,187
Notes receivable -related party ................................. -- 1,000,000
Prepaid expenses and other current assets ....................... 272,105 210,640
-------------- -------------
Total current assets ............................................. 7,311,958 19,310,632
Property and equipment, at cost, less accumulated depreciation
and amortization of $2,723,986 in 1996 and $3,264,972 in 1997 .. 2,438,210 2,813,902
Reimbursable event costs.......................................... 474,469 152,617
Deferred event expenses........................................... 250,973 402,460
Investment in Riverport........................................... 4,934,513 5,436,717
Other assets...................................................... 120,256 199,518
-------------- -------------
Total assets...................................................... $15,530,379 $28,315,846
============== =============
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and bonuses................................. $ 2,906,153 $ 6,721,459
Accrued expenses and other current liabilities................... 1,994,036 6,169,861
Accounts payable................................................. 1,733,676 1,347,539
Current portion of note payable.................................. 667,138 1,075,000
-------------- -------------
Total current liabilities......................................... 7,301,003 15,313,859
Deferred revenue and other liabilities............................ 2,586,880 5,570,295
Note payable, less current portion................................ 1,659,723 739,424
Combined stockholders' equity..................................... 3,982,773 6,692,268
-------------- -------------
Total liabilities and combined stockholders' equity............... $15,530,379 $28,315,846
============== =============
</TABLE>

See accompanying notes.

F-94
<PAGE>

CONTEMPORARY GROUP
COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Operating revenues:
Event promotion revenue ............ $38,023,454 $48,057,060
Marketing revenue .................. 12,969,621 30,195,359
Other event revenue ................ 8,859,218 10,800,118
------------- -------------
59,852,293 89,052,537
Cost of revenue ..................... 46,410,935 66,940,088
------------- -------------
13,441,358 22,112,449
Operating expenses:
Salary and bonus expense ........... 8,010,991 18,992,476
Depreciation and amortization ..... 566,573 540,986
General and administrative expenses 3,767,111 4,887,615
------------- -------------
12,344,675 24,421,077
Income (loss) from operations ....... 1,096,683 (2,308,628)
Other income (expense):
Interest income .................... 158,512 201,310
Interest expense ................... (213,658) (192,130)
Loss on asset disposal ............. -- (84,261)
Equity in income of Riverport ..... 822,716 1,002,204
------------- -------------
767,570 927,123
------------- -------------
Income before income taxes .......... 1,864,253 (1,381,505)
Federal and state taxes ............. 35,367 --
------------- -------------
Net income (loss) ................... $ 1,828,886 $(1,381,505)
============= =============
</TABLE>

See accompanying notes.

F-95
<PAGE>

CONTEMPORARY GROUP
COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1996 1997
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................. $ 1,828,886 $(1,381,505)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .............................. 566,573 540,986
Loss on asset disposal ..................................... -- 84,261
Non cash interest expense................................... 148,113 154,701
Equity in income of Riverport, net of distributions
received .................................................. (222,716) (502,204)
Changes in operating assets and liabilities:
Accounts receivable ....................................... (899,830) (3,604,743)
Prepaid expenses and other current assets ................. 225,754 61,465
Reimbursable event costs .................................. (207,355) 321,852
Deferred event expenses ................................... (159,393) (151,487)
Other assets .............................................. (29,923) (79,262)
Accounts payable .......................................... (186,876) (386,137)
Accrued compensation and bonuses .......................... 1,489,179 3,815,306
Accrued expenses and other current liabilities ........... 1,116,003 4,175,825
Deferred revenue .......................................... 1,324,206 3,227,827
Other liabilities ......................................... (1,134,683) (244,412)
------------- --------------
Net cash provided by operating activities ................... 3,857,938 6,032,473
INVESTING ACTIVITIES
Loan to related party ....................................... -- (1,000,000)
Purchase of property and equipment .......................... (1,159,382) (1,063,848)
Proceeds from sale of property and equipment ................ -- 62,909
------------- --------------
Net cash used in investing activities ....................... (1,159,382) (2,000,939)
FINANCING ACTIVITIES
Borrowings .................................................. 626,970 --
Payments of notes payable ................................... (109,832) (667,138)
Proceeds received from capital contributions ................ -- 5,000,000
Distributions paid .......................................... (2,993,000) (909,000)
------------- --------------
Net cash provided by (used in) financing activities ........ (2,475,862) 3,423,862
------------- --------------
Net increase in cash ........................................ 222,694 7,455,396
Cash at beginning of period ................................. 2,749,715 2,972,409
------------- --------------
Cash at end of period ....................................... $ 2,972,409 $10,427,805
============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ...................................... $ 143,271 $ 37,421
============= ==============
Cash paid for income taxes .................................. $ 34,550 $ 27,077
============= ==============
</TABLE>

See accompanying notes.

F-96
<PAGE>

CONTEMPORARY GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1996 ....................... $ 5,146,887
Distributions to stockholders ................. (2,993,000)
Net income for the year ended December 31,
1996 ......................................... 1,828,886
-------------
Balance, December 31, 1996 ..................... 3,982,773
Distributions to stockholders ................. (909,000)
Capital contributions ......................... 5,000,000
Net loss for the year ended December 31, 1997 (1,381,505)
-------------
Balance, December 31, 1997 ..................... $ 6,692,268
=============
</TABLE>

See accompanying notes.

F-97
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Combination

The accompanying combined financial statements include the accounts of
Contemporary International Productions Corporation, Contemporary Productions
Incorporated, Contemporary Marketing, Inc. ("CMI"), Contemporary Sports
Incorporated, Innovative Training and Education Concepts Corporation, n/k/a
Contemporary Group, Inc., Contemporary Investments Corporation ("CIC"),
Contemporary Investments of Kansas, Inc., Continental Entertainment
Associates, Inc., Dialtix, Inc., and Capital Tickets L.P. (collectively, the
"Contemporary Group" or the "Companies"). Intercompany transactions and
balances among these companies have been eliminated in combination. The
Companies are subject to common ownership and to the transaction described in
Note 8.

The Contemporary Group is a live entertainment and special events
producer, venue operator and consumer marketer. Income from operations
originates from the operation of the concert division which earns promotion
income in two ways: either a fixed fee for organizing and promoting an event
or an arrangement that entitles it to a profit percentage based on a
predetermined formula. The Companies recognize revenue from the promotion of
events when earned, which is generally upon exhibition. The Companies record
commissions on booking acts as well as sponsorship and concession income as
other event revenues.

CIC is a 50% partner in Riverport Performing Arts Centre Joint Venture
("Riverport"), a Missouri general partnership which operates a 20,000 seat
outdoor amphitheater located in St. Louis, Missouri. The investment in
Riverport is recorded under the equity method of accounting.

Income Taxes

As of December 31, 1997, all of the entities combined are either "S
Corporations" or partnerships and therefore no tax provision has been
provided. In 1996, certain of the entities were "C Corporations" for which a
tax provision has been provided.

For the year ended December 31, 1996, with respect to the "C
Corporations," the total provision for income taxes is $35,367.

Certain of the "C Corporations" filed elections to be treated as "S
Corporations" beginning January 1, 1997. Therefore, with respect to such
corporations, no provision for income taxes has been provided for the year
ended December 31, 1997. These Companies have subsequently revoked the
election to be taxed as "S Corporations", effective January 1, 1998.

Accounts Receivable

Accounts receivable consist of amounts due from ticket vendors, venue box
offices and customers of marketing services. Management considers these
accounts receivable as of December 31, 1997 and 1996 to be collectible;
accordingly, no allowance for doubtful accounts is recorded.

Revenue Recognition

Deferred revenue relates primarily to an advance on future concession
revenues which is evidenced by a noninterest bearing note payable and
advances on marketing services. Payments collected in advance are recognized
as income as events occur or services are provided. Reimbursable event costs
represent amounts paid by the Companies on behalf of co-promoters and other
parties with interests in the events which will be reimbursed by such
parties.

Sales under long-term contracts for the Company's marketing division are
recorded under the percentage-of-completion method, wherein revenues and
estimated costs are recorded as the work is performed.

F-98
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

Significant Customer

CMI's most significant customer is AT&T, which provided approximately 23%
and 12% of the Companies' combined revenues for the years ended December 31,
1997 and 1996, respectively. In March 1998, AT&T has indicated that it will
no longer be using the services of CMI.

Advertising Costs

Advertising costs are expensed as incurred. For the year ended December
31, 1997 and 1996, advertising costs were $115,634 and $71,879, respectively.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is computed on
either the straight-line method or accelerated methods over the estimated
useful lives of the assets or the term of the related lease as follows:

<TABLE>
<CAPTION>
<S> <C>
Furniture, fixtures and equipment ....5-7 years
Land improvements ..................... 15 years
Leasehold improvements ................ 10 years
</TABLE>

Risks and Uncertainties

Reclassification

Certain amounts in the 1996 financial statements have been reclassified to
conform with the current year's presentation.

2. INVESTMENTS

The following is a summary of the financial position and results of
operations of Riverport as of and for the year ended December 31, 1996 and
1997:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Current assets .......................... $ 473,275 $ 284,424
Property and equipment .................. 11,815,552 11,188,826
Other assets ............................ 16,553 --
------------- -------------
Total assets ............................ $12,305,380 $11,473,250
============= =============
Current liabilities ..................... $ 1,993,981 $ 318,028
Other liabilities ....................... 442,374 281,789
Partners' capital ....................... 9,869,025 10,873,433
------------- -------------
Total liabilities and partners' capital $12,305,380 $11,473,250
============= =============
Revenue ................................. $11,693,138 $14,247,109
Net operating income .................... $ 1,970,887 $ 2,616,839
Net income .............................. $ 1,645,431 $ 2,004,408
</TABLE>

F-99

<PAGE>

CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

During the years ended December 31, 1997 and 1996, CIC received a cash
distribution of $500,000 and $600,000, respectively, from Riverport.

3. NOTES PAYABLE

At December 31, 1997 and 1996, CIC held a $2,322,500 non interest-bearing
note payable to its partner in Riverport. The carrying value of the note was
$1,814,424 and $1,734,723 at December 31, 1997 and 1996, respectively, which
includes imputed interest at a rate of approximately 9%. The note, which was
payable in installments through December 1, 2000 and was secured by CIC's
investment in Riverport, was repaid in 1998 in connection with the
transaction described in Note 8.

At December 31, 1996, the Companies had a $592,138 bank note payable which
bore interest based on the prime lending rate (8.25% in 1996, 8.5% in 1997)
and was repaid in full during 1997.

4. COMMON STOCK

The Companies' stock and tax status for 1997 are as follows:

<TABLE>
<CAPTION>
TAX SHARES SHARES PAR
STATUS AUTHORIZED ISSUED VALUE
------------- ------------ -------- -------
<S> <C> <C> <C> <C>
Contemporary International Productions
Corporation............................... S-Corp. 30,000 10 $1
Contemporary Productions Incorporated .... S-Corp. 30,000 100 $1
Contemporary Marketing, Inc. .............. S-Corp. 30,000 100 $1
Contemporary Sports, Incorporated ........ S-Corp. 30,000 100 $1
Innovative Training and Education Concepts
Corporation n/k/a Contemporary Group,
Inc....................................... S-Corp. 30,000 100 $1
Contemporary Investments Corporation ..... S-Corp. 30,000 200 $1
Contemporary Investments of Kansas, Inc. .. S-Corp. 30,000 30,000 $1
Continental Entertainment Associates,
Inc....................................... C-Corp. 300 6 $100
Dialtix, Inc. ............................. S-Corp. 300 6 $100
Capital Tickets L.P. ...................... Partnership N/A N/A N/A
</TABLE>

5. COMMITMENTS AND CONTINGENCIES

Leases

The Companies lease office facilities and concert venues under
noncancellable leases which expire at various dates through 2004. Such leases
contain various operating escalations and renewal options.

Total rent expense for the year ended December 31, 1997 and 1996 was
$705,489 and $818,123, respectively.

F-100
<PAGE>
CONTEMPORARY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

Future minimum lease payments under noncancellable operating leases as of
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
<S> <C>
1998 ......... $ 858,757
1999 ......... 863,757
2000 ......... 440,050
2001 ......... 264,000
Thereafter .. 317,000
-----------
$2,743,564
===========
</TABLE>

Compensation

During 1996, CMI entered into an employment agreement with one of its
employees which provided her rights to future cash payments based on the fair
value of CMI, as defined. These rights would vest on January 1, 2002 or upon
the occurrence of certain transactions, including a change of control. On
December 31, 1997, in connection with an amendment to her employment
agreement, the rights became fully vested and CMI paid this employee
$1,329,284. In addition, she is entitled to receive as a bonus $2,854,899
under the amendment, which will be paid in 1998 and is accrued at December
31, 1997.

Litigation

The Companies are party to various legal proceedings generally incidental
to their businesses. Although the ultimate disposition of these proceedings
is not presently determinable, management, after discussions with counsel,
does not expect the outcome of these proceedings to have a material adverse
effect on the financial condition of the Companies.

6. EMPLOYEE RETIREMENT PLAN

In January 1992, the Companies began a retirement plan for their employees
under Section 401(k) of the Internal Revenue Code. All employees are eligible
to participate once they obtain the minimum age requirement of 21 years and
have satisfied the service requirement of one year with the Companies.
Participant contributions are subject to the limitations of Section 402(g) of
the Internal Revenue Code. The Companies contribute to participant employees'
accounts at the rate of 25% of the first 5% of the participating employees'
contributions. During the years ended December 31, 1996 and 1997, the
Companies contributions totaled approximately $25,600 and $37,769,
respectively.

7. RELATED PARTY TRANSACTIONS

During 1997, the Company loaned $1,000,000 to its co-presidents. The loans
which bore a rate of interest of approximately 5.8% were repaid in full in
early 1998.

8. SUBSEQUENT EVENTS

In February 1998, the owners of the Companies sold 100% of the capital
stock of Contemporary International Productions Corporation and the assets of
the remaining companies comprising the Contemporary Group, excluding cash and
1997 receivables, to SFX Entertainment, Inc. for an aggregate consideration
of $62,300,000 in cash and the issuance of preferred stock convertible into
1,402,851 shares of SFX Entertainment Class A Common Stock upon a spin-off or
redeemable into cash if the spin-off does not occur by July 1, 1998. In
connection with this transaction, SFX Entertainment and its affiliates also
acquired the 50% interest of Riverport not owned by CIC for $12,585,000.

F-101
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Riverport Performing Arts Centre, Joint Venture:

We have audited the accompanying balance sheets of Riverport Performing
Arts Centre, Joint Venture (a Missouri General Partnership) as of December
31, 1997 and 1996, and the related statements of income and changes in
partners' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Joint Venture'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 Riverport Performing Arts
Centre, Joint Venture as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

St. Louis, Missouri,
February 27, 1998

F-102
<PAGE>
RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
BALANCE SHEETS -- AS OF DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................. $ 202,251 $ 76,231
Accounts receivable....................... -- 324,275
Prepaid expenses and other current
assets................................... 82,173 72,769
------------- -------------
Total current assets....................... 284,424 473,275
------------- -------------
FACILITY:
Land and leasehold interest............... 5,156,342 5,156,342
Buildings and improvements................ 8,516,251 8,449,225
Furniture, fixtures and equipment ........ 2,293,356 2,218,987
Less-Allowance for depreciation........... (4,777,123) (4,009,002)
------------- -------------
11,188,826 11,815,552
------------- -------------
OTHER ASSETS--Deferred financing fees, net -- 16,553
------------- -------------
$11,473,250 $12,305,380
============= =============
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ..... $ 160,585 $ 1,376,762
Accounts payable and accrued expenses .... 120,043 453,804
Deferred income........................... 37,400 163,415
------------- -------------
Total current liabilities.................. 318,028 1,993,981
LONG-TERM DEBT............................. 281,789 442,374
------------- -------------
599,817 2,436,355
PARTNERS' EQUITY........................... 10,873,433 9,869,025
------------- -------------
$11,473,250 $12,305,380
============= =============
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-103
<PAGE>

RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
STATEMENTS OF INCOME AND CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
REVENUES:
Show admission............................ $ 9,901,214 $ 8,053,939
Sponsorships and promotions............... 1,113,100 914,690
Concession rental......................... 1,970,742 1,724,060
Parking................................... 1,122,979 843,283
Other..................................... 139,074 157,166
------------- -------------
Operating revenues....................... 14,247,109 11,693,138
------------- -------------
EXPENSES:
Talent.................................... 5,825,962 4,382,735
Other show expenses....................... 1,866,910 1,706,317
Advertising and marketing................. 1,037,048 887,673
Producer fees and commissions............. 1,187,253 1,071,946
General and administrative................ 1,713,097 1,673,580
------------- -------------
Operating expenses....................... 11,630,270 9,722,251
------------- -------------
Net operating income..................... 2,616,839 1,970,887
------------- -------------
OTHER EXPENSES (INCOME):
Depreciation and amortization............. 779,278 767,258
Interest, net............................. 13,167 112,947
Other income.............................. (180,014) (554,749)
------------- -------------
Other expenses, net...................... 612,431 325,456
------------- -------------
Net income............................... 2,004,408 1,645,431
PARTNERS' EQUITY AT THE BEGINNING OF
PERIOD..................................... 9,869,025 9,423,594
DISTRIBUTION TO PARTNERS................... (1,000,000) (1,200,000)
------------- -------------
PARTNERS' EQUITY AT THE END OF THE PERIOD . $10,873,433 $ 9,869,025
============= =============
</TABLE>

The accompanying notes are an integral part of these statements.

F-104
<PAGE>

RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,004,408 $ 1,645,431
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization............................ 779,278 767,258
Change in accounts receivable............................ 324,275 (215,712)
Change in prepaid expenses and other current assets ..... (4,008) (3,606)
Change in accounts payable and accrued expenses ......... (333,761) 284,945
Change in deferred income................................ (126,015) (31,505)
------------- -------------
Net cash provided by operating activities............... 2,644,177 2,446,811
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Facility additions........................................ (141,395) (182,801)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt......................................... (1,376,762) (1,160,585)
Distribution to Partners.................................. (1,000,000) (1,200,000)
------------- -------------
Net cash used in financing activities................... (2,376,762) (2,360,585)
------------- -------------
Change in cash and cash equivalents..................... 126,020 (96,575)
CASH AND CASH EQUIVALENTS, beginning of year............... 76,231 172,806
------------- -------------
CASH AND CASH EQUIVALENTS, end of year..................... $ 202,251 $ 76,231
============= =============
</TABLE>

The accompanying notes are an integral part of these statements.

F-105
<PAGE>
RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

1. SIGNIFICANT ACCOUNTING POLICIES:

Organization

The Riverport Performing Arts Centre, Joint Venture (the Joint Venture) is
a Missouri General Partnership between Contemporary Investments Corporation
(Contemporary) and Sverdrup/BRC Joint Venture (formerly Sverdrup/MDRC Joint
Venture). The partners each hold a 50% interest in the equity and operations
of the Joint Venture. The term of the Joint Venture continues until December
31, 2045. The Joint Venture is the developer, owner and operator of a 20,000
seat outdoor amphitheater located in St. Louis, Missouri. The Joint Venture
contracts with popular musical performing artists for the entertainment of
its guests. Entertainment is provided during the months of April through
October to guests primarily from the St. Louis metropolitan area.

Cash and Cash Equivalents

Cash equivalents consist of investments with a maturity of three months or
less when purchased. Cash equivalents are carried at cost, which approximates
market. Interest income of $61,199 and $56,708 for 1997 and 1996,
respectively, is netted against interest expense in the accompanying
statements of income.

Depreciation and Amortization

Depreciation is provided using the straight-line method over estimated
useful lives of 5 to 20 years. Deferred financing fees are amortized over the
life of the related debt.

Leasehold Interest

The facility was constructed on land obtained through a leasehold interest
that expires on April 25, 2011. The Sverdrup/BRC Joint Venture sold to
Contemporary an undivided 50% interest in the leasehold interest.
Concurrently, both Sverdrup/BRC Joint Venture and Contemporary contributed
their undivided 50% interests in the leasehold interest into the Joint
Venture. Ground rent is $1 per year under the lease with the Joint Venture
assigned as landlord.

Deferred Income

Deferred income reflects advance sales of season tickets for the
subsequent operating season and is amortized into show admission revenues as
the subsequent operating season progresses.

Income Taxes

Income taxes have not been provided for in the financial statements since
the Joint Venture is organized as a partnership, and each partner is liable
for its own tax payments.

F-106
<PAGE>
RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. LONG-TERM DEBT

Notes payable outstanding at December 31 are as follows:

<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Mortgage note due in installments through 1997, bearing
interest at prime plus 1/2% which averaged 8.875%
during 1997 and 1996.................................... $ -- $1,216,178
Noninterest-bearing note due in installments through
2000.................................................... 442,374 602,958
---------- ------------
442,374 1,819,136
Less-Current maturities.................................. 160,585 1,376,762
---------- ------------
$281,789 $ 442,374
========== ============
</TABLE>

The mortgage note contains covenants that require the Joint Venture to
maintain certain financial ratios and also prohibit certain transactions. The
mortgage note is secured by buildings, improvements, furniture, fixtures and
equipment, limited to the remaining term of the leasehold interest expiring
April 25, 2011. The mortgage note was paid off on September 25, 1997. The
noninterest-bearing note is secured by all concession equipment. Cash paid
for interest totaled $79,391 and $173,172 for 1997 and 1996, respectively.

Maturities of long-term debt are as follows:

3. CONCESSION RENTAL:

The Joint Venture rents certain premises at its location for the sale of
concessions under a lease that expires in 2000. Rental income is based on a
percentage of gross receipts for some products sold and gross margin for
other products sold.

4. RELATED-PARTY TRANSACTIONS

Contempro Group, Inc., an affiliate of Contemporary, provides various
services to the Joint Venture. These services include marketing, media
placement, sales and show production. Approximately $2,235,000 and $1,766,000
was paid for these services in 1997 and 1996, respectively.

In addition to the payments described above, the Joint Venture also
compensates Contempro Group, Inc. as an agent for the procurement of these
services.

Sverdrup Investments, Inc., an affiliate of Sverdrup/BRC Joint Venture,
was paid $36,000 for accounting services in 1997 and $147,000 for accounting
and landscaping services in 1996.

Riverport Trust, an affiliate of Sverdrup/BRC Joint Venture, provides
ground maintenance to the tenants of the Riverport complex. The fees charged
for these services is based on the total space occupied by the tenant. The
Joint Venture paid approximately $62,000 and $73,000 for these services in
1997 and 1996, respectively.

The Joint Venture had liabilities for related-party transactions and
pass-through costs to affiliates of Contemporary totaling approximately
$56,000 and $416,000 as of December 31, 1997 and 1996, respectively. The
Joint Venture also had receivables for income collected by Contemporary
totaling approximately $273,000 as of December 31, 1996.

F-107
<PAGE>
RIVERPORT PERFORMING ARTS CENTRE, JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. CONTINGENCIES:

From time to time, the Joint Venture is a party to certain lawsuits and
other claims related to the normal conduct of its business. Management
believes that liabilities, if any, resulting from the resolution of pending
or threatened proceedings would not materially affect the financial condition
or results of operations of the Joint Venture.

6. SUBSEQUENT EVENT:

On February 27, 1998, Sverdrup/BRC Joint Venture and Contemporary sold
their 50% interests in the equity and operations of the Joint Venture to SFX
Entertainment, Inc. and Contemporary Acquisition Corporation, respectively.

F-108
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
SJS Entertainment Corporation

We have audited the accompanying combined balance sheets of SJS
Entertainment Corporation as of December 31, 1996 and 1997, and the related
combined statements of operations and retained earnings and cash flows for
the years then ended. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of SJS
Entertainment Corporation at December 31, 1996 and 1997 and the combined
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP

New York, New York
March 18, 1998

F-109
<PAGE>
SJS ENTERTAINMENT CORPORATION

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................... $ 230,280 $ 330,315
Accounts receivable ................................ 2,257,110 2,954,730
Due from officers .................................. 616,177 --
Prepaid expenses ................................... 27,962 54,475
------------ -------------
Total current assets................................. 3,131,529 3,339,520
Fixed assets, at cost:
Furniture, fixtures and office equipment .......... 309,756 414,904
Production equipment ............................... 95,317 190,721
Leasehold improvements ............................. 61,228 61,228
------------ -------------
466,301 666,853
Accumulated depreciation and amortization .......... 187,546 314,940
------------ -------------
Net fixed assets .................................... 278,755 351,913
Other assets ........................................ 23,658 24,737
------------ -------------
Total assets ........................................ $3,433,942 $3,716,170
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable--bank ................................ $1,900,000 1,500,000
Accounts payable ................................... 694,055 955,876
Accrued expenses ................................... 857,423 399,614
Due to officers .................................... -- 1,294,291
------------ -------------
Total current liabilities............................ 3,451,478 4,149,781
Stockholders' equity:
Common stock ....................................... 27,200 27,200
Retained earnings (deficit) ........................ 30,264 (385,811)
Treasury stock ..................................... (75,000) (75,000)
------------ -------------
Total stockholders' equity (deficit) ................ 17,536 (433,611)
------------ -------------
Total liabilities and combined stockholders' equity $3,433,942 $3,716,170
============ =============
</TABLE>

See accompanying notes.

F-110
<PAGE>
SJS ENTERTAINMENT CORPORATION

COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Net sales, including management fees from related
party
(Note 2) ............................................. $11,374,672 $14,218,435
Cost of sales ......................................... 4,039,320 4,320,654
------------- -------------
Gross profit........................................... 7,335,352 9,897,781
------------- -------------
Operating expenses:
Officers salaries and bonus .......................... 2,965,353 4,000,000
Employee payroll and taxes ........................... 2,211,372 3,087,185
Consulting fees ...................................... 272,233 290,693
Messengers and delivery expense ...................... 208,697 255,814
Telephone and utilities .............................. 341,649 468,878
Travel and Transportation expenses ................... 240,218 351,748
Advertising and promotion ............................ 149,907 382,640
Rent expense, net .................................... 182,012 261,834
Depreciation and amortization ........................ 84,001 127,394
Other, net ........................................... 648,128 1,002,727
------------- -------------
7,303,570 10,228,913
------------- -------------

Income (loss) from operations ......................... 31,782 (331,132)
Interest expense--net ................................. (3,229) (35,657)
Other income .......................................... -- 77,510
------------- -------------
Income before provision for income taxes .............. 28,553 (289,279)
Provision for income taxes ............................ 91,197 126,796
------------- -------------
Net loss .............................................. (62,644) (416,075)
Retained earnings at beginning of year ................ 92,908 30,264
------------- -------------
Retained earnings (deficit) at end of year ............ $ 30,264 $ (385,811)
============= =============
</TABLE>

See accompanying notes.

F-111
<PAGE>
SJS ENTERTAINMENT CORPORATION

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss ............................................. $ (62,644) $ (416,075)
Adjustments to reconcile net loss to net cash
provided
by (used in) operating activities:
Depreciation and amortization ...................... 84,001 127,394
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ....... 241,679 (697,620)
(Increase) in prepaid expenses .................... (5,445) (26,513)
(Increase) Decrease in other assets ............... 4,737 (1,079)
Increase (decrease) in accounts payable .......... (130,667) 261,821
Increase (decrease) in accrued expenses .......... 636,011 (457,809)
Increase in due to affiliate ...................... 22,137 --
------------- -------------
Net cash provided by operating activities ............ 789,809 (1,209,881)
------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES
Cash used to acquire fixed assets .................... (184,132) (200,552)
------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES
Officers' loans, net ................................. (2,204,564) 1,910,468
Repayments of bank loan .............................. (275,760) (1,900,000)
Proceeds from new bank loans ......................... 1,900,000 1,500,000
Payments towards treasury stock financing agreement . (12,500) --
------------- -------------
Net cash provided by (used by) financing activities . (592,824) 1,510,468
------------- -------------
Net increase in cash ................................. 12,853 100,035
------------- -------------
Cash at beginning of year ............................ 217,427 230,280
------------- -------------
Cash at end of year .................................. $ 230,280 $ 330,315
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid during period .......................... $ 9,003 $ 33,222
============= =============
Income taxes paid during period ...................... $ 180,636 $ 77,333
============= =============
</TABLE>

See accompanying notes.

F-112
<PAGE>
SJS ENTERTAINMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements present the combined financial position and
results of operations of SJS Entertainment Corporation and its wholly-owned
subsidiary SJS Research Corporation, and Urban Entertainment Corp.
(collectively, the "Company") which is affiliated through common management
and ownership. All intercompany balances and transactions have been
eliminated in combination.

Nature of Business

The Company creates, produces and distributes music-related radio programs
and services which it barters or exchanges with radio broadcasters for
commercial air time, which is then sold to national network advertisers.
Through SJS Research, incorporated in September 1997, the Company provides
statistical information relating to the Entertainment Industry based upon
telephone surveys.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management use of estimates based
upon available information, which directly affect reported amounts. Actual
results could differ from those estimates.

Depreciation and Amortization

Depreciation of furniture, fixtures and equipment is computed using the
straight-line and declining balance methods, at rates adequate to allocate
the cost of the applicable asset over its expected useful life. Amortization
of leasehold improvements is computed using the straight-line method over the
shorter of the lease term or the expected useful life of the asset.

<TABLE>
<CAPTION>
<S> <C>
Estimated useful life ranges are as follows:
Furniture, fixtures and office equipment ...... 5-7 years
Production equipment ........................... 5 years
Leasehold improvements ......................... 5-10 years
</TABLE>

Concentration of Credit Risk

The Company maintains bank balances with Sterling National Bank in excess
of the federally insured limit of $100,000.

Reclassification

Certain 1996 amounts have been reclassified to conform to the 1997
presentation. Retained earnings at January 1, 1996 was adjusted to reflect
the underaccrual of $51,831 of state and local taxes and $115,000 of sales
commissions related to 1995.

2. RELATED PARTY TRANSACTIONS

Due from/to Officers

The Company maintains a running loan/exchange account with its officers in
order to satisfy the cash flow needs of operations. There is no interest
charged by either party on these temporary loans.

As of January 1, 1996, the Company owed its officers $1,589,146. During
1996, the officers loaned the Company an additional $354,780, while the
Company paid to its officers a total of $2,560,103.

As of January 1, 1997, the officers owed the companies $616,177. During
the year, the officers paid back this amount, and loaned the Company an
additional $1,294,291.

F-113
<PAGE>
SJS ENTERTAINMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

In addition, the Company pays its officers in total $2,000 per month
towards the business use of their home. These amounts are charged to rent
expense and totaled $24,000 for each of the years ended December 31, 1996 and
1997.

Salaries and bonuses paid to officers is determined annually by the
Company's board of directors.

Management Services

The Company managed the operations of a related company which is 40% owned
by the officers of the Company. In exchange for the services provided, the
Company received management fees of $40,000 per month. In addition, the
Company had subleased a portion of its premises to this related company and
is also reimbursed for other direct operating expenses (telephone, utilities,
cleaning, bookkeeping and administrative) and indirect overhead costs. This
arrangement terminated at the end of April 1997.

During the years ended December 31, 1996 and 1997, the Company received
the following amounts from this related company:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Management fees ................. $480,000 $160,000
Rental income ................... 69,780 32,490
Direct expense reimbursement ... 25,519 13,347
Indirect overhead reimbursement 108,000 27,914
---------- ----------
$683,299 $233,751
========== ==========
</TABLE>

Management fees, rental income, the direct expense reimbursement and
indirect overhead reimbursement are reflected as an adjustment to the related
income or expense account in the accompanying statement of operations.

The Company received $77,510 from an unrelated third party as
consideration for the termination of the management services agreement and
sublease agreement, which was recorded as other income in 1997.

3. LOANS PAYABLE--BANK

At December 31, 1997, the Company owed to Sterling National Bank a term
loan of $1,500,000, which was secured by all corporate receivables and is
personally guaranteed by the officers of the Company. Interest charged to the
Company was at a rate of prime plus 1%. This amount was fully repaid on
February 28, 1998.

At December 31, 1996, the Company owed to Sterling National Bank a term
loan of $1,600,000 which was secured by personal certificates of deposit
totaling $1,600,000 and a $300,000 line-of-credit which was secured by all
corporate assets and guaranteed by the officers/shareholders. Interest
charged to the Company was at the rate of prime plus 1%.

On February 20, 1997 the certificates matured, at which time they were
transferred into the Company as an officers' loan repayment and used to
pay-off the bank loan. In 1997, the Company also repaid the $300,000
line-of-credit from Sterling National Bank.

4. COMMITMENTS AND CONTINGENCIES

Automobile Lease

The Company leases automobiles with monthly payments of $1,834 due through
February, 1999.

F-114
<PAGE>
SJS ENTERTAINMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

Office and Audio Production Studio Leases

The Company maintains several offices for sales and administration
throughout the United States, as well as two production studios. The main
premises are located in New York City and is subject to an operating lease
expiring March 31, 2006. Other premises are subject to operating leases with
various terms ranging from month-to-month, to January 31, 2001.

Future minimum commitments for automobile, office and studio leases,
including two new leases entered into during 1997, are as follows:

<TABLE>
<CAPTION>
<S> <C>
1998 ......... $ 311,200
1999 ......... 300,000
2000 ......... 267,000
2001 ......... 240,100
2002 ......... 246,200
Thereafter .. 852,500
-----------
$2,217,000
===========
</TABLE>

Rent expense for offices and production studios, net of the subtenant
lease income (see note 2 below), totaled $261,834 for the year ended December
31, 1997 compared to $182,012 for the year ended December 31, 1996, while the
automobile lease cost was approximately $22,000 for both 1996 and 1997.

Consulting Agreements

Urban Entertainment Corp. is a party to consulting agreements with two
individuals, requiring monthly payments totaling $9,583 to be paid through
December 31, 1999.

5. SHAREHOLDERS' EQUITY

Shareholders' equity consists of the following:

<TABLE>
<CAPTION>
PAR
COMPANY CLASS VALUE AUTHORIZED
- ----------------------------- --------------- ------- ------------
<S> <C> <C> <C>
SJS Entertainment
Corporation.................. -- None 1,000
Urban Entertainment Corp. .... A (voting) None 840
B (nonvoting) None 160

</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
ISSUED AND
COMPANY OUTSTANDING VALUE
- ----------------------------- ------------- ---------
<S> <C> <C>
SJS Entertainment
Corporation.................. 1,000 $27,000
Urban Entertainment Corp. .... 840 100
160 100
------------- ---------
$27,200
------------- =========
</TABLE>

6. INCOME TAXES

Urban Entertainment Corporation has elected "S" Corporation status for
both federal and state tax purposes. Accordingly, all items of income, loss,
deduction or credit are reported by the stockholders on their respective
personal income tax returns. Therefore, no federal or state tax has been
provided.

SJS Entertainment Corporation is subject to corporate taxes at the federal
level and eight state and local jurisdictions.

The provision for income taxes for the years ended December 31, 1997 and
1996 is summarized as follows:

<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Current:
Federal..... $ 9,647 $ 28,266
State....... 81,550 98,530
Deferred: .. -- --
--------- ----------
Total....... $91,197 $126,796
========= ==========
</TABLE>

F-115
<PAGE>
SJS ENTERTAINMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of December 31,
1997, the Company had deferred tax assets of approximately $124,000 relating
to start-up costs which is offset in full by a valuation allowance.

The provision for income taxes differed from the U.S. statutory rate
principally due to nondeductible meals and entertainment expense, state and
local taxes and in 1997 only, the valuation allowance.

7. EMPLOYEE RETIREMENT PLAN

The Company maintains a retirement plan for their employees under Section
401(k) of the Internal Revenue Code. All employees are eligible to
participate once they obtain the minimum age requirement of 21 years, and
have satisfied the service requirement of six months with the Company.
Participants may make voluntary contributions into the plan of up to 15% of
their compensation. The Company contributes to each participant's account an
amount equal to 25% of the participant's voluntary contribution, or $2,000,
whichever is less.

During the years ended December 31, 1996 and 1997, employer contributions
totaled $16,758 and $18,747 respectively.

8. LEGAL MATTERS

The Company has been named in various lawsuits arising in the normal
course of business. It is not possible at this time to assess the probability
of any liability against the Company as a result of these lawsuits.
Management has stated that all cases will be vigorously defended.

9. SUBSEQUENT EVENTS

On February 27, 1998, the Company was acquired by SFX Entertainment Inc.

F-116
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
The Album Network, Inc.

We have audited the accompanying combined balance sheets of The Album
Network, Inc. and Affiliated Companies as of September 30, 1997 and 1996, and
the related combined statements of operations and stockholders' deficit and
cash flows for the years then ended. These financial statements are the
responsibility of 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 financial statements referred to above present fairly,
in all material respects, the combined financial position of The Album
Network, Inc. and Affiliated Companies at September 30, 1997 and 1996, and
the combined results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

November 20, 1997
New York, New York

F-117
<PAGE>

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEET

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 160,453 $ 272,423
Accounts receivable, less allowance for doubtful
accounts of $153,728 in 1997and $95,450 in 1996 ................ 2,148,159 2,229,237
Officers' loans receivable ...................................... 423,447 390,794
Prepaid expenses and other current assets ....................... 125,558 234,914
------------- -------------
Total current assets ............................................. 2,857,617 3,127,368
Property, plant and equipment, at cost, less accumulated
depreciation of $1,056,689 in 1997 and $914,513 in 1996 ........ 278,898 303,614
Deferred software costs, less accumulated amortization of
$106,639 in 1997 and $45,768 in 1996 ............................ 172,302 262,061
Other noncurrent assets .......................................... 39,477 37,033
------------- -------------
Total assets ..................................................... $ 3,348,294 $ 3,730,076
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued officers' bonuses ....................................... $ 1,200,000 $ 1,251,000
Accounts payable and other accrued expenses ..................... 1,081,469 1,208,424
Officers' loans payable ......................................... 650,000 489,085
Unearned subscription income .................................... 530,255 406,529
Taxes payable and other current liabilities ..................... 339,551 224,011
Current portion of long-term debt ............................... 636,723 506,228
------------- -------------
Total current liabilities ........................................ 4,437,998 4,085,277
Long-term debt ................................................... 1,294,133 1,051,881
Deferred income taxes ............................................ 279,434 114,178
Combined stockholders' deficit ................................... (2,663,271) (1,521,260)
------------- -------------
Total liabilities and stockholders' deficit ...................... $ 3,348,294 $ 3,730,076
============= =============
</TABLE>

See accompanying notes.

F-118
<PAGE>

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 169,498
Accounts receivable, less allowance for doubtful
accounts of $157,682 ............................................ 2,268,205
Officers' loans receivable ....................................... 406,421
Prepaid expenses and other current assets ........................ 133,293
-------------
Total current assets .............................................. 2,977,417
Property, plant and equipment, at cost, less accumulated
depreciation of $1,098,747 ....................................... 307,096
Deferred software costs, less accumulated amortization of $127,116 282,453
Other noncurrent assets ........................................... 9,525
-------------
Total assets ...................................................... $ 3,576,491
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and other accrued expenses ...................... $ 1,346,095
Officers' loans payable .......................................... 717,336
Unearned subscription income ..................................... 558,358
Taxes payable and other current liabilities ...................... 749,108
Current portion of long-term debt ................................ 635,464
-------------
Total current liabilities ......................................... 4,006,361
Long-term debt .................................................... 939,200
Deferred income taxes ............................................. 53,575
Combined stockholders' deficit .................................... (1,422,645)
-------------
Total liabilities and stockholders' deficit ....................... $ 3,576,491
=============
</TABLE>

See accompanying notes.

F-119
<PAGE>

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS AND
STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1996 1997
-------------- -------------
<S> <C> <C>
OPERATING REVENUES
Advertising revenue ................................ $ 7,040,465 $ 7,619,751
Research services revenue .......................... 2,453,026 2,441,703
Direct mail & subscription revenue ................. 1,791,887 1,837,248
Broadcast revenue .................................. 2,085,714 2,235,788
Consulting revenue.................................. 720,000 470,000
Other revenue ...................................... 675,790 1,152,448
-------------- -------------
14,766,882 15,756,938
Direct costs of revenue ............................ 4,408,997 4,107,328
-------------- -------------
10,357,885 11,649,610
OPERATING EXPENSES
Officers' salary expense ........................... 3,384,870 3,662,427
Other salary expense ............................... 3,956,910 3,949,715
Depreciation and amortization ...................... 183,976 203,047
General and administrative expenses ................ 2,524,704 2,483,197
-------------- -------------
10,050,460 10,298,386
-------------- -------------
Income from operations ............................. 307,425 1,351,224
OTHER INCOME (EXPENSE)
Interest income--officers' loans ................... 35,000 41,600
Interest income--third party ....................... 6,961 1,295
Interest expense--officers' loans .................. (35,000) (55,940)
Interest expense--third party ...................... (256,164) (175,490)
-------------- -------------
Income before income taxes ......................... 58,222 1,162,689
INCOME TAXES
Provision for income taxes ......................... 211,832 20,678
-------------- -------------
Net income (loss) .................................. (153,610) 1,142,011
Combined stockholders' deficit at beginning of year (2,509,661) (2,663,271)
-------------- -------------
Combined stockholders' deficit at end of year ..... $(2,663,271) $(1,521,260)
============== =============
</TABLE>

See accompanying notes.

F-120
<PAGE>

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF OPERATIONS AND
STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
<S> <C> <C>
OPERATING REVENUES
Advertising revenue .................................. $ 1,605,422
Research services revenue ............................ 604,961
Direct mail & subscription revenue ................... 521,851
Broadcast revenue .................................... 825,686
Other revenue ........................................ 97,437
-------------
3,655,357
Direct costs of revenue .............................. 1,056,785
-------------
2,598,572
OPERATING EXPENSES
Officers' salary expense ............................. 209,424
Other salary expense ................................. 1,090,662
Depreciation and amortization ........................ 62,535
General and administrative expenses .................. 1,034,159
-------------
2,396,780
-------------
Income from operations ............................... 201,792

OTHER INCOME (EXPENSE)
Interest income--officers' loans ..................... 4,171
Interest income--third party ......................... 169
Interest expense--officers' loans .................... (15,596)
Interest expense--third party ........................ (26,921)
-------------
Income before income taxes ........................... 163,615

INCOME TAXES
Provision for income taxes ........................... 65,000
-------------
Net income (loss) .................................... 98,615

Combined stockholders' deficit at beginning of period (1,521,260)
-------------
Combined stockholders' deficit at end of period ..... $(1,422,645)
=============
</TABLE>

See accompanying notes.

F-121
<PAGE>

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ......................................................... $(153,610) $1,142,011
Adjustment to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization .................................... 183,976 203,047
Provision for doubtful accounts .................................. 13,584 58,278
Changes in operating assets and liabilities:
Accounts receivable ............................................. (246,873) (139,356)
Prepaid expenses and other current assets ....................... 154,120 (109,356)
Other non current assets ........................................ (3,378) 2,444
Accounts payable and accrued expenses ........................... 69,816 126,955
Unearned subscription income .................................... 101,623 (123,726)
Accrued officers' bonus ......................................... 639,000 51,000
Deferred income taxes ........................................... 39,268 (165,256)
Taxes payable and other current liabilities ..................... 143,423 (115,540)
------------ ------------
Net cash provided by operating activities .......................... 940,949 930,501
------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment ................................. (65,731) (166,892)
Deferred software costs ............................................ (97,463) (150,630)
------------ ------------
Net cash used in investing activities .............................. (163,194) (317,522)
------------ ------------
FINANCING ACTIVITIES
Payments on long term debt ......................................... (860,236) (527,747)
Proceeds from additional debt borrowings ........................... 52,500 155,000
Proceeds from (repayments of) officers' loans, net ................. 61,355 (128,262)
------------ ------------
Net cash used in financing activities .............................. (746,381) (501,009)
------------ ------------
Net increase in cash and cash equivalents .......................... 31,374 111,970
Cash and cash equivalents at beginning of year ..................... 129,079 160,453
------------ ------------
Cash and cash equivalents at end of year ........................... $ 160,453 $ 272,423
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ............................................. $ 304,726 $ 190,168
============ ============
Cash paid for income taxes ......................................... $ 21,375 $ 26,316
============ ============
</TABLE>

See accompanying notes.

F-122
<PAGE>

THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income ......................................................... $ 98,615
Adjustment to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization .................................... 62,535
Provision for doubtful accounts .................................. 3,954
Changes in operating assets and liabilities:
Accounts receivable ............................................. (42,922)
Prepaid expenses and other current assets ....................... 101,621
Other non current assets ........................................ 27,508
Accounts payable and accrued expenses ........................... 137,671
Unearned subscription income .................................... 151,829
Accrued officers' bonus ......................................... (1,251,000)
Deferred income taxes ........................................... (60,603)
Taxes payable and other current liabilities ..................... 525,097
-------------
Net cash used in operating activities .............................. (245,695)
INVESTING ACTIVITIES
Purchase of property and equipment ................................. (45,540)
Deferred software costs ............................................ (40,869)
-------------
Net cash used in investing activities .............................. (86,409)
FINANCING ACTIVITIES
Payments on long term debt ......................................... (112,681)
Proceeds from additional debt borrowings ........................... 129,236
Proceeds from officers' loans, net ................................. 212,624
-------------
Net cash provided by financing activities .......................... 229,179
-------------
Net decrease in cash and cash equivalents .......................... (102,925)
Cash and cash equivalents at beginning of year ..................... 272,423
-------------
Cash and cash equivalents at end of year ........................... $ 169,498
=============
</TABLE>

See accompanying notes.

F-123
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Principles of Combination

The accompanying combined financial statements include the accounts of The
Album Network, Inc., The Network 40, Inc., The Urban Network, Inc. and
In-the-Studio (collectively, the "Companies"). Intercompany transactions and
balances among the Companies have been eliminated in combination.

On August 27, 1997, the board of directors and shareholders of the
Companies approved a plan of agreement and merger which provided that The
Urban Network, Inc. merge into The Album Network, Inc. (the "Company")
effective September 24, 1997. The Companies accounted for the transaction as
a merger of companies under common control.

The Companies publish six music trade magazines, produce rock, urban and
top 40 programming specials and manufacture compact disc samplers. They also
serve as product marketing advisors to contemporary music talent and their
managers in providing creative content and innovative marketing campaigns. In
addition, the Companies provide research services for radio station program
directors and record label executives. The Companies publishes five print
periodicals for rock and top 40 music broadcasters, retailers and music
industry executives. The weekly publications are the "Album Network" and the
"Network 40". The monthly publications are the "Virtually Alternative" and
"Totally Adult" and the quarterly publication is titled "AggroActive."
Additionally, "The Urban Network" trade magazine is published each week.

Revenue Recognition

The Companies' magazines generate revenue from advertising sales,
complemented by subscription sales and incremental direct mail revenue.

Unearned subscription income represents revenues on subscriptions for
which publications have not been delivered to customers as of the balance
sheet date. Unearned subscription income at September 30, 1996 also includes
unearned income on certain advertising and direct mail packages.

Revenue from research services is recognized straight-line over the
license term or upon the sale of computer software developed for licensees
and other customers. Advertising and broadcast revenues are recognized when
advertisements are run or aired.

Furniture and Equipment

Furniture and equipment are valued at cost less accumulated depreciation.
Depreciation is provided on the straight-line and declining balance methods
over the estimated useful lives of the assets, as follows:

<TABLE>
<CAPTION>
<S> <C>
Computer hardware ...........5 years
Software .................... 5 years
Furniture and equipment .... 5-7 years
Leasehold improvements ..... 5 years
</TABLE>

Deferred Software Costs

Costs incurred to produce software masters and subsequent enhancements to
such software are capitalized and amortized over the remaining economic life
of the master (generally, five years). Costs of maintenance and customer
support are charged to expense when incurred.

Cash and Cash Equivalents

The Companies consider all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.

Income Taxes

Each of the affiliated Companies file a separate tax return. The Album
Network, Inc. and the Urban Network, Inc. are "C Corporations." The Network
40, Inc. has elected to be taxed as an "S Corporation". The "S Corporation"
election is effective for both federal and state tax purposes. Accordingly
all items of income, loss, deduction or credit are reported by the
shareholders on their respective personal income tax returns. The corporate
tax rate for S Corporations in California is one and one-half percent (1.5%).

F-124
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

Risks and Uncertainties

Concentration of Credit Risk

The Company maintains bank balances with City National Bank in excess of
the federally insured limit of $100,000.

Reclassification

Certain amounts in the financial statements have been reclassified to
conform with the current presentations.

Interim Financial Information

Financial information as of December 31, 1997 and for the three months
ended December 31, 1997 is unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of the results for such period
have been included, all adjustments are of a normal and recurring nature.
Interim results are not necessarily indicative of results for a full year.

2. RELATED PARTY TRANSACTIONS

Officers' Loans

The Companies have several loan agreements outstanding with its officers
in order to satisfy the cash flow needs of operations. The interest rates on
the loans to and from the officers range from approximately 10% to 12%.

At October 1, 1995, the officers owed the Companies $471,918 and the
Companies owed the officers $637,116. During the year ended September 30,
1996, the officers repaid $48,471 and loaned the Companies an additional
$12,884.

At October 1, 1996, the officers owed the Companies $423,447 and the
Companies owed the officers $650,000. During the year ended September 30,
1997, the officers repaid $32,653 to the Companies and the Companies repaid
$160,915 to the officers.

3. LONG-TERM DEBT

A summary of long-term debt as of September 30, 1997 and 1996 is as
follows:

<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------
1996 1997
------------ -----------
<S> <C> <C>
Note payable to City National Bank, collateralized by certain
equipment and personally guaranteed by the stockholders;
payable in monthly installments of $2,917 plus interest at
10.5%; due May 1999 ........................................... $ 96,994 $ 62,740
Note payable to City National Bank, personally guaranteed by
the stockholders; payable in monthly installments of $41,233
plus interest at 8.75% through January 22, 1997 and at 8.25%
thereafter; due December 2000.(A) ............................. 1,821,862 1,415,369
Other........................................................... 12,000 80,000
------------ -----------
1,930,856 1,558,109
Less current portion ........................................... 636,723 506,228
------------ -----------
Long-term debt ................................................. $1,294,133 $1,051,881
============ ===========
</TABLE>

(A) In September 1995 The Album Network, Inc., The Network 40, Inc. and The
Urban Network, Inc. entered into a loan agreement with City National Bank
for $2,330,000 in connection with a redemption of common stock. Interest
was set at 8.75% per year and principal and interest were payable in
monthly installments of $57,846 through September 1999. In January 1997,
the loan agreement was revised. Interest was reset at 8.25% and monthly
payments of $41,233 were extended through December 2000. The principal
balance at the date of revision was $1,687,560.

F-125
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

4. COMMON STOCK

The Companies' stock and tax status at September 30, 1997 are as follows:

<TABLE>
<CAPTION>
SHARES
ISSUED
TAX SHARES AND
STATUS AUTHORIZED OUTSTANDING
------------- ------------ -------------
<S> <C> <C> <C>
The Album Network, Inc. C-Corp. 1,000,000 220
The Network 40, Inc. ... S-Corp. 100,000 825
The Urban Network, Inc. C-Corp. 100,000 825
In-the-Studio ........... Partnership n/a n/a
</TABLE>

5. COMMITMENTS AND CONTINGENCIES

Leases

The Companies lease an office facility under noncancellable leases which
expire in February 1998.

Total rent expense for the years ended September 30, 1997 and 1996 under
operating leases was $262,812 and $256,026, respectively.

Future minimum lease payments under noncancellable operating leases as of
September 30, 1997 total $121,155, all of which is payable in 1998.

Other Matters

As of September 30, 1997, approximately $80,000 was drawn on lines of
credit with City National Bank. There were no amounts drawn as of September
30, 1996.

6. INCOME TAXES

The Album Network has received a Statutory Notice of Deficiency from the
Internal Revenue Service ("IRS") for the years ended September 30, 1994, 1995
and 1996 asserting tax deficiencies resulting primarily from an IRS position
that compensation paid to officers was unreasonable and excessive. In total,
approximately $3.5 million of adjustments increasing taxable income have been
proposed. The total additional tax, penalties and interest through September
30, 1997 related to these adjustments would be approximately $1.8 million.
The company has analyzed these matters with tax counsel and believes it has
meritorious defenses to the deficiencies asserted by the IRS. The company has
filed a petition with the United States Tax Court contesting the asserted
liability. While the company believes that a successful defense of this case
may be made, in light of the economic burdens of the defense, the company may
entertain a settlement for up to $291,000. Accordingly, the company has
recorded reserves in such amount, including $23,000, $115,000 and $153,000
for the years ended September 30, 1997, 1996 and prior periods, respectively.

F-126
<PAGE>
THE ALBUM NETWORK, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

For the years ended September 30, 1996 and 1997 the provision for income
taxes is as follows:

<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Current:
Federal .. $129,911 $ 143,056
State ..... 17,710 42,878
---------- -----------
Total .... 147,621 185,934
---------- -----------
Deferred:
Federal .. 49,764 (150,383)
State ..... 14,447 (14,873)
---------- -----------
Total .... 64,211 (165,256)
---------- -----------
Total ...... $211,832 $ 20,678
========== ===========
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Companies' deferred tax assets and liabilities as of
September 30, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Deferred tax assets:
Contributions carryforward .... $ 8,194 $ 10,078
Deferred tax liabilities:
Fixed assets ................... 12,280 11,830
Intangible assets .............. 275,346 112,424
---------- ---------
Total deferred tax liabilities 287,628 124,254
---------- ---------
Net deferred tax liabilities ... $279,434 $114,176
========== =========
</TABLE>

7. EMPLOYEE RETIREMENT PLAN

In January 1997, the Companies began a retirement plan for their employees
under Section 401(k) of the Internal Revenue Code. All employees are eligible
to participate once they obtain the minimum age requirement of 21 years, and
have satisfied the service requirement of one year with the Companies.
Participant contributions are subject to the limitations of Section 402 (g)
of the Internal Revenue Code. The Companies contribute monthly to
participating employees accounts at the rate of 10% of the participating
employees contributions. During the year ended September 30, 1997, the
Companies contributions totaled approximately $14,000.

8. SUBSEQUENT EVENTS (UNAUDITED)

On February 27, 1998, the Company was acquired by SFX Entertainment Inc.

F-127
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
BG Presents, Inc.

We have audited the accompanying consolidated balance sheets of BG
Presents, Inc. and Subsidiaries as of January 31, 1997 and 1998, and the
related consolidated statements of income, cash flows and stockholders'
equity for each of the three years in the period ended January 31, 1998.
These financial statements are the responsibility of 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 consolidated 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 consolidated financial position of BG Presents,
Inc. and subsidiaries at January 31, 1997 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended January 31, 1998, in conformity with generally accepted
accounting principles.

Ernst & Young LLP

New York, New York
March 20, 1998

F-128
<PAGE>

BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JANUARY 31
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $11,819,831 $ 5,380,984
Accounts receivable--trade ............................. 3,164,543 5,460,915
Accounts receivable--related parties ................... 1,347,150 776,174
Investments ............................................ 370,000 --
Inventories ............................................ 236,078 227,766
Prepaid assets ......................................... 450,883 3,001,450
Income tax receivable .................................. 418,528 --
Deferred income taxes .................................. 94,000 --
Other current assets.................................... -- 118,455
------------- -------------
Total current assets .................................... 17,901,013 14,965,744
Property and equipment, net ............................. 9,661,910 8,904,509
Goodwill, net of accumulated amortization of $238,400
and $357,600 at January 31, 1997 and 1998,
respectively............................................ 1,549,600 1,430,400
Other assets (Note 6).................................... 167 4,100,011
------------- -------------
Total assets ............................................ $29,112,690 $29,400,664
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--current portion ......................... $ 722,966 $ 879,040
Lease commitment--current portion ...................... 35,676 --
Accounts payable ....................................... 3,229,054 1,816,959
Deferred revenue ....................................... 1,362,533 1,480,145
Accrued liabilities and other current liabilities ...... 3,721,749 3,753,613
------------- -------------
Total current liabilities ............................... 9,071,978 7,929,757
Lease commitment, less current portion .................. 6,704,719 --
Notes payable, less current portion ..................... 5,233,709 11,134,834
Deferred income taxes ................................... 2,617,000 2,617,000

Stockholders' equity:
Common stock, no par value; 10,000,000 shares
authorized; 1,000,000 shares issued and outstanding in
1997 and 1998.......................................... 1,198,947 1,198,947
Retained earnings....................................... 4,286,337 6,520,126
------------- -------------
Total stockholders' equity............................... 5,485,284 7,719,073
------------- -------------
Total liabilities and stockholders' equity............... $29,112,690 $29,400,664
============= =============
</TABLE>

See accompanying notes.

F-129
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
--------------------------------------------
1996 1997 1998
------------- ------------- --------------
<S> <C> <C> <C>
REVENUES
Concert revenues......................... $62,996,606 $74,981,534 $ 75,898,464
Contract management ..................... 7,844,248 10,255,060 23,632,596
Concessions/merchandise ................. 5,536,287 7,094,593 6,021,845
------------- ------------- --------------
76,377,141 92,331,187 105,552,905
Cost of revenues ........................ 54,383,763 69,916,840 81,092,377
------------- ------------- --------------
21,993,378 22,414,347 24,460,528
EXPENSES
General and administrative .............. 17,614,296 17,602,501 18,866,259
Depreciation and amortization ........... 1,441,439 1,474,414 1,026,684
------------- ------------- --------------
Income from operations .................. 2,937,643 3,337,432 4,567,585

OTHER INCOME (EXPENSE)
Interest expense ........................ (1,324,219) (1,257,758) (916,723)
Interest income ......................... 307,756 295,057 294,888
Miscellaneous ........................... 535,191 289,222 (24,300)
------------- ------------- --------------
Income before provision for income taxes 2,456,371 2,663,953 3,921,450
Provision for income taxes .............. 1,160,718 1,272,190 1,687,661
------------- ------------- --------------
Net income............................... $ 1,295,653 $ 1,391,763 $ 2,233,789
============= ============= ==============
</TABLE>

See accompanying notes.

F-130
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................... $ 1,295,653 $ 1,391,763 $ 2,233,789
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment.......................................... 1,322,239 1,355,214 907,484
Amortization of goodwill............................ 119,200 119,200 119,200
Loss on sale of property and equipment ............. 13,603 -- --
Changes in operating assets and liabilities:
Accounts receivable--trade ........................ 524,566 (1,356,263) (2,296,372)
Accounts receivable--related parties .............. (496,971) (821) 570,976
Inventories ....................................... (228,294) (7,784) 8,312
Prepaid assets and other .......................... (322,524) 478,391 (2,550,567)
Income tax receivable ............................. (50,888) (328,390) 300,073
Accounts payable and accrued expenses ............. (491,982) 3,128,476 (1,380,231)
Deferred income taxes ............................. 1,139,000 45,000 94,000
Deferred revenue .................................. (67,859) 379,748 117,612
Other ............................................. 288,367 160 74,347
------------- ------------- -------------
Net cash provided by (used in) operating activities 3,044,110 5,204,694 (1,801,377)

INVESTING ACTIVITIES
Purchase of SAP limited partnership interest ....... (4,250,000) -- --
Proceeds from sale of equipment ..................... 13,150 -- --
Capital expenditures, including White River
Amphitheatre........................................ (469,447) (367,678) (4,247,528)
Other ............................................... (644,496) (247,000) 293,254
------------- ------------- -------------
Net cash used in investing activities ............... (5,350,793) (614,678) (3,954,274)

FINANCING ACTIVITIES
Payments of notes payable ........................... (444,985) (775,756) --
Borrowings on notes payable.......................... -- 1,000,000 6,057,199
Payments of lease commitments ....................... (395,330) (405,275) (6,740,395)
Retirement of stock ................................. -- (21,053) --
------------- ------------- -------------
Net cash used in financing activities ............... (840,315) (202,084) (683,196)
Net increase (decrease) in cash and cash
equivalents......................................... (3,146,998) 4,387,932 (6,438,847)
Cash and cash equivalents at beginning of year ..... 10,578,897 7,431,899 11,819,831
------------- ------------- -------------
Cash and cash equivalents at end of year............. $ 7,431,899 $11,819,831 $ 5,380,984
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................... $ 1,324,219 $ 1,257,664 $ 1,092,356
Cash paid for income taxes .......................... 888,738 1,280,000 1,325,000
</TABLE>

See accompanying notes.

F-131
<PAGE>

BG PRESENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
<S> <C>
Balance--January 31, 1995 ...................... $2,818,921
Net income for the year ended January 31, 1996 1,295,653
------------
Balance--January 31, 1996 ...................... 4,114,574
Net income for the year ended January 31, 1997 1,391,763
Repurchase and retirement of stock ............. (21,053)
------------
Balance--January 31, 1997 ...................... 5,485,284
Net income for the year ended January 31, 1998 2,233,789
------------
Balance--January 31, 1998 ...................... $7,719,073
============
</TABLE>

See accompanying notes.

F-132
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Business and Principles of Consolidation

BG Presents, Inc. ("BGP" or the "Company") is a holding company for
various operating subsidiaries which principally promote and manage musical
and special events in the San Francisco Bay Area. In addition, the Company
owns the Shoreline Amphitheatre in Mountain View, California. Bill Graham
Enterprises, Inc. ("BGE"), Bill Graham Presents, Inc. ("BGPI"), Bill Graham
Management, Inc. ("BGM"), AKG, Inc. ("AKG"), Shoreline Amphitheatre, Ltd.
("SAL"), Fillmore Fingers, Inc. ("FF"), and Shoreline Amphitheatre Partners
("SAP" and, collectively, the "Companies") are wholly-owned subsidiaries of
the Company. The accompanying consolidated financial statements include the
accounts of the Company and all of its wholly-owned subsidiaries.
Intercompany transactions and balances have been eliminated in consolidation.

BGE and BGPI earn promotion income in two ways: either a fixed fee for
organizing and promoting an event, or an arrangement that entitles them to a
profit percentage based on a predetermined formula. In addition, the
Companies earn revenue from merchandise and concessions sold during events
which they promote. BGM manages the careers of various artists and records a
percentage of the artists' gross sales from publishing rights, record sales,
and tours as contract management revenue.

AKG operates the Fillmore, Warfield, and Punchline theatres located in San
Francisco, which generate revenue from food and beverage sales, sponsorships,
and ticket sales. Bill Graham Special Events, a division of AKG, records
management/contract fees from organizing corporate and other parties at
various venues in the San Francisco Bay Area. FF provides table service (food
and beverage) for two theatres located in Los Angeles owned by third parties.

Revenue Recognition

Revenue from talent management and the sales of tickets is recognized when
earned. Cash received from the sale of tickets for events not yet performed
is deferred. Revenue from the direct sale of compact discs is recognized upon
the date of sale. The Company's revenue included $305,017, $14,562,000 and
$13,483,683 during the fiscal years ended January 31, 1996, 1997 and 1998,
respectively, from various gymnastics tours, ice skating tours and television
specials.

Cash and Cash Equivalents

The Company considers all investments purchased with an original maturity
date of three months or less to be cash equivalents. At January 31, 1996,
1997 and 1998, the Companies had cash balances in excess of the federally
insured limits of $100,000 per institution.

Use of Estimates

Generally accepted accounting principles require management to make
assumptions in estimates that affect the amount reported in the financial
statements for assets, liabilities, revenues, and expenses. In addition,
assumptions and estimates are used to determine disclosure for contingencies,
commitments, and other matters discussed in the notes to the financial
statements. Actual results could differ from those estimates.

Accounts Receivable

The Company's accounts receivable are principally due from ticket service
and merchandising companies in the San Francisco Bay Area. In addition,
related party receivables include amounts due from owners of the Company and
from affiliated companies. Management believes that all accounts receivable
as of January 31, 1996, 1997 and 1998 were fully collectible; therefore, no
allowance for doubtful accounts was recorded.

F-133
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(CONTINUED)

Property and Equipment

Property and equipment are recorded at cost and depreciated over their
estimated useful lives, which range from 3 to 40 years. Leasehold
improvements are amortized on the straight-line basis over the shorter of the
lease term or estimated useful lives of the assets. Maintenance and repairs
are charged to expense as incurred.

Goodwill

The Company amortizes goodwill over a 15 year period.

Income Taxes

The Companies account for income taxes under the liability method, whereby
deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Inventories

Inventories, which consist principally of compact discs and beverage
items, are stated at first-in, first-out (FIFO) cost, which is not in excess
of market.

Advertising and Promotion Costs

The Company expenses all advertising and promotion costs as incurred,
except in instances where management believes these costs generate a direct
response from customers. Advertising expenses were $3,408,322, $4,319,291 and
$4,519,049 for the fiscal years ended January 31, 1996, 1997 and 1998,
respectively.

2. INCOME TAXES

The provision for income taxes for the fiscal years ended January 31, 1997
and 1998 is summarized as follows:

<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Current:
Federal .. $ 984,500 $1,304,837
State...... 285,800 378,824
------------ ------------
1,270,300 1,683,661
Deferred:
Federal .. 1,500 3,100
State ..... 400 900
------------ ------------
1,900 4,000
------------ ------------
$1,272,200 $1,687,661
============ ============
</TABLE>

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's net
deferred tax liabilities as of January 31, 1997 and 1998 are primarily the
result of the difference between the book basis of depreciable assets and the
related tax basis.

The difference between the tax provision at Federal statutory rates and
the effective rate is due to state taxes, amortization of goodwill and other
nondeductible items.

F-134
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. PROPERTY AND EQUIPMENT

Property and equipment as of January 31, 1997 and 1998 consists of the
following:

<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C>
Buildings ................... $ 8,234,231 $ 8,251,729
Leasehold improvements ..... 10,326,553 10,403,033
Equipment ................... 2,166,037 2,184,855
Office furniture ............ 693,068 711,235
Computer equipment .......... 330,367 343,493
Vehicle ..................... 61,211 67,205
-------------- --------------
21,811,467 21,961,550
Accumulated depreciation and
amortization ............... (12,783,510) (13,528,140)
-------------- --------------
9,027,957 8,443,410
Land ........................ 633,953 633,953
-------------- --------------
$ 9,661,910 $ 9,067,363
============== ==============
</TABLE>

4. PENSION PLAN

The Company sponsors a 401(k) Tax Advantage Savings Plan that covers
employees who have one year of service, have worked at least 1,000 hours, are
21 years of age or older, and are not covered by a union contract. At its
discretion, the Company may contribute a percentage of gross pay to the plan,
up to a maximum gross pay of $150,000 per participant. In addition, the
Company makes a matching contribution of 25% of each participant's account up
to $400 of their salary deferral each year, for a maximum company matching
contribution of $100. Total contributions to the plan were approximately
$182,000, $186,000 and $213,049 for the years ended January 31, 1996, 1997
and 1998, respectively.

F-135
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. NOTES PAYABLE

Notes payable as of January 31, 1997 and 1998 consists of the following:

<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Note payable to Midland Loan Services LP; monthly
payments of $16,574, including interest at the bank's
index rate plus 3.5% (8.4% and 8.375% at January 31,
1997 and 1998, respectively; matures May 1, 2004;
secured by deed ...................................... $2,215,001 $ 2,193,732
Note payable to Sanwa Bank; quarterly payments range
from $75,000 to $200,000, interest accrued monthly at
the bank's prime rate plus 0.5% (8.75% and 8.75% at
January 31, 1997 and 1998, respectively); matures
January 31, 2001...................................... 2,925,000 2,425,000
Note payable to Sanwa Bank; monthly payments of
$16,666, including interest at a rate of London
Inter-Bank Offered Rate (LIBOR) plus 2.5%; matures
January 31, 2002; secured by assets of the Company
(excluding the office building)....................... 816,674 616,682
Note payable to Sanwa Bank; monthly payments range
from $12,000 to $25,000, interest accrued monthly at
the bank's index rate plus 2.375%; matures March 1,
2007; secured by deed................................. -- 6,778,460
------------ ------------
5,956,675 12,013,874
Less current portion .................................. (722,966) (879,040)
------------ ------------
$5,233,709 $11,134,834
============ ============
</TABLE>

The first note payable with Sanwa Bank also provided for a line-of-credit
of up to $1,000,000 that expired on April 30, 1997. At January 31, 1998,
there were no borrowings outstanding against this credit line.

F-136
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. NOTES PAYABLE (CONTINUED)

At January 31, 1998, the Company has a $3,000,000 unused line-of-credit
with a bank to be drawn upon as needed, with interest at the bank's prime
rate plus 0.5%. In addition, the Company may use up to $1,500,000 of the line
for letters-of-credit. This line-of-credit is secured by the assets of the
Company.

Maturities of long-term debt are approximately as follows:

<TABLE>
<CAPTION>
<S> <C>
Year ended January 31:
1999 ................. $ 879,040
2000 ................. 893,998
2001 ................. 1,851,908
2002 ................. 227,764
2003 ................. 246,791
Thereafter ............ 7,914,373
------------
$12,013,874
============
</TABLE>

6. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases nightclubs, theaters and storage space pursuant to
noncancellable operating leases. Certain leases require contingent rentals to
be paid based on a percentage of gross sales of tickets, merchandise, and
food and beverage. These leases expire on various dates through June 2021.

At January 31, 1998, the future minimum operating lease payments under
noncancelable operating leases are as follows:

<TABLE>
<CAPTION>
<S> <C>
Year ended January 31:
1999 ................. $ 543,354
2000 ................. 547,211
2001 ................. 485,961
2002 ................. 451,694
2003 ................. 425,633
Thereafter ............ 2,367,353
-----------
$4,821,206
===========
</TABLE>

Total minimum rental expense included in operating expenses for the years
ended January 31, 1996, 1997 and 1998 was $810,956, $438,500 and $706,219,
respectively, and the contingent rental expense was $541,334, $627,222 and
$725,787, respectively. Included in cost of revenues is $6,145,944,
$6,392,616 and $7,265,769 of contingent rentals paid based on gross sales for
the years ended January 31, 1996, 1997 and 1998, respectively.

Shoreline Amphitheater Lease and Agreement

The Shoreline Amphitheater Lease and Agreement, as amended, provides for,
among other things, that the City of Mountain View, California (the "City")
owns certain real property (the "Site") which it has leased to the Company
for the purpose of constructing and operating the amphitheater. The lease
terminates after 35 years on November 30, 2021, and the Company has the
option to extend for three additional five-year periods.

The Company is obligated to pay as rent to the City a certain percentage
of "gross receipts" received annually by the Company and additional rent
based on the "net available cash" of the Company, as such terms are defined
in the agreement.

F-137
<PAGE>
BG PRESENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. COMMITMENTS AND CONTINGENCIES (CONTINUED)

Rent expense charged to operations for the years ended January 31, 1996,
1997 and 1998 amounted to $594,002, $396,789 and $613,933, respectively.

As of the year ended January 31, 1997, the Company was obligated to pay
the City $93,200 monthly, which related to $9,500,000 of funds provided the
Company by the City pursuant to the lease. Prior to the refinancing of this
arrangement as a $6.9 million note payable to Sanwa Bank (see Note 5), the
Company had accounted for this obligation as a long-term liability
amortizable on a monthly basis over the 20-year period commencing August 1,
1986. The principal and interest (10.24%) on this liability were being
amortized monthly. At January 31, 1997, the outstanding balance amounted to
$6,740,395, of which $35,676 was current.

Seattle White River Amphitheatre

The Company has committed payments for the construction of an amphitheatre
in the Seattle, Washington market totaling $10 million. Through January 31,
1998, the Company has paid $3,921,812 toward this project. This amount is
included in other assets on the balance sheet. The Company has also
capitalized interest pertaining to the capital expenditures for the
amphitheatre of $175,633 at January 31, 1998, which is also included in other
assets on the balance sheet.

Employment Contracts

The Company has entered into employment contracts with certain key
employees which amount to $2,300,000 per year. These contracts are in effect
until the first note payable to Sanwa Bank (see Note 5) is paid in full or
six years, whichever comes first. According to these agreements, compensation
and other benefits will cease if discharged with just cause, death or
disability, and resignation of employment. Benefits do not cease if
discharged without just cause.

Contingencies

The Company is involved in various legal and other matters arising in the
normal course of business. Based upon information available to management,
its review of these matters to date and consultation with counsel, management
believes that any liability relating to these matters would not have a
material effect on the Company's financial position and results of
operations.

7. SUBSEQUENT EVENTS

Acquisition of Companies by SFX Entertainment, Inc.

On February 24, 1998, the stockholders of the Company sold all of the
outstanding capital stock of the Companies to SFX Entertainment, Inc. for
cash consideration of $60.8 million (including the repayment of $12 million
in the Companies' debt and the issuance of 562,640 shares of common stock of
SFX Entertainment, Inc.). The Company has agreed to have net working capital,
as defined, at the closing at least equal to the Company's debt.

F-138
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Concert/Southern Promotions

We have audited the accompanying combined balance sheet of
Concert/Southern Promotions and Affiliated Companies as of December 31, 1997,
and the related combined statements of operations, cash flows and
stockholders' equity for the year then ended. These financial statements are
the responsibility of 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 combined financial position of Concert/Southern
Promotions and Affiliated Companies at December 31, 1997, and the combined
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP

New York, New York
March 13, 1998

F-139
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED BALANCE SHEET
DECEMBER 31, 1997

<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 612,967
Accounts receivable ................................ 185,437
Due from owners (Note 3) ........................... 332,754
Prepaid expenses and other current assets ......... 115,844
------------
Total current assets ................................ 1,247,002

Investments in equity investees (Note 2)............. 895,790
Property and equipment:
Land ............................................... 19,638
Leasehold improvements ............................. 286,998
Furniture and equipment ............................ 496,265
------------
802,901
Accumulated depreciation and amortization ......... 460,483
------------
342,418
------------
Total assets ........................................ $2,485,210
============

LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .............. $ 229,558
Deferred income .................................... 368,150
------------
Total current liabilities ........................... 597,708
Combined stockholders' equity (Note 4) .............. 1,887,502
------------
Total liabilities and combined stockholders' equity $2,485,210
============
</TABLE>
See accompanying notes.

F-140
<PAGE>

CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
<S> <C>
Operating revenues:
Concert revenue .................... $14,796,977
Cost of concerts.................... 9,877,586
-------------
4,919,391
Operating expenses:
Salaries--officers ................. 364,000
Bonuses--officers .................. 564,767
Salaries--other .................... 367,356
Rent expense ....................... 207,220
Legal and accounting fees .......... 201,435
Depreciation and amortization ..... 78,682
General and administrative expenses 1,367,304
-------------
3,150,764
-------------

Income from operations............... 1,768,627
Other income:
Interest income .................... 59,624
Losses from equity investees ...... (79,629)
-------------
Net income .......................... $ 1,748,622
=============
</TABLE>

See accompanying notes.

F-141
<PAGE>

CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income ...................................................................... $ 1,748,622
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ................................................. 78,682
Losses from equity investees................................................... 79,629
Changes in operating assets and liabilities:
Accounts receivable .......................................................... 1,000,781
Prepaid expenses and other current assets .................................... 69,896
Accounts payable and accrued expenses ........................................ (452,361)
Deferred income .............................................................. 368,150
Net cash provided by operating activities ....................................... 2,893,399
FINANCING ACTIVITIES
Due to/from owner ............................................................... (398,080)
Distributions paid to stockholder ............................................... (2,722,827)
-------------
Net cash used in financing activities ........................................... (3,120,907)
-------------
Net decrease in cash and cash equivalents ....................................... (227,508)
Cash and cash equivalents at beginning of year .................................. 840,475
-------------
Cash and cash equivalents at end of year ........................................ $ 612,967
=============
</TABLE>

See accompanying notes.

F-142
<PAGE>

CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1997 .... $ 2,861,707
Distributions to stockholder (2,722,827)
Net income ................... 1,748,622
-------------
Balance, December 31, 1997 .. $ 1,887,502
=============
</TABLE>

See accompanying notes.

F-143
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Principles of Combination

The accompanying combined financial statements include the accounts of
Southern Promotions, Inc., High Cotton, Inc., Buckhead Promotions, Inc.,
Northern Exposure, Inc., Pure Cotton, Inc., Cooley and Conlon Management,
Inc. ("CCMI") and Interfest, Inc. and their wholly-owned subsidiaries:
Concert/Southern Chastain Promotions ("Concert/Southern"), Roxy Ventures,
Cotton Club and Midtown Music Festival (collectively, the "Companies").
Intercompany transactions and balances among these companies have been
eliminated in combination. The Companies are presented on a combined basis to
reflect common ownership by Alex Cooley, Peter Conlon and Stephen Selig III.

Concert/Southern is the predominant musical event promoter in the Atlanta,
Georgia region, and through Chastain Joint Ventures ("Chastain Ventures") is
the operator, pursuant to a long-term lease with the City of Atlanta, of the
Chastain Park Amphitheater. Chastain Ventures is owned equally by
Concert/Southern and the Atlanta Symphony Orchestra, and is accounted for by
Concert/Southern on the equity method. Buckhead Promotions and Northern
Exposure equally own Roxy Ventures which holds a long-term lease for the Roxy
Theatre, and Pure Cotton holds a long-term lease for the Cotton Club.
Interfest, Inc. promoted the three-day Midtown Music Festival held in
downtown Atlanta during 1997. In addition, High Cotton owns 52.6% of HC
Properties, Inc., a real estate investment company which is accounted for on
the equity method.

The Companies record revenue when earned. Concert revenue includes
ticketing, concession, and sponsorship revenue. Deferred income relates
primarily to deposits received in advance of the concert season.

Property and Equipment

Land, leasehold improvements, and furniture and equipment are stated at
cost. Depreciation of furniture and equipment is provided primarily by the
straight-line method over the estimated useful lives of the respective
classes of assets. Leasehold improvements are amortized over the life of the
lease or of the improvement, whichever is shorter.

Income Taxes

The Companies have been organized as either partnerships or corporations
which have elected to be taxed as "S Corporations." The "S Corporation"
elections are effective for both federal and state tax purposes. Accordingly,
all items of income, loss, deduction or credit are reported by the partners
or shareholders on their respective personal income tax returns and,
therefore, no current or deferred federal or state taxes have been provided
in the accompanying combined financial statements.

The difference between the tax basis and the reported amounts of the
Companies' assets and liabilities was $16,576 at December 31, 1997.

Risks and Uncertainties

Accounts receivable are due from ticket vendors and venue box offices.
These amounts are typically collected within 20 days of a performance.
Management considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.

Use of Estimates

F-144
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

2. INVESTMENTS IN EQUITY INVESTEES

The following is a summary of the financial position and results of
operations of the Companies' equity investees as of and for the period ended
December 31, 1997:

<TABLE>
<CAPTION>
CHASTAIN
PARK AMPHITHEATER HC PROPERTIES
----------------- ---------------
(50% OWNED) (52.6% OWNED)
<S> <C> <C>
Current assets .......................... $322,527 $ 51,820
Property and equipment .................. 468,145 810,480
Other assets ............................ -- 415,145
----------------- ---------------
Total assets ............................ $790,672 $1,277,445
================= ===============
Current liabilities ..................... $129,953 $ 1,927
Partners' capital ....................... 660,719 1,275,518
----------------- ---------------
Total liabilities and partners' capital $790,672 $1,277,445
================= ===============
Revenue ................................. $653,251 $ 87,407
Expenses ................................ 747,055 165,328
----------------- ---------------
Net income (loss) ....................... $(93,804) $ (77,921)
================= ===============
</TABLE>

3. RELATED PARTY TRANSACTIONS

The Companies have an arrangement with Stephen Selig III whereby the cash
receipts of Concert/Southern, Buckhead Promotions and Roxy Ventures are
transferred to the Selig Enterprises, Inc. Master Cash Account (the "Master
Account"). All subsequent payments made by the Companies are funded by the
Master Account. Accordingly, the Companies' cash held by the Master Account
of $281,058 is recorded as due from owner.

In addition, CCMI has recorded a receivable from its stockholders of
$51,696.

4. STOCKHOLDERS' EQUITY

The Companies' stocks are as follows:

<TABLE>
<CAPTION>
SHARES SHARES PAR
AUTHORIZED ISSUED VALUE
------------ -------- -------
<S> <C> <C> <C>
Southern Promotions 1,000,000 5,000 $1
High Cotton ......... 10,000 550 1
Buckhead Promotions 1,000,000 500 1
Northern Exposure .. 1,000,000 1,000 1
Pure Cotton ......... 100,000 500 1
CCMI ................ 10,000 1,000 1
Interfest ........... 100,000 500 1
--------
9,050
========
</TABLE>

F-145
<PAGE>
CONCERT/SOUTHERN PROMOTIONS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

5. COMMITMENTS AND CONTINGENCIES

Leases

The following is a schedule of future minimum rental payments under
operating leases (principally office and venue facilities) that have initial
or remaining lease terms in excess of one year as of December 31, 1997:

<TABLE>
<CAPTION>
<S> <C>
Year ended December 31:
1998 .................. $ 222,539
1999 .................. 183,198
2000 .................. 188,991
2001 .................. 133,350
2002 .................. 136,350
Thereafter ............ 174,375
-----------
Total ................. $1,038,803
===========
</TABLE>

Certain office facilities have renewal and escalation clauses.

Legal Matters

On October 10, 1997, Concert/Southern settled a lawsuit agreeing to pay
$100,000. Such amount has been provided for in the accompanying combined
statement of operations.

The Companies have also been named in various other lawsuits arising in
the normal course of business. It is not possible at this time to assess the
probability of any liability against the Companies as a result of these
lawsuits. Management has stated that all cases will be vigorously defended.

6. SUBSEQUENT EVENTS

On March 4, 1998, SFX Entertainment Inc. acquired the Companies for a
total cash purchase price of $16,900,000 (including a working capital payment
of $300,000).

Prior to the sale of the Companies to SFX, the sole shareholder of High
Cotton received a distribution of High Cotton's interest in HC Properties,
Inc.

F-146
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Falk Associates Management Enterprises, Inc.

We have audited the accompanying combined balance sheets of Falk
Associates Management Enterprises, Inc. as of December 31, 1996 and 1997, and
the related combined statements of operations and stockholders' equity
(deficit) and cash flows for the years then ended. These financial statements
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Falk Associates Management Enterprises, Inc. at December 31, 1996 and 1997,
and the combined results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP

New York, New York
April 10, 1998

F-147

<PAGE>

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1996 1997 1998
---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ............................................. $ 964,265 $ 34,586 $ 691,718
Cash surrender value of officers' life insurance 73,336 115,436 125,436
Accounts receivable .............................. 641,204 614,051 663,484
Current portion of stockholder loan receivable .. 92,669 116,524 237,528
Other current assets ............................. 13,428 33,456 24,904
------------- -------------
1,784,902 914,053 1,743,070
------------- -------------
Fixed assets, net of accumulated depreciation and
amortization ..................................... 85,200 63,714 62,377
Certificate of deposit, noncurrent ................ 200,906 211,331 202,044
Accounts receivable ............................... 514,051 -- --
Stockholder loan receivable ....................... 506,400 389,873 136,542
Other ............................................. 58,900 7,119 7,119
------------- -------------
Total assets ...................................... $3,150,359 $ 1,586,090 $ 2,151,152
============= =============
LIABILITIES AND COMBINED STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ............ $ 221,952 $ 165,504 $ 898,054
Payroll taxes payable ............................ 907,446 - --
Stockholder loan payable ......................... 95,000 95,000 95,000
Current portion of settlement agreement ......... 134,552 145,652 149,253
Current portion of deferred revenue .............. 673,744 1,358,149 1,263,080
Current portion of long-term debt ................ 309,313 310,162 310,472
------------- -------------
2,342,007 2,074,467 2,715,859
------------- -------------
Settlement agreement, less current portion ....... 658,756 513,103 473,103
Deferred revenue, less current portion ............ -- 1,031,250 937,500
Long-term debt, less current portion .............. 46,548 36,200 33,428
Combined stockholders' equity (deficit) .......... 103,048 (2,068,930) (2,008,738)
------------- -------------
Total liabilities and combined stockholders'
equity (deficit) ................................. $3,150,359 $ 1,586,090 $ 2,151,152
============= =============
</TABLE>

See accompanying notes.

F-148
<PAGE>

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
COMBINED STATEMENTS OF OPERATIONS AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31
-------------------------- ------------------------
1996 1997 1997 1998
-------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Agent fees .............................. $6,364,503 $10,881,588 $1,219,282 $ 1,812,804
EXPENSES
Stockholders' salary expense ............ 4,732,430 10,594,773 1,173,341 1,289,251
Other salary expense .................... 969,293 1,177,197 130,372 143,250
Depreciation and amortization ........... 113,486 115,309 29,897 14,053
Travel and entertainment ................ 503,475 552,951 118,418 140,141
General and administrative expenses .... 627,174 677,453 137,664 169,452
------------ -------------- ------------ -------------
6,945,858 13,117,683 1,589,692 1,756,147
-------------- ------------ -------------
(Loss) income from operations ........... (581,355) (2,236,095) (370,410) 56,657
OTHER INCOME (EXPENSE)
Interest income--stockholders' loan .... 32,305 27,237 6,810 9,288
Interest income--third party ............ 142,917 115,714 28,148 15,171
Interest expense--third party ........... (91,996) (78,834) (21,414) (20,924)
Other income ............................ 2,200 -- -- --
-------------- ------------ -------------
85,426 64,117 13,544 3,535
Net (loss) income ....................... (495,929) (2,171,978) (356,866) 60,192
Combined stockholders' equity at
beginning of year ...................... 598,977 103,048 103,048 (2,068,930)
-------------- ------------ -------------
Combined stockholders' equity (deficit)
at end of year ......................... $ 103,048 $(2,068,930) $ (253,818) $(2,008,738)
============== ============ =============
</TABLE>

See accompanying notes.

F-149
<PAGE>

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------- ------------------------
1996 1997 1997 1998
---------- ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ................................. $(495,929) $ (2,171,978) $(356,866) $ 60,192
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization ................... 113,486 115,309 29,897 14,053
Non-cash interest expense ....................... 75,702 65,447 16,399 13,601
Non-cash interest income ........................ (32,188) (37,753) (9,402) 4,041
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ...... 17,538 541,204 47,786 (49,433)
Decrease (increase) in other current assets ..... 559 (20,028) (7,736) 8,552
Increase (decrease) in accounts payable and
accrued expenses ............................... 71,526 (56,448) 325,813 732,550
Increase (decrease) in payroll taxes payable ... 461,584 (907,446) (907,446) --
Increase (decrease) in deferred revenue ........ 479,319 1,715,655 229,918 (188,819)
--------------- ------------ -----------
Net cash provided by (used in) operating
activities ....................................... 691,597 (756,038) (631,637) 594,737
--------------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets .......................... (70,467) (42,042) (20,441) (12,716)
Increase in cash surrender value of officers' life
insurance ........................................ (31,336) (42,100) (10,000) (10,000)
--------------- ------------ -----------
Net cash used in investing activities ............. (101,803) (84,142) (30,441) (22,716)
--------------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt ........................ (300,000) (309,499) (102,432) (2,462)
Proceeds from long-term debt borrowings .......... 355,861 300,000 -- --
Proceeds from stockholder loan receivable ........ -- 120,000 120,000 137,573
Payment on settlement agreement ................... (200,000) (200,000) (50,000) (50,000)
--------------- ------------ -----------
Net cash (used in) provided by financing
activities ....................................... (144,139) (89,499) (32,432) 85,111
--------------- ------------ -----------
Net increase (decrease) in cash ................... 445,655 (929,679) (694,510) 657,132
Cash at beginning of period ....................... 518,610 964,265 964,265 34,586
--------------- ------------ -----------
Cash at end of period ............................. $ 964,265 $ 34,586 $ 269,755 $ 691,718
=============== ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest ............................ $ 16,294 $ 13,386 $ 5,014 $ 7,324
=============== ============ ===========
</TABLE>

See accompanying notes.

F-150
<PAGE>

FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Combination

The accompanying combined financial statements include the accounts of
Falk Associates Management Enterprises, Inc. ("FAME") and Financial Advisory
Management Enterprises, Inc. ("FINAD") (collectively, the "Companies").
Transactions and balances among the Companies have been eliminated in
combination. The Companies are subject to common ownership.

In exchange for a percentage fee or commission, FAME provides
representation services regarding the negotiation of professional sporting
contracts and marketing and endorsement contracts. FINAD provides financial
management services including, but not limited to, the implementation of
financial planning to meet clients' savings and financial goals, the receipt
and deposit of funds, cash flow budgeting and analysis, preparation of
financial statements and tax return services, in exchange for an annual fixed
fee and an additional percentage fee based on the dollar value of assets
managed and monitored.

Revenue Recognition

The Companies revenues arise primarily from percentage fees or commissions
received for the negotiation of professional sporting contracts and marketing
and endorsement contracts. The Companies recognize revenue ratably over the
period of the associated contract. Deferred revenue is recorded on the
accompanying combined balance sheets when funds are received in advance of
the performance period and is recognized over the period of performance.

Accounts Receivable

Accounts receivable consist of amounts due from professional athletes for
services rendered or for fees due related to prior performance that has been
contractually deferred to a later date. Management considers these accounts
receivable as of December 31, 1996 and 1997 to be collectible; accordingly,
no allowance for doubtful accounts is recorded.

Fixed Assets

Fixed assets are stated at cost. Depreciation and amortization of fixed
assets is provided on the straight-line method over the estimated useful
lives of the assets including 5 years for technical equipment, 7 years for
furniture and office equipment and 10 years for leasehold improvements.

Income Taxes

The Companies are cash-basis taxpayers and have elected to be taxed as S
Corporations for federal and state income tax purposes. All items of income,
loss and credits are reported by the Companies stockholders on their
respective personal income tax returns. Accordingly, no current and deferred
federal corporate income taxes have been provided in the accompanying
combined financial statements. However, since the Companies operate in the
District of Columbia ("D.C.") they are subject to D.C. income tax. No D.C.
income tax benefits have been provided on the Companies' D.C. net operating
loss carryforwards and other deductible temporary differences due to the
uncertainty of recognizing future tax benefits for these items.

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 amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.

F-151
<PAGE>
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

The Companies derive substantially all of its agent fees from the
representation services they provide regarding the negotiation of
professional sporting contracts and marketing and endorsement contracts for
professional athletes in the National Basketball Association ("NBA"). In
March 1998, the NBA Board of Governors voted to exercise the league's right
to re-open its Collective Bargaining Agreement (the "Agreement") with the
National Basketball Players Association. As a result, the Agreement will
expire as of June 30, 1998. As a matter of Collective Bargaining, the
Agreement, when it expires, continues in place until it is replaced by a
successor agreement, or until some other labor remedies are utilized by one
party or the other, meaning a strike or a lockout or a moratorium
collectively. Should there be a work stoppage due to either a lockout or
strike and NBA games are not played, it would be likely that the Companies
agent fees would be negatively impacted.

Significant Customer

The Companies three most significant sources of revenue provided a
majority of the Companies combined agent fees for the year ended December 31,
1996 and 1997, respectively.

Interim Financial Information

The interim financial data as of March 31, 1998 and for three-month
periods ended March 31, 1997 and 1998 is unaudited and certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
However, in the opinion of Management, the interim data includes all
adjustments, consisting only of normal recurring adjustments necessary for a
fair statement of the results for the interim periods. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the entire year.

2. FIXED ASSETS

Fixed assets consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1997
--------- -----------
<S> <C> <C>
Furniture and office equipment ................. $ 150,739 $ 159,467
Technical equipment ............................ 169,112 200,300
Leasehold improvements ......................... 4,841 6,967
-----------
324,692 366,734
Less accumulated depreciation and amortization (239,492) (303,020)
-----------
$ 85,200 $ 63,714
===========
</TABLE>

3. LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1997
--------- ----------
<S> <C> <C>
Time note (A) ........... $ 200,000 $ 200,000
Line of credit (B) ...... 100,000 100,000
Note payable (C) ........ 55,861 46,362
-----------
Long term debt .......... 355,861 346,362
Less current maturities (309,313) (310,162)
-----------
Total long-term debt ... $ 46,548 $ 36,200
========= ===========
</TABLE>

- ------------
(A) On December 31, 1996 and 1997, respectively, the Companies had
outstanding a six-month $200,000 time note (the "Time Note") with a
bank (the "Bank"). Interest was set at the prime rate which
approximated 8.25% at both December 31, 1996 and 1997, respectively.
Interest is payable monthly in arrears. The Companies may repay the
principal at any time during the six-month period ended June 30, 1998,
with all remaining principal and outstanding interest in full on June
30, 1998. The time note contains covenants which, among other things,
restrict the pledging of assets without prior written approval of the
Bank.

F-152
<PAGE>
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

(B) On December 31, 1996 and 1997, respectively, the Companies had
outstanding a $100,000 one-year line of credit with the Bank which was
fully drawn as of those dates. Interest was set at the prime rate which
approximated 8.25% at both December 31, 1996 and 1997, respectively.
Interest is payable monthly in arrears. Principal and any outstanding
interest is payable in full at December 31, 1998. The line of credit
contains covenants which are similar to those in the Time Note.
(C) In December 1996, the Companies entered into a five year $55,861 note
payable with the Bank. Interest was fixed at 8.75%. Commencing January
1997, the note became payable in 59 monthly installments consisting of
principal and interest with the final payment equal to any remaining
principal and interest due. The note is secured by specific computer
hardware and software which was purchased with the proceeds of the note
payable.

At December 31, 1997, the aggregate amounts of long-term debt due during
the next four years are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER
31 AMOUNT
- ---------------------- ----------
<S> <C>
1998 ................. $310,162
1999 ................. 11,088
2000 ................. 12,098
2001 ................. 13,014
----------
$346,362
==========
</TABLE>

4. COMMITMENTS AND CONTINGENCIES

The Companies are obligated under certain noncancellable operating leases.
Rent expense, principally for office space, amounted to approximately
$149,400 and $167,300 for the years ended December 31, 1996 and 1997,
respectively. In March 1998, the Companies entered into a sublease for
additional office space.

Future minimum rental payments under noncancellable operating leases are
as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER
31 OPERATING LEASES
- ---------------------- ----------------
<S> <C>
1998 ................. $ 214,000
1999 ................. 244,000
2000 ................. 247,000
2001 ................. 250,000
2002 ................. 184,000
----------------
$1,139,000
================
</TABLE>

Settlement Agreement

In 1994, the Companies were party to a $1.9 million legal settlement
arising from a civil suit wherein they were jointly and severally liable to
make settlement payments over a seven year period. The carrying value of the
settlement agreement was approximately $793,300 and $658,800 at December 31,
1997 and 1996, respectively, discounted at a 8.25% interest rate.

Agreement and Memorandum of Understanding

In January 1992, an Agreement and Memorandum of Understanding (the
"Agreement") was executed between the Companies' principal stockholder and a
third party which formerly employed the principal stockholder. Under the
terms of the Agreement, the Companies are obligated to remit to the third
party a percentage of the Companies fees as received for the representation
services provided regarding the negotiation of professional sporting
contracts and marketing and endorsement contracts. Agreement terms are
limited to those professional athletes who became clients of the Companies at
the time of the Companies formation and generally does not give the third
party any right to fees related to contract renewals.

F-153
<PAGE>
FALK ASSOCIATES MANAGEMENT ENTERPRISES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

Stock Appreciation Rights

In December 1996, the Companies issued stock appreciation rights ("SARs")
to a stockholder and executive vice president of the Companies. The SARs are
exercisable only upon the occurrence of defined terms and conditions,
including the sale or merger of the Companies to a third party or upon
termination of employment. Accordingly, upon the exercise of the SAR's, the
Companies will record expense in the combined statement of operations equal
to the fair value of the SARs.

5. RELATED PARTY TRANSACTIONS

Stockholder Loan Receivable

In January 1993, the Companies entered into two eight-year promissory loan
notes with a stockholder of the Companies for face amounts of $384,000 and
$96,000. The loans accrue interest at a fixed rate of 5.7% with monthly
payments of principal and accrued interest commencing January 1, 1997.

Stockholder Loan Payable

In January 1993, the principle stockholder of the Companies made a $95,000
non-interest bearing advance to the Companies in connection with its
formation. This advance is due on demand and has been classified as a current
liability in the accompanying combined balance sheets.

Stockholders' Life Insurance

The Companies are the owners and beneficiaries of key-man life insurance
policies carried on the lives of its stockholders' with cash surrender values
totaling approximately $73,300 and $115,400 as of December 31, 1996 and 1997,
respectively. No loans are outstanding against the policies, but there is no
restriction in the policy regarding loans.

The life insurance contracts are accompanied by mandatory stock purchase
agreements relating to the amount of the proceeds of the life insurance. Upon
death, the insured's estate will be obligated to sell, and the Companies will
be obligated to purchase the insured's stock up to the value of the stock or
the proceeds of insurance, whichever is lesser. The purpose is to protect the
Companies against an abrupt change in ownership.

6. EMPLOYEE BENEFIT PLAN

During 1997, the Companies began sponsoring a deferred contribution plan
(the "Plan"). The Plan enables all full time employees who have completed one
year of service with the Companies to make voluntary contributions to the
Plan not to exceed the dollar limits as prescribed by the Internal Revenue
Service. Under the Plan, the Companies matches an employee's contribution up
to a maximum of 3% of their salary. The Companies contribution for the year
ended December 31, 1997 was approximately $40,800.

7. STOCKHOLDERS AGREEMENT

The stockholders of the Companies currently maintain a Stockholders
Agreement (the "Agreement") which place restrictions on the transfer (as
defined in the Agreement) of their stock.

8. SUBSEQUENT EVENT

On April 29, 1998 the stockholders of the Companies entered into an
agreement with a subsidiary of SFX Entertainment, Inc. ("SFX") whereby SFX
will acquire all of the outstanding capital stock of the Companies for a
total purchase price of approximately $82.9 million (including approximately
$7.9 million which the Companies anticipate receiving for the reimbursement
of certain taxes that they will be subject to) and the issuance of 1.0
million shares of SFX's Class A Common Stock.

F-154
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Members
Blackstone Entertainment LLC

We have audited the accompanying combined balance sheets of Blackstone
Entertainment LLC as of December 31, 1996 and 1997, and the related
combined statements of income, members' equity and cash flows for the
years then ended. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We have 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 combined financial statements referred to above
present fairly, in all material respects, the combined financial position
of Blackstone Entertainment LLC at December 31, 1996 and 1997, and the
combined results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.

May 1, 1998 Ernst & Young LLP
New York, New York

F-155
<PAGE>

BLACKSTONE ENTERTAINMENT LLC

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------- MARCH 31
1996 1997 1998
------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including $50,000 and
$55,000 of restricted cash at December 31, 1996
and 1997, respectively .............................. $ 2,025,731 $ 3,529,135 $ 5,034,279
Accounts receivable ................................... 551,776 275,820 1,354,621
Due from related parties .............................. 60,751 310,874 192,968
Due from members ...................................... 234,822 165,117 --
Other current assets .................................. 151,872 219,789 562,984
----------- ----------- -----------
Total current assets ................................... 3,024,952 4,500,735 7,144,852
Fixed assets, net ...................................... 14,680,344 13,394,676 13,024,735
Intangible assets, net ................................. 212,682 177,823 157,344
----------- ----------- -----------
Total assets ........................................... $17,917,978 $18,073,234 $20,326,931
=========== =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................. $ 819,690 $ 1,675,061 $ 2,596,363
Notes payable, current portion ........................ 1,427,172 1,388,806 1,423,426
Capital leases payable, current portion ............... 344,038 487,334 497,232
Deferred income ....................................... 545,537 547,270 3,198,080
Due to related parties ................................ 241,677 -- 780,000
Loans payable to members .............................. 1,500,000 2,461,239 1,500,000
----------- ----------- -----------
Total current liabilities ............................. 4,878,114 6,559,710 9,995,101
Notes payable, net of current portion .................. 8,564,888 6,816,668 6,560,442
Capital leases payable, net of current portion ......... 1,080,959 693,061 533,141
Other .................................................. 50,825 -- 49,496
----------- ----------- -----------
Total liabilities ...................................... 14,574,786 14,069,439 17,138,180
Members' equity ........................................ 3,343,192 4,003,795 3,188,751
----------- ----------- -----------
Total liabilities and members' equity .................. $17,917,978 $18,073,234 $20,326,931
=========== =========== ===========
</TABLE>

See accompanying notes.

F-156
<PAGE>

BLACKSTONE ENTERTAINMENT LLC

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED MARCH 31
------------------------------- -----------------------------
1996 1997 1997 1998
-------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Gross revenues ............................. $48,824,066 $50,587,721 $5,642,625 $4,548,894
Operating costs and expenses:
Operating costs ........................... 35,631,428 35,806,833 4,389,928 3,268,329
Promotion expenses ........................ 2,596,861 2,837,208 321,145 313,471
General and administrative expenses 4,634,399 5,756,993 853,379 1,136,621
Depreciation and amortization ............. 2,026,637 2,033,245 502,259 475,193
----------- ----------- ---------- ----------
Total operating costs and expenses ......... 44,889,325 46,434,279 6,066,711 5,193,614
Operating income (loss) .................... 3,934,741 4,153,442 (424,086) (644,720)
Investment income .......................... 189,970 329,696 7,767 30,314
Interest expense ........................... (1,132,556) (1,071,731) (218,196) (200,638)
----------- ----------- ---------- ----------
Net income (loss) .......................... $2,992,155 $3,411,407 $(634,515) $(815,044)
=========== =========== ========== ==========
</TABLE>

See accompanying notes.

F-157
<PAGE>

BLACKSTONE ENTERTAINMENT LLC

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------- THREE MONTHS ENDED MARCH 31
1996 1997 1997 1998
--------------- --------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .......................... $ 2,992,155 $ 3,411,407 $ (634,515) $ (815,044)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization ........... 2,226,637 2,033,245 502,259 425,156
Other ................................... 543 -- -- --
(Increase) decrease in assets:
Accounts receivable ....................... (180,773) 275,956 (161,847) (1,078,801)
Other current assets ...................... 284,240 (67,917) (125,747) (343,195)
Increase (decrease) in liabilities:
Deferred income ........................ (149,523) 1,733 877,437 2,650,810
Accounts payable and accrued
expenses ............................. (34,164) 855,371 1,774,627 921,302
Due to/from related parties and
members .............................. (68,475) (422,095) 122,758 1,063,023
Other .................................. (11,461) (50,825) 12,164 49,496
------------ ------------ ---------- ----------
Net cash provided by operating
activities ................................ 5,059,179 6,036,875 2,367,136 2,872,747
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets ................ (1,678,666) (386,983) (13,776) (34,736)
------------ ------------ ---------- ----------
Net cash used in investing activities ...... (1,678,666) (386,983) (13,776) (34,736)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable and
consulting agreement ...................... (1,227,498) (1,986,586) (214,062) (221,606)
Payments on to capital leases .............. (17,182) (370,337) (72,510) (150,022)
Changes in loans payable to members......... (119,189) -- -- (961,239)
Distributions to members ................... (1,720,546) (1,789,565) (237,098) --
------------ ------------ ---------- ----------
Net cash used in financing activities ...... (3,084,415) (4,146,488) (523,670) (1,332,867)
------------ ------------ ---------- ----------
Net increase in cash and cash
equivalents ............................... 296,098 1,503,404 1,829,690 1,505,144
Cash and cash equivalents, beginning
of period ................................. 1,729,633 2,025,731 2,025,731 3,529,135
------------ ------------ ---------- ----------
Cash and cash equivalents, end of
period .................................... $ 2,025,731 $ 3,529,135 $3,855,421 $5,034,279
============ ============ ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Capital lease additions .................... $ 125,735 $ 538,526 $ -- $ --
Cash paid during the year for interest ..... $ 1,301,210 $ 1,017,371 $ 234,218 $ 262,638
</TABLE>

See accompanying notes.

F-158
<PAGE>

BLACKSTONE ENTERTAINMENT LLC

COMBINED STATEMENT OF MEMBERS' EQUITY

<TABLE>
<CAPTION>
MEMBERS'
EQUITY
---------------
<S> <C>
Balance, January 1, 1996 .................... $ 2,071,583
Net income .................................. 2,992,155
Distributions to members .................... (1,770,546)
Capital contributions ....................... 50,000
------------
Balance, December 31, 1996 .................. 3,343,192
Net income .................................. 3,411,407
Distributions to members .................... (2,750,804)
------------
Balance, December 31, 1997 .................. 4,003,795
Net loss .................................... (815,044)
------------
Balance, March 31, 1998 (unaudited) ......... $ 3,188,751
============
</TABLE>

See accompanying notes.

F-159
<PAGE>

BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Blackstone Entertainment LLC ("the Company") was organized on October 1,
1997 as a Massachusetts Limited Liability Company. On that date, the net
assets of the following companies (collectively, "Don Law and Affiliates"),
which had been commonly controlled and functionally related, and a related
parcel of land located in Mansfield, Massachusetts were contributed in
formation of the Company:

o Great Woods, Inc.

o Time Trust Associates Joint Venture

o Harborlights Pavilion, Inc.

o NEXT, Inc.

o Don Law Company, Inc.

o Orpheum Management Corporation

o Black and Copper, Ltd.

o Andrew Trust LLC

These financial statements reflect the businesses subject to the transaction
described in Note 10 and accordingly, represent the combined results of
Blackstone Entertainment LLC and Don Law and Affiliates as a predecessor. The
net assets transferred to the Company have been recorded at their historical
book values.

Nature of Business

Great Woods, Inc., a Massachusetts corporation, managed and operated the
Great Woods Center for the Performing Arts in Mansfield, Massachusetts. Time
Trust Associates Joint Venture, a Massachusetts general partnership, held
title to the real estate on which the facility is situated.

Harborlights Pavilion, Inc., a Massachusetts corporation, managed and
operated the Harborlights Pavilion in Boston, Massachusetts.

NEXT, Inc., a Massachusetts corporation, operated a computerized ticketing
system for entertainment facilities and theaters throughout the New England
area.

Don Law Company, Inc., a Massachusetts corporation, promoted concerts and
other entertainment events throughout the New England area.

Orpheum Management Corporation, a Massachusetts corporation, managed the
Orpheum Theatre in Boston, Massachusetts.

Black and Copper, Ltd., a Massachusetts corporation, provided graphic
design, advertising, marketing and promotional services principally to its
related entities.

Andrew Trust LLC owned additional parcels of land surrounding the Great
Woods Center for the Performing Arts in Mansfield, Massachusetts.

Limited Liability Company

The Company's operating agreement provides that liability of its members
is limited to their capital invested in the Company. The Company's operating
agreement does not limit its term of existence, and provides for dissolution
upon the occurrence of certain events, one of which is the acquisition by one
member of all of the outstanding ownership interest.

F-160
<PAGE>

BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

Member Classes and Priorities

The Company's operating agreement provides for one of its members to
receive a priority distribution of current year earnings and liquidation
proceeds to $2,250,000. The remaining members receive a matching distribution
subsequent to the priority distribution of $2,250,000. All additional
proceeds are then divided evenly among the members. The operating agreement
provides for both priorities to disappear upon the Company's attainment of
certain distribution levels.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, time deposits, commercial paper
and money market mutual funds. The Company invests its excess cash in highly
rated companies and financial institutions. These deposits have original
maturities that do not exceed three months. During the course of the year,
the Company maintained balances in financial institutions in excess of FDIC
insured limits. Included in cash and cash equivalents at December 31, 1996
and 1997 is approximately $50,000 and $55,000, respectively, of restricted
cash to be used for future Orpheum Theatre renovations and improvements.

Fixed Assets

Fixed assets are stated at cost. Depreciation is computed over estimated
useful lives ranging from three to thirty-nine years utilizing straight-line
and accelerated methods. Depreciation expense charged to operations was
$1,992,321 and $1,798,386 during the years ended December 31, 1996 and 1997,
respectively.

Intangible Assets, Net

Intangible assets consisting of goodwill which is being amortized over
fifteen years using the straight-line method and organization costs incurred
when Harborlights Pavilion, Inc. and NEXT, Inc. were established are being
amortized over five years using the straight-line method. These assets are
shown on the combined balance sheets net of accumulated amortization of
$125,665 and $360,524 as of December 31, 1996 and 1997. Total amortization
expense charged to operations was $34,316 and $234,859 during the years ended
December 31, 1996 and 1997.

Revenue Recognition

All divisions, except for NEXT, recognize event-related revenue upon
completion of each performance. Advance ticket receipts for performances are
recorded as deferred revenue. Costs incurred which relate to future
performances are recorded as prepaid expenses. The NEXT division recognizes
revenues as tickets are sold and services are performed.

Income Taxes

The Company is treated as a partnership for federal and state income tax
purposes. The Company's earnings and losses are included in the members'
income tax returns in relation to their respective ownership interests;
accordingly, no provision is required for federal and state income taxes.

Advertising Expense

The Company expenses advertising costs as incurred. Advertising expense
amounted to approximately $1,849,000 and $2,061,000 during the years ended
December 31, 1996 and 1997, respectively.

F-161
<PAGE>

BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

Use of 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.

Year 2000 (unaudited)

The Company has addressed the risks associated with year 2000 compliance
with respect to its ticketing system based on consultation with its vendors.
Future costs associated with such compliance are not expected to be
significant.

Interim Financial Information

The interim financial data as of March 31, 1998 and for the three-month
periods ending March 31, 1997 and 1998 is unaudited and certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
However, in the opinion of Management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim period. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the entire year.

2. FIXED ASSETS, NET

Fixed assets, net consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1996 1997
------------ -------------
<S> <C> <C>
Performing art facilities ..... $ 21,454,305 $ 21,496,711
Land and site improvements .... 2,133,905 2,327,127
Equipment under capital leases 1,426,874 1,567,690
Machinery and equipment ........ 1,484,682 1,628,996
Furniture and fixtures ......... 494,480 522,372
Leasehold improvements ......... 243,982 244,982
Motor vehicles ................. 156,135 189,663
------------ -------------
27,394,363 27,977,541
Less accumulated depreciation . (12,714,019) (14,582,865)
------------ -------------
$ 14,680,344 $ 13,394,676
============ ==============
</TABLE>

F-162
<PAGE>

BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

3. NOTES PAYABLE

Notes payable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1996 1997
---------- ------------
<S> <C> <C>
1.The Company is obligated under a note payable to the FDIC
dated May 11, 1988 in the original amount of $10,600,000. On
May 9, 1995, the note was modified and extended to mature
February 15, 2005. At such time, a balloon payment of
approximately $3,500,000 will be required. The note is
payable in monthly principal installments of $44,167 plus
interest at 8.98% per annum. The note is collateralized by
substantially all assets of the Great Woods Inc. and Time
Trust Join Venture, including a mortgage on the real estate
and facility, and a security interest in all operating
permits and licenses, programming and concession contracts,
and insurance policies on the lives of two members. .......... $7,752,942 $7,222,942
2.The Company is obligated to a concessionaire under an
unsecured five-year installment note in the original amount
of $1,600,000 which matures on June 30, 1998. The note is
payable in annual principal installments of $320,000 with
interest payable quarterly at 1.5% over the prime rate. ...... 640,000 320,000
3.The Company is obligated under a five-year installment note
dated May 18, 1994 payable to a bank in the original amount
of $1,600,000. The note is payable in monthly installments of
$33,136 including interest at 8.9% per annum and is
collateralized by all assets of the Harborlights Pavilion
Inc........................................................... 829,118 492,532
4.The Company is obligated to a concessionaire under an
unsecured installment note dated August 19, 1994 in the
original amount of $350,000 bearing interest at 1% over the
prime rate. The remaining outstanding principal balance and
any accrued interest is due November 1, 1998. The note is
personally guaranteed by the members of the Company. ......... 210,000 140,000
5.The Company is obligated to a concessionaire under an
unsecured and noninterest bearing note dated July 11, 1994 in
the original amount of $150,000. The note is due in annual
installments of $30,000 with the final installment due
October 15, 1998.............................................. 60,000 30,000
6.The Company is obligated under a note payable from Andrew
Trust LLC to a bank dated December 12, 1996 in the original
amount of $500,000. Interest is payable monthly at 0.75% over
the prime rate and the principal reaches maturity on December
12, 1999...................................................... 500,000 --
------------ ------------
9,992,060 8,205,474
Current maturities ........................................... 1,427,172 1,388,806
------------ ------------
Long-term debt ............................................... $8,564,888 $6,816,668
============ ============
</TABLE>

F-163
<PAGE>

BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

Maturities of long-term debt are as follows:
December 31:

<TABLE>
<CAPTION>
<S> <C>
1999 ......... $ 653,726
2000 ......... 530,000
2001 ......... 530,000
2002 ......... 530,000
2003 ......... 530,000
Thereafter .. 4,042,942
-----------
$6,816,668
===========
</TABLE>

The Company has an unsecured demand line of credit with a bank of
$2,000,000 which expires April 30, 1998. Interest is payable monthly at 1%
over the prime rate. The Company had no amounts outstanding under this line
of credit as of December 31, 1996 and 1997.

The bank note payable collaterialized by the assets of Harborlights Pavilion,
Inc. and the demand line of credit are subject to several financial covenants
which the company is currently in the process of renegotiating. For the years
ended December 31, 1996 and 1997, Harborlights Pavilion, Inc. failed at least
one of these financial covenants. Management anticipates that based upon
discussions with the bank, the loan will not be called.

4. CAPITAL LEASE OBLIGATIONS

The Company is obligated under capital lease agreements for certain
business equipment. The leases have been capitalized at the fair value of the
leased equipment with a corresponding liability recorded. Each payment is
allocated between a reduction of the liability and interest expense to yield
a constant periodic rate of interest on the remaining balance of the
obligation.

At December 31, 1997, future minimum payments due on the lease agreements
are as follows:
Year ended December 31:

<TABLE>
<CAPTION>
<S> <C>
1998 ........................................ $ 564,474
1999 ........................................ 564,625
2000 ........................................ 155,095
2001 ........................................ 15,961
-----------
1,300,155
Amount representing interest ................ 119,760
-----------
Present value of net minimum lease payments 1,180,395
Current portion ............................. 487,334
-----------
Long-term portion ........................... $ 693,061
===========
</TABLE>

5. LOANS PAYABLE TO MEMBERS

The Company is obligated to members in the amount of $961,239 which
represents the balance of advances made by them in conjunction with the
transfer of assets on October 1, 1997. The loans are unsecured and
noninterest bearing, and are expected to be repaid during 1998.

The Company is obligated to two members for loans totaling $1,500,000 at
both December 31, 1996 and 1997. The loans are unsecured, bear interest at
6.5% per annum, and have no formal repayment terms.

F-164
<PAGE>

BLACKSTONE ENTERTAINMENT LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)

6. COMMITMENTS AND RELATED PARTY TRANSACTIONS

Lease Commitments and Rent Expense

Total rent expense amounted to approximately $487,000 and $577,000 for the
years ended December 31, 1996 and 1997, respectively, of which $92,700 was
paid to an affiliate during 1996 and 1997. At December 31, 1997, the Company
is committed under the following noncancellable operating leases:

1) The Company is obligated under a five-year license agreement dated
March 31, 1994 for the lease of a parcel of real estate located on Fan Pier
in Boston, Massachusetts. The agreement provides for a minimum annual rent of
$250,000 through 1998. Additional rent is required based on the number of
tickets sold annually in excess of a 100,000 ticket base. The landlord has
the right to terminate the license agreement upon giving written notice by
November of each year, for termination in the following calendar year.

2) Under an agreement with the owner of the Orpheum Theatre, the Company
has exclusive booking and scheduling rights for the Theatre and sole
responsibility for granting concessions for the sale of food and refreshments
at the Theatre. Under the terms of the agreement, the Company is required to
pay a hall rental charge of $4,750 per performance for the period January
1998 through December 2000, plus additional amounts for artist rehearsals.
The Company is reimbursed for the hall rental charges by the shows' promoters
and earns commissions from the Theatre's owner based on the annual volume of
rental fees paid.

3) The company is obligated under three leases with an affiliate. During
1996 and 1997, the combined rent for these three leases was $92,700 each
year.

4) The company is obligated under a one year lease for the NEXT, Inc.
premises for rent payments of $53,750 through December 31, 1998.

Other Commitments

The Company is obligated under a ten-year consulting agreement with the
former owner of a concert promotion business which was acquired in 1992. The
consulting agreement requires scheduled annual payments totaling of $828,000
over the next four years.

The Company is obligated under a consulting agreement with a member
requiring annual payments of $100,000 renewable annually.

7. PROFIT SHARING PLANS

The Company maintains 401(k) profit sharing plans covering eligible
employees who meet certain age and length of service requirements. Employees
may elect voluntary salary reductions; company contributions are made at the
discretion of the managing member. The Company did not make any matching
contributions during the years ended December 31, 1996 and 1997.

8. LITIGATION

Great Woods, Inc. is a defendant in several lawsuits that management
believes are without merit. In the event of an adverse judgment, management
believes its insurance coverage is sufficient to cover any potential losses.

9. EMPLOYMENT AGREEMENTS

Two employees have employment agreements pursuant to which they may
received contingent consideration upon the occurrence of specified events.
One of the employees is entitled to 0.6% of the

F-165
<PAGE>
BLACKSTONE ENTERTAINMENT LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

net proceeds from the sale, refinancing or other disposition of the Company
or its ownership interests. The other is entitled to 5% of the defined after
tax proceeds from the sale of Great Woods , Inc. less certain defined
contingent consideration paid prior to the date of sale. The Company is
obligated under an informal employment arrangement with the General Manager
of the NEXT, Inc. which provides for a base salary of $150,000 in addition to
a bonus based on performance. The arrangement is renewable annually.

In connection with employment agreements, certain employees were paid
$610,000 in 1997 in connection with the sale of membership interests by the
principal owner to the Company. Such amount was recorded as a charge to
earnings in 1997.

10. SUBSEQUENT EVENT

On April 29, 1998 the members of the Company entered into an agreement
with SFX Entertainment, Inc. ("SFX") whereby SFX will acquire certain assets
of the Company for a total purchase price of approximately $90.0 million,
including the repayment of $10.0 million in debt. SFX, may at its option, pay
up to $16.0 million or the purchase price in 531,782 shares of SFX's Class A
Common Stock. The purchase price will be increased or decreased, as
applicable, to the extent that the Company's Net Working Capital (as defined
in the acquisition agreement) is positive or negative at the closing. The
Company has received a $100,000 non-refundable deposit in connection with the
proposed sale.

F-166
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters has severally agreed to purchase from the Company, the
respective number of shares of Class A Common Stock set forth opposite its name
below:

<TABLE>
<CAPTION>
NUMBER
OF SHARES
OF CLASS A
UNDERWRITERS COMMON STOCK
- --------------------------------------------------- -------------
<S> <C>
Goldman, Sachs & Co. ....................... 1,750,000
Lehman Brothers Inc. ....................... 1,750,000
Bear, Stearns & Co. Inc. ................... 875,000
Cowen & Company ............................ 875,000
Morgan Stanley & Co. Incorporated .......... 875,000
Prudential Securities Incorporated ......... 875,000
---------
Total .................................... 7,000,000
=========
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.

The Underwriters propose to offer the shares of Class A Common Stock in
part directly to the public at the public offering price set forth on the cover
page of this Prospectus and in part to certain securities dealers at such price
less a concession of $1.43 per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 per share to certain
brokers and dealers. After the shares of Class A Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 1,050,000
additional shares of Class A Common Stock to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the shares of Class A Common
Stock offered.

The Company and certain of its directors and executive officers have
agreed that, such officers and directors will not, without the prior written
consent of Goldman, Sachs & Co., during the period commencing on the date
hereof and ending 180 days after the date of this Prospectus, (i) offer,
pledge, sell, or otherwise transfer or dispose of, directly or indirectly, any
shares of the Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any right to acquire Common Stock, or (ii)
enter into any swap or similar agreement that transfers, in whole or in part,
the economic risk of ownership of the Common Stock. The foregoing provisions
shall not apply to (i) exercise of options or warrants, or (ii) transfers,
without consideration, of the Common Stock or any securities convertible into,
or exercisable or exchangeable for Common Stock to family members or to one or
more trusts established for the benefit of one or more family members, provided
that the transferee executes and delivers to Goldman, Sachs & Co., an agreement
whereby the transferee agrees to be bound by all of the foregoing terms and
provisions. Goldman, Sachs & Co. in its sole discretion and at any time without
notice, may release all or any portion of the securities subject to the Lock-Up
Agreements or may waive the covenants contained in the Underwriting Agreement.
Any such decision to release securities would likely be based upon individual
stockholder circumstances, prevailing market conditions and other relevant
factors. Any such release could have a material adverse effect upon the price
of the Class A Common Stock. Upon the expiration or termination of the Lock-Up
Agreements, the shares held by affiliates will be eligible for sale subject to
compliance with the provisions of Rule 144 or pursuant to an effective
registration statement filed with the Securities and Exchange Commission.

In connection with the Offering, the Underwriters may purchase and sell
the Class A Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions,

U-1
<PAGE>

"passive" market making and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Class A Common Stock; and syndicate short positions
involve the sale by the Underwriters of a greater number of Class A Common
Stock than they are required to purchase from the Company in the Offering. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers in respect of the securities sold
in the Offering for their account may be reclaimed by the syndicate if such
Class A Common Stock are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Class A Common Stock, which may be higher than
the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq National Market, in the over-the-counter market
or otherwise.

As permitted by Rule 103 under the Exchange Act, certain Underwriters (and
selling group members, if any) that are market makers ("passive market makers")
in the Class A Common Stock may make bids for or purchases of the Class A
Common Stock in the Nasdaq National Market until such time, if any, when a
stabilizing bid for such securities has been made. Rule 103 generally provides
that (1) a passive market maker's net daily purchases of the Class A Common
Stock may not exceed 30% of its average daily trading volume in such securities
for the two full consecutive calendar months (or any 60 consecutive days ending
within the 10 days) immediately preceding the filing date of the registration
statement of which this Prospectus forms a part, (2) a passive market maker may
not effect transactions or display bids for the Class A Common Stock at a price
that exceeds the highest independent bid for the Class A Common Stock by
persons who are not passive market makers and (3) bids made by passive market
makers must be identified as such.

Certain of the Underwriters or their affiliates have from time to time
provided investment banking and financial advisory services to the Company and
its affiliates in the ordinary course of business, for which they have received
customary fees, and they may continue to provide such services to the Company
and its affiliates in the future. In addition, affiliates of certain of the
Underwriters are lenders to the Company under the Credit Facility.

The Class A Common Stock is listed for quotation on the Nasdaq National
Market under the symbol "SFXE."

The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.

U-2
<PAGE>

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.

-----------------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Prospectus Summary ........................ 1
Risk Factors .............................. 15
Use of Proceeds ........................... 28
Price Range of Class A Common Stock ....... 29
Dividend Policy ........................... 29
Capitalization ............................ 30
Selected Consolidated Financial Data ...... 31
Unaudited Pro Forma Condensed
Combined Financial Statements .......... 33
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ............................. 58
Overview of the Live Entertainment
Industry ............................... 75
Business .................................. 78
Agreements Related to the Pending
Acquisitions ........................... 96
Management ................................ 102
Principal Stockholders .................... 110
Certain Relationships and Related
Transactions ........................... 112
Description of Capital Stock .............. 117
Description of Indebtedness ............... 119
Shares Eligible for Future Sale ........... 123
Legal Matters ............................. 124
Experts ................................... 124
Additional Information .................... 125
Index to Financial Statements ............. F-1
Underwriting .............................. U-1
</TABLE>

7,000,000 SHARES

[SFX ENTERTAINMENT LOGO]

CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)

--------------------------------------------
PROSPECTUS

--------------------------------------------
GOLDMAN, SACHS & CO.

LEHMAN BROTHERS

BEAR, STEARNS & CO. INC.

COWEN & COMPANY

MORGAN STANLEY DEAN WITTER

PRUDENTIAL SECURITIES INCORPORATED

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