SFX BROADCASTING INC, N-30D, 1996-10-09

SFX BROADCASTING INC
N-30D, 1996-10-09
RADIO BROADCASTING STATIONS

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<PAGE>

SFX BROADCASTING, INC.
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1995 ANNUAL REPORT

<PAGE>

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(COMPOSITE VERSION)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1995
-----------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to .
-------------------- ----------------------
Commission file number: 0-22486
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SFX BROADCASTING, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 13-3649750
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(State of Incorporation) (I.R.S. Employer
Identification No.)

150 East 58th Street, 19th Floor
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New York, New York 10155
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(Address of principal executive offices)

Registrant's telephone number, including area code: (212)-407-9191
------------------
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, $.01 par value
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

Aggregate market value as of the close of business on March 28, 1996 of the
voting stock held by non-affiliates of the Registrant was $211,936,196 .

The number of shares of the Registrant's Class A Common Stock, $.01 par value,
and Class B Common Stock, $.01 par value, outstanding as of March 28,1996 was
6,458,215 and 1,000,000 respectively.

<PAGE>

PART I

ITEM 1. BUSINESS.

General

The Company is a leading radio broadcasting company exclusively devoted to
acquiring, developing and operating radio stations and networks. The Company,
founded in 1992, currently owns and operates or sells advertising on behalf of
16 FM stations and six AM stations that serve the following eight markets:
Dallas and Houston, Texas; San Diego, California; Charlotte and Greensboro,
North Carolina; Nashville, Tennessee; Greenville-Spartanburg, South Carolina;
and Jackson, Mississippi. In addition, the Company owns and operates a group
of regional and national radio networks known as the Texas State Networks. The
Company has entered into the Liberty Stock Purchase Agreement (as defined
herein) and the Exchange Agreement (as defined herein) pursuant to which the
Company has agreed to acquire six FM and two AM radio stations (the "Liberty
Stations") serving the Washington, D.C.; Baltimore, Maryland; and Long Island,
New York markets and six FM and four AM radio stations (the "Swap Stations")
serving the Houston, Texas; Greensboro, North Carolina; Raleigh, North
Carolina; Greenville-Spartanburg, South Carolina; and Jackson, Mississippi
markets. In addition, the Company has entered into the Prism Asset Purchase
Agreement (as defined herein) pursuant to which the Company has agreed to
acquire ten FM and six AM radio stations serving the Louisville, Kentucky;
Jacksonville, Florida; Raleigh, North Carolina; Tucson, Arizona; and Wichita,
Kansas markets (the "Prism Stations"). The Company has also entered into an
agreement pursuant to which it has the option to purchase radio station
WHSL-FM in Greensboro, South Carolina. Following the acquisition of the
Liberty Stations, the Swap Stations, the Prism Stations and WHSL-FM, the
Company will own and operate or sell advertising on behalf of 35 FM and 16 AM
radio stations in 16 markets making it the largest company in the United
States devoted exclusively to radio broadcasting in terms of the number of
stations owned. The Company's stations will be diversified in terms of format,
demographics and geographic location.

Assuming the consummation of the acquisitions described above, the Company
will have more than one station of the same type (AM or FM) in all of its 15
markets and own three or more stations in 11 markets. The following chart sets
forth certain information regarding the Company's existing radio stations and
those to be acquired by it:

<TABLE>
<CAPTION>
Number of Number of Stations Additional Combined Combined Total
Stations Presently Under Number of Market Market Number of
Presently LMA or JSA to be Stations of be Total Number Audience Revenue Stations in
Owned Acquired Acquired of Stations Share(2) Share(3) Market(1)
------------ ------------ ------------ ----------- --------- -------- ---------
Market Market Rank(1) AM FM AM FM AM FM AM FM
------ -------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dallas, TX ........... 7 2 -- -- -- -- -- 2 -- 5.2 7.0 45
Washington, .......... 8/18 -- -- -- -- 1 3 1 3 5.2 7.8 51/31
DC/Baltimore, MD
Houston, TX .......... 9 -- 1 -- -- 1 1 1 2 11.7 11.8 47
Long Island, NY ...... 14 -- -- -- -- 1 3 1 3 7.2 32.6 43
San Diego, CA ........ 15 -- 2 -- -- -- -- -- 2 9.2 9.3 36
Charlotte, NC ........ 37 -- 2 -- -- -- -- -- 2 11.9 13.4 41
Greensboro, NC(4) .... 42 -- -- 2 2 -- -- 2 2 9.3 16.0 35
Nashville, TN ........ 45 -- 2 -- -- -- -- -- 2 21.8 28.7 45
Louisville, KY ....... 48 -- -- -- -- 1 2 1 2 12.1 13.3 31
Jacksonville, FL ..... 50 -- -- -- -- 2 2 2 2 15.3 25.3 22
Raleigh-Durham, NC ... 52 -- -- -- -- -- 4 -- 4 23.0 38.1 35
Greenville- .......... 59 1 2 -- 1 -- -- 1 3 32.0 58.3 42
Spartanburg, SC
Tucson, AZ ........... 62 -- -- -- -- 2 2 2 2 22.8 31.0 29
Wichita, KS .......... 88 -- -- -- -- 1 2 1 2 17.8 26.0 23
Jackson, MS .......... 117 1 2 -- 2 1 -- 2 4 31.3 67.8 29
---- ---- ---- ---- ---- ---- ---- ----
Total ............ 4 11 2 5 10 19 16 35
</TABLE>

(1) According to BIA Consulting, Inc.'s Investing in Radio '96 Market Report.

(2) Based upon Arbitron's Fall 1995 Radio Market Report (audience share
calculated as the four book average for the 12+ age group).

(3) Based upon the Market Revenue Report prepared by either Miller-Kaplan or
Hungerford, Aldrin, Nichols and Carter.

(4) This includes WHSL-FM, which the Company has an option to purchase.

The Company's strategy is to capture significant market share (i.e., the
percentage of total radio listenership) in a major or medium-size market by
operating highly ranked stations within such market. The Company believes that
highly-ranked stations receive a disproportionately large share of their
market's advertising revenues because such stations are a cost-effective and
efficient means of targeting advertising dollars at well-defined audiences.
Consistent with this strategy, all , except for one, of the stations which
have been owned by the Company for a period greater than one year, are ranked
among the top one-third in their respective markets in terms of revenues
billed in 1995 and 1994.
2

<PAGE>

In addition, the Company believes that the benefits of owning multiple,
highly-ranked stations in a single market can enhance its competitive strength
by offering advertisers a broader range of advertising packages, which has the
potential to increase revenues, as well as result in cost savings by
eliminating duplicative sales and overhead expenses and combining and
centralizing certain administrative and sales functions. The Company believes
that these benefits are even greater when it has a "market cluster" (i.e.,
multiple stations in markets that are in geographical proximity to each
other).

Management believes that acquisitions described above represent a
significant opportunity to further its strategy. The Company plans to pursue
opportunities for expansion through the acquisition of additional radio
stations and to take advantage of the recently enacted Telecommunications Act
of 1996 (the "Recent Legislation"), the local radio ownership provisions of
which permit an entity to own up to eight radio stations (of which not more
than five may be in the same service) in a single market depending upon the
number of radio stations in that "market," as such term is defined by the
Federal Communications Commission (the "FCC").

The Company also seeks to maximize the profitability of its stations by
employing management techniques to enhance station billing and by maintaining
strict cost controls. The Company uses programming formats designed to target
specific audience demographics that are attractive to advertisers in order to
maintain and improve its audience share and revenue rankings, and seeks to
convert any increase in audience share into increased billings. In each of the
Company's markets its stations have higher combined revenue share than
combined audience share. The Company believes this evidences its ability to
convert increases in audience share into higher billings.

The Acquisitions

The Company has entered into an agreement, dated as of November 15, 1995
(the "Liberty Stock Purchase Agreement"), with Liberty Broadcasting, Inc., a
privately-held radio broadcasting company ("Liberty"), and certain of its
principal shareholders pursuant to which the Company has agreed to purchase
all of the outstanding capital stock of Liberty (the "Liberty Acquisition")
for a cash purchase price of approximately $227,750,000, plus the amount equal
to Liberty's net working capital at the closing up to $8,250,000. Liberty owns
and operates, provides programming to or sells advertising on behalf of 13 FM
and six AM stations.

The Company and Multi-Market Radio, Inc., a publicly-held radio
broadcasting company ("MMR") (an affiliate of the Company's Executive
Chairman: see Ownership Matters), have entered into a letter agreement and
expect to enter into a definitive agreement (together, the "Exchange
Agreement"), pursuant to which the Company has agreed to exchange seven FM and
four AM stations currently owned by Liberty, as well as Liberty's interest in
a JSA (as defined herein) with one FM station, for the Swap Stations in a
like-kind exchange that is intended to be substantially tax free (the
"Exchange"). Pursuant to the Exchange Agreement, MMR has entered into purchase
agreements to acquire the Swap Stations from independent third parties for an
aggregate consideration of approximately $100 million.

It is currently expected that MMR will acquire the Swap Stations prior to
the Company's completion of the Liberty Acquisition. Upon MMR's acquisition of
the Swap Stations and until the completion of the Exchange, it is anticipated
that the Company will provide programming to and sell advertising on the Swap
Stations pursuant to local marketing agreements (each, an "LMA") or sell
advertising time on behalf of such stations pursuant to joint sales agreements
(each, a "JSA").

MMR has entered into LMAs with the current owner of the Swap Stations
operating in the Greenville, South Carolina and Jackson, Mississippi markets,
and concurrently therewith, MMR has entered into JSAs with the Company
pursuant to which the Company was granted the exclusive right to sell
advertising on behalf of all but one of the Swap Stations. MMR has also
entered into a JSA with the current owner of the Swap Stations operating in
the Greensboro, North Carolina market, and concurrently with therewith, the
Company entered into a JSA with MMR with respect to such stations.

Subsequent to the acquisition by MMR of the Swap Stations and prior to the
consummation of the Exchange, the Company and MMR have agreed to enter into
LMAs or JSAs with respect to all of the Swap Stations, pursuant to which the
Company will pay a fee to MMR in an amount equal to 105% of certain of MMR's
expenses and costs (including interest costs) incurred in connection with the
Swap Stations.
3

<PAGE>

The Exchange Agreement provides that in the event that the Exchange is not
completed by December 31, 1997 or earlier, subject to the terms of such
agreement, the Company will have the right for 30 days thereafter to purchase
the Swap Stations from MMR (the "Call") at a price equal to the aggregate
acquisition cost of the Swap Stations. The agreement further provides that in
the event the Company does not exercise the Call, MMR will have the right to
sell the Swap Stations to the Company during the subsequent 270-day period
(the "Put Period") at a price equal to approximately 95% of the Call Price.
During the Put Period, MMR will have the option of (i) operating the Swap
Stations, (ii) selling any or all of the Swap Stations to third parties, or
(iii) operating the Swap Stations and allowing the Company to continue
providing programming to the Swap Stations pursuant to LMAs or selling
advertising on behalf of such stations pursuant to JSAs.

The Company has entered into an agreement, dated as of February 9, 1996
(the "Prism Asset Purchase Agreement"), with Prism Radio Partners L.P., a
privately-held radio broadcasting company ("Prism"), pursuant to which the
Company has agreed to acquire (the "Prism Acquisition") all of the assets used
in the operation of the Prism Stations for $105,250,000.

The Company has entered into an agreement, dated as of January 18, 1996
(the "WHSL-FM Asset Purchase Agreement"), with HMW Communications, Inc., a
privately held radio company ("HMW Communications"), pursuant to which the
Company has the right, at its option, to acquire WHSL-FM in Greensboro, South
Carolina (the "WHSL-FM Acquisition"). The purchase price for WHSL-FM shall be
cash in the amount of $4,500,000 or, at HMW Communications' option, 150,000
shares of the Company's Class A Common Stock. The Company currently sells
advertising on WHSL-FM pursuant to a JSA.

The Liberty Acquisition, the Exchange, the Prism Acquisition and the
WHSL-FM Acquisition are hereinafter referred to collectively as the
"Acquisitions."

Sillerman Communications Management Corporation ("SCMC") has acted as a
financial advisor to the Company in both negotiating and arranging the
financing for the Acquisitions. Historically, SCMC has received significant
fees for providing similar services with respect to past transactions. It is
anticipated that prior to the consummation of the Acquisitions, the Board of
Directors and SCMC will negotiate fees with respect to the Acquisitions, which
fees will be subject to the approval of the Company's Independent Directors as
an affiliate transaction.

The timing and completion of the Liberty Acquisition, the Exchange or the
Call or the Put, the Prism Acquisition and the WHSL-FM Acquisition are subject
to a number of conditions, certain of which are beyond the Company's control,
and there can be no assurance that such transactions will be approved by the
FCC or completed on the terms described herein, or at all.

Recent Developments

Since the beginning of 1995, the Company has acquired four radio stations
in three markets. A brief description of these transactions is set forth
below:

San Diego Acquisition. In April 1995, the Company acquired all of the
outstanding capital stock of Parker Broadcasting Company ("Parker"), the
owner and licensee of radio station KYXY-FM in San Diego, California. In
January 1995, the Company purchased from the owners of Parker the office
building where KYXY-FM is located. The office building now serves as the
offices and studios for both KYXY-FM and KMKX-FM. The aggregate
consideration for both transactions (the "San Diego Acquisition") was
approximately $17,424,000 (including $831,000 of estimated transaction
costs.) The Company provided programming to and sold advertising on KYXY-FM
pursuant to an LMA from January 1995 to the closing of the acquisition.

Dallas Acquisition. In September 1995, the Company acquired the assets of
KTCK-AM in Dallas, Texas in consideration for $8,633,000 in cash (including
$133,000 of transaction costs), $2,000,000 of Series C Preferred Stock and
contingent consideration in an amount not to exceed $7,500,000 tied
primarily to the three-year ratings and Broadcast Cash Flow (defined as net
revenues less station operating expenses) performance of the station
beginning on January 1, 1995 (the "Dallas Acquisition"). The Company
provided programming to and sold advertising on KTCK-AM pursuant to an LMA
from March, 1995 to the closing of the acquisition.

Charlotte Acquisition. In February 1996, the Company acquired the assets of
WTDR-FM and WEZC-FM in Charlotte, North Carolina for aggregate
consideration of approximately $24,500,000 (the "Charlotte Acquisition").

<PAGE>

The Company provided programming to and sold advertising on WTDR-FM and
WEZC-FM pursuant to an LMA from April, 1995 to the closing of the
acquisition.

On March 22, 1995, the Company entered into a $50,000,000 senior credit
facility with a bank group, for which The Bank of New York acted as agent,
which provided availability of $45,000,000 of senior financing for additional
acquisitions and $5,000,000 for working capital needs (the"New Credit
Facility"). This facility is a replacement for a prior senior credit facility
of $7,500,000 from Chemical Bank.

On July 5, 1995, the Company completed a public offering of 1,725,000
shares of Class A Common Stock, including the subsequent exercise by the
underwriters of an over-allotment option of 225,000 shares, for $24.50 per
share (the "1995 Stock Offering"). The net proceeds of the offering were
$39,166,000 after underwriting discounts, commissions and other expenses of
the offering. The proceeds were utilized to repay borrowings under the New
Credit Facility of $21,500,000 and to fund the Dallas Acquisition and a
portion of the Charlotte Acquisition.

The Texas Rangers baseball games are broadcast on radio station KRLD-AM in
Dallas pursuant to a five-year rights agreement entered into between the
Company and the Texas Rangers in 1994. In March of 1996, the Company made its
annual rights fee payment reducing such payment by an amount calculated to
reflect the adjustment provisions contained in the rights agreement with
respect to the major league baseball labor dispute which resulted in the work
stoppages during the 1994 and 1995 major league baseball seasons. The Company
has received notice from the Texas Rangers disputing the adjustment and
credits taken by the Company. There can be no assurance that the Company and
the Texas Rangers will be able to resolve this dispute without judicial
intervention.

The Stations

The following table summarizes certain information relating to (i) the
stations currently owned and operated by the Company, (ii) the stations with
which the Company has a JSA, (iii) the Liberty stations to be retained (iv)
the stations to be acquired from MMR (the Swap Stations), and (v) the stations
to be acquired from Prism.

<TABLE>
<CAPTION>
TOTAL
STATION RANK 1995 STATION NUMBER OF
MARKET STATION TARGET AMONG TARGET AUDIENCE REVENUE STATIONS IN
STATION (1) RANK(2) FORMAT(2) DEMOGRAPHICS(3) DEMOGRAPHIS SHARE(4) SHARE(4) RANK(5) MARKET(2)
----------- ------- --------- --------------- -------------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dallas Market 7
KRLD-AM......... News/Talk Adults 35-64 7 3.6% 10 45
KTCK-AM ........ Sports Men 25-54 8 1.6% 19 45
Washington, DC/
Baltimore Market 8/18
WXVR-FM (6)(7).. 70's Rock Adults 35 & over 34 .1% 15 51
WHFS-FM (6)(8).. Alternative Rock Adults 18-34 2 3.8% 14 51
WXTR-FM (6)(7).. 70's Rock Adults 35 & over 18 1.3% 15 51
WQSI-AM (6)..... Country Adults 25-54 NR NR N/A 51
Houston Market 9
KODA-FM......... Adult Contemporary Adults 25-54 1 6.4% 1 47
KQUE-FM (9)(10). Adult Contemporary Adults 25-54 3 5.3% 15 47
KNUZ-AM (9)(10). News/Talk Adults 25-54 NR NR 15 47
Long Island Market 14
WBAB-FM (6)(11). Album Oriented Rock Adults 25-54 3 3.1% 2 43
WHFM-FM (6)(11). Hot Album Adults 25-54 37 0.1% 2 43
WBLI-FM (6)..... Contemporary Adults 25-54 2 4.0% 3 43
WGBB-AM (6)(11). News/Talk Adults 35 & over NR NR 2 43
San Diego Market 15
KMKX-FM......... Rock/Adult Contemporary Adults 25-54 9 2.4% 16 36
KYXY-FM......... Adult Contemporary Adults 25-54 2 6.8% 4 36
Charlotte Market 37
WTDR-FM ........ Country Adults 25-54 6 6.0% 6 41
WLYT-FM (12).... Adult Contemporary Adults 25-54 3 5.9% 9 41
Greensboro Market 42
WMAG-FM (9)(13). Adult Contemporary Adults 25-54 2 6.1% 3 35
WHSL-FM (14).... Country Adults 25-54 13 2.0% 12 35
WTCK-AM (9)(13). News/Talk Adults 25-54 27 0.1% 13 35
WMFR-AM (9)(13). News/Talk Adults 25-54 24 1.1% 11 35
Nashville Market 45
WSIX-FM......... Country Adults 25-54 1 15.5% 1 45
WRVW-FM (15).... Top 40 Adults 18-34 4 6.3% 8 45

<PAGE>

TOTAL
STATION RANK 1995 STATION NUMBER OF
MARKET STATION TARGET AMONG TARGET AUDIENCE REVENUE STATIONS IN
STATION (1) RANK(2) FORMAT(2) DEMOGRAPHICS(3) DEMOGRAPHIS SHARE(4) SHARE(4) RANK(5) MARKET(2)
----------- ------- --------- --------------- -------------------- --------- ------------ ------------
Louisville Market 48
WVEZ-FM (16).... Soft Adult Contemporary Adults 25-54 5 5.6% 5 31
WTFX-FM (16).... Alternative Rock Adults 25-54 3 5.5% 9 31
WWKY-AM (16).... Talk Adults 18-34 15 1.0% 15 31
Jacksonville Market 50
WKQL-FM (16).... Oldies/Adult Adults 25-54 6 5.4% 6 22
WIVY-FM (16).... Adult Contemporary Adults 25-54 7 4.1% 7 22
WOKV-AM (16).... News/Talk Adults 18-49 9 4.3% 8 22
WPDQ-AM (16).... Nostalgia Adults 50 & over 20 1.5% 15 22
Raleigh Market 52
WZZU-FM(16)..... Classic Rock Adults 25-54 6 4.0% 9 35
WDCG-FM (16).... Contemporary Hit Radio Adults 18-54 3 7.9% 3 35
WRDU-FM (9)..... Album Oriented Rock Adults 25-54 2 5.8% 2 35
WTRG-FM (9)..... Oldies Adults 18-34 1 5.3% 5 35
Greenville-
Spartanburg Market 59
WSSL-FM (17)(18) Country Adults 25-54 1 14.8% 1 42
WMYI-FM (19).... Adult Contemporary Adults 25-54 2 8.0% 3 42
WROQ-FM (9)(20). Classic Rock Adults 25-54 5 9.2% 2 42
WGVL-AM (18)(21) Talk Adults 25-54 NR NR 1 42
Tucson Market 62
KRQQ-FM (16).... Contemporary Hit Radio Adults 18-34 3 7.5% 5 29
KWFM-FM (16).... Oldies Adults 25-54 6 5.6% 6 29
KCEE-AM (16).... Nostalgia Adults 60 & over 9 3.6% 9 29
KNST-AM (16).... News/Talk Adults 25-54 7 6.1% 4 29
Wichita Market 88
KRZZ-FM (16)(22) Classic Rock Adults 18-54 2 6.2% 3 23
KKRD-FM (16).... Contemporary Hit Radio Adults 18-34 3 8.1% 4 23
KNSS-AM (16)(22) News/Talk Adults 25-54 10 3.5% 3 23
Jackson Market 117
WMSI-FM (23)(24) Country Adults 25-54 1 12.8% 1 29
WKTF-FM (23).... Country Adults 25-54 7 3.0% 5 29
WSTZ-FM (9)(25)(26) Album Oriented Rock Adults 25-54 6 6.6% 3 29
WJDS-AM (23)(24) Adult Contemporary Adults 25-54 19 0.3% 1 29
WJDX-FM (23)(24) Sports Adults 25-54 5 6.0% 1 29
WZRX-AM (9)(26). Gospel Adults 25-54 12 2.6% 3 29
</TABLE>

(1) Some stations are licensed to a different community located within the
market that they serve.
(2) According to BIA Consulting, Inc.'s Investing in Radio '96 Market
Report.
(3) Due to variations that may exist within the same station programming
format, the demographic target may be different even though the station
programming format is the same.
(4) Based upon Arbitron's Fall 1995 Radio Market Report (audience share
calculated as the four book average for the 12+ age group).
(5) Based upon the Market Revenue Report prepared by either Miller-Kaplan
or Hungerford, Aldrin, Nichols, and Carter.
(6) These stations will be acquired by the Company pursuant to the Liberty
Stock Purchase Agreement.
(7) WXVR-FM and WXTR-AM are combined for the 1995 station revenue rank.
(8) WHFS-FM also serves the Baltimore, MD market.
(9) These stations will be acquired by the Company pursuant to the Exchange
Agreement.
(10) KQUE-FM and KNUZ-AM are combined for the 1995 station revenue rank.
(11) WBAB-FM, WHFM-FM and WGBB-AM are combined for the 1995 station revenue
rank.
(12) WLYT-FM changed its call letters from WEZC-FM.
(13) On January 18, 1996 MMR entered into a JSA pursuant to which MMR
acquired the exclusive right to sell all commercial advertising on
behalf of WTCK-AM, WMFR-AM and WMAG-FM. On January 19, 1996, MMR and
the Company entered into a JSA with MMR with respect to each station
pursuant to which the Company will pay to MMR an amount equal to MMR's
payment to the current owner under the JSA.
(14) The Company has been selling advertising on this station pursuant to a
JSA since January 18, 1996 and has an option to purchase this station.
See "The Acquisitions" and "Agreements Related to the Acquisitions."
(15) Licensed to Lebanon, TN (Formerly WYHY-FM).
(16) These stations will be acquired by the Company pursuant to the Prism
Asset Purchase Agreement.
(17) Licensed to Gray Court, SC.
(18) WSSL-FM and WGVL-AM are combined for the 1995 station revenue rank.
(19) Licensed to Hendersonville, NC.
(20) On January 23, 1996, MMR entered into an LMA pursuant to which MMR
would provide programming for the broadcast of WROQ-FM. Concurrently
therewith, MMR entered into a JSA with the Company pursuant to which
the Company was granted exclusive right to sell advertising on behalf
of WROQ-FM.
(21) Licensed to Anderson, SC.
(22) KRZZ-FM and KNSS-AM are combined for the 1995 station revenue rank.

<PAGE>

(23) The Company owns WMSI-FM, WJDS-AM, and WKTF-FM and has a joint-selling
agreement with WJDX-FM, a station owned by an unaffiliated third party.
(24) WMSI-FM, WJDS-AM, WJDX-FM are combined for the 1995 station revenue rank.
(25) On February 1, 1996 MMR entered into an LMA pursuant to which MMR would
provide programming for the broadcast of WSTZ-FM. On February 1, 1996,
MMR entered into a JSA with the Company pursuant to which the Company
was granted exclusive right to sell advertising on behalf of WSTZ-FM.
WSTZ-FM is licensed to Vicksburg, MS.
(26) WSTZ-FM and WZRX-AM are combined for the 1995 station revenue rank.
NR Not rated.
NA Not applicable.

Company Strategy

General. The Company's strategy is to operate and acquire highly-ranked
stations with attractive audience demographics in major and medium-size
markets. The Company believes that highly-ranked stations receive a
disproportionately large share of their markets' advertising revenues because
such stations are a cost-effective and efficient means of targeting
advertising dollars at well-defined audiences. Consistent with this strategy,
all except one of the Company's stations, owned or operated for more than a
year, are ranked among the top one-third in their respective markets in terms
of revenues billed in 1995 and 1994.

Management believes that, due to the increasingly common desire of radio
advertisers to target their advertising message to specific demographic groups
and to increase the frequency of delivery of such message, highly-ranked
stations receive a growing percentage of the advertising dollars directed to
their respective markets. The Company uses programming formats designed to
target specific audience demographics that are attractive to advertisers in
order to maintain and improve its audience share and revenue rankings, and
seeks to convert any increase in audience share into increased billings. In
each of the Company's markets its stations have higher combined revenue share
than combined audience share. The Company believes evidences its ability to
convert increases in audience share into higher billings

The Company also believes that highly-ranked stations can better capitalize
on the operating leverage inherent in the radio industry. The costs of on-air
programming, consisting principally of royalties payable to copyright holders,
are generally fixed at relatively low percentages of revenues. Therefore, any
increase in advertising revenues should result in larger increases in
Broadcast Cash Flow. Broadcast Cash Flow is defined as net revenues less
station operating expenses. Broadcast Cash Flow, although not calculated in
accordance with GAAP, is widely used in the broadcasting industry as a measure
of the Company's operating performance. 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.

Acquisitions. The Company believes that one of the primary ways to
implement its strategy is by acquiring and operating multiple highly-ranked
stations in an individual market. The Company believes that multiple
highly-ranked station ownership in its markets can enhance its competitive
strength by enabling it to offer advertisers a broader range of advertising
packages, which have the potential to increase the Company's revenues, as well
as achieve cost savings by eliminating duplicative sales and overhead
expenses. The Company intends to take advantage of the Recent Legislation, the
local ownership provisions of which would permit an entity to own up to eight
radio stations (of which not more than five may be in the same service FM or
AM) in a single market depending upon the number of radio stations in the
"market" as such term is defined by the FCC.

The Company regularly evaluates potential acquisitions both in markets that
it does not currently serve and in markets where it would like to achieve a
broader presence. Acquisition candidates may include individual stations or
groups of stations. After acquiring a station, the Company seeks to improve
revenues and Broadcast Cash Flow by a variety of means, including refining the
station's format, reducing the station's operating expenses and/or combining
its operations with an existing station operated by the Company in the same
market. The Company intends to continue to pursue opportunities for expansion,
including opportunities to acquire multiple stations in the same local market.

In analyzing potential acquisitions, the Company focuses on certain market
characteristics, including: (i) the stability of the economy and the presence
of a substantial industrial base, universities or tourism, (ii) the size,
rates of growth and projected future rates of growth of the market's
broadcasting revenue and population, (iii) the number of competitive stations
in the market and (iv) multiple ownership possibilities or other unique
synergies with the then-existing stations of the Company. Factors considered
by the Company in evaluating a station include: (i) a demonstrated record of
audience share and Broadcast Cash Flow or the potential to achieve a
significant audience share and Broadcast Cash

<PAGE>

Flow in a short period of time, (ii) the operating history and performance of
the station, (iii) the success of the station's format, (iv) the quality of
and the ability to enhance the station's broadcast signal and (v) the
station's availability for purchase at an attractive price.

Operations. The Company seeks to maximize Broadcast Cash Flow by
enhancing its stations' billings and maintaining strict cost controls.

Enhancing Station Billings. The Company endeavors to maximize its billings
by increasing audience share, particularly with programming that appeals to
demographic groups attractive to advertisers within its markets. To implement
this strategy, extensive market research is conducted to refine and target
programming and, where appropriate, high-profile, on-air talent is employed.
Advertising and promotional tie-ins with local events are also used to
heighten public awareness of the Company's stations. In addition, aggressive
sales and marketing techniques are utilized to convert increases in audience
share into higher billings.

Maintaining Cost Controls. The Company seeks to reduce operating expenses
by (i) implementing rigorous cost controls at its stations, (ii) combining and
centralizing certain administrative functions at the corporate level that may
otherwise have been performed at the individual stations, and (iii) in certain
instances, owning and operating or providing programming to and selling
advertising on multiple stations in a single market. Examples of these cost
controls include (i) KYXY-FM and KMKX-FM consolidating their operations into
one company-owned facility in San Diego; (ii) the consolidation of the
operations of WRVW-FM and WSIX-FM in Nashville; (iii) the elimination of
duplicative overhead at KRLD-AM and KTCK-AM in Dallas; and (iv) the
combination of certain operations between the Charlotte and
Greenville-Spartanburg markets.

The Company's management imposes strict financial reporting requirements
and expense budget limitations on each of its stations. In addition,
management maintains a centralized accounting system which allows it to
closely monitor the performance and operations of each of its stations. Such
centralization allows the Company to take advantage of certain economies of
scale, including centralized purchasing and reduced personnel costs.

The Company's music programming is generally determined at the station
level by the programming director after extensive research and consultation
with the Company's outside programming consultants. The Company broadcasts
music under standard and customary license agreements with The American
Society of Composers, Authors and Publishers (ASCAP), Broadcast Music Inc.
(BMI) and other companies that represent publishers and composers. The Company
obtains sports programming under licenses and rights agreements and short-form
programming from network suppliers. For example, the Company has entered into
an agreement to broadcast Texas Rangers baseball games on KRLD-AM from the
Company's offices and studios located at The Ballpark in Arlington.

Integral to the Company's strategy of achieving high rankings and
maximizing Broadcast Cash Flow is the employment and motivation of strong
local management at each of its stations. Local management is responsible for
building and developing a sales team capable of converting the stations' high
rankings into revenues. As such, a station's general manager and its sales
manager are motivated through incentive compensation based on their stations'
financial performance. Corporate management continuously provides its stations
with advice and support in the development of advertising and marketing
strategies, sales force training and motivation techniques.

Advertising

The primary source of the Company's revenues is the sale of broadcasting
time for local, regional and national advertising. A station's sales staff
generates most of its local and regional advertising sales. To generate
national advertising sales, the Company engages an advertising representative
for each of its stations who specializes in national advertising sales and who
is compensated on a commission-only basis. Most advertising contracts are
short term and generally run only for a few weeks.

The Company believes that radio is one of the most efficient,
cost-effective means for advertisers to reach specific demographic groups.
Radio is a precisely-targeted medium and is highly flexible due to the short
lead time between production and broadcast and the relative ease of production
of commercials. To ensure that an advertising message will be heard mainly by
its targeted customer base, an advertiser can choose to advertise on a station
with a format that appeals to a specific demographic group. In addition, radio
can more readily reach people in the workplace and in their cars than
television and other media.

<PAGE>

Advertising rates charged by radio stations are based primarily on a
station's ability to attract audiences in the demographic groups targeted by
advertisers (as measured by ratings service surveys quantifying the number of
listeners tuned to the station at various times of the day and week), on the
number of stations in the market competing for the same demographic group and
on the supply of and demand for radio advertising time. Rates are generally
highest during morning and afternoon drive-time hours.

Depending on the format of a particular station, there are predetermined
numbers of advertisements that are broadcast each hour. The Company endeavors
to determine the number of advertisements broadcast per hour that can maximize
available revenue dollars without jeopardizing listening levels. Although the
number of advertisements broadcast during a given time period may vary, the
total number of slots available for broadcast advertising on a particular
station generally does not vary significantly from year to year.

Competition

The Company's stations compete for listeners and advertising revenues
directly with other radio stations within their markets. The Company competes
for advertising revenues principally through effective promotion of its
stations' listener demographics and audience shares, and through the number of
listeners in a target group that can be reached for the price charged for the
air-time. The Company's stations also compete for advertising revenues with
other media, including broadcast television, cable television, newspapers,
magazines, direct mail, coupons and billboard advertising. Radio stations
compete for listeners primarily on the basis of program content and by hiring
highprofile talent with appeal to a particular demographic group. By building
in each of its markets a strong base of listeners comprised of specific
demographic groups, the Company is able to attract advertisers seeking to
reach those listeners. Other factors that affect a station's competitive
position include its authorized power, terrain, assigned frequency, audience
characteristics, local program acceptance and the number and characteristics
of other stations in the market area.

The radio broadcasting industry is also subject to competition from new
media technologies that are being developed or introduced, such as the
delivery of audio programming by cable television systems and by digital audio
broadcasting. The radio broadcasting industry historically has grown despite
the introduction of new technologies for the delivery of entertainment and
information, such as television broadcasting, cable television, audio tapes
and compact disks. There can be no assurance, however, that the development or
introduction in the future of any new media technology will not have an
adverse effect on the radio broadcasting industry. The Company also competes
with other radio station groups to purchase additional stations. Recent
Legislation will permit other radio broadcasting companies to enter the
markets in which the Company operates or may operate in the future, some of
which may be larger and have substantially greater financial and other
resources than the Company.

Inflation

The impact of inflation on the Company's operations has not been
significant to date. There can be no assurance that a high rate of inflation
in the future would not have an adverse effect on the Company's operations.

Seasonality

The Company's revenues vary throughout the year. As is the case throughout
the radio broadcast industry, the Company's first quarter generally reflects
lowest revenues and its fourth quarter generally reflects the highest revenues
for each year.

Employees

At December 31, 1995, the Company had approximately 324 full time and 108
part time employees, none of whom were represented by unions. Management
believes that relations with employees are good.

The Company employs several high-profile on-air personalities with large,
loyal audiences in their respective markets. The Company endeavors to enter
into employment agreements with those on-air personalities and station general
managers whose services are deemed by the Company to be important for its
continued success. In addition, the Company has entered into employment
agreements with certain of its executive officers.

<PAGE>

Federal Regulation of Radio Broadcasting

The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act of 1934, as amended (the "Communications Act"). Among other
things, the FCC assigns frequency bands for broadcasting; determines the
particular frequencies, locations and operating power of stations; issues,
renews, revokes and modifies station licenses; determines whether to approve
changes in ownership or control of station licenses; regulates equipment used
by stations; adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation and employment practices of
stations; and has the power to impose penalties for violations of its rules or
the Communications Act.

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

FCC Licenses. Radio stations operate pursuant to broadcasting licenses that
are granted by the FCC for maximum terms of seven years (such maximum terms
have been increased to eight years by the Recent Legislation) and are subject
to renewal upon application to the FCC. During certain periods when renewal
applications are pending, petitions to deny license renewals can be filed by
interested parties, including members of the public. The FCC will grant a
renewal application if it finds that the station has served the public
interest, convenience and necessity, that there have been no serious
violations by the licensee of the Communications Act or the rules and
regulations of the FCC, and that there have been no other violations by the
licensee of the Communications Act or the rules and regulations of the FCC
that, when taken together, would constitute a pattern of abuse.

EXPIRATION
METROPOLITAN MARKET SERVED DATE OF FCC
AND STATION CALL LETTERS CITY OF LICENSE(1) POWER IN KW'S FREQUENCY(1) AUTHORIZATION
- ------------------------ ------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Dallas, TX
KRLD-AM....................... Dallas, TX 50 1080 kHz 8/1/97
KTCK-AM....................... Dallas, TX 5 1310 kHz 8/1/97
Washington, DC / Baltimore, MD
WXVR-FM....................... Braddock Heights, MD 0.38 103.9 MHZ 10/1/02
WHFS-FM (2)................... Annapolis, MD 50 99.1 MHZ 10/1/95*
WXTR-FM....................... Waldorf, MD 22 104.1 MHZ 10/1/02
WQSI-AM....................... Frederick, MD 4.3 Day, .43 Night 820 kHz 10/1/02

Houston, TX
KODA-FM....................... Houston, TX 95 99.1 MHZ 8/1/97
KQUE-FM(3).................... Houston, TX 100 102.9 MHZ 8/1/97
KNUZ-AM(3).................... Houston, TX .41 1230 kHz 8/1/97
Long Island, NY
WBAB-FM....................... Babylon, NY 3 102.3 MHZ 6/1/98
WHFM-FM....................... Southampton, NY 5 95.3 MHZ 6/1/98
WBLI-FM(4).................... Patchogue, NY 49 106.1 MHZ 6/1/98
WGBB-AM....................... Freeport, NY 1 1240 kHz 6/1/98
San Diego, CA
KMKX-FM....................... San Diego, CA 36 103.7 MHZ 12/1/97
KYXY-FM....................... San Diego, CA 41 96.5 MHZ 12/1/97
Charlotte, NC
WTDR-FM....................... Statesville, NC 100 96.9 MHZ 12/1/02
WLYT-FM....................... Hickory, NC 31 102.9 MHZ 12/1/02
Greensboro, NC
WMAG-FM....................... High Point, NC 100 99.5 MHZ 12/1/02
WTCK-AM....................... Greensboro, NC 5 1320 kHz 12/1/02
WHSL-FM....................... High Point, NC 100 100.3 MHZ 12/1/02
WMFR-AM....................... High Point, NC 1 1230 kHz 12/1/02
Nashville, TN
WSIX-FM....................... Nashville, TN 100 97.9 MHZ 8/1/96
WRVW-FM....................... Lebanon, TN 58 107.5 MHZ 8/1/96

<PAGE>

Jacksonville, FL
WKQL-FM....................... Jacksonville, FL 98 96.9 MHZ 2/1/03
WIVY-FM....................... Jacksonville, FL 98 02.9 MHZ 2/1/96*
WOKV-AM....................... Jacksonville, FL 50 Day, 10 Night 600 kHz 2/1/03
WPDQ-AM....................... Jacksonville, FL 5 Day 690 kHz 2/1/03

Raleigh, NC
WZZU-FM....................... Burlington, NC 100 93.9 MHZ 12/1/02
WDCG-FM....................... Durham, NC 100 05.1 MHZ 12/1/02
WRDU-FM....................... Wilson, NC 100 06.1 MHZ 12/1/02
WTRG-FM....................... Rocky Mount, NC 100 00.7 MHZ 12/1/02
Greenville, Spartanburg, SC
WSSL-FM....................... Gray Court, SC 100 00.5 MHZ 12/1/02
WMYI-FM....................... Hendersonville, NC 20 02.5 MHZ 12/1/02
WROQ-FM....................... Anderson, SC 100 01.1 MHZ 12/1/02
WGVL-AM....................... Greenville, SC 5 1440 kHz 12/1/02
Tucson, AZ
KRQQ-FM....................... Tucson, AZ 91 93.7 MHZ 10/1/97
KWFM-FM....................... Tucson, AZ 90 92.9 MHZ 10/1/97
KCEE-AM....................... Tucson, AZ 1 940 kHz 10/1/97
KNST-AM....................... Tucson, AZ 5 Day, .5 Night 790 kHz 10/1/97

Wichita, KS
KRZZ-FM....................... Derby, KS 50 96.3 MHZ 6/1/97
KKRD-FM....................... Wichita, KS 95 07.3 MHZ 6/1/97
KNSS-AM....................... Wichita, KS .6 1240 kHz 6/1/97
Jackson, MS
WMSI-FM....................... Jackson, MS 100 02.9 MHZ 6/1/96*
WKTF-FM....................... Jackson, MS 100 95.5 MHZ 6/1/96*
WSTZ-FM....................... Vicksburg, MS 100 06.7 MHZ 6/1/96*
WJDS-AM....................... Jackson, MS 5 Day, 1 Night 620 kHz 6/1/96*
WJDX-FM....................... Jackson, MS 96 96.3 MHZ 6/1/96*
WZRX-AM....................... Jackson, MS 5 Day, 1 Night 1590 kHz 6/1/96*
</TABLE>

- ----------------------
(1) According to Broadcasting and Cable Yearbook 1995.

(2) On February 27, 1996, the FCC issued a decision imposing a notice of
apparent liability for a forfeiture against Duchossois Communications Co.
of Maryland, the previous licensee of WHFS-FM, in the aggregate amount of
$38,000 for violations of certain of the FCC's rules. On March 12, 1996,
Liberty of Maryland, the present licensees of WHFS-FM and Patricia Ebbert,
a party who had filed a petition to deny the application for consent to
assignment of the station's licenses to Liberty of Maryland and a petition
to deny the application for renewal of the station's license, filed with
the FCC Joint Requests for Approval of Settlement Agreement requesting the
FCC to approve the Settlement Agreement, among such parties grant the
station's pending renewal application, dismiss Ebbert's petition to deny
against the renewal application and dismiss Ebbert's court appeal of the
FCC's grant of consent to the assignment of WHFS-FM's license to Liberty of
Maryland. The previous licensee and Ms. Ebbert also filed a Joint Motion
for Voluntary Remand of Record with the United States Court of Appeals for
the District of Columbia Circuit requesting that the Court remand to the
FCC the record in Ebbert's court appeal of the FCC's grant of the
application to assign WHFS-FM's license to Liberty of Maryland, in order to
permit the FCC to approve the Settlement Agreement.

(3) On February 6, 1996, the FCC issued a decision granting the applications to
renew the broadcast licenses for these stations and imposed a notice of
apparent liability for a forfeiture in the amount of $18,500, as well as
two-year reporting conditions for violations of the FCC's rules concerning
equal employment opportunity. On March 7, 1996, the Texas State Conference
of Branches of the NAACP filed with the FCC a petition for reconsideration
of the FCC's decision granting the renewal of the stations' licenses, which
petition is currently pending before the FCC.

(4) David Naylor filed with the FCC a Petition to Deny the assignment of the
station to the Company alleging past employment discrimination at the
station. This petition is currently pending at the FCC.

(*) License renewal pending.

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

<PAGE>

To obtain the FCC's prior consent to transfer or assign a broadcast
license, appropriate applications must be filed with the FCC. If the transfer
or assignment application involves a "substantial change" in ownership or
control, the application is placed on public notice for a period of
approximately 30 days during which petitions to deny the application may be
filed by interested parties, including members of the public. If the transfer
or assignment application does not involve a "substantial change" in ownership
or control, it is a "pro forma" application. The "pro forma" application is
nevertheless subject to having informal objections filed against it. If the
FCC grants a transfer or assignment application, interested parties have
approximately 30 days from public notice of the grant to seek reconsideration
or review of that grant. The FCC normally has approximately an additional ten
days to set aside on its own motion such grant.

Pursuant to the Recent Legislation, the limit on the number of radio
stations one entity may own nationally has been eliminated and the limits on
the number of radio stations one entity may own locally have been raised as
follows: (i) in a market with 45 or more commercial radio stations, an entity
may own up to eight commercial radio stations, not more than five of which are
in the same service (FM or AM), (ii) in a market with between 30 and 44
(inclusive) commercial radio stations, an entity may own up to seven
commercial radio stations, not more than four of which are in the same
service, (iii) in a market with between 15 and 29 (inclusive) commercial radio
stations, an entity may own up to six commercial radio stations, not more than
four of which are in the same service and (iv) in a market with 14 or fewer
commercial radio stations, an entity may own up to five commercial radio
stations, not more than three of which are in the same service, except that an
entity may not own more than 50% of the stations in such market. FCC ownership
rules continue to permit an entity to own one FM and one AM station locally
regardless of market size.

The Communications Act and FCC rules also prohibit the common ownership,
operation or control (i) of a radio broadcast station and a television
broadcast station serving the same geographic market, subject to a waiver of
such prohibition for stations located in the largest television markets if
certain conditions are satisfied (the Recent Legislation directs the FCC to
extend such waiver policy to the top 50 television markets), and (ii) of a
radio broadcast station and a daily newspaper serving the same geographic
market. Under these rules, absent waivers, the Company would not be permitted
to acquire any daily newspaper or television broadcast station (other than
low-power television) in any geographic market in which it owns broadcast
properties.

The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding (or through subsidiaries controlling) broadcast
licenses, the interests of officers, directors and those who, directly or
indirectly, have the right to vote 5% or more of the corporation's stock (or
10% or more of such stock in the case of insurance companies, investment
companies and bank trust departments that are passive investors) are generally
attributable, except that, in general, no minority voting stock interest will
be attributable if there is a single holder of more than 50% of the
outstanding voting power of the corporation. The FCC has outstanding a notice
of proposed rule making that, among other things, seeks comment on whether the
FCC should modify its attribution rules by (i) restricting the availability of
the single majority shareholder exemption and (ii) attributing under certain
circumstances certain interests such as non-voting stock or debt. The Company
cannot predict the outcome of this proceeding or how it will affect the
Company's business.

Mr. Hicks, the Company's President and Chief Executive Officer, is the
sole voting shareholder of Gulfstar Communications, Inc. ("Gulfstar"), which
is the licensee through subsidiaries of KLVI-AM and KYKR-FM, Beaumont, Texas,
KLTN-FM, Port Arthur, Texas, KYKS-FM, Lufkin, Texas, KIXS-FM, Victoria, Texas,
KNUE-FM, Tyler, Texas (a Gulfstar subsidiary also sells advertising on
KAFX-FM, Diboll, Texas, KISX-FM Whitehouse, Texas, KTYL-FM, Tyler, Texas and
KLVB-FM, Bloomington, Texas pursuant to JSAs), KKYR-AM, Texarkana, Arkansas,
KKYR-FM, Texarkana, Texas, and WJBO-AM, WFMF-FM, WYNK-AM and WYNK-FM, Baton
Rouge, Louisiana. As required by his employment agreement, Mr. Hicks has
submitted an application to divest himself of his attributable interest in
Gulfstar. This application was granted by the FCC on February 14, 1996, and
the proposed divestiture awaits consummation. Mr. Hicks also has interests in
other broadcasting companies that are not attributable interests under FCC
rules and regulations.

Mr. Armstrong, Executive Vice President, Chief Financial Officer, and
Treasurer of the Company, owns 5% of the common stock of Resource Media, Inc.,
licensee of KLFF-AM, Glendale, Arizona, and KEDGFM, Sun City, Arizona and owns
5% of the common stock of Arizona City Broadcasting, Inc., which owns KONZ-FM,
Arizona City, Arizona.

Mr. Sillerman, the Company's Executive Chairman, holds non-voting common
and preferred stock interests, as well as voting common stock interests,
representing less than 5% of the outstanding voting power of MMR which,

<PAGE>

through subsidiaries, owns and operates, provides programming to, or sells
advertising on behalf of radio stations in small and medium markets primarily
located in the Eastern United States. Mr. Sillerman is neither an officer nor
a director of MMR, and accordingly, based on the advice of counsel, the
Company believes that his interests therein are non-attributable under the
present FCC rules. Mr. Sillerman's non-voting common and preferred stock
interests in MMR are, however, convertible into voting common stock
representing more than 5% of the voting power of the outstanding MMR stock
and, accordingly, upon such conversion, Mr. Sillerman's interests might become
attributable. Such conversion, however, may require the consent of the FCC and
is also subject to substantial contractual and charter restrictions that
permit conversion only if MMR fails to meet certain financial tests.

Mr. Sillerman also has non-voting common and preferred stock interests in
Triathlon Broadcasting Company, a publicly-held radio broadcasting company
("Triathlon"), which has or proposes to have attributable interests in radio
stations in small and medium markets primarily located in the Midwest and
Western United States. Heretofore, the FCC has not considered Mr. Sillerman's
interest in Triathlon to be an attributable one. However, Mr. Sillerman's
non-voting stock interests in Triathlon are convertible into voting stock
interests under certain circumstances, including the receipt of necessary FCC
approval. The FCC is examining, through outstanding rule making and
adjudicatory proceedings, whether to change the criteria for considering an
interest to be attributable. Some commentators on the rule making proceedings
have urged that the test of attribution should not be voting power but rather
influence over the licensee. Fisher Wayland Cooper Leader & Zaragoza LLP, FCC
counsel to the Company, has advised the Company that to the extent that the
FCC adopts this standard, certain contractual arrangements between Sillerman
Communications Management Corporation ("SCMC"), a corporation controlled by
Mr. Sillerman, which serves as a financial advisor and consultant to the
Company, and each of MMR and Triathlon may cause Messrs. Sillerman and Tytel's
interests in MMR and Triathlon to be attributable. If the FCC were to
determine that Messrs. Sillerman and Tytel's interests in MMR and Triathlon
were attributable, then Messrs. Sillerman and Tytel would be required to
reduce the number of their attributable interests to the then-applicable
permissible limits contained in the FCC's ownership rules.

Under the FCC's cross-interest policy, the FCC in certain circumstances
may prohibit one party from acquiring non-attributable economic interests in
two broadcast stations in the same market. Prior to consummation of the
Liberty Acquisition and the Exchange, the FCC will need to determine that its
crossinterest policy does not prohibit (i) the Company's acquisitions of
KNSS-AM, KKRD-FM and KRZZ-FM, each operating in the Wichita, Kansas market, a
market in which Triathlon already owns stations and (ii) MMR's acquisitions of
WZRX-AM and WSTZ-FM, each operating in the Jackson, Mississippi market and
WROQ-FM operating in the Greenville, South Carolina market, markets in which
SFX already owns stations. In accordance therewith, it will need to be
demonstrated that competition or the sale of spot advertising (i) in the
Wichita, Kansas market and (ii) the Jackson, Mississippi and Greenville, South
Carolina markets will not be impaired as a result of Mr. Sillerman's passive
interests in Triathlon and MMR, respectively, in conjunction with his active
interest in the Company. The Company believes that because Mr. Sillerman is
not active in Triathlon's or MMR's daily operations and is not an officer or
director of Triathlon or MMR, the FCC is likely not to invoke its
cross-interest policy. There can, however, be no assurance that the FCC will
not invoke such policy and prohibit the acquisition of such stations.

The Communications Act prohibits the issuance of a broadcast license to, or
the holding of a broadcast license by, any corporation of which more than 20%
of the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
"Aliens"). The Communications Act also authorizes the FCC, if the FCC
determines that it would be in the public interest, to prohibit the issuance
of a broadcast license to, or the holding of a broadcast license by, any
corporation directly or indirectly controlled by any other corporation of
which more than 25% of the capital stock is owned of record or voted by
Aliens. The Company has been advised that the FCC staff has interpreted this
provision to require a finding that such a grant or holding would be in the
public interest before a broadcast license may be granted to or held by any
such corporation and that the FCC staff has made such a finding only in
limited circumstances. The FCC has issued interpretations of existing law
under which these restrictions in modified form apply to other forms of
business organizations, including partnerships. As a result of these
provisions, the licenses granted to the radio station subsidiaries of the
Company by the FCC could be revoked if, among other restrictions imposed by
the FCC, more than 25% of the Company's stock were directly or indirectly
owned or voted by Aliens. The Restated Certificate of Incorporation (the
"Certificate of Incorporation") of the Company contains limitations on Alien
ownership and control of the Company that are substantially similar to those
contained in the Communications Act.

Local Marketing Agreements. Over the past few years, a number of radio
stations, including certain of the Company's stations, have entered into what
have commonly been referred to LMAs. While these agreements may take varying
forms, pursuant to a typical LMA, separately owned and licensed radio stations
agree to enter into cooperative

<PAGE>

arrangements of varying sorts, subject to compliance with the requirements of
antitrust laws and with the FCC's rules and policies. Under these types of
arrangements, separately-owned stations could agree to function cooperatively
in terms of programming, advertising sales, etc., subject to the requirement
that the licensee of each station shall maintain independent control over the
programming and operations of its own station. One typical type of LMA is a
programming agreement between two separately-owned radio stations serving a
common service area, whereby the licensee of one station programs substantial
portions of the broadcast day on the other licensee's station, subject to
ultimate editorial and other controls being exercised by the latter licensee,
and sells advertising time during such program segments. Such arrangements are
an extension of the concept of "time brokerage" agreements, under which a
licensee of a station sells blocks of time on its station to an entity or
entities which program the blocks of time and which sell their own commercial
advertising announcements during the time periods in question.

The FCC has determined that issues of joint advertising sales should be
left to enforcement by antitrust authorities and has specifically revised its
so-called "cross-interest" policy to make that policy inapplicable to time
brokerage arrangements, (under this policy, the FCC in certain circumstances
may prohibit one party from acquiring non-attributable economic interests in
two broadcast stations in the same market). Furthermore, over the past few
years, the staff of the FCC's Mass Media Bureau has held that LMAs are not
contrary to the Communications Act, provided that the licensee of the station
which is being substantially programmed by another entity maintains complete
responsibility for and control over programming and operations of its
broadcast station and assures compliance with applicable FCC rules and
policies.

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

Joint Sales Agreements. Currently, JSAs are not deemed by the FCC to be
attributable. However, the FCC has outstanding a notice of proposed rule
making concerning, among other things, whether JSAs should be considered
attributable interests. The attribution of radio station JSAs has become less
of an issue as a result of the general liberalization of the ownership limits
on radio stations authorized by the Recent Legislation. If JSAs become
attributable interests as a result of such rule making, the Company would be
required to terminate any JSA it might have with a radio station with which
the Company could not have an LMA.

Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." The FCC gradually has relaxed or eliminated many
of the more formalized procedures it had developed in the past to promote the
broadcast of certain types of programming responsive to the needs of a
station's community of license. A licensee continues to be required, however,
to present programming that is responsive to issues of the station's
community, and to maintain certain records demonstrating such responsiveness.
Complaints from listeners concerning a station's programming often will be
considered by the FCC when it evaluates renewal applications of a licensee,
although such complaints may be filed at any time and generally may be
considered by the FCC at any time. Stations also must follow various rules
promulgated under the Communications Act that regulate, among other things,
political advertising, sponsorship identifications, the advertisement of
contests and lotteries, obscene and indecent broadcasts, and technical
operations, including limits on radio frequency radiation. In addition,
licensees must develop and implement affirmative action programs designed to
promote equal employment opportunities, and must submit reports to the FCC
with respect to these matters on an annual basis and in connection with a
renewal application.

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

Proposed Changes. The Congress and/or the FCC have under consideration, and
in the future may consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could affect, directly or indirectly,
the operation, ownership and profitability of the Company's radio broadcast
stations, result in the loss of audience share and advertising revenues for
the Company's radio broadcast stations, and affect the ability of the Company
to acquire

<PAGE>

additional radio broadcast stations or finance such acquisitions. Such matters
may include: changes to the license renewal process; spectrum use or other
fees on FCC licensees; revisions to the FCC's equal employment opportunity
rules and other matters relating to minority and female involvement in the
broadcasting industry; proposals to change rules relating to political
broadcasting; technical and frequency allocation matters; proposals to permit
expanded use of FM translator stations; proposals to restrict or prohibit the
advertising of beer, wine and other alcoholic beverages on radio; changes in
the FCC's cross-interest, multiple ownership and cross-ownership policies;
changes to broadcast technical requirements; delivery by telephone companies
of audio and video programming to the home through existing phone lines;
proposals to limit the tax deductibility of advertising expenses by
advertisers; and proposals to auction the right to use the radio broadcast
spectrum to the highest bidder, instead of granting FCC licenses and
subsequent license renewals.

The FCC is currently considering whether to authorize the use of a new
technology, digital audio broadcasting ("DAB"), to deliver audio programming.
DAB may provide a medium for the delivery by satellite or terrestrial means of
multiple new audio programming formats to local and national audiences. It is
not known precisely how in the future this technology may be used by existing
radio broadcast stations either on existing or alternate broadcasting
frequencies.

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

Forward-Looking Information

Except for the historical information contained in this Form 10-K, certain
items herein, including without limitation certain matters discussed under
Part I, Item 3, "Legal Proceedings" and under Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" (the
"MD&A"), are forward-looking statements. The matters referred to in such
statements could be affected by the risks and uncertainties involved in the
Company's business, including without limitation the effect of economic and
market conditions, the level and volatility of interest rates, the impact of
current or pending legislation and regulation and the other risks and
uncertainties detailed in Part I, Item 1, "Competition" and Federal Regulation
of Radio Broadcasting" and in Part II, Item 7, the MD&A.

Company History

The Company was incorporated in Delaware on February 26, 1992 to acquire
the existing radio station business of Command Communications, Inc.
("Command") and Capstar Communications, Inc. ("Capstar"). The Company acquired
all of the outstanding voting stock of Command ("the Command Acquisition") on
July 2, 1993, and a subsidiary of the Company merged with and into Capstar
(the "Capstar Merger") on October 7, 1993. Following the consummation of these
two transactions, the Company owned and operated or provided programming to
nine FM stations and three AM stations serving the following six markets:
Dallas and Houston, Texas, San Diego, California, Nashville, Tennessee,
Greenville-Spartanburg, South Carolina, and Jackson, Mississippi, and acquired
a group of regional and national radio networks known as the Texas State
Networks ("TSN"). On October 29, 1993 , the Company sold TSN's Spanish
Information Service Network ("SIS") for a total consideration of $1,500,000.
No gain or loss was recognized on the sale.

On October 7, 1993, the Company completed an initial public offering of
3,500,000 shares of its Class A Common Stock at a price of $15 per share (the
"Common Stock Offering") and $80,000,000 aggregate principal amount of its
11-3/8 % Senior Subordinated Notes due 2000 (the "Notes Offering," and
together with the Common Stock Offering, the "Offerings"). The net proceeds to
the Company of the Offerings were used to fund the acquisition of the stations
and to repay existing debt, and the excess was retained for working capital
purposes and potential acquisitions.

On July 5, 1995, the Company completed a public offering of 1,725,000
shares of Class A Common Stock, including the subsequent exercise by the
underwriters of an over-allotment option of 225,000 shares, for $24.50 per
share. The proceeds of the offering were $39,166,000 after underwriting
discounts, commissions and other expenses of the offering. The proceeds were
utilized to repay borrowings under the New Credit Facility of $21,500,000 and
to fund the Dallas Acquisition and to fund a portion of the Charlotte
Acquisition.

<PAGE>

ITEM 2. PROPERTIES.

The Company's corporate headquarters are located in New York City, New
York, and Austin, Texas. The types of properties required to support each of
the Company's radio stations include offices, studios, and transmitter antenna
sites. A station's studios are generally housed with its offices in downtown
or business districts, except for KRLD-AM's studio, which is located in leased
space at the Ballpark in Arlington in the Texas Rangers' baseball stadium. The
transmitter sites are consistent with the station licenses and are generally
located so as to provide maximum market coverage.

The studios and offices of KODA-FM in Houston, Texas, WMSI-FM, WJDS-AM, and
WKTF-FM in Jackson, Mississippi, KJQY-FM and KYXY-FM in San Diego, California
and WSIX-FM and WRVW-FM in Nashville, Tennessee are owned by the Company.
These properties secure the Company's borrowings under the New Credit
Facility. The studios and offices of the other stations, as well as the
Company's corporate headquarters in New York City, New York, and Austin,
Texas, are located in leased facilities with lease terms that expire in
approximately one to eight years. The Company owns or leases all of its
transmitter antenna sites, with lease terms that expire in one to 49 years.
The Company does not anticipate any difficulties in renewing those leases that
expire within the next five years or in leasing other space if required. No
particular interest in real property is material to the Company's overall
operations. Management believes that its properties are in good condition and
are suitable for its operations; however, the Company continually looks for
opportunities to upgrade its properties.

Upon the closing of the Liberty Acquisition and the Exchange, the Company
will also own the studios for (i) WBLI-FM, Long Island, New York; (ii)
WBAB-FM, and WGBB-AM, Long Island, New York; and (iii) WXVR-FM and WQSI-AM,
Washington, D.C. and the transmitter sites for (i) WBAB-FM, WGBB-AM, and
WHFM-FM, Long Island, New York; (ii) WXTR-FM and WQSI-AM, Washington, D.C. The
other facilities used in the operations of these stations have been leased.

Upon the closing of the Prism Acquisition, the Company will also own the
studios for (i) KWFM-FM and KCEE-AM, Tucson, Arizona, and (ii)WKQL-FM,
WIVY-FM, WOKV-AM and WPDQ-AM, Jacksonville, Florida, and the transmitter sites
for (i) KCEE-AM and KNST-AM, Tucson, Arizona (ii) WTFX-FM, WWKY-AM and
WVEZ-FM, Louisville, Kentucky; (iii) WDCG-FM and WZZU-FM, Raleigh, North
Carolina; (iv) KNSS-AM and KRZZ-FM, Wichita, Kansas; (v) WOKV-AM and WPDQ-AM,
Jacksonville, Florida. The other facilities used in the operations of these
stations have been leased.

Upon the closing of the acquisitions of the Swap Stations, the Company will
own the studios and transmitters for KQUE-FM and KNUZ-AM, Houston, Texas.

The Company owns substantially all of the equipment used in its radio
broadcasting business. The Company believes that its properties are in good
condition and suitable for its current and foreseeable operations.

ITEM 3. LEGAL PROCEEDINGS.

On March 13, 1995, a breach of contract and civil RICO suit was filed in
the United States District Court for the Eastern District of Texas by Tricom
Broadcasting, Inc. against 12 defendants, including the Company and R. Steven
Hicks, the Company's President and Chief Executive Officer. The complaint also
named as a defendant Gulfstar, of which Mr. Hicks is the sole voting
shareholder. The complaint sought damages in an unspecified amount against all
defendants. There were no specific allegations against the Company in the
complaint and the Company (and Mr. Hicks as well as Gulfstar and the other
defendants) filed a motion to dismiss the action. On September 11, 1995 the
Court denied the motions to dismiss, but ordered the plaintiff to file an
amended complaint. Plaintiff subsequently filed, or sought leave to file,
several amended complaints, again without specific allegations against the
Company but alleging breach of contract damages against Gulfstar and Mr. Hicks
in the amount of $1.24 million. The Company and the other defendants then
filed new motions to dismiss. On February 12, 1996, the United States
Magistrate Judge to whom the case was assigned concluded that the Company's
motion to dismiss should be granted and that plaintiffs claims against the
Company should be dismissed with prejudice. The recommendation of the United
States Magistrate Judge must now be confirmed by the District Judge and the
Company is awaiting that confirmation. Mr. Hicks filed an application with the
FCC for approval of the transfer of voting control of Gulfstar. Mr. Hicks'
application was granted by the FCC and the transaction awaits consummation.

<PAGE>

In the opinion of management, there are no other material threatened or
pending legal proceedings against the Company or any entity affiliated with
Messrs. Sillerman or Hicks, which, if adversely decided, would have a material
effect on the financial condition or prospects of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of stockholders during the fourth
quarter of fiscal year 1995.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS.

Market Information for Common Stock

The Company's Class A Common Stock has traded on the Nasdaq Stock Market
under the symbol SFXBA since October 7, 1993, the date of the Company's
Offerings. The high and low bid price for the Company's Class A Common Stock
for the years ended December 31, 1995 and 1994 were:

1995 1994
------------------- --------------------
Quarter Ended High Low High Low
- ------------- ------ ----- ------ -----
March 31 26 17 14-3/4 11
June 30 26-1/4 20-1/2 14-3/4 11-1/4
September 30 29-3/4 24-3/4 17-1/4 13
December 31 30-1/4 24 18 15

As of March 28, 1996, there were approximately 33 holders of record of the
Company's 6,458,215 shares of outstanding Class A Common Stock, and three
holders of record of the Company's 1,000,000 shares of outstanding Class B
Common Stock. A number of the Company's record holders represent substantial
numbers of public shareholders whose securities are held in a so-called
"street name." On December 20, 1995, the Company repurchased all 16,784
outstanding shares of its non-voting Class C Common Stock for $27 3/8 per
share.

The Company has not paid any dividends on its Common Stock. The Company
intends to retain future earnings for use in its business and does not
anticipate paying any cash or stock dividends on shares of its Common Stock in
the foreseeable future. In addition, the Company is restricted under the terms
of the indenture relating to the Notes issued in the Notes Offering (the
"Indenture") and New Credit Facility from paying cash dividends on its Common
Stock.

<PAGE>

ITEM 6. SELECTED COMBINED FINANCIAL DATA OF CAPSTAR AND SFX BROADCASTING (1)
<TABLE>
<CAPTION>

Year Ended December 31,
-------------------------------------------------------------------
(dollars in thousands)
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues ............................................... $ 13,442 $ 15,003 $ 34,233 $ 55,556 $ 76,830
Station operating expenses ................................. 9,105 9,624 21,555 33,956 51,039
Depreciation, amortization, and duopoly
integration costs (2)..................................... 3,726 3,208 4,475 5,873 9,137
Corporate, general & administrative expenses ............... 726 769 1,808 2,964 3,797
Corporate, general & administrative expenses
non-recurring charge (3).................................. -- -- 13,980 -- --

Writedown of broadcast rights agreement(4) ................. -- -- -- -- 5,000
---------- ---------- ---------- ---------- ----------
Operating income (loss) .................................... (115) 1,402 (7,585) 12,763 7,857
Investment (income) loss ................................... (17) 121 (650)
Interest expense ........................................... 4,241 3,610 7,351 9,332 12,903
Other income, net .......................................... (124) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) before income taxes and cumulative
effect of a change in accounting principle and
extraordinary item ...................................... (4,232) (2,208) (14,919) 3,310 (4,396)
Income tax expense ......................................... -- -- 1,015 1,474 --
Extraordinary loss on debt retirement ...................... -- -- 1,665 -- --
Cumulative effect of a change in accounting principle ...... -- -- 182 -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) .......................................... (4,232) (2,208) (17,781) 1,836 (4,396)
Redeemable preferred stock dividends(5) .................... 302 385 557 348 291
Net income (loss) applicable to common stockholders ........ $ (4,534) $ (2,593) $ (18,338) $ 1,488 $ (4,687)
========== ========== ========== ========== ==========
Net income (loss) per share ............................... $ (3.85) $ (2.20) $ (7.08) $ 0.26 $ (0.71)
========== ========== ========== ========== ==========
Weighted average common shares outstanding ................. 1,178,570 1,178,570 2,589,285 5,792,385 6,595,728
========== ========== ========== ========== ==========
OTHER OPERATING DATA:
Broadcast Cash Flow (6) .................................... $ 4,337 $ 5,379 $ 12,678 $ 21,600 $ 25,791
EBITDA (6) ................................................. 3,611 4,610 10,870 18,636 21,994
Cash Capital Expenditures .................................. 139 115 569 1,951 3,261
Net cash provided by operating activities ................. 278 1,171 76 1,174 499
Net cash (used in) provided by investing activities ........ 415 (115) (56,568) (6,184) (25,697)
Net cash provided by (used in) financing activities ........ (157) (495) 66,122 (2,083) 33,897
</TABLE>

<PAGE>

As of December 31,
---------------------------------------------------------------------
(dollars in thousands)
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ....................... $ 96 $ 657 $ 10,287 $ 3,194 $ 11,893
Working capital (deficit) ....................... 451 (37,470) 22,088 18,698 20,890
Intangible assets, net .......................... 29,046 27,856 107,290 102,152 129,543
Total assets .................................... 37,367 36,127 152,871 145,808 187,337
Total debt and capital lease obligations ........ 38,828 39,011 81,627 81,516 81,850
Redeemable preferred stock ...................... 2,972 3,892 3,701 2,466 3,285
Shareholders' equity (deficit) .................. (6,951) (9,411) 48,598 48,856 83,061
</TABLE>

(1) The Company's consolidated financial statements tend not to be directly
comparable from period to period due to acquisition activity. The
selected financial data of SFX Broadcasting and predecessors include (i)
the historical financial statements of Capstar (ii) the historical
financial statements of SFX Broadcasting since its formation on February
26, 1992 and (iii) the results of operations of Command, WMYI-FM,
WKTF-FM, WRVW-FM (formerly WYHY-FM), KYXY-FM and KTCK-AM from the date
of their acquisition on July 2, 1993, April 30, 1993, December 28, 1993,
December 4, 1994, April 13, 1995 and September 15, 1995, respectively,
using the purchase method of accounting.

(2) In 1995, costs of $1,380,000, relating to the integration of KYXY-FM and
the reformatting of its duopoly partner were expensed with depreciation
and amortization.

(3) The non cash non-recurring charge related to the valuation of Founders
shares at the offering date and certain pooling costs related to the
Capstar merger.

(4) $5,000,000 special charge with respect to the diminished value of the
Texas Rangers contract.

(5) Includes preferred stock dividends and accretion on Series A, B and C
Redeemable Preferred Stock.

(6) EBITDA is defined as net revenues less station operating expenses and
corporate general and administrative expenses. Broadcast Cash Flow is
defined as EBITDA before corporate, general and administrative expenses.
Although EBITDA and Broadcast Cash Flow are not measures of performance
calculated in accordance with generally accepted accounting principles
("GAAP"), the Company believes that EBITDA and Broadcast Cash Flow are
accepted by the broadcasting industry as generally recognized measures
of performance and are used by analysts who report publicly on the
performance of broadcasting companies. In addition, EBITDA will be the
basis for determining compliance with several covenants in the Indenture
and the New Credit Facility.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

BASIS OF PRESENTATION

General

The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere in this Form 10-K.

The performance of a radio station group, such as the Company, is
customarily measured by its ability to generate Broadcast Cash Flow. Broadcast
Cash Flow is net revenues less station operating expenses. Broadcast Cash
Flow, although not calculated in accordance with GAAP, is widely used in the
broadcasting industry as a measure of the Company's operating performance.
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.

<PAGE>

The primary source of the Company's revenues is the sale of broadcasting
time on its radio stations for advertising. The Company's most significant
station operating expenses are employee salaries and commissions, programming
expenses and advertising and promotional expenditures. The Company strives to
control these expenses by working closely with local station management.

The Company's revenues are primarily affected by the advertising rates its
radio stations charge. The Company's advertising rates are in large part based
on a station's ability to attract audiences in the demographic groups targeted
by its advertisers, as measured principally by Arbitron, the principal radio
ratings service, on a quarterly basis. Because audience ratings in local
markets are crucial to a station's financial success, the Company endeavors to
develop strong listener loyalty. The Company believes that the diversification
of formats on its stations helps it to insulate itself from the effects of
changes in the musical tastes of the public in any particular format.

The number of advertisements that can be broadcast without jeopardizing
listening levels (and the resulting ratings) is limited in part by the format
of a particular station. The Company's stations strive to maximize revenue by
constantly managing the number of commercials available for sale and adjusting
prices based upon local market conditions. In the broadcasting industry, radio
stations often utilize trade (or barter) agreements which exchange advertising
time for goods or services (such as travel or lodging), instead of for cash.
The Company seeks to minimize its use of trade agreements.

The Company's advertising contracts are generally short-term ranging from
two weeks to three months. The Company generates most of its revenue from
local advertising, which is sold primarily by each station's sales staff. In
1995, approximately 78% of the Company's revenues were from local advertising.
To generate national advertising sales, the Company engages independent
advertising sales representatives that specialize in national sales for each
of its stations.

The Company's revenues vary throughout the year. As is typical in the radio
broadcasting industry, the Company's first calendar quarter generally produces
the lowest revenues for the year and the fourth calendar quarter generally
produces the highest revenues for the year. The Company's operating results in
any period may be affected by the incurrence of advertising and promotion
expenses that do not necessarily produce commensurate revenues until the
impact of the advertising and promotion is realized in future periods.

Results of Operations

The Company's consolidated financial statements tend not to be directly
comparable from period to period due to acquisition activity. The Capstar
Merger, which occurred on October 7, 1993, has been reflected as a transaction
among entities under common control (similar to a pooling of interests), and
the historical results of operations of the Company have been restated to
include Capstar's historical results of operations for all periods presented.
The major acquisitions during the three years ended December 31, 1995, all of
which have been accounted for using the purchase method of accounting, were as
follows: (i) in April 1993, Capstar acquired WMYI-FM in
Greenville-Spartanburg, South Carolina, (ii) in July 1993, the Company
acquired the existing radio station business of Command, (iii) in December
1994, the Company acquired WRVW-FM in Nashville, Tennessee, (iv) in April
1995, the Company acquired KYXY-FM in San Diego, California, and (v) in
September 1995, the Company purchased KTCK-AM in Dallas, Texas. The Company
had been providing programming and selling advertising pursuant to an LMA with
KYXYFM since January 18, 1995 and KTCK-AM since March 1, 1995. In addition,
the Company provided programming and sold advertising pursuant to an LMA with
WTDR-FM and WLYT-FM in Charlotte, North Carolina since April 1, 1995.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

For the year ended December 31, 1995, net revenues increased 38.3% to
$76,830,000 from $55,556,000, due to revenue increases at the Houston,
Nashville, Greenville, and Jackson properties and the inclusion of net
revenues of $7,192,000 for KYXY-FM, $4,096,000 for KTCK-AM, and $5,441,000 for
WTDR-FM and WEZC-FM for the portion of the year the Company owned and/or
operated the stations. The revenue increase was partially offset by a slight
decline in revenue in the Dallas market due to the lack of advertiser interest
in baseball broadcasts and a decline in revenue in San Diego due to the
January 1995 reformatting of KMKX-FM. The increase in net revenue from
existing operations was related to strong radio advertising growth averaging
approximately 8% in the Company's markets, combined with improved inventory
management, ratings and other factors generally affecting sales and rates. On
a same station basis, assuming all stations owned and/or operated by the
Company in 1995 had been owned for all

<PAGE>

periods reported, and the Company's San Diego stations attained the same
market revenue share for the entire year as they did in the fourth quarter of
1995, net revenues would have increased 15.4% from 1994 reaching $79,871,000.

Station operating expenses increased 50.3% to $51,039,000 from $33,956,000
primarily due to the inclusion of expenses related to the operations of
KYXY-FM for $4,715,000, KTCK-AM for $3,713,000, and WTDR-FM and WEZC-FM for
$3,454,000 during the portion of the year the Company owned and/or operated
the stations and higher marketing costs in Charlotte, San Diego and
Greenville. Management believes that the increased investment in marketing
during the year has resulted in improved station selling position. On a same
station basis, assuming all stations owned and/or operated by the Company in
1995 had been owned for all periods reported, including certain cost savings
implemented during 1995, station operating expenses would have increased 15.5%
as compared to 1994 and station operating expenses as a percent of net revenue
would have remained constant from 1994.

Depreciation, amortization and duopoly integration costs increased 55.6% to
$9,137,000 from $5,873,000 due to the inclusion of depreciation and
amortization related to the Nashville, San Diego and Dallas acquisitions, and
to costs of $1,380,000 incurred related to the integration of the San Diego
Stations and the reformatting of its duopoly partner, KMKX-FM.

Corporate, general and administrative expenses were $3,797,000 and
$2,964,000 for the twelve months ended December 31, 1995 and 1994,
respectively. Corporate, general and administrative expense as a percentage of
net revenue was 5% for both 1995 and 1994. Included in corporate, general and
administrative expenses is rent expense for the New York office which
increased $155,000 from 1994, as a result of the lease agreement between the
Company and SCMC entered into in May 1994. Costs in excess of the lease
related to the maintenance of the New York office increased by $152,000 in
1995 to $330,000. Additionally, salaries, bonuses and deferred compensation
for the Company's executive officers increased by $538,000 over 1994.

Operating income was $7,857,000 as compared to income of $12,763,000 in
1994. The decrease from the prior year was due primarily to a $5,000,000
pre-tax charge related to the estimated losses on Texas Rangers baseball
broadcast rights. In March of 1996, the Company made its annual rights fee
payment reducing such payment by an amount calculated to reflect the
adjustment provisions contained in the rights agreement with respect to the
major league baseball labor dispute which resulted in the work stoppages
during the 1994 and 1995 major league baseball seasons. The Company has
received notice from the Texas Rangers disputing the adjustment and credits
taken by the Company. There can be no assurance that the Company and the Texas
Rangers will be able to resolve this dispute without judicial intervention,
which could have an impact on the value of the contract.

Interest expense, net of investment income (loss), increased 29.6% to
$12,253,000 primarily due to the inclusion of $2,847,000 in LMA payments in
Charlotte and Dallas representing financing payments to the current owners.
These payments will terminate upon acquisition of the stations but may be
replaced by interest on debt that may be incurred as a result of the
acquisitions. Additionally, borrowings related to the San Diego Acquisition
contributed to the increase. These borrowings were repaid in July 1995 with
the proceeds of the 1995 Stock Offering. During 1995, the Company recorded
investment income of $650,000 compared to $121,000 of net investment losses in
1994. The investment income in 1995 is related to the interest earned on the
excess proceeds of the 1995 Stock Offering.

The Company recorded no income tax expense for the twelve months ended
December 31, 1995 due to a net loss for the year, compared to income tax
expense of $1,474,000 for the twelve months ended December 31, 1994. The
Company has considered prudent and feasible tax planning strategies in
assessing the need for a valuation allowance and has assumed $650,000 of
benefit attributable to such strategies. In event the Company were to
determine in the future that such strategies would not be implemented, an
adjustment to the deferred tax liability would be charged to income in the
period such determination was made.

Net loss was $4,396,000 for the year ended December 31, 1995 compared to
income of $1,836,000 for the same period in 1994 due to the factors discussed
above.

Broadcast Cash Flow increased 19.4% to $25,791,000 for the twelve months
ended December 31, 1995 from $21,600,000 for the twelve months ended December
31, 1994. The increase was a result of growth in Broadcast Cash Flow at all of
the Company's properties except Dallas, Greenville and San Diego and the
inclusion in 1995 of the results of the KYXY-FM, KTCK-AM and WTDR-FM and
WEZC-FM for the portion of the year the company owned and/ or operated the
stations. Management believes that the increased investment in marketing at
the Dallas, Greenville and San Diego properties has resulted in improved
selling position at these properties even though it has adversely

<PAGE>

affected Broadcast Cash Flow. On a same station basis, assuming all stations
owned and/or operated by the Company in 1995 had been owned for all periods
reported, including certain cost savings implemented during 1995, Broadcast
Cash Flow would have increased 15.1% to $27,900,000 from $24,231,000 in 1994.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

The changes described below are primarily attributable to improved
operating results in all of the Company's markets for the twelve months ended
December 31, 1994 and the acquisitions described above.

Net revenue increased 62.3% to $55,556,000 in 1994 from $34,233,000 in 1993
due to revenue increases at the Houston, Nashville, San Diego, Greenville and
Jackson markets and revenue from the acquisitions described above. The
increase in net revenue from existing operations was related to strong radio
advertising growth averaging approximately 12% in the Company's markets
combined with improved inventory management and ratings and other factors
generally affecting sales and rates in all of the Company's stations. On a
same station basis (i.e., assuming that all acquisitions completed prior to
December 31, 1994 had occurred at the beginning of 1993) net revenues
increased by approximately 17.5%.

Station operating expenses increased 57.5% to $33,956,000 in 1994 from
$21,555,000 in 1993 primarily due to the inclusion of expenses related to the
acquisitions described above. However, station operating expenses decreased
1.9% as a percentage of net revenue as compared to 1993 due to improved cost
control and consolidation savings in all of the Company's markets. On a same
station basis, station operating expenses increased 5.6% as compared to 1993
and decreased 6.7% as a percentage of net revenue compared to 1993.

Depreciation and amortization increased 31.2% to $5,873,000 in 1994 from
$4,475,000 in 1993, primarily due to the acquisitions described above.

Corporate, general and administrative expense, excluding non-recurring
charges, increased 63.9% to $2,964,000 in 1994 from $1,808,000 in 1993.
Salaries expense increased $277,000 primarily due to the increased salaries of
certain executive personnel and the salaries for certain additional employees
hired in late 1993 and 1994. Rent for the New York office increased $98,000
due to the new lease agreement the Company entered into in May 1994. Legal and
accounting fees increased $178,000 as a result of the reporting requirements
of being a public company. The Company recorded non-recurring charges of
approximately $13,980,000 in 1993, substantially all of which were non-cash
and related to the valuation of Founders' Stock issued in conjunction with the
September 30, 1993 initial public offering. Approximately $13,480,000 had no
effect on the Company's total stockholders' equity.

Operating income was $12,763,000 in 1994, as compared to a loss of
$7,585,000 in 1993, due to the factors discussed above. Excluding
non-recurring charges, operating income increased 100% from $6,395,000 in
1993.

Interest expense, net of investment income / loss, increased 28.9% to
$9,453,000 in 1994 from $7,334,000 in 1993 due to interest expense related to
Command being included in the Company's operations for only the last six
months of the twelve months ended December 31, 1993. During 1994, the Company
recorded $974,000 of mutual fund losses net of investment income of $853,000
in 1994.

Income tax expense increased 45.2% to $1,474,000 in 1994, from $1,015,000
in 1993. The increase in income tax expense resulted from increased income
offset in part by the nondeductible Founders' Stock charge in 1993.

Based on the foregoing, net income before extraordinary items and the
cumulative effect of accounting changes was $1,836,000 in 1994, compared to a
loss of $15,934,000 in 1993.

The Company recorded an extraordinary loss on the early retirement of debt
of approximately $1,665,000 in 1993. The Company's results of operations for
1993 also include a charge to reflect the cumulative effect of the adoption of
FAS 109 of $182,000. No such charges were incurred in 1994.

As a result, net income in 1994 was $1,836,000 as compared to a net loss of
$17,781,000 in 1993.
22

<PAGE>

Broadcast Cash Flow increased 70.4% to $21,600,000 in 1994 from $12,678,000
in 1993. The increase was a result of related to growth in Broadcast Cash Flow
at all of the Company's properties and the acquisitions described above. On a
same station basis, Broadcast Cash Flow increased 41.3% in 1994 to $21,600,000
from $15,282,000 in 1993.

Liquidity and Capital Resources

Cash provided by operations for the year ended December 31, 1995 was
$499,000 as compared to $1,174,000 in 1994. The decrease in 1995 was primarily
attributable to higher investments in working capital of stations acquired in
1995.

Cash provided by operations for the year ended December 31, 1994 was
$1,174,000 as compared to $76,000 in 1993. The increase in 1994 was primarily
attributable to improvements in the Company's operating results, partially
offset by higher investment in working capital.

The Company used cash in investing activities for the years ended December
31, 1995, and 1994 in the amount of $25,697,000 and $6,184,000, respectively.
The increase in cash used in 1995 is primarily attributable to the purchases
of KYXY-FM in San Diego and KTCK-AM in Dallas and the purchase of property and
equipment, and is partially offset by the sale of short-term investments of
$7,918,000.

The Company used cash in investing activities for the years ended December
31, 1994, and 1993 of $6,184,000, and $56,568,000, respectively. Cash used in
investing activities in 1994 related primarily to the purchase of WRVW-FM in
Nashville and the purchase of property and equipment. In 1993, the purchase of
Command and WMYI-FM in Greenville-Spartanburg, South Carolina, the investment
of the excess proceeds of the Company's September 30, 1993 initial public
offering, and the concurrent Notes Offering accounted for the majority of cash
used in investing activities.

Cash provided by financing activities for the year ended December 31, 1995
was $33,897,000. The Company used cash in financing activities for the year
ended December 31, 1994 of $2,083,000. In 1995, the increase in cash provided
by financing activities related primarily to proceeds of the Company's 1995
Stock Offering. In 1994, cash used in financing activities primarily related
to the redemption of 2,000 shares of the Company's Series A and B Redeemable
Preferred Stock for $1,750,000.

The Company used cash in financing activities for the year ended December
31, 1994 of $2,083,000. Cash provided by financing activities for the year
ended December 31, 1993 was $66,122,000. In 1993, cash provided by financing
activities primarily related to proceeds of the Company's September 30, 1993
initial public offering and the concurrent Notes Offering and net proceeds
from debt agreements offset partially by the redemption of 29,195 shares of
Redeemable Preferred Stock for $4,244,000.

The Company's primary capital requirements have been for capital
expenditures, redemption of Series B Preferred Stock and acquisitions. Capital
expenditures totaled $3,261,000 in 1995, $1,951,000 in 1994, and $569,000 in
1993. Increased spending in 1995 reflects capital costs relating to (i) the
consolidation of the operations of WSIX-FM and WRVW-FM, including a real
estate acquisition, building improvements and the replacement of certain
broadcast equipment, and (ii) leasehold improvements and the replacement of
certain broadcast equipment related to the relocation of KRLD-AM and TSN to
the Ballpark in Arlington. The Company is limited to approximately $1,400,000
of capital expenditures in 1996 by its New Credit Facility.

The Company has made several acquisitions in the last three years,
including the acquisition of (i) WMYI-FM, Greenville-Spartanburg, South
Carolina, in April 1993, (ii) Command in July 1993, (iii) WRVW-FM in
Nashville, Tennessee, in December 1994, (iv) KYXY-FM, San Diego, California in
April 1995, and (v) KTCK-AM, Dallas, Texas in September 1995. The total cash
consideration for these acquisitions amounted to $46,181,000 in 1993,
$4,604,000 in 1994, and $26,057,000 in 1995. The Company financed the
Greenville-Spartanburg and Command acquisitions with the proceeds of the
September 30, 1993 initial public offering and the concurrent Notes Offering.
The acquisition of WRVW-FM in Nashville was financed primarily with cash on
hand and cash provided by operations. The Company completed the KYXY-FM
acquisition with borrowings under the New Credit Facility and KTCK-AM was
purchased primarily with the proceeds from the July 5, 1995 Offering. The
KTCK-FM purchase agreement contains a provision for a contingent payment not
to exceed $7,500,000 payable in 1998 if the Company's Dallas Properties
achieve certain ratings and financial goals. If ratings continue at current
levels, approximately $2,500,000 would be due in April, 1998.

<PAGE>

On February 1, 1996, the Company completed the Charlotte Acquisition for
approximately $24,750,000 with proceeds from the July 5, 1995 Stock Offering
and funds available under the New Credit Facility.

In November 1995, the Company entered into a definitive purchase agreement
to acquire all of the outstanding capital stock of Liberty, a privately owned
operator of nineteen radio stations in seven markets. The purchase price of
the acquisition is $227,750,000, plus the amount equal to Liberty's net
working capital at the closing up to $8,250,000. Pursuant to the Exchange, the
Company will transfer eleven of the stations owned by Liberty to MMR (an
affiliate of Robert F. Sillerman) and in turn will receive ten stations in
what is expected to be substantially a tax-free transaction. Of the Liberty
stations, the Company will retain only the stations in major markets: WXTR-FM,
WXVR-FM and WQSI-AM serving Washington, D.C.; WHFS-FM serving
Baltimore/Washington, D.C.; and WBAB-FM, WHFM-FM, WBLI-FM and WGBB-AM serving
Long Island, New York. The Company will receive the following stations from
MMR: KQUE-FM and KNUZ-AM serving Houston, Texas; WZRX-AM and WSTZ-FM serving
Jackson, Mississippi; WMFR-AM, WMAG-FM, WRDU-FM, WTRG-FM, and WTCK-AM
(formerly WWWB-AM) serving Raleigh and Greensboro, North Carolina; and WROQ-FM
serving Greenville, South Carolina. The Company has posted $300,000 in cash
and $6,750,000 in letters of credit as deposits for the MMR purchases of
KQUE-FM, KNUZ-AM, WZRX-AM, WSTZFM, WMFR-AM, WMAG-FM, WRDU-FM, WTRG-FM, and
WTCK-AM which as stated above will later be transferred to the Company. In
addition, the Company has guaranteed performance of the acquisitions in the
event MMR cannot complete the transaction. The Company expects to finance such
acquisition through the public or private offering of debt and/or equity
securities, although the Company has no commitments or understandings with
respect to such financing. There can be no assurance that the Company will
obtain such financing on commercially reasonable terms, if at all. In the
event that the Exchange is not completed, the Company may be required to
purchase the Swap Stations from MMR for approximately $95 million.

On February 9, 1996 the Company entered into a definitive purchase
agreement to acquire the assets of Prism, a privately owned operator of
sixteen radio stations in five markets, for $105,250,000. The stations to be
acquired are: WTFX-FM, WVEZ-FM, and WWKY-AM serving Louisville, Kentucky;
WKQL-FM, WIVYFM, WPDQ-AM, and WOKV-AM serving Jacksonville, Florida; WZZU-FM
and WDCG-FM serving Raleigh, North Carolina; KWFM-FM, KRQQ-FM, KNST-AM, and
KCEE-AM serving Tucson, Arizona; and KRZZ-FM, KKRD-FM, and KNSS-AM serving
Wichita, Kansas. In accordance with the purchase agreement, the Company has
posted $5,263,000 in an irrevocable letter of credit. If the Prism Acquisition
is not completed, the Company may forfeit its letter of credit of $5,263,000,
respectively. The Company expects to finance such acquisition through the
public or private offering of debt and/or equity securities, although the
Company has no commitments or understandings with respect to such financing.
There can be no assurance that the Company will obtain such financing on
commercially reasonable terms, if at all.

On March 22, 1995, the Company entered into the New Credit Facility.
Pursuant to the New Credit Facility, the Company has available (i) a revolving
credit line of $45,000,000 until September 30, 1996, at which time any
outstanding indebtedness under the revolving line of credit converts to a term
loan which amortizes over three years and three months; and (ii) a working
capital term loan of $5,000,000. After the revolving line of credit converts
into a term loan, the Company will be required to make quarterly repayments of
principal through the date of maturity, thereby reducing the total percentage
of outstanding debt under the Credit Agreement by 7.5% in 1996, 30.5% in 1997,
32% in 1998 and 30% in 1999. All loans made to the Company pursuant to the
working capital term loan portion of the Credit Agreement will mature on
December 31, 1999. The outstanding principal amount under the working capital
portion of the Credit Agreement will be required to be reduced to zero for 30
consecutive days during each 12- month period commencing on March 22, 1995.
This facility replaced the Company's prior credit facility of $7,500,000.
Interest on the funds borrowed under the Credit Agreement will be based upon a
floating rate selected by the Company of either (i) the higher of (a) The Bank
of New York's prime rate or (b) the federal funds rate plus 0.5%; or (ii) the
LIBOR rate, in each case plus the applicable margin which will be based upon
the ratio of Total Debt plus redeemable preferred stock over Operating Cash
Flow (as those terms are defined in the Credit Agreement ) and which may range
from 0.5% to 5.50%. The Company's obligations under the Credit Agreement are
secured by substantially all of its assets, including property, stock of
subsidiaries and accounts receivable, and is guaranteed by the subsidiaries of
the Company.

On October 7, 1993, the Company issued $80,000,000 aggregate principal
amount of the Notes which have a maturity date of October 1, 2000 (the
"Notes"). Interest accrues from October 7, 1993 and is payable semiannually on
each April 1 and October 1 commencing on April 1, 1994. The Notes are senior
subordinated obligations of the Company and are subordinated in the right of
payment to all existing and future senior debt of the Company (including the
New Credit Facility). The Notes are also subordinated to all of the
indebtedness and trade payables of the Company's subsidiaries.

<PAGE>

The holders of the Notes may require the Company to repurchase the Notes in
certain circumstances involving a Change of Control (as defined in the
Indenture) at a purchase price of 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase. A Change of
Control (as defined in the New Credit Facility) would constitute an event of
default under the New Credit Facility, which represents an obligation of the
Company which is senior in right of payment to the Notes, and all amounts
outstanding thereunder, if any, could be accelerated. In addition, the New
Credit Facility prohibits any redemption of the Notes until all amounts
outstanding under the New Credit Facility are repaid in full. There can be no
assurance that the Company would have adequate resources to repay or refinance
the New Credit Facility or the Notes in the event of a Change of Control.

The New Credit Facility and the Indenture contain restrictive covenants
that, among other things, impose restrictions on the Company and its
subsidiaries with respect to (i) the incurrence of additional indebtedness,
(ii) capital expenditures, (iii) dividends or other distributions, (iv)
acquisitions and mergers, (v) the incurrence of additional liens, (vi)
engaging in a business other than the ownership and operation of radio
broadcasting stations, (vii) the disposition of assets, (viii) the redemption
or retirement of capital stock or debt, or investing in persons other than the
Company, (ix) investments, loans and advances, (x) transactions with
affiliates, and (xi) sale-leaseback transactions.

At December 31, 1995, the aggregate contractual maturities of long-term
debt for the years ended December 31, 1996, 1997, 1998, and 1999 are $260,000,
$257,000, $320,000, and $13,000, respectively. The Company had capital lease
obligations of $981,000 as of December 31, 1995. Future minimum payments for
all noncancellable capital leases with initial terms of one or more years for
the years ended December 31, 1996, 1997, 1998 and 1999 are $410,000, $337,000,
$217,000 and $166,000, respectively. The Company is also required to make
annual payments of $1,000,000 in 1996 and 1997 to redeem its Series B
Redeemable Preferred Stock. The Company believes it will be able to make these
payments, together with capital expenditures and principal amortization
payments under the New Credit Agreement, through funds generated from its
operations. If the funds generated from the Company's operations are
insufficient to meet its required payments, the Company will explore other
available financing alternatives.

The Company expects that any additional acquisitions of radio stations will
be financed through funds generated from operations, cash on hand, funds
available under the Credit Agreement and additional debt or equity financing.
The availability of additional acquisition financing cannot be assured, and
depending on the terms of the proposed acquisition financing, could be
restricted by the New Credit Facility and/or the debt incurrence test under
the Indenture.

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY

INDEX TO FINANCIAL STATEMENTS

PAGE
Report of Independent Auditors........................................... 28

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 1995 and 1994 ......... 29

Consolidated Statements of Operations for each
of the Three Years in the Period Ended December 31, 1995 ............. 31

Consolidated Statements of Shareholders' Equity (Deficiency) for
each of the Three Years in the Period Ended December 31, 1995 ........ 32

Consolidated Statements of Cash Flows for each of the
Three Years in the Period Ended December 31, 1995..................... 33

Notes to Consolidated Financial Statements............................ 34

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
SFX Broadcasting, Inc.

We have audited the accompanying consolidated balance sheets of SFX
Broadcasting, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity
(deficiency), and cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 SFX Broadcasting, Inc. and Subsidiaries at December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

ERNST & YOUNG LLP

New York, New York
February 20, 1996, except for the fourth paragraph
of Note 14 as to which the date is March 19, 1996

<PAGE>

SFX BROADCASTING, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands)

<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
--------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................................. $ 11,893 $ 3,194
Short term investments available for sale (Note 4) .................... -- 7,817
Accounts receivable less allowance for doubtful accounts of $922 in
1995 and $661 in 1994 ............................................... 18,034 11,975
Prepaid broadcast rights and other current assets ..................... 2,578 5,381
---------- ----------
Total current assets ............................................ 32,505 28,367
---------- ----------

Property and Equipment:
Land .................................................................. 3,179 2,155
Buildings and improvements ............................................ 6,265 3,648
Equipment and furniture ............................................... 12,597 10,374
Equipment recorded under capital leases ............................... 1,496 747
---------- ----------
23,537 16,924
Less accumulated depreciation and amortization ........................ (6,770) (4,312)
---------- ----------
Net property and equipment ........................................ 16,767 12,612

Intangible Assets:
Broadcast licenses .................................................... 118,724 89,338
Goodwill .............................................................. 11,209 11,209
Deferred financing costs .............................................. 8,391 6,489
Other ................................................................. 4,719 3,722
---------- ----------
143,043 110,758
Less accumulated amortization ......................................... (13,500) (8,606)
---------- ----------
Net intangible assets ............................................. 129,543 102,152

Deposit on station acquisition. ....................................... 3,000 --
Notes receivable from related parties (Note 10) ....................... 4,439 2,148
Other assets .......................................................... 1,083 529
---------- ----------

TOTAL ASSETS .......................................................... $187,337 $145,808
========== ==========
</TABLE>
See accompanying notes

<PAGE>

SFX BROADCASTING, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands)

December 31,
---------------------------------
1995 1994
------ ------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................................ $ 4,005 $ 3,138
Accrued expenses ............................................................ 4,736 2,664
Accrued interest ............................................................ 2,303 2,297
Accrued stock acquisition cost (Note 7)..... ................................ -- 1,150
Current portion of capital lease obligations (Note 11) ...................... 311 171
Current portion of debt (Note 5) ............................................ 260 249
------------- ------------
Total current liabilities ............................................. 11,615 9,669

Deferred income taxes payable (Note 8)...... ................................ 7,415 2,506
Capital lease obligations, less current portion (Note 11) ................... 670 291
Debt, less current portion (Note 5) ......................................... 609 805
Subordinated notes (Note 5) ................................................. 80,000 80,000
Other liabilities ........................................................... 682 1,215
------------- ------------
Total liabilities ..................................................... 100,991 94,486

Redeemable preferred stock (Note 6) ......................................... 3,285 2,466

Commitments and contingencies (Note 11)

Shareholders' Equity (Note 7):
Class A Voting common stock, $.01 par value; 10,000,000 shares authorized;
6,458,215 issued and outstanding in 1995 and 4,806,481 in 1994 .......... 64 48
Class B Voting convertible common stock, $.01 par value; 1,000,000 shares
authorized; 1,000,000 issued and outstanding in 1995 and 926,734 in 1994.. 10 9
Class C Non-voting convertible common stock, $.01 par value;
1,200,000 shares authorized; 0 issued and outstanding at
December 31,1995 and 16,784 in 1994. ..................................... -- --
Additional paid-in capital .................................................. 115,184 76,785
Unrealized holding losses on short term investments ......................... -- (185)
Accumulated deficit ......................................................... (32,197) (27,801)
------------- ------------
Total shareholders' equity ............................................ 83,061 48,856
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.. ................................ $187,337 $145,808
============= ============
</TABLE>

See accompanying notes

<PAGE>

SFX BROADCASTING, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Gross revenues.............................................................. $ 87,140 $ 63,116 $ 38,701
Less agency commissions .................................................... (10,310) (7,560) (4,468)
-------------- -------------- -------------
Net revenues............................................................ 76,830 55,556 34,233

Station operating expenses ................................................. 51,039 33,956 21,555
Depreciation, amortization and duopoly integration costs (Notes 2 and 3) ... 9,137 5,873 4,475
Corporate expenses including related party expenses of $330 in 1995, $178 in
1994 and $442 in 1993 (Note 10) .......................................... 3,797 2,964 1,808
Corporate expenses - nonrecurring charge including related party expenses of
$500 in 1993 (Notes 7 and 10) ............................................ -- -- 13,980
Write down of broadcast rights agreement (Note 9) ......................... 5,000 -- --
-------------- -------------- -------------
Total operating expenses ............................................... 68,973 42,793 41,818
-------------- -------------- -------------

Operating income (loss) .................................................. 7,857 12,763 (7,585)
Investment (income) loss ................................................... (650) 121 (17)
Interest expense ........................................................... 12,903 9,332 7,351
-------------- -------------- -------------
(Loss) income before income taxes, extraordinary item and cumulative effect
of change in accounting principle ........................................ (4,396) 3,310 (14,919)
Income tax expense (Note 8) ................................................ -- 1,474 1,015
-------------- -------------- -------------
(Loss) income before extraordinary item and cumulative effect of change in
accounting principle ..................................................... (4,396) 1,836 (15,934)
Extraordinary loss on debt retirement (Note 2) ............................. -- -- 1,665
Cumulative effect of a change in accounting principle ...................... -- -- 182
-------------- -------------- -------------
Net (loss) income ...................................................... (4,396) 1,836 (17,781)

Redeemable preferred stock dividends and accretion ......................... 291 348 557
-------------- -------------- -------------

Net (loss) income applicable to common stock ........................... $ (4,687) $ 88 $ (18,338)
============== ============== =============
Net (loss) income per common share before extraordinary item and cumulative
effect of a change in accounting principle ............................... $ (0.71) $ 0.26 $ (6.37)
Extraordinary loss on debt retirement per common share ..................... -- -- (.64)
Cumulative effect of change in accounting principle per common share ....... -- -- (.07)
-------------- -------------- -------------
Net (loss) income per common share ..................................... (0.71) 0.26 (7.08)
============== ============== =============

Weighted average common shares outstanding ................................. 6,595,728 5,792,385 2,589,285
============== ============== =============
</TABLE>

See accompanying notes

<PAGE>

SFX BROADCASTING, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Deficiency)
Years Ended December 31, 1993, 1994, and 1995
(dollars in thousands)

<TABLE>
<CAPTION>
Unrealized
holding losses
Class A Class B Class C Paid in on short term Accumulated
Common Common Common Capital investments Deficit Total
------ ------ ------ ------- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 ................ $ 2 $ 9 $ 2,434 $ (11,856) $ (9,411)
Undeclared dividends in arrears on
Capstar Communications, Inc.
Class A Redeemable Preferred Stock ...... (352) (352)

Extinguishment of note payable to Hicks
Broadcast Partners of Tennessee, L.P.
(Note 1) ................................ 500 500
Issuance of common stock (Note 6):
Command Purchase ......................... 11 15,955 15,966
Initial public offering, net of expenses . 35 46,366 46,401
Founders' stock ......................... 13,480 13,480
Accretion of dividends on redeemable
preferred stock ......................... (205) (205)
Net loss .................................. (17,781) (17,781)
---- ---- ----- --------- ------- --------- ---------
Balance, December 31, 1993 ................ $37 $ 9 $ 11 $ 78,178 $ -- $(29,637) $ 48,598
==== ==== ===== ========= ======= ========= =========
Accretion of dividends on redeemable
preferred stock ........................ (348) (348)
Conversion of Class C Common including
fees and expenses (Note 7) ............. 11 (11) (1,150) (1,150)
Reduction of equity issuance costs ........ 105 105
Unrealized holding losses on short
term investments ....................... (185) (185)
Net income ................................ 1,836 1,836
---- ---- ----- --------- ------- --------- ---------
Balance, December 31, 1994 ................ $48 $ 9 -- $ 76,785 $ (185) $(27,801) $48,856
==== ==== ===== ========= ======= ========= =========
Public offering, net of expenses .......... 17 39,149 39,166
Redemption of Class C Common Stock
(Note 7) ................................ (459) (459)
Accretion of dividends on redeemable
preferred stock ......................... (291) (291)
Conversion of Class A Common to
Class B Common (Note 7) ................. (1) 1 --
Decrease in unrealized holding losses ..... 185 185
Net loss .................................. (4,396) 4,396)
---- ---- ----- --------- ------- --------- ---------
Balance, December 31, 1995 ................ $64 $10 $ -- $115,184 $ -- $(32,197) $ 83,061
==== ==== ===== ========= ======= ========= =========
</TABLE>

See accompanying notes

<PAGE>

SFX BROADCASTING, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(dollars in thousands)

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Operating Activities:
Net (loss) income ..................................................................... $(4,396) $ 1,836 $(17,781)
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Extraordinary loss on debt retirement ............................................... -- -- 1,665
Cumulative effect of accounting change .............................................. -- -- 182
Depreciation and amortization ....................................................... 7,757 5,873 4,475
Interest on note receivable from related parties .................................... (291) (148) --
Loss on sale of investments ......................................................... 84 974 --
Deferred tax expense ................................................................ -- 1,309 1,015
Founders stock charge ............................................................... -- -- 13,480
Changes in assets and liabilities:
Increase in accounts receivable ..................................................... (5,164) (1,362) (662)
Decrease (increase) in prepaid broadcast rights and other assets .................... 2,052 (4,476) 5
Increase (decrease) in accrued interest payable ..................................... 6 (47) 1,177
Increase (decrease) in accounts payable, accrued expenses and other liabilities ..... 451 (2,785) (3,480)
------- ------- -------
Net cash provided by operating activities ........................................... 499 1,174 76
Investing activities:
Purchase of stations, net of cash acquired .......................................... (26,057) (4,604) (46,181)
Issuance of related party note receivable ........................................... (2,000) -- (2,000)
Deposit on station acquisition ...................................................... (3,000) -- --
Purchase of property and equipment .................................................. (3,261) (1,951) (569)
Purchase of short term investments .................................................. -- (3,019) (9,347)
Proceeds from sale of short term investments ........................................ 7,918 3,390 --
Proceeds from sale of assets ........................................................ 703 -- 1,529
------- ------- -------
Net cash used in investing activities .............................................. (25,697) (6,184) (56,568)
Financing activities:
Payments on senior loans and capital lease obligations .............................. (22,521) (333) (52,972)
Additions to debt issuance costs .................................................... (2,139) -- (6,489)
Proceeds from senior loans and subordinated debt .................................... 22,000 -- 83,426
Issuance of common stock ............................................................ 39,166 -- 46,401
Redemption of preferred stock ....................................................... (1,000) (1,750) (4,244)
Retirement of Class C Common Stock .................................................. (459) -- --
Decrease in accrued stock acquisition costs ......................................... (1,150) -- --
------- ------- -------
Net cash provided by (used in) financing activities ................................. 33,897 (2,083) 66,122
Net (decrease) increase in cash and cash equivalents .................................. 8,699 (7,093) 9,630
Cash and cash equivalents at beginning of period ...................................... 3,194 10,287 657
------- ------- -------
Cash and cash equivalents at end of period ............................................ $11,893 $ 3,194 $10,287
======= ======= =======
</TABLE>
See accompanying notes

<PAGE>

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

SFX Broadcasting, Inc. (the "Company") was incorporated in Delaware on
February 26, 1992 for the purpose of owning and operating commercial radio
stations. On December 31, 1995, the Company owned and operated or provided
programming to and sold advertising on eleven FM stations and four AM stations
serving the following seven markets: Dallas and Houston, Texas; San Diego,
California; Nashville, Tennessee; Charlotte, North Carolina;
Greenville-Spartanburg, South Carolina; and Jackson, Mississippi. The Company
also owns a group of regional and national radio networks known as the Texas
State Networks ("TSN").

The Company acquired all the outstanding voting stock of Command
Communications, Inc. ("Command") (the "Command Acquisition") on July 2, 1993,
and a subsidiary of the Company merged with and into Capstar Communications,
Inc. ("Capstar") (the "Capstar Merger") on October 7, 1993, concurrently with
the completion of the Company's initial public offering of 3,500,000 shares of
its Class A Common Stock at a price of $15 per share (the "Initial Public
Offering") and $80,000,000 aggregate principal amount of 11-3/8% Senior
Subordinated Notes due 2000 (the "Notes Offering," and together with the
Initial Public Offering, the "Offerings").

Capstar, Inc., an entity controlled by the President and Chief Executive
Officer of the Company, managed the business affairs of Capstar through
October 7, 1993. Sillerman Communications Management Corporation ("SCMC"), an
entity controlled by the Company's Executive Chairman and majority
shareholder, consulted with Capstar and Command on certain financial matters
and provided various services through October 7, 1993.

The Capstar Merger has been reflected as a transaction among entities under
common control (similar to a pooling of interests), and the historical
financial statements of the Company have been restated to include Capstar's
historical financial position and results of operations for all periods
presented.

In connection with the Command Acquisition, (a) the Company paid the holder
of the outstanding voting stock of Command $1,750,000 in cash and issued 1,000
shares of the Company's Series A Redeemable Preferred Stock with an aggregate
liquidation preference of $1,000,000 (present value at July 2, 1993 of
$865,000) upon the completion of the Offerings and (b) entered into agreements
with certain debt holders and shareholders of Command whereby upon the
completion of the Offerings: (i) the holders of Command's senior
subordinated notes exchanged their notes for $18,000,000 in cash, 4,000 shares
of the Company's Series B Redeemable Preferred Stock with an aggregate
liquidation preference of $4,000,000 (present value at July 2, 1993 of
$2,631,000) and 1,071,429 shares of the Company's Class C Common Stock with a
value of $15,966,000 at the date of the Offerings; (ii) the holders of certain
of Command's junior subordinated notes and SCMC canceled their claims for no
consideration; (iii) the holder of certain of Command's junior subordinated
notes canceled such notes in exchange for the transfer, by SCMC, of common
stock of the Company; and, (iv) the holders of Command's non-voting common
stock and other equity securities canceled their claims for no consideration.
For purposes of preparing the accompanying consolidated financial statements,
the Company has accounted for the exchange and cancellation of indebtedness
and equity securities, including the issuance of the Company's Class C Common
Stock and Series A and Series B Redeemable Preferred Stock, as if they had
occurred on July 2, 1993. Further, the Company has recorded imputed interest
expense from July 2, 1993, on the $18,000,000 cash payment paid to the holder
of Command's senior subordinated notes upon the closing of the Offerings on
October 7, 1993.

NOTE 2 - ACQUISITIONS

In September 1995, the Company acquired the assets of KTCK-AM in Dallas,
Texas (the "Dallas Acquisition") from a third party for $8,633,000 in cash
(including $133,000 in transaction costs) and $2,000,000 of 6% current coupon
Series C redeemable preferred stock (see Note 6). The purchase agreement
contains a provision for a contingent payment not to exceed $7,500,000 payable
in 1998 if the Company's Dallas Properties achieve certain ratings and
financial goals. If ratings continue at current levels, approximately
$2,500,000 would be due in April 1998. As of December 31, 1995, the Company
has not accrued any amounts relating to this contingency as the Company's
policy is to accrue purchase contingencies at the measurement date. The
Company had provided programming to KTCK-AM pursuant to a local marketing
agreement ("LMA") since March 1, 1995.

In April 1995, the Company acquired all of the outstanding stock of Parker
Broadcasting Company ("Parker"), the owner and licensee of radio station
KYXY-FM in San Diego, California (the "San Diego Acquisition"), for

<PAGE>

approximately $17,424,000 (including transaction costs of $831,000 of which
$175,000 was paid to SCMC for providing or paying for legal services necessary
in negotiating and documenting the transaction), including a $650,000 three
year covenant not to compete with the former owners and an office building to
serve as the offices and studios for both KYXY-FM and KMKX-FM (formerly
KJQY-FM). In addition, costs of $1,380,000 related to the integration of
KYXY-FM and reformatting of its duopoly partner, KMKX-FM, were included in
depreciation and amortization expense. The Company had provided programming to
and sold advertising on behalf of KYXY-FM pursuant to an LMA since January 18,
1995.

In December 1994, the Company purchased for cash substantially all of the
assets and assumed certain liabilities of WRVW-FM (formerly WYHY-FM) located
in Nashville, Tennessee, from Legacy Broadcasting Partners of Nashville, L.P.
("Legacy"). The purchase price was approximately $4,604,000 including
transaction costs of $850,000 of which $550,000 was paid to SCMC, a principal
shareholder of Legacy. None of the purchase price was paid to SCMC.

In April 1993, the Company purchased substantially all of the assets and
assumed certain liabilities of WMYI-FM, a radio station located in
Greenville-Spartanburg, South Carolina, from an unrelated third party. The
purchase price was approximately $9,400,000 plus transaction costs of
approximately $500,000 and a loan proposal and commitment fee of $600,000 were
funded with a loan from a company affiliated with Hicks, Muse & Co.,
Incorporated, an investment banking firm in which a brother of the Company's
President and a director of Capstar since its formation is a principal. In
addition, the Company borrowed $1,500,000 under the loan to purchase the Hicks
Broadcasting Partners of Tennessee L.P. note payable. The $500,000 difference
between the face amount of the note and the amount paid was recorded as
additional paid-in capital as the note was due to a related party. In
connection with the repayment of the loan in October 1993, the Company paid a
$686,000 prepayment penalty and wrote off unamortized deferred financing costs
of $495,000. These amounts have been included in the extraordinary loss on
debt retirement on the accompanying statement of operations.

In December 1993, the Company purchased substantially all the assets of
WKTF-FM in Jackson, Mississippi from an unrelated third party. The purchase
price of approximately $1,157,000 was funded with a loan from the seller.

For financial statement purposes, the acquisitions were accounted for using
the purchase method, with the aggregate purchase price allocated to the
tangible and identifiable intangible assets based upon current estimated fair
market values. The allocation resulted in an excess of costs over estimated
fair value of identifiable net assets acquired of approximately $61,752,000,
$7,796,000, $457,000, $3,702,000, $21,136,000, and $9,250,000 for Command,
WMYI-FM, WKTF-FM, WRVW-FM, KYXY-FM, and KTCK-AM, respectively. The excess cost
of Command was increased by approximately $1,286,000 in 1994 due to the
resolution of certain preacquisition contingencies, primarily related to the
adjustment to the valuation of property acquired at KODA-FM and the settlement
of certain legal matters. The assets and liabilities of Command, WMYI-FM,
WKTF-FM, WRVW-FM, KYXY-FM, and KTCK-AM and the results of their operations for
the period from the date of acquisition have been included in the accompanying
consolidated financial statements.

The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition of Command had occurred at the beginning
of 1993, after giving effect to certain adjustments, including amortization of
goodwill and interest expense on the acquisition debt. These pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisition been made as of
that date or of results which may occur in the future.

<PAGE>

Pro forma
Year Ended December 31,
1993
----------
(Unaudited)
Net revenues..................................... $ 47,435
==========
Loss before extraordinary item and cumulative
effect of change in accounting principal ...... $ (2,123)
==========
Net loss......................................... $ (2,123)
==========
Net loss applicable to common stock.............. $ (2,546)
==========
Net loss per common share........................ $ (.44)
==========
Weighted average common shares outstanding ...... 5,749,999

The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition of KTCK-AM and KYXY-FM had occurred at the
beginning of 1994, after giving effect to certain adjustments, including
amortization of goodwill and the accretion of dividends on preferred stock.
These pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of what would have occurred had the
acquisition been made as of that date or of results which may occur in the
future.

Pro forma
Year Ended December 31,
1994
----------
(Unaudited)
Net revenues......................................... $ 62,323
==========
Net income before extraordinary item and cumulative
effect of change in accounting principal .......... $ 2,332
==========
Net income .......................................... $ 1,283
==========
Net income applicable to common stock................ $ 707
==========
Net income per common share.......................... $ .12
==========
Weighted average common shares outstanding .......... 5,792,385

Pro forma results for 1995 have not been presented for the KTCK-AM or
KYXY-FM acquisitions, as they would not be materially different from the
Company's operations.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

All highly liquid investments with an original maturity of less than three
months are classified as cash equivalents. The carrying amounts of cash and
cash equivalents reported in the balance sheet approximate its fair value.

Short-term investments

Available - for - sale securities are investments in mutual funds and are
carried at fair value, with the unrealized gains and losses, reported in a
separate component of shareholders' equity. Realized gains and losses and
declines in value judged to be other than temporary on available - for sale
securities are included in investment income or loss. The cost of securities
sold is based on the specific identification method. Interest and dividends on
securities classified as available - for sale are included in investment
income.

Property and Equipment

<PAGE>

Property and equipment are stated at cost. Depreciation and amortization is
provided on the straight-line method over the estimated useful lives of the
assets as follows:

Buildings and improvements............... 7-20 years
Equipment and furniture.................. 5-7 years

Leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets. Amortization of assets recorded under
capital leases is included in depreciation expense.

Amortization of Intangible Assets

Broadcast licenses and goodwill are amortized using the straight-line
method over 40 years. Other intangible assets are being amortized using the
straight-line method over their estimated remaining useful lives from 2 to 40
years. Debt issuance costs and discounts are being amortized by the interest
method over the life of the respective debt.

The carrying values of intangible assets are reviewed if the facts and
circumstances suggest that they may be impaired. If this review indicates the
intangible assets will not be recoverable as determined based on the
undiscounted cash flows of the Company over the remaining amortization period,
the Company's carrying value of the intangible assets will be reduced by the
estimated shortfall of cash flows. In 1995, the Financial Accounting Standards
Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets" which the Company will be required to adopt in 1996. The impact of the
adoption of this statement is not expected to be material to the consolidated
financial statements.

Barter Transactions

The Company barters unsold advertising time for products and services. Such
transactions are recorded at the estimated fair value of the products or
services received. Barter revenue is recorded when commercials are broadcast
and related expenses are recorded when the bartered product or service is
used. For the years ended December 31, 1993, 1994 and 1995, the Company
recorded barter revenue of $1,973,000, $2,905,000, and $4,961,000
respectively, and expenses of $1,816,000, $2,738,000, and $4,811,000
respectively.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Local Marketing Agreements / Joint Sales Agreements

From time to time, the Company enters into LMAs and joint sales agreements
("JSAs"), with respect to broadcast properties it intends to acquire. Terms of
the agreements generally require the Company to pay a monthly fee in exchange
for the right to provide station programming and sell related advertising time
in the case of an LMA or sell advertising in the case of a JSA. The agreements
terminate upon the acquisition of the property. The fees are expensed as
incurred. The Company classifies the fees as interest expense to the extent
interest is imputed based on the purchase price of the broadcast property.

Adverting Costs

Advertising costs are expensed as incurred and approximated $3,336,000 and
$1,828,000 in 1995 and 1994, respectively.

Per Share Data

Income (loss) per common share is based on income (losses) for the period
divided by the weighted average number of shares of common stock outstanding
plus common share equivalents (in periods in which they have a dilutive
effect) determined using the treasury stock method.

<PAGE>

Federal Income Taxes

The Company and its subsidiaries report Federal income taxes using the
liability method in accordance with Statement of Financial Accounting
Standards No. 109.

Concentration of Credit Risk

The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast
areas in Tennessee, South Carolina, North Carolina, Texas, Mississippi, and
California. Credit is extended based on an evaluation of the customers
financial condition, and generally collateral is not required. Credit losses
are provided for in the financial statements and consistently have been within
management's expectations.

Reclassification

Certain amounts in 1993 and 1994 have been reclassified to conform to the
1995 presentation.

NOTE 4 - SHORT TERM INVESTMENTS

At December 31, 1994, available-for-sale securities consisted of
investments in mutual funds which held the following securities (in
thousands):
Gross
Unrealized Estimated
Cost Losses Fair Value
------ ------ ----------
December 31, 1994
US Corporate Debt Securities
due in approximately one year.... $1,185 $ -- $1,185

US Corporate Debt Securities
due between seven and ten years.. 3,772 89 3,683

US Government Debt Securities
due between seven and nine years. 3,045 96 2,949
------- ----- -------
$8,002 $185 $7,817
======= ===== =======

The Company recognized investment income (loss) of $650,000, ($121,000) and
$17,000 for the years ended 1995, 1994 and 1993, respectively. The investment
loss for 1994 includes a charge of $491,000 in the fourth quarter related to
the permanent decline of certain short-term investments available - for sale
at December 31, 1994.

<PAGE>

NOTE 5 - DEBT AND SUBORDINATED NOTES

Debt consists of the following at December 31, 1995 and 1994 (in thousands):

1995 1994
---- ----
Promissory notes; interest at 9.25%, 10%, and
10.55% payable in monthly installments, maturing
in 1997, 1998 and 2001, collateralized by certain
assets with a book value of $1,123 at December 31, 1995 .. $ 869 $1,054

Less current portion ....................................... (260) (249)
====== =======
$ 609 $ 805
====== =======

The aggregate contractual maturities of long-term debt for the years ending
December 31 are as follows: 1996 - $260,000; 1997 - $257,000; 1998 - $320,000;
1999 - $13,000; 2000 - $14,000; thereafter $5,000.

In October 1993, the Company issued $80,000,000 in Senior Subordinated
Notes. The Company incurred issuance costs of approximately $6,249,000 that
were recorded as deferred financing costs. The Senior Subordinated Notes bear
interest, payable semiannually, at 11-3/8 % and are due October 2000. The
notes are unsecured obligations and are subordinate to all senior debt of the
Company.

The Company paid interest of $6,094,000, $9,464,000 and $12,903,000 for the
years ended December 31, 1993, 1994 and 1995, respectively. Included in the
1995 interest expense is $2,524,000 and $323,000 related to the LMA fees
associated with the Charlotte and Dallas Acquisitions, respectively. The total
of interest expense and amortization of deferred financing costs is
$7,903,000, $10,507,000 and $14,166,000 for the years ended December 31, 1993,
1994 and 1995, respectively.

On March 22, 1995, the Company entered into an amended $50,000,000 senior
credit facility ("New Credit Facility") pursuant to which it has available (i)
a revolving line of $45,000,000 until September 30, 1996, at which time any
outstanding indebtedness under the revolving line of credit converts to a term
loan which amortizes over three years and three months; and (ii) a working
capital term loan of $5,000,000. After the revolving line of credit converts
into a term loan, the Company will be required to make quarterly repayments of
principal through the date of maturity, thereby reducing the total percentage
of outstanding debt under the New Credit Facility by 7.5% in 1996, 30.5% in
1997, 32% in 1998 and 30% in 1999. All loans made to the Company pursuant to
the working capital term loan portion of the New Credit Facility will mature
on December 31, 1999. The outstanding principal amount under the working
capital portion of the New Credit Facility will be required to be reduced to
zero for 30 consecutive days during each 12-month period commencing on March
22, 1995. This facility replaced the prior credit facility of $7,500,000.
Interest on the funds borrowed under the New Credit Facility will be based
upon a floating rate selected by the Company of either (i) the higher of (a)
The Bank of New York's prime rate or (b) the federal funds rate plus 0.5%; or
(ii) the LIBOR rate, in each case plus the applicable margin which will be
based upon the ratio of Total Debt plus redeemable preferred stock over
Operating Cash Flow (as those terms are defined in the New Credit Facility )
and which may range from 0.5% to 5.50%. The Company's obligations under the
New Credit Facility are secured by substantially all of its assets, including
property, stock of subsidiaries and accounts receivable, and is guaranteed by
the subsidiaries of the Company. In 1994, the Company paid $100,000 to SCMC
for legal services necessary in connection with establishing the New Credit
Facility.

<PAGE>

NOTE 6 - REDEEMABLE PREFERRED STOCK
1995 1994
---- ----
Preferred Stock of the Company,
$.01 par value, 10,012,000 shares authorized:

Series B Redeemable, 3,000 and 2,000 shares
issued and outstanding in 1994 and 1995,
respectively, includes accreted dividends
of $348 in 1994 and $269 in 1995 ............ $1,735 $2,466

Series C Redeemable, 2,000 shares issued and
outstanding in 1995, includes accreted
dividends of $22 in 1995 .................... 1,550 --
------- -------
$3,285 $2,466
======= =======

The shares of Series A Redeemable Preferred Stock were redeemed in October
1994 at the liquidation value of $1,000 per share.

The shares of Series B Redeemable Preferred Stock are non-voting, not
entitled to receive dividends and are required to be redeemed in equal amounts
of 1,000 shares in October 1996 and 1997 at the liquidation value of $1,000
per share. In January 1994, the Company repurchased the 1,000 shares of Series
B Redeemable Preferred Stock due October 1998 for $750,000. The Series B
Redeemable Preferred Stock ranks senior to the Company's common stock as to
dividends and liquidation rights.

The shares of Series C Redeemable Preferred Stock receive cumulative
dividends equal to six percent per annum paid by the Company in arrears on a
quarterly basis. The shares are non-voting and are redeemable by the Company
after September 15, 1998 or by the seller after September 15, 2000, at the
liquidation value of $1,000 per share. The Series C Redeemable Preferred Stock
ranks senior to other preferred stock and to the Company's common stock as to
dividends and liquidation rights.

NOTE 7 - SHAREHOLDERS' EQUITY

COMMON STOCK

In November 1992, 105,404 shares of Class A Common Stock and 893,166 shares
of Class B Common Stock (collectively "Founders' Stock") were issued to
related parties in consideration of their efforts in organizing and
structuring the Company. The Company has recorded a non-recurring, non-cash
charge in the amount of $13,480,000 reflecting the fair value of the Founders'
Stock at the date of the Initial Public Offering in the accompanying statement
of operations.

Effective with the Initial Public Offering, Capstar was merged into the
Company. In connection with the merger, 76,315 shares of Class A Common Stock,
33,568 shares of Class B Common Stock, and 16,784 shares of Class C Common
Stock were issued in exchange for all outstanding common stock of Capstar and
53,333 shares of Class A Common Stock were issued in exchange for all
outstanding Series A Preferred Stock of Capstar.

The holders of Class A Common Stock are entitled to one vote per share and
the holders of Class B Common Stock are entitled to ten votes per share on all
matters to be voted on by stockholders, except (i) for the election of
directors, (ii) with respect to any "going private" transaction between the
Company and its Chairman, or any of his affiliates, and (iii) as otherwise
provided by law. In November 1994, the Board of Directors approved the
conversion of 73,266 shares of Class A Common Stock held by the Chairman and
the President of the Company to Class B Common Stock. The conversion occurred
on May 5, 1995. The holders of Class A and Class B Common Stock share ratably
in all dividends and other distributions. At December 31, 1995, 1,000,000
shares of Class A Common Stock, authorized but unissued,

<PAGE>

are reserved for conversion of the Class B Common Stock. Shares of the
Company's Class B Common Stock convert on a share per share basis into the
same number of Class A Common Stock under certain circumstances.

In December 1994, pursuant to a transfer, 1,071,429 shares of Class C stock
held by an affiliate of the Company were converted into Class A Common Stock.
In connection with this conversion, the Company agreed to pay SCMC a
$1,000,000 fee based upon: (i) SCMC's negotiation of the transfer on behalf of
the Company; (ii) SCMC's surrender of certain contractual rights and economic
interests with respect to the transferred stock, which would otherwise block
the stock transfer; (iii) the restatement, including significant favorable
adjustments, of the registration rights agreement pursuant to which the
transferred stock were originally issued; (iv) the obtaining the rights of
first refusal with respect to subsequent transfers of the stock; (v) the
Company's belief that the transfer will have a favorable effect on the market
of the Company's Class A Common Stock and (vi) SCMC's assumption of certain
legal costs of the transaction. The Company's Board of Directors may consider
additional fees in the event that actual benefits to the Company from this
transaction warrant additional compensation. This transaction was the subject
of a Fairness Opinion from an independent investment banking firm. The Company
has charged paid-in capital $1,150,000 for the $1,000,000 fee and legal,
accounting, and valuation services of $150,000 related to this transaction.

In December 1995, 16,784 shares of non-voting Class C Common Stock were
repurchased for $459,000.

In July 1995, the Company completed an offering of 1,725,000 shares of its
Class A Common Stock, including the subsequent exercise by the underwriters of
an over-allotment option of 225,000 shares, for $24.50 per share. The net
proceeds of the offering were $39,166,000 after underwriting discounts,
commissions and other costs of the offering. The net proceeds were utilized to
repay senior indebtedness of $21,500,000 and to fund the Dallas Acquisition
and a portion of the Charlotte Acquisitions (See Note 14). The following
unaudited pro forma summary presents earnings per share as if the retirement
of debt with the offering proceeds had taken place at the beginning of the
period. These proforma results have been prepared for comparative purposes
only and do not purport to be indicative of what would have occurred had the
retirement been made as of that date.-

Pro forma
Year Ended December 31,1995
(dollars in thousands)
----------------------

(Unaudited)
Net loss....................................... (3,998)
Net loss applicable to common stock............ $ (4,288)
=========
Net loss per common share...................... $ (.57)
=========
Weighted average common shares outstanding .... 7,474,769

STOCK OPTIONS

The 1993, 1994 and 1995 Stock Option Plans (the "Plans") provide for
granting of options to buy Class A Common Stock as additional compensation to
officers and employees of the Company and other individuals who are primarily
responsible for the management and growth of the Company. The 1993, 1994 and
1995 Plans provide that options may be granted with respect to a total of
350,000, 150,000, and 250,000 shares of Class A Common Stock, respectively.
Options granted under these plans are generally granted at option prices equal
to the fair market value of shares of Class A Common Stock on date of grant.
Terms of the options are determined by the Company provided that the maximum
term of each option shall be ten years.

In December 1993, the Company granted 350,000 non-qualified options to
officers and employees of the Company at $13.50 per share. The options vest on
the anniversaries of the grant date as follows: 10% at the completion of the
second year; 20% at the completion of the third year; 30% at the completion of
the fourth year; and 40% at the completion of the fifth year. The Company has
reserved 350,000 shares of its Class A Common Stock for issuance under the
1993 Plan.

In June 1994, the Company granted 150,000 non-qualified options to officers
and employees of the Company at $13.00 per share. Of the options granted,
110,000 vested on the date of issuance. The remaining 40,000 options vest 20%
on each anniversary of the grant. The Company has reserved 150,000 shares of
its Class A Common Stock for issuance under the 1994 plan.

<PAGE>

In May 1995, the Company authorized 250,000 and granted 248,000
non-qualified options to officers and employees of the Company at $21.25 per
share. The options vest 20% on each anniversary of the grant. The Company has
reserved 250,000 shares of its Class A Common Stock for issuance under the
1995 plan.

No options have expired or been exercised as of December 31, 1995.

The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees," and intends
to continue to do so.

NOTE 8 - INCOME TAXES

The acquisition of San Diego Acquisition resulted in the recognition of a
net deferred tax liability of approximately $4,900,000 under the purchase
method of accounting. This amount was based upon the excess of the financial
statement basis over the tax basis in assets, principally intangible assets. A
full valuation allowance has been recorded against San Diego Acquisition pre
acquisition net operating loss of approximately $2,200,000, as its ultimate
utilization may be limited. In the event the company recognizes additional tax
benefit related to San Diego's pre acquisition net operating loss carry
forwards, those benefits would be applied to reduce goodwill and other
intangibles to zero prior to reducing income tax expense.

At December 31, 1995, the company has net operating loss carry forwards of
approximately $11,300,000 that will expire from 2003 through 2010. Due to
ownership changes, the utilization of approximately $5,100,000 of these losses
is limited.

The Company paid income taxes of $300,000 in 1994 and did not pay any
income taxes in 1995.

The deferred tax valuation allowance increased from $595,000 at December
31, 1994 to $2,883,000 at December 31, 1995 of this increase, $854,000 results
from the San Diego Acquisition and the balance is related to deferred tax
assets associated with capital and net operating losses that may not be
realizable. The Company has considered prudent and feasible tax planning
strategies in assessing the need for the valuation allowance and has assumed
$650,000 of benefit attributable to such strategies. In event the Company were
to determine in the future that such strategies would not be implemented, an
adjustment to the deferred tax liability would be charged to income in the
period such determination was made.

<PAGE>

The income tax expense recorded during 1994 reflects increases in the
excess of the financial statement basis over tax basis in assets resulting
from differences in amortization periods offset, in part, by the projected
reversal of temporary differences within the carry-forward period of available
net operating losses. As a result of current losses and the deferred benefit
associated with the losses, no current or deferred expense or benefit was
recorded for the year ended December 31, 1995. For the years ended December
31, 1995 , 1994, and 1993 the tax provision consists of the following in
thousands:
1995 1994 1993
---- ---- ----

Current
Federal.........................$ -- $ 65 $ --
State........................... -- 100 --
------- ------ ------
-- 165 --
------- ------ ------
Deferred
Federal......................... -- 1,170 863
State........................... -- 139 152
------- ------ ------
-- 1,309 1,015
------- ------ ------
$ -- $1,474 $1,015
======= ====== ======

The net deferred tax liability at December 31, 1995 and 1994 results from the
following temporary differences (in thousands):

Deferred Tax Assets: 1995 1994
---- ----
Accounts receivable ....................... $ 350 $ 252
Net operating loss carryforwards ........ 4,292 1,372
Writedown of broadcast rights agreement . 484 --
Capital loss / AMT carryforwards ........ 435 435
Accrued bonuses ......................... 57 --
---------- ---------
Total deferred tax assets ............... 5,618 2,059
Valuation allowance ..................... (2,883) (595)
---------- ---------
Net deferred tax assets ............... 2,735 1,464
Deferred Tax Liabilities:
Property, plant and equipment ............. (354) (379)
Intangible assets ....................... (9,719) (3,419)
Other ................................... (77) (172)
---------- ---------
Total deferred tax liabilities ...... (10,150) (3,970)
---------- ---------
Net deferred tax liability .......... $ (7,415) $ (2,506)
========== =========

<PAGE>

The 1995, 1994 and 1993 effective tax rate varied from the statutory Federal
income tax rate as follows (in thousands):

1995 1994 1993
---- ---- ----
Income taxes at the statutory rate ............ $(1,495) $1,125 $(5,222)
Effect of nondeductible Founders Stock Charge 4,718
Capital loss limitation ....................... -- 332 --
Net operating losses
Limitation / (Utilization)..................... 1,434 (207) 1,131
Effect of nondeductible amortization
of intangible assets ........................ 198 179 378
Reversal of 1993 provision. ................... -- (412) --
State and local income taxes .................. (145) 273 --
Other ......................................... 8 184 10
========= ======= =========
Total ..................................... $ -- $1,474 $ 1,015
========= ======= =========

NOTE 9 - WRITE DOWN OF BROADCAST RIGHTS AGREEMENT

In August 1994, the Company entered into an agreement to broadcast Texas
Rangers baseball games on KRLD-AM and to syndicate the games through Texas
State Networks, for a period of four years, commencing with the 1995 season.
While the contract contemplated the possibility of a baseball work stoppage,
and contained certain provisions affording the Company partial relief from the
payment of rights fees under certain specified conditions related to work
stoppages, the nature of the major league baseball strike and consequently the
damage to the value of the Texas Rangers broadcast rights has been more
material than management had anticipated. The total rights fees under the
four-year agreement, subject to adjustment, were stated at $17,000,000. In the
second quarter of 1995, the Company recorded a charge of $5,000,000 with
respect to the estimated diminished value of the contract.

The Company's estimate as to the carrying value of the contract is based on
among other things, the projected revenue to be derived during the term. Due
to the ongoing uncertainty surrounding major league baseball and related
broadcast revenue, it is reasonably possible that the estimates may change.

NOTE 10 - RELATED PARTY TRANSACTIONS

The Company holds a non-recourse note receivable from the Company's
President in the amount of $2,000,000 which is secured by 133,333 shares of
Class B Common Stock. The note bears interest at 6% per annum. Interest and
principal is due in full on the earlier of the termination of the officer's
employment contract or October 1998. In 1995, interest income in the amount of
$120,000 was accrued. The interest amount is included in the note receivable
balance on the balance sheet.

In January 1995, the Company extended to SCMC a $2,000,000 unsecured loan
which is due on January 23, 2000. The note ("SCMC Note") bears interest at 1%
over the prime rate which is payable annually. Interest and principal may, by
mutual agreement of the parties, be offset by any fees owed by the Company to
SCMC. The SCMC Note contains certain financial covenants, the violation of
which would result in the default and acceleration of the note. The Company
has received a fairness opinion with respect to the loan from an independent
investment banking firm. In 1995, interest income in the amount of $171,000
was accrued. The interest amount has been classified in notes receivable from
related parties on the balance sheet. Subsequent to December 31, 1995, the
Company's Board of Directors authorized adding the unpaid interest due in
January, 1996, to the principal balance of the note.

In 1989, Capstar entered into a management agreement with Capstar, Inc., a
related party. Under the terms of the management agreement, Capstar, Inc.
managed all aspects of the daily operation of the radio stations. In
consideration for its services to Capstar, Capstar, Inc. received an annual
fee of $150,000 per year and an additional amount of $30,000 if certain cash
flow targets were met, both of which were adjustable based on increases in the
Consumer Price Index. In addition, Capstar, Inc. was reimbursed for expenses
incurred in the performance of the management services,

<PAGE>

including rent and other office expenses. Total payments to Capstar, Inc. were
$893,000 for the year ended December 31, 1993, including $700,000 related to
the acquisition of WMYI-FM and the merger of Capstar with the Company, all of
which have been expensed in the statement of operations. The agreement was
terminated in connection with the completion of the Offerings. The Company
sublets office space in Austin, Texas on a month to month basis for certain
management and accounting operations from Capstar, Inc for which the Company
recorded rent expense of $94,000 and $67,000 for the years ended December 31,
1994 and 1995, respectively.

Capstar entered into a financial consulting agreement with SCMC in November
1989. Under this agreement, SCMC provided ongoing analysis services to the
Company. In return for its services, SCMC received a consulting fee of
$100,000 per annum, adjustable based on increases in the Consumer Price Index.
The Company expensed consulting fees of $75,000 for the year ended December
31, 1993. Payments in 1993 totaled $ 310,000. In connection with services
provided to the Company related to acquisitions, dispositions, negotiation of
debt agreements and the Offerings, SCMC received fees in the amount of
$297,000 in 1993. The agreement was terminated in connection with the
completion of the Offerings.

In connection with a personal guarantee of certain Command debt, the
Company paid its Executive Chairman $75,000 in September 1993. The Company
also paid a fee of $75,000 to its Executive Chairman for guaranteeing a
$7,500,000 revolving credit facility with a bank. These amounts paid were
expensed in the 1993 financial statements. In October 1993 and January 1994,
respectively, these guarantees were released.

In connection with the Initial Public Offering, SCMC and an affiliate were
paid $1,532,000, substantially all of which were reimbursements for expenses
paid to third parties prior to completion of the Initial Public Offerings.

The Company and SCMC, entered into an arrangement to jointly lease office
space from an unrelated third party in May, 1994. The liability of the Company
and SCMC under the lease arrangement is joint and several except that the
liability of SCMC shall not exceed 14% of the obligation to the landlord. In
connection with the arrangement, the Company posted $125,000 in a letter of
credit to guarantee the lease. The Company paid rent expense related to the
lease for the years ending December 31, 1993, 1994, and 1995 of $83,000,
$180,000 and $335,000, respectively.

In January 1995, the Company paid a $1,000,000 fee to SCMC in connection
with the transfer of shares of the Company's Class C Common Stock. See Note 7.

The Company maintains an office in New York and employs individuals who
were previously employees of SCMC. Total salaries and wages paid to nine
employees were approximately $300,000 for 1994. During 1995, salaries and
wages paid to five employees approximated $200,000. Certain of the Company's
employees in the New York office have performed certain services for other
affiliated entities of the Company's Executive Chairman. However, SCMC has
advised the Company that other employees of such affiliated entities have
performed services for the Company without charge to the Company. This
situation was reviewed by the Company's audit committee and a determination
was made that there were no material imbalances in the services received by
the Company and the costs incurred by it.

The Company has an agreement with the Chairman related to the maintenance
of the Company's New York office pursuant to which the Company paid SCMC
$178,000 in 1994 and $330,000 in 1995 in excess of the lease payments, which
payments have been paid to SCMC for disbursement to third-party service
providers where appropriate.

The transactions above were not negotiated on an arms-length basis.
Accordingly, each transaction was approved by the Company's Board of
Directors, including as to transactions entered into after the Company's
Initial Public Offering of securities the Company's independent directors, in
accordance with the provisions relating to affiliate transactions in the
Company's by-laws, bank agreements and Indenture, which provisions require a
determination as to the fairness of the transactions to the Company.

Also, see Notes 1,2, 5, 7, and 13.

<PAGE>

NOTE 11 - COMMITMENTS AND CONTINGENCIES

The Company has entered into various operating leases and broadcast rights
agreements. Total rent expense was $781,000, $1,160,000 and $1,506,000 for the
years ending December 31, 1993, 1994 and 1995, respectively. Future minimum
payments in the aggregate for all noncancelable operating leases and broadcast
rights agreements with initial terms of one year or more consist of the
following at December 31, 1995 (in thousands):

1996 $ 5,598
1997 5,551
1998 6,033
1999 953
2000 916
2001 and thereafter 3,756
------
Total $22,807
======

Future minimum payments in the aggregate for all noncancelable capital
leases with initial terms of one year or more consist of the following at
December 31, 1995 (in thousands):

1996 $ 410
1997 337
1998 217
1999 166
2000 70
------
Total minimum lease payments $1,200
Less: Amount representing interest (219)
------
Present value of future minimum
lease payments 981

Less current portion (311)
------
Long-term capital lease obligations $670
======

The Company has entered into employment agreements with certain officers
and other key employees. Expenses under the contracts amounted to $3,390,000
for the year ended December 31, 1995. Future minimum payments in the aggregate
for all employment agreements with initial terms of one year or more consist
of the following at December 31, 1995 (in thousands):

1996 $4,217
1997 4,114
1998 3,626
1999 3,296
2000 1,892
2001 and thereafter 484
------
$17,629
======

The Company is the subject of various claims and litigation principally in
the normal course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse impact on the
consolidated financial statements.

<PAGE>

NOTE 12 - DEFINED CONTRIBUTION PLAN

Command sponsored a 401(k) defined contribution plan in which most of its
employees were eligible to participate. Subsequent to the acquisition of
Command, the plan was continued for Command employees and effective January 1,
1994, the Plan was expanded to cover all the Company's employees. The Plan
presently provides for discretionary employer contributions. The Company
contributed $17,000 in 1994 but made no contributions in 1995.

NOTE 13 - PENDING TRANSACTIONS RELATING TO LIBERTY BROADCASTING

In November 1995, the Company entered into a definitive purchase agreement
to acquire all of the outstanding capital stock of privately-owned Liberty
Broadcasting, Incorporated ("Liberty"), an owner/operator of nineteen radio
stations in seven markets. The purchase price of the acquisition is
$236,000,000. Pursuant to the agreement, the Company intends to transfer
eleven of the stations owned by Liberty to Multi-Market Radio, Inc. ("MMR")
(an affiliate of the Company's Executive Chairman) and in turn receive ten
stations in what is expected to be substantially a tax-free transaction. Of
the Liberty stations, the Company intends to retain only the stations in major
markets: WXTR-FM, WXVR-FM and WQSI-AM serving Washington, D.C.; WHFS-FM
serving Baltimore/Washington, D.C.; and WBAB-FM, WHFM-FM, WBLI-FM and WGBB-AM
serving Long Island, New York. The Company would receive the following
stations from MMR: KQUE-FM and KNUZ-AM serving Houston, Texas; WZRX-AM and
WSTZ-FM serving Jackson, Mississippi; WMFR-AM, WMAG-FM, and WTCK-AM (formerly
WWWB-AM) serving and Greensboro, North Carolina; WRDU-FM and WTRG-FM, serving
Raleigh, North Carolina and WROQ-FM serving Greenville, South Carolina ("the
Swap Stations"). Subsequent to December 31, 1995, the Company posted $300,000
in cash and $6,750,000 in letters of credit as deposits for the Swap Stations,
which are contemplated to be transferred to the Company. In addition, the
Company has guaranteed performance of the acquisitions in the event MMR cannot
complete the transaction.

The Exchange Agreement provides that in the event that the Exchange is not
completed by December 31, 1997 or earlier, subject to the terms of such
agreement, the Company will have the right for 30 days thereafter to purchase
the Swap Stations from MMR (the "Call") at a price equal to the aggregate
acquisition cost of the Swap Stations (the "Call Price"). The agreement
further provides that in the event the Company does not exercise the Call, MMR
will have the right to sell the Swap Stations to the Company during the
subsequent 270-day period (the "Put Period") at a price equal to approximately
95% of the Call Price. During the Put Period, MMR will have the option of
operating the Swap Stations, selling any or all of the Swap Stations to third
parties, or allowing the Company to continue providing programming to the Swap
Stations pursuant to the LMAs or selling advertisement on behalf of such
stations pursuant to the JSAs.

MMR has entered into LMAs with the current owner of the Swap Stations
operating in the Greenville, South Carolina and Jackson, Mississippi markets,
and concurrently therewith, MMR has entered into JSAs with the Company
pursuant to which the Company was granted the exclusive right to sell
advertising on behalf of all but one of the Swap Stations in such markets. MMR
has also entered into a JSA with the current owner of the Swap Stations
operating in the Greensboro, North Carolina market, and concurrently
therewith, the Company entered into a JSA with MMR with respect to such
stations.

NOTE 14 - SUBSEQUENT EVENTS

On January 18, 1996, the Company entered into an option to acquire all of
the assets of radio station WHSL-FM, Greensboro, North Carolina from HMW
Communications, Inc. (HMW), for an aggregate purchase price of approximately
$4,500,000 cash or 150,000 shares of Class A Common Stock of the Company,
concurrently therewith, the Company entered into a JSA with HMW with respect
to such stations.

<PAGE>

On February 1, 1996 the Company acquired all of the assets of WTDR-FM and
WLYT-FM in Charlotte, North Carolina (the "Charlotte Acquisition") for
aggregate consideration of approximately $24,750,000. The Company had provided
programming and sold advertising on the stations pursuant to a LMA since April
1, 1995.

On February 9, 1996, the Company entered into a definitive purchase
agreement to acquire the assets of privately owned Prism Radio Partners, L.P.,
an owner/operator of sixteen radio stations in five markets for $105,250,000.
The stations to be acquired are; WTFX-FM, WVEZ-FM, and WWKY-AM serving
Louisville, Kentucky; WKQL-FM, WIVY-FM, WPDQ-AM, and WOKV-AM serving
Jacksonville, Florida; WZZU-FM and WDCG-FM serving Raleigh, North Carolina;
KWFM-FM, KRQQ-FM, KNST-AM, and KCEE-AM serving Tucson, Arizona; and KRZZ-FM,
KKRD-FM, and KNSS-AM serving Wichita, Kansas. In accordance with the purchase
agreement, the Company has posted $5,263,000 in an irrevocable letter of
credit.

In March of 1996, the Company made its annual rights fee payment reducing
such payment by an amount calculated to reflect the adjustment provisions
contained in the rights agreement with respect to the major league baseball
labor dispute which resulted in the work stoppages during the 1994 and 1995
major league baseball seasons. The Company has received notice from the Texas
Rangers disputing the adjustment and credits taken by the Company.

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

There have been no changes in or disagreements with the Company's
accountants on accounting matters or financial disclosures.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The current directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION
- ---------------------- --- -------- ----------------------------------------------------------------
<S> <C> <C> <C>
Robert F.X. Sillerman ...... 48 1992 Director and Executive Chairman
R. Steven Hicks ............ 46 1993 Director, President, Chief Executive Officer and Chief Operating
Officer
D. Geoffrey Armstrong ...... 39 1993 Director, Executive Vice President, Chief Financial Officer and
Treasurer
Howard J. Tytel ............ 48 1993 Director, Executive Vice President and Secretary
James F. O'Grady, Jr. ...... 68 1993 Director
Paul Kramer ................ 64 1993 Director
Richard A. Liese ........... 45 1995 Director, Vice President and Assistant General Counsel
</TABLE>

Upon the consummation of the Company's acquisition of Multi-Market Radio,
Inc. ("MMR") pursuant to an agreement and plan of merger entered into in April
1996 (the "MMR Acquisition"), it is anticipated that (i) Michael G. Ferrel,
Chief Executive Officer, President and Chief Operating Officer of MMR, will
become a Director and Chief Executive Officer of the Company, (ii) D. Geoffrey
Armstrong will become the Chief Operating Officer and interim Chief Financial
Officer of the Company and (iii) an additional "Independent Director" (as
defined herein) will be appointed to serve until the next annual meeting of
stockholders or until his successor is elected and qualified. In addition,
upon consummation of the MMR Acquisition, R. Steven Hicks has agreed to resign
as an officer but will remain as a Director of and consultant to the Company.
See "-- Executive Compensation--Employment Agreements." It is anticipated that
in the event the MMR Acquisition is not consummated, Robert F.X. Sillerman
will become the Executive Chairman and Chief Executive Officer of the Company.

CERTAIN INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS

Information with respect to the business experience and affiliations of the
current and anticipated directors and executive officers of the Company is set
forth below.

ROBERT F.X. SILLERMAN has been Executive Chairman of the Company since July
1, 1995, and from 1992 through June 30, 1995, he served as Chairman and Chief
Executive Officer of the Company. Since 1985 he has been Chairman of the Board
and Chief Executive Officer of Sillerman Communications Management Corporation
("SCMS"), a private investment company which makes investments in and provides
financial consulting services to companies engaged in the media business and,
through privately held entities, he controls the general partner of Sillerman
Communication Partners, L.P. ("SCP"), an investment partnership. From 1985 to
1989, Mr. Sillerman was co-Chairman of Legacy Broadcasting, Inc. ("Legacy I"),
which owned radio stations and which has subsequently been liquidated. In
addition, Mr. Sillerman was co-Chairman of Metropolitan Broadcasting
Corporation ("Metropolitan"), which was merged with Legacy I and Group W Radio
Holdings, Inc., an affiliate of Westinghouse Broadcasting Corporation, in
1989. Mr. Sillerman also served, from 1990 to 1993, as co-Chairman of Legacy
Broadcasting, Inc. ("Legacy II"), which through a related partnership owned
and operated a radio business. In 1993, Mr. Sillerman became the Chancellor of
the Southampton campus of Long Island University.

MICHAEL G. FERREL has served as President and Chief Operating Officer of
MMR and a member of its 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

<PAGE>

of Goldenberg Broadcasting, Inc, the former owner of radio station WPKX-FM,
Springfield, Massachusetts, which was acquired by MMR in July 1993. From 1984
to 1990, Mr. Ferrel served as Vice President and General Manager of WGMS-AM
and WGMS-FM, both operating in Washington, D.C. and from 1988 to 1990, Mr.
Ferrel served as Chief Operating Officer and was a part owner of WMME-AM and
WMME-FM, both operating in Augusta, Maine. From 1990 to 1994, Mr. Ferrel
served as General Manager of WPKX-FM. Mr. Ferrel served as Chairman of the
Washington, D.C. Area Broadcasting Association in 1988.

R. STEVEN HICKS is President and Chief Executive Officer and a Director of
the Company. Mr. Hicks has entered into an agreement with the Company pursuant
to which he has agreed to resign as an executive officer of the Company upon
consummation of the MMR Acquisition, and to enter into a five-year consulting
agreement with the Company at such time. See "-- Executive
Compensation--Employment Agreements." From May 1989 to October 1993, he served
as President and Chief Executive Officer of Capstar Communications, Inc., a
predecessor of the Company. From 1986 to 1992, Mr. Hicks was Chairman of Hicks
Broadcasting Corporation ("HBC"), an owner and operator of radio stations and
the sole general partner of Hicks Broadcasting Partners of Tennessee, L.P. Mr.
Hicks was also Chief Executive Officer of HBC from 1987 to 1989. Mr. Hicks is
the sole voting stockholder of Gulfstar Communications, Inc., which along with
its affiliates owns seven small market radio stations in Texas, two in
Arkansas and four in Baton Rouge, Louisiana.

D. GEOFFREY ARMSTRONG is Executive Vice President, Chief Financial Officer
and Treasurer and a Director of the Company. It is anticipated that Mr.
Armstrong will enter into an agreement with the Company pursuant to which he
will become the Chief Operating Officer and interim Chief Financial Officer of
the Company upon consummation of the MMR Acquisition. See "-- Executive
Compensation--Employment Agreements." Mr. Armstrong had been Vice President,
Chief Financial Officer and Treasurer of the Company from 1992 until March
1995. He had been Executive Vice President and Chief Financial Officer of
Capstar since 1989. From 1988 to 1989, Mr. Armstrong was the Chief Executive
Officer of Sterling Communications Corporation ("Sterling"). Sterling owned
and operated five stations in three markets (Jackson, Mississippi,
Greenville-Spartanburg, South Carolina and Baton Rouge, Louisiana). Sterling
sold WGVL-AM and WSSL-FM and WJDS-AM and WMSI-FM to Capstar in 1989. Mr.
Armstrong was Chief Financial Officer of Sterling from 1986 to 1988.

HOWARD J. TYTEL has been a Director, Executive Vice President and Secretary
of the Company since 1992. Mr. Tytel has also been Executive Vice President
and General Counsel of SCMC since 1985, a director of SCMC since 1989, and an
officer and director of Legacy II from 1991 to 1993. Mr. Tytel was a director
of Country Music Television from 1988 to 1991, was a director and Executive
Vice President of Legacy I from 1986 to 1989 and Metropolitan from 1988 to
1989. Since March 1995 Mr. Tytel has been a director of Interactive Flight
Technologies, Inc., a company providing computer-based in-flight
entertainment. Mr. Tytel had been Of Counsel to the law firm of Winston &
Strawn, which formerly represented the Company, and is currently Of Counsel to
the law firm of Baker & McKenzie, which currently represents the Company,
SCMC, SCP and MMR.

JAMES F. O'GRADY, JR. 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 not affiliated with the Company 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 serves on the Board of Trustees of St. John's University, and has
served as a director of The Insurance Broadcast System, Inc. since 1994.

PAUL KRAMER has been a partner in Kramer & Love, financial consultants
specializing in acquisitions, reorganizations and dispute resolution, since
1994. In addition, from 1992 to 1994, Mr. Kramer was an independent financial
consultant to foreign investors. Mr. Kramer was a partner in the New York
office of Ernst & Young from 1968 to 1992, and from 1987 to 1992 was Ernst &
Young's designated Broadcasting Industry Specialist.

RICHARD A. LIESE has been a Director and a Vice President and Assistant
General Counsel of the Company 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.

The By-laws of the Company authorize the Board of Directors to fix the
number of directors from time to time, but at no less than two nor more than
nine directors. The Board of Directors has fixed the number of directors at
seven,

<PAGE>

which number is to be increased to nine prior to consummation of the MMR
Acquisition. The owners of the Class A Common Stock voting separately as a
class are entitled to elect two-sevenths (currently two) of the members of the
Company's Board of Directors (the "Class A Directors"). The remaining
directors are elected by the holders of the Class A Common Stock and the Class
B Common Stock, with the holders of the Class A Common Stock having one vote
per share and the holders of the Class B Common Stock having ten votes per
share. Therefore, the holders of the Class B Common Stock currently control
the outcome of the election of a majority of seats.

Messrs. O'Grady and Kramer are the current Class A Directors. Each of
Messrs. O'Grady and Kramer is qualified to be an "Independent Director,"
defined in the Certificate of Incorporation of the Company as a director of
the Company who is not (i) an officer or employee of the Company, or a
director, officer or employee of any of its subsidiaries or any affiliate of
Mr. Sillerman, (ii) an affiliate of Mr. Sillerman or (iii) an individual
having a relationship which, in the opinion of the Board of Directors of the
Company, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director. Upon the consummation of the MMR
Acquisition, it is anticipated that Mr. Ferrel and an additional "Independent
Director" will be appointed to he Board of Directors, each to hold office
until the next annual meeting of stockholders following such person's
appointment or until his successor is elected and qualified.

BOARD MEETINGS AND COMMITTEES

During 1995, the Board of Directors held 7 meetings. The standing
committees of the Board of Directors are the Audit Committee, the Compensation
Committee and the Stock Option Committee. No Director attended fewer than 75
percent of all meetings of the Board of Directors or 75 percent of the
meetings of all committees on which he served.

The Audit Committee of the Board of Directors currently consists of Mr.
Armstrong and the two Class A Directors, Messrs. O'Grady and Kramer. During
1995, the Audit Committee held 3 meetings. The principal functions of the
Audit Committee are to review and make recommendations to the Board of
Directors with respect to the selection and the terms of engagement of the
Company's independent public accountants, and to maintain communications among
the Board of Directors, such independent public accountants, and the Company's
internal accounting staff with respect to accounting and audit procedures, the
implementation of recommendations by such independent public accountants, the
adequacy of the Company's internal controls and related matters. The Audit
Committee reviews certain related-party transactions and potential
conflict-of-interest situations involving officers, directors or stockholders
of the Company.

The Compensation Committee of the Board of Directors consists of Mr.
Sillerman and the two Class A Directors, Messrs. Kramer and O'Grady. During
1995, the Compensation Committee held 4 meetings. Mr. Sillerman is the
Executive Chairman of the Company and an officer of all of the Company's
subsidiaries. The principal functions of the Compensation Committee are to
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, Hicks and Armstrong.

The Stock Option Committee consists of Messrs. Kramer and O'Grady, the two
Class A Directors. During 1995, the Stock Option Committee held 2 meetings.
The principal functions of the Stock Option Committee are to 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.

REMUNERATION OF DIRECTORS

All Directors hold office until the next annual meeting of stockholders
following their election or until their successors are elected and qualified.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board. Messrs. Sillerman, Hicks and Armstrong have entered
into employment agreements with the Company. See "-- Executive Compensation --
Employment Agreements."

Directors employed by the Company receive no compensation for meetings they
attend. Each Director not employed by the Company receives a fee of $1,500 for
each meeting of the Board of Directors he attends in addition to reimbursement
of travel expenses. Each such Director who is a member of the Compensation
Committee or the Audit Committee also receives $1,500 for each committee
meeting he attends which is not held in conjunction with a Board

<PAGE>

of Directors meeting. If such committee meeting occurs in conjunction with a
Board of Directors meeting, each committee member receives an additional $500
for each committee meeting he attends.

Additionally, since March 1, 1995, each of Messrs. Kramer and O'Grady has
received an annual fee of $12,000, and effective May 16, 1995 each of Messrs.
Kramer and O'Grady received cash only stock appreciation rights with respect
to 5,000 shares of Class A Common Stock. The cash-only stock appreciation
rights with respect to each share of Class A Common Stock entitle the holder
thereof to receive the difference between $21.25 and the closing price of the
Class A Common Stock on May 16, 2000 and will be paid on that date. In
connection with their work as the special committee of the Board of Directors
(the "Special Committee") in evaluating the MMR Acquisition and the
Termination and Assignment Agreement (as defined below), each of Messrs.
Kramer and O'Grady has received a one-time fee of $50,000.

OTHER MATTERS

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities
(collectively, the "Covered Shareholders"), to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes of
ownership of certain equity securities of the Company. To the Company's
knowledge, based solely on review of the copies of such reports furnished to
the Company, none of the Covered Shareholders failed to file on a timely basis
the reports required by Section 16(a) of the Exchange Act.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information regarding all the
compensation awarded to, earned by or paid to the Executive Chairman of the
Company and the next most highly compensated executive officers who received
salary and bonus of at least $100,000 for 1995 for services rendered in all
capacities to the Company, its subsidiaries and its predecessor, Capstar, for
the last three fiscal years. The Executive Chairman and such executive
officers are collectively referred to as the "Named Executive Officers."

SUMMARY COMPENSATION TABLE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-----------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND FISCAL ANNUAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR(1) SALARY($) BONUS SATION($)(2) AWARDS($) SARS(#) PAYOUTS($) SATION($)
- ---------------------- ------- --------- ----- ------------ --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert F.X. Sillerman 1995 300,000 0 0 0 60,000 0 0
Executive Chairman 1994 250,000 0 0 0 30,000 0 0
1993 250,000 0 0 0 130,000 0 0

R. Steven Hicks 1995 300,000 200,000 0 0 50,000 0 250,000(3)(9)
President and Chief 1994 250,000 0 0 0 30,000 0 0
Executive Officer 1993 189,377(4) 0 0 0 130,000 0 0

D. Geoffrey Armstrong 1995 200,000 0 0 0 50,000 0 150,000(5)(9)
Executive Vice 1994 150,000 0 0 0 20,000 0 0
President, Chief 1993 105,000(6) 303,000(7) 0 0 65,000 0 0
Financial Officer
and Treasurer

Richard A. Liese 1995 52,083(8) 0 0 0 2,000 0 0
Vice President and 1994 0 0 0 0 0 0 0
Assistant General 1993 0 0 0 0 0 0 0
Counsel
</TABLE>

<PAGE>

- ----------

(1) The Company began operations in 1993. Amounts for 1993 for Messrs. Hicks
and Armstrong represent reportable compensation from the Company and
Capstar. Mr. Tytel does not receive any compensation from the Company for
serving as Executive Vice President and Secretary but does receive fees
for each Board of Directors meeting he attends.
(2) For each of the last three (3) fiscal years the aggregate amount of
prerequisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of the salary and bonus for each of the Named Executive
Officers.
(3) This payment was made to Mr. Hicks pursuant to his employment agreement
as part of the deferred compensation package. See "--Employment
Agreements."
(4) $126,877 of this compensation was paid to Mr. Hicks by Capstar.
(5) This payment was made to Mr. Armstrong pursuant to his employment
agreement. $37,500 of this amount was earned on December 31, 1995 while
the remaining $112,500 will be deemed earned in equal parts on April 1,
of 1996, 1997 and 1998, respectively. See "--Employment Agreements."
(6) $67,500 of this compensation was paid to Mr. Armstrong by Capstar.
(7) A bonus of $250,000 was paid to Mr. Armstrong by Capstar prior to the
consummation of the Initial Public Offering.
(8) Mr. Liese became a Vice President and Assistant General Counsel of the
Company effective August 1, 1995 and receives an annual salary of
$125,000.
(9) Each of Mr. Hicks and Mr. Armstrong would have received options to
purchase 200,000 shares of Class A Common Stock in the event of a "Change
of Control" as defined in their respective employment agreements. Pursuant
to the Hicks Agreement, the Company has agreed to repurchase these rights
and it is anticipated that the Company will repurchase these rights from
Mr. Armstrong in connection with entering into a new agreement. See
"--Employment Agreements."

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each of Messrs.
Sillerman, Hicks and Armstrong, and it is anticipated that the Company will
enter into an employment agreement with Mr. Ferrel to be effective upon
completion of the MMR Acquisition.

Mr. Sillerman's employment agreement has a five year period commencing
on April 1, 1995 and provides that he serve as Executive Chairman of the Board
and requires him to devote substantially all of his business time to the
business and affairs of the Company but permits him to continue to fulfill his
obligations as a director and officer of other entities, including entities
with investments in broadcasting. Mr. Sillerman receives a base annual salary
of $300,000 per year increased annually by five percent. In addition, Mr.
Sillerman (i) receives an annual cash bonus based upon a formula to be
determined by the Board of Directors upon the recommendation of the
Compensation Committee and (ii) is granted annually options to acquire at
least 50,000 shares of Class A Common Stock (the exact number of options to be
determined by the Board of Directors upon recommendation of the Compensation
Committee) at an exercise price equal to the fair market price of the
underlying stock on the date of grant, such options to be exercisable during a
ten year period and to vest on a schedule to be determined by the Board of
Directors. In addition, during the term of Mr. Sillerman's employment, the
Company has agreed to maintain an Office of the Chairman in New York, New
York.

Mr. Hicks' has entered into a five-year employment agreement with the
Company commencing on April 1, 1995. Pursuant to such agreement, Mr. Hicks
became Chief Executive Officer of the Company on July 1, 1995. Mr. Hicks
receives a base salary of $300,000 per year increased annually by five percent
and a cash bonus based on a formula to be determined by the Board of Directors
upon the recommendation of the Compensation Committee (which is not to be less
than $200,000). In addition, Mr. Hicks is granted annually options to acquire
at least 25,000 shares of Class A Common Stock (the exact number of options to
be determined by the Board of Directors upon recommendation of the
Compensation Committee) at an exercise price equal to the fair market price of
the underlying stock on the date of such grant, such options to be exercisable
during a ten year period and to vest on a schedule to be determined by the
Board of Directors. In addition, Mr. Hicks received aggregate deferred
compensation during the term of the employment agreement of $750,000, $250,000
of which was paid to Mr. Hicks upon the signing of the employment agreement
and $100,000 of which is to be paid on March 31 of each year thereafter during
the term of the employment agreement.

On April 16, 1996, the Company entered an agreement with R. Steven Hicks
(the "Hicks Agreement") pursuant to which they have agreed to terminate Mr.
Hicks' employment arrangement with the Company concurrently with the
completion of the MMR Acquisition in consideration of a payment from the
Company to Mr. Hicks in the amount of $1.8 million. Mr. Hicks has agreed to
serve on the Company's Board of Directors until the next annual meeting of
stockholders following the MMR Acquisition. Mr. Hicks currently owns 143,874
shares of Class B Common Stock; in connection with the Hicks Agreement, Mr.
Hicks has agreed to convert 75,000 of such shares into an equivalent

<PAGE>

number of shares of Class A Common Stock and to sell to the Company, for an
aggregate purchase price of $12,572,460, 68,874 shares of Class B Common
Stock, vested and unvested options to purchase 210,000 shares of Class A
Common Stock granted pursuant to the Company's Stock Option Plans and Mr.
Hicks' right to options to purchase 200,000 shares of Class A Common Stock
upon a "change of control" (as defined in his employment agreement). The
Company has agreed that during the five-year period commencing on the date of
the MMR Acquisition, Mr. Hicks shall have the right to require the Company to
purchase all of his shares of Class A Common Stock owned on the date of the
agreement at a price equal to the greater of $40.00 or the average closing
price of the Class A Common Stock for the five business days preceding the
repurchase. In the event that Mr. Hicks elects to sell such shares to the
Company, based upon an assumed repurchase price of $40.00 per share, the
Company will make a payment to Mr. Hicks of approximately $4.05 million. Mr.
Hicks has agreed to serve as a consultant to the Company for a period of five
years commencing on the completion of the MMR Acquisition and the Company has
agreed to compensate him for such services at the rate of $150,000 per year
and to provide Mr. Hicks with an office, secretarial support and an automobile
during such period. Mr. Hicks has agreed that he will not compete with the
Company during the one-year period following the MMR Acquisition, unless the
Company shall terminate the consulting arrangement with Mr. Hicks, except that
he may continue his involvement with Hicks Capital Corporation, Capstar, Inc.
and Gulfstar Communications, Inc., or any affiliates thereof, nor will he
solicit any employees of the Company (other than those based in Austin, Texas)
during such one year period. In consideration of the foregoing, the Company
has agreed to make a payment to Mr. Hicks in the amount of $500,000. In
addition the Company has agreed to forgive the $2.0 million loan made by the
Company to Mr. Hicks and all accrued but unpaid interest thereon upon the
termination of the Hicks Agreement.

Mr. Armstrong has entered into a five-year employment agreement with the
Company commencing on April 1, 1995. Pursuant to the employment agreement, Mr.
Armstrong has agreed to serve as Executive Vice President, Chief Financial
Officer and Treasurer of the Company and receives a base salary of $200,000
per year increased annually by five percent. In addition, Mr. Armstrong is
granted annually options to acquire at least 25,000 shares of Class A Stock
(the exact number of options to be determined by the Board upon recommendation
of the Compensation Committee) at an exercise price equal to the fair market
price of the underlying stock on the date of grant, such options to be
exercisable during a ten year period and to vest on a schedule to be
determined by the Board of Directors. In addition, Mr. Armstrong received an
aggregate deferred compensation package during the term of the employment
agreement of $150,000, the components of which were determined by the Board of
Directors, after and pursuant to the affirmative recommendation of the
Compensation Committee. Consequently, on September 5, 1995, the Company and
Mr. Armstrong entered into an addendum to Mr. Armstrong's employment agreement
pursuant to which he received $150,000, 25% of which is deemed earned on each
of December 31, 1995, April 1, 1996, April 1, 1997 and April 1, 1998,
respectively. The Company anticipates entering into an agreement with Mr.
Armstrong to amend certain provisions of his employment agreement.

Under each of the employment agreements, in the event that any of
Messrs. Sillerman, Hicks (until completion of the MMR Acquisition) or
Armstrong is (i) terminated "for cause" (as defined in the agreements) each is
to receive his base salary through the date of such termination and his
respective bonus and deferred compensation, if applicable, for the year in
which he was terminated pro rated over the time in which he was employed by
the Company during such year or (ii) terminated without cause or
"constructively terminated without cause" (as defined in the agreements) each
is to receive (1) the base salary accrued but not paid through termination,
(2) the base salary for a period of 36 months or until the end of the
contractual term (March 31, 2000), whichever is longer, provided that he shall
be entitled, at his option, to receive a lump sum payment of such amount
reduced by the present value of such payments using a discount rate of 75% of
the prime rate as published by The Wall Street Journal and (3) a bonus over
the balance of the term of employment (March 31, 2000), based on the bonus
received for the year prior to termination, and deferred compensation, if
applicable, provided that he shall be entitled, at his option, to receive a
lump sum payment of such amount reduced by the present value of such payments
using a discount rate of 75% of the prime rate as published by The Wall Street
Journal. In addition, each of Messrs. Sillerman, Hicks (until completion of
the MMR Acquisition) and Armstrong is entitled to options to purchase shares
of Class A Common Stock in an amount equal to 50,000, 25,000 and 25,000
shares, respectively, multiplied by the number of years remaining on the term
of the agreement at an exercise price per share equal to the exercise price of
the last stock option granted prior to termination. Currently, Messrs.
Sillerman, Hicks and Armstrong have the right to options to purchase 200,000,
100,000 and 100,000 shares of Class A Common Stock, respectively, pursuant to
this provision. The Company has repurchased the right to those options from
Mr. Hicks and anticipates that in connection with entering into a new
agreement with Mr. Armstrong the right to those options will be repurchased
from Mr. Armstrong as well.

<PAGE>

In the event that each of Messrs. Sillerman, Hicks (until completion of
the MMR Acquisition) and Armstrong is terminated without cause or there is a
"constructive termination without cause" following a "change of control" (as
defined in the employment agreements), they are to receive the amounts
referred to above for termination without cause or "constructive termination
without cause" in a lump sum without any discount. In addition, in the event
that these payments constitute a "parachute payment," they are to receive an
amount equal to 50% of any excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended. They will, however, forfeit any rights as a
result of a termination without cause or a constructive termination following
a change of control if they accept an offer to remain with the surviving
company in an executive position (other than as a non-employee director). In
addition, upon termination for any reason, any options held by each such
person shall become immediately exercisable and may be exercised during the
balance of the ten-year term of each such outstanding option. In addition,
each of Mr. Sillerman, Mr. Hicks and Mr. Armstrong shall receive ten year
options to purchase 250,000, 100,000 and 100,000 shares of Class A Common
Stock, respectively, which shall be exercisable at the lowest per share
exercise price of any other options or the exercise price of the most recently
granted option, as the case may be, as of the date of the "change of control."
Pursuant to the Hicks Agreement, the Company repurchased from Mr. Hicks the
right to these options and the Company anticipates that in connection with
entering into a new agreement with Mr. Armstrong, it will repurchase Mr.
Armstrong's right to these options as well.

The Company anticipates entering into an employment agreement with Mr.
Ferrel which will become effective upon the consummation of the MMR
Acquisition.

Stock Option Plans

The stockholders of the Company have approved and adopted the 1993 Stock
Option Plan (the "1993 Plan"), the 1994 Stock Option Plan (the "1994 Plan")
and the 1995 Stock Option Plan (the "1995 Plan" and, together with the 1993
Plan and the 1994 Plan, the "Stock Option Plans"). Except as discussed below,
the 1994 Plan and the 1995 Plan are substantially identical to the 1993 Plan.
The purpose of the Stock Option Plans is to provide additional incentive to
the officers and employees of the Company and other individuals who are
primarily responsible for the management and growth of the Company. Each
option granted pursuant to the Stock Option Plans is designated at the time of
grant as either an "incentive stock option" or as a "non-qualified stock
option." The Stock Option Plans are administered by a Stock Option Committee
(the "Committee") appointed by the Board of Directors of the Company,
consisting only of the Independent Directors. The Committee determines who
among those eligible will be granted options, the time or times at which
options will be granted, the number of shares to be subject to options, the
duration of options, any conditions to the exercise of options, and the manner
in and price at which options may be exercised. The Stock Option Committee
currently consists of Messrs. Kramer and O'Grady, the Class A Directors.

The Board of Directors is authorized to amend, suspend or terminate the
Stock Option Plans, except that it is not authorized without stockholder
approval (except with regard to adjustments resulting from changes in
capitalization) to (i) increase the maximum number of shares that may be
issued pursuant to the exercise of options granted under the Stock Option
Plans, (ii) withdraw the administration of the Stock Option Plans from the
Committee, (iii) change the eligibility requirements for participation in the
Stock Option Plans, (iv) extend the maximum term of options granted under the
Stock Option Plans or the period during which options may be granted under the
Stock Option Plans, (v) decrease the minimum option exercise price for
incentive stock options or (vii) otherwise materially increase the benefits
accruing to participants under the Stock Option Plans.

OPTION/SAR GRANTS IN THE LAST FISCAL YEAR

The following table provides information with respect to stock options
granted during the fiscal year ended December 31, 1995 to the Named Executive
Officers and all non-executive officers.

<PAGE>

Potential Realizable Value at
Assumed Annual Rates Of Stock
Individual Grants Price Appreciation For Option Term(2)
- ----------------------------------------------------------------------------- -------------------------------------
% of Total
Options/SARs
Granted to Exercise or 5%($) 10%($)
Options/SARs Employees in Base Price Expiration ($34.61 Stock ($55.12 Stock
Name Granted(#)(1) Fiscal Year ($/Sh) Date Price) Price)
- -------------------------- ------------- ------------ ----------- ---------- ------------- -------------
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C> <C> <C>
Robert F.X. Sillerman 60,000 25.53% $21.25 5-16-05 801,600 2,032,200
R. Steven Hicks 50,000 21.28% $21.25 5-16-05 668,000 1,693,500
D. Geoffrey Armstrong 50,000 21.28% $21.25 5-16-05 668,000 1,693,500
Howard J. Tytel 5,000 2.13% $21.25 5-16-95 66,800 169,350
Richard L. Liese 2,000 .85% $21.25 5-16-05 26,700 67,740
</TABLE>

- ----------
(1) The options were granted under the 1995 Stock Option Plan effective on May
16, 1995 and vest in five equal installments on May 16, 1996, 1997, 1998,
1999 and 2000, respectively. The exercise price of the options represented
the fair market value of the underlying stock on the date of grant.
(2) As required by rules of the Securities and Exchange Commission (the
"Commission"), the dollar amounts under columns (f) and (g) represent the
hypothetical gain or "option spread" that would exist for the options
based on assumed 5% and 10% annual compounded rated of stock price
appreciation over the full option term. These assumed rates would result
in a Class A Common Stock price on May 16, 2005 of $34.61 and $55.12,
respectively. If these price appreciation assumptions are applied to all
of the Company's outstanding shares of Class A Common Stock on the grant
date, such Class A Common Stock would appreciate in the aggregate by
approximately $86,281,752 and $192,906,882, respectively, over the
ten-year period ending on May 16, 2005. These prescribed rates are not
intended to forecast possible future appreciation, if any, of the Class A
Common Stock.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES

The following table provides information with respect to the stock
options exercised during 1995 and the value as of December 31, 1995 of
unexercised "in-the-money" options held by the Named Executive Officers. The
value of unexercised in-the-money options at fiscal year end is the difference
between the option exercise price and the fair market value of a share of the
Class A Common Stock at fiscal year end, December 31, 1995 multiplied by the
number of options.

<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE OPTIONS/SARS AT IN-THE-MONEY OPTIONS
NAME ON EXERCISE (#) REALIZED ($) FY-END (#) AT FY-END ($)(1)
- --------------------- --------------- ------------ --------------- --------------------
(a) (b) (c) (d) (e)
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Robert F.X. Sillerman . 0 0 43,000 / 177,000 729,875 / 2,477,625
R. Steven Hicks ....... 0 0 43,000 / 167,000 729,875 / 2,388,875
D. Geoffrey Armstrong . 0 0 26,500 / 108,500 452,562 / 1,416,437
Howard J. Tytel ....... 0 0 0 / 5,000 0 / 43,750
Richard A. Liese ...... 0 0 0 / 2,000 0 / 17,500
</TABLE>

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

(1) Based on $30 1/8, the closing price on December 29, 1995 of an underlying
share of Class A Common Stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors consists of the two
Independent Directors, currently Messrs. Kramer and O'Grady, and Mr.
Sillerman. Mr. Sillerman is the Executive Chairman of the Company. Additional
relationships and transactions between the Company and Mr. Sillerman are set
forth under "Certain Relationships and Related Transactions." The function of
the Compensation Committee is to review and make recommendations with

<PAGE>

respect to certain of the Company's compensation programs and compensation
arrangements with respect to certain officers, including Messrs. Sillerman,
Hicks and Armstrong.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table gives information concerning the beneficial ownership
of the Company's capital stock as of March 31, 1996, by (i) each person known
by the Company to own beneficially more than 5% of any class of the Company's
voting stock, (ii) each Named Executive Officer and director of the Company,
and (iii) all executive officers and directors of the Company as a group.
Unless otherwise specified, the named beneficial owner claims sole investment
and voting power as to the shares indicated.

<TABLE>
<CAPTION>
CLASS A VOTING CLASS B VOTING
COMMON STOCK COMMON STOCK
---------------------------- ----------------------------- PERCENTAGE OF
NAME AND ADDRESS OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF TOTAL VOTING
BENEFICIAL OWNER(1) SHARES CLASS SHARES CLASS POWER
- ----------------------------------- --------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Robert F.X. Sillerman ............. 103,010(2) 1.69% 856,126(3) 85.6% 53.21%
R. Steven Hicks ................... 79,318(4) 1.22% 143,874(5) 14.4% 9.31%
D. Geoffrey Armstrong ............. 45,996(6) * -- -- *
Howard J. Tytel ................... -- -- -- -- --
Richard A. Liese .................. -- -- -- -- --
James F. O'Grady, Jr. ............. -- -- -- -- --
Paul Kramer ....................... 1,000 * -- -- *
All directors and executive
officers as a group (seven
persons) ........................ 229,324 3.61% 1,000,000 100% 62.46%
5% STOCKHOLDERS:
Nomura Holdings America Inc. ...... 1,071,429(7) 16.79% -- -- 6.6%
2 World Financial Center
Building B
New York, NY 10281
Putnam Investments, Inc. .......... 900,571(8) 14.12% -- -- 2.25%
One Post Office Square
Boston, MA 02109
Mellon Bank Corporation ........... 365,000(9) 5.72% -- -- 2.23%
One Mellon Bank Center
Pittsburgh, PA 15258
</TABLE>

All percentages in this section were calculated on the basis of outstanding
securities plus securities deemed outstanding under Rule 13d-3 of the Exchange
Act.

- ----------
* less than 1%
(1) Unless otherwise set forth below, the address of each stockholder is the
address of the Company, which is 150 East 58th Street, 19th Floor, New
York, New York 10155. The information as to beneficial ownership is based
on statements furnished to the Company by the beneficial owners. As used
in this table, "beneficial ownership" means the sole or shared power to
vote, or to direct the disposition of, a security. For purposes of this
table, a person is deemed as of December 31, 1995 to have "beneficial
ownership" of any security that such person has the right to acquire
within 60 days of December 31, 1995. Unless noted otherwise, stockholders
possess sole voting and dispositive power with respect to shares listed on
this table.

This table does not include 2,000 shares of non-voting Series B
Redeemable Preferred Stock which is held by Nomura Holdings America,
Inc. ("Nomura"). The Series B Redeemable Preferred Stock was issued to the
Equitable Life Assurance Society of the United States or its affiliates
("Equitable") in exchange for certain debt of Capstar in connection with
the Capstar Merger. Equitable informed the Company that it has transferred
the Series B Redeemable Preferred Stock to Nomura.

In addition, for purposes of this table, "beneficial ownership" does not
include the number of shares of Class A Common Stock issuable upon
conversion of Class B Common Stock even though such shares are convertible
under certain circumstances into shares of Class A Common Stock.

(2) Includes (i) 55,000 shares which may be acquired pursuant to the exercise
of options vesting within 60 days of March 31, 1996; and (ii) 48,010
shares owned of record by SCMC, a corporation owned principally by and
controlled by Mr. Sillerman. Mr. Sillerman has sole voting right with
respect to all of the shares held of record by SCMC pursuant to a voting
trust which expires on September 30, 2002. None of the shares beneficially
owned by Mr. Sillerman may be voted in the election of Independent
Directors.

<PAGE>

(3) Represents (i) 660,068 shares owned of record by Mr. Sillerman who
acquired them from SCP (in a transaction in which Mr. Sillerman obtained
such stock and issued to SCP a nonrecourse purchase money promissory note
pursuant to which SCP receives additional interest payments equal to all
sale proceeds or distributions with respect to the shares), (ii) 133,333
shares owned of record by Mr. Sillerman received as Founders' Stock and
(iii) 62,725 shares issued in connection with the conversion of 62,725
shares of Class A Common Stock to an equal number of shares of Class B
Common Stock on May 5, 1995.

(4) Includes (i) 53,000 shares which may be acquired pursuant to the exercise
of options vesting within 60 days of March 31, 1996; (ii) 14,469 shares
owned of record by Capstar, Inc., a private company which managed the
business and affairs of Capstar and (iii) 11,849 shares distributed to Mr.
Hicks as liquidating distributions from entities which previously were
investors in Capstar. All of the outstanding capital stock of Capstar,
Inc. is owned by Mr. Hicks and trusts for the benefit of his children.

(5) Represents 133,333 shares issued directly to Mr. Hicks as Founders' Stock
and 10,541 shares issued in connection with the conversion of 10,541
shares of Class A Common Stock to an equal number of shares of Class B
Common Stock on May 5, 1995.

(6) Includes 36,500 shares which may be acquired pursuant to the exercise of
options vesting within 60 days of March 31, 1996.

(7) Based on information contained in Schedule 13D filed with the Securities
and Exchange Commission (the "Commission") and dated December 7, 1994. The
shares are held of record by Bedrock Asset Trust I, a Delaware trust
established by Nomura which is controlled by The Nomura Securities Co.,
Ltd., a corporation organized under the laws of Japan. The shares were
purchased as part of a portfolio of securities from Equitable on December
7, 1994. See "Certain Relationships and Related Transactions--Transfer of
Class C Common Stock by Equitable."

(8) Based on information contained in Amendment No. 3 to Schedule 13G filed
with the Commission on January 23, 1996. Putnam Investments, Inc., a
holding company, through its wholly-owned subsidiaries, Putnam Investment
Management, Inc. and The Putnam Advisory Company, Inc., investment
advisors under the Investment Advisers Act of 1940 (the "Advisers Act"),
holds, as of December 31, 1995, shared dispositive power with respect to
900,571 shares of which it holds shared voting power with respect to
163,746 shares. Of the 900,571 shares, Putnam New Opportunities Fund, an
investment company under the Investment Company Act of 1940 (the "1940
Act"), holds shared voting and dispositive power with respect to 405,000
shares. Putnam Investments is a wholly-owned subsidiary of Marsh &
McLennan Companies, Inc.

(9) Based on information contained in Schedule 13G filed with the Commission
and dated January 22, 1996. Mellon Bank Corporation owns 365,000 shares as
of December 31, 1995, for the benefit of certain employee benefit plans of
its direct and indirect subsidiaries, Boston Safe Deposit and Trust
Company, Mellon Bank, N.A., the Boston Company Asset Management, Inc. and
The Dreyfus Corporation. Mellon Bank Corporation shares voting and
dispositive powers with respect to varying amounts of shares with Boston
Group Holdings, Inc. and the Boston Company, Inc.

Pursuant to the terms of the MMR Acquisition, the Company will be required
to issued additional shares of Class A Common Stock and Class B Common Stock.
The number of such securities to be issued will be determined in accordance
with the formula set forth in the plan and agreement of merger governing the
MMR Acquisition. In addition, pursuant to the Hicks Agreement, Mr. Hicks will
convert 75,000 shares of Class B Common Stock to Class A Common Stock and the
Company will repurchase the remaining 68,874 shares of Class B Common Stock
from Mr. Hicks. It is anticipated that upon the consummation of the MMR
Acquisition, Mr. Sillerman will have in excess of 50% of the total voting
power of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS RELATED TO ORGANIZATION AND FORMATION OF THE COMPANY

The Company was formed in February 1992 to acquire and operate the
existing radio station businesses of Capstar Communications, Inc. ("Capstar")
and Command Communications, Inc. ("Command"). Robert F.X. Sillerman, through
his affiliates SCMC and SCP, had been an investor in and advisor to Capstar
and Command since their formation in 1988 and 1989, respectively, but did not
have control of or authority over the operation of their businesses. SCMC is a
privately-owned investment company controlled and managed by affiliates of Mr.
Sillerman that makes investments in and provides financial and consulting
advice to media companies. SCP is a private institutional investment
partnership of which Mr. Sillerman controls 100% of the general partnership
interest and in excess of 50% of the limited partnership interest and which
invests funds contributed to its capital by its general and limited partners
in debt and equity securities of media companies. R. Steven Hicks was the
Chief Executive Officer and a significant investor in Capstar since its
formation.

In connection with the formation of the Company, Mr. Sillerman, SCMC, SCP
and R. Steven Hicks were issued 133,333 shares of Class B Common Stock,
105,404 shares of Class A Common Stock, 660,068 shares of Class B Common Stock
and 133,333 shares of Class B Common Stock, respectively, in consideration for
their efforts in organizing the Company and structuring various elements of
the acquisition of all of the outstanding voting stock of Command in July 1993
(the "Command Acquisition") and the merger of a subsidiary of the Company with
and into Capstar in October 1993 (the "Capstar Merger"). During 1994, the
Company incurred a non-recurring non-cash charge of approximately $13.5
million with respect to the valuation of such shares to the value as of the
date of the Company's initial public offering in July 1993 (the "Initial
Public Offering"). In January 1994, Mr. Sillerman acquired for his own account
660,068 shares of Class B Common Stock of the Company held by SCP at a price
of $15.00 per share, for an aggregate consideration of approximately $9.9
million. In full payment for this purchase, Mr. Sillerman issued to SCP

<PAGE>

a nonrecourse purchase money promissory note pursuant to which SCP is entitled
to receive additional interest payments equal to all sale proceeds or
distributions with respect to the shares.

In connection with the Capstar Merger, the following shares of the
Company's Class A Common Stock were issued in consideration for equity
interests of Capstar: (i) 14,469 shares to R. Steven Hicks, (ii) 53,333 shares
to Hicks Broadcasting Corporation ("HBC"), (iii) 1,447 shares to Hicks
Broadcasting Partners of Tennessee, L.P. ("HBP") and (iv) 1,736 shares to
Thomas Hicks, the brother of R. Steven Hicks. HBP and HBC are investment
entities which are affiliates of R. Steven Hicks and Thomas Hicks.
Concurrently with the consummation of the Capstar Merger, the Company paid an
aggregate of approximately $4.1 million in cash to the holders of Capstar's
Series A Preferred Stock (SCMC, SCP, Equitable and Sentinel Investors, L.P.,
an unaffiliated third party), and $36.8 million to repay all of Capstar's
outstanding indebtedness to Heller Financial, Inc. and Equitable.

On July 2, 1993, the Company acquired all of the outstanding voting stock
of Command from the former principal of Command and the principal's employment
agreement was terminated as of July 2, 1993, for aggregate consideration of
$2.75 million, consisting of (i) $1.75 million in cash and (ii) 1,000 shares
of the Company's Series A Redeemable Preferred Stock. The Series A Redeemable
Preferred Stock was redeemed in October 1994 at a redemption price of
$1,000,000.

In connection with the Command Acquisition, the Company and Equitable
entered into an agreement dated as of August 16, 1993 (the "Equitable Debt
Exchange Agreement") pursuant to which (x) senior subordinated notes due to
Equitable from Command were exchanged concurrently with the closing of the
Initial Public Offering for (i) an $18.0 million cash payment from the
Company, (ii) 4,000 shares of the Company's Series B Redeemable Preferred
Stock, and (iii) 1,071,429 shares of non-voting Class C Common Stock and (y)
certain junior subordinated notes due to Equitable from Command were canceled.
In connection with the execution of the Equitable Debt Exchange Agreement,
Command, Equitable and SCMC entered into an agreement pursuant to which, among
other things, (i) SCMC canceled a note from Command and (ii) SCMC and
Equitable agreed under certain circumstances to share in the future
appreciation of the Class C Common Stock above certain levels. In addition, in
connection with the Command Acquisition, Mr. Sillerman agreed to surrender for
cancellation, for no consideration, the preferred stock in Command held by him
as nominee for the former shareholders of an affiliate. In January 1994, the
Company repurchased the 1,000 shares of Series B Preferred Stock due October
1998 for $750,000.

On December 7, 1994, Equitable sold to Nomura a package of securities,
including 1,071,429 of the 1,088,213 shares of Class C Common Stock held by
Equitable. The stock exchange agreement between Equitable and the Company
provides that the Company has a right of first refusal in respect of any
transfer or sale of the shares held by Equitable or its successors. In
accordance with the Company's Certificate of Incorporation, the Class C Common
Stock was converted into an equal number of shares of Class A Common Stock
effective with the sale from Equitable to Nomura. In connection with the sale
and subsequent conversion, the Company paid SCMC a fee of $1.0 million in
consideration of: (i) SCMC's negotiation of the transfer on behalf of the
Company; (ii) SCMC's surrender of certain contractual rights and economic
interests with respect to the transferred stock, which would otherwise block
the stock transfer; (iii) the restatement, including significant favorable
adjustments, of the registration rights agreement pursuant to which the
transferred stock was originally issued; (iv) the receipt by the Company of
the rights of first refusal with respect to subsequent transfers of the stock;
and (v) the anticipated favorable effect of the transfer on the market for the
Company's Class A Common Stock. The Company received a fairness opinion with
respect to the fee from an independent investment banking firm.

RELATIONSHIP OF THE COMPANY WITH SCMC

As discussed above, SCMC provides financial and consulting services to
media companies. Prior to the completion of the Capstar Merger and the Command
Acquisition, SCMC was a party to separate financial advisory and investment
banking agreements with Capstar and Command. In return for its services to
Capstar, SCMC was entitled to receive an annual consulting fee as well as
investment banking fees, acquisition and merger fees and other fees for
financing services it provided. SCMC received fees from Capstar of $100,000 in
1992 and $75,000 in 1993. Under its agreement with Command, SCMC received a
retainer of $250,000 which could be applied by Command against fees earned by
SCMC. As of June 30, 1993, the total amount due to SCMC by Command was
$257,000, excluding the $250,000 retainer. At the closing of the Initial
Public Offering, the $257,000 due to SCMC by Command was forgiven. The
agreements between SCMC and each of Capstar and Command were terminated in
connection with the completion of the Initial Public Offering.

<PAGE>

Since the Initial Public Offering, the Company and SCMC have not entered
into a financial and/or investment banking agreement nor is it their intention
to do so in the future. SCMC has, however, been engaged by the Company from
time to time for advisory services with respect to specific transactions. Each
such engagement has been subject to the affirmative recommendation of the
Audit Committee. Any future engagements will similarly be subject to the
affirmative recommendation of the Audit Committee and to compliance with
applicable covenants in the Old Indenture, the Old Credit Agreement, the
Indenture or the New Credit Agreement. SCMC has been engaged by and received
fees from the Company for advisory services, including the assumption of
certain obligations such as the provision of legal services, with respect to
the following transactions: (i) $25,000 in respect of the sale of the Texas
State Network's Spanish Information Service Network in October 1993; (ii)
$550,000 in respect of the acquisition of WRVW-FM, Nashville, Tennessee, in
December 1994, as described below; (iii) $175,000 in respect of the
acquisition of KYXY-FM in San Diego, California in April 1995, as described
below; and (iv) $100,000 in respect of the negotiation of the Old Credit
Agreement. In addition, the Company has agreed to pay to SCMC advisory fees in
respect of certain pending transactions.

From time to time, Mr. Sillerman or companies controlled by him, including
SCMC, have advanced funds on the Company's behalf. During 1994 and 1995, the
Company reimbursed SCMC $178,000 and $330,000, respectively in respect of
these expenses.

On January 23, 1995, the Company advanced SCMC $2.0 million in exchange
for an unsecured note receivable due on January 23, 2000 and bearing interest
at 1% over the prime rate which is payable annually. In connection with the
issuance of the note, the Company obtained a fairness opinion from the
investment banking firm of Furman Selz LLC. Based in part on that opinion, the
Board concluded that the loan was fair in its terms to the Company. In
November 1995, SCMC's unsecured note was amended to provide that in the event
of a "Change of Control" (as defined in the employment agreements between the
Company and its executive officers) the loan and all accrued but unpaid
interest will be forgiven. The loan was forgiven by the Company in connection
with the Termination and Assignment Agreement entered into between the Company
and SCMC as of April 15, 1996, ancillary to the MMR Acquisition (the
"Termination and Assignment Agreement").

Pursuant to the Termination and Assignment Agreement, which was reviewed
and recommended to the Company by the Special Committee and subsequently
approved by the Board of Directors, SCMC has assigned its rights to receive
fees payable by each of MMR and Triathlon Broadcasting Company ("Triathlon")
to SCMC in respect of consulting and marketing services performed on behalf of
such companies by SCMC, except for fees related to certain transactions
pending at the date of such agreement, and the Company and SCMC terminated the
arrangement pursuant to which SCMC performed financial consulting services for
the Company. Pursuant to the Termination and Assignment Agreement, SCMC has
agreed to continue to provide consulting and marketing services to each of MMR
and Triathlon during the term of the respective agreements between such
parties and SCMC, and not to perform any consulting or investment banking
services for any person or entity, other than MMR or Triathlon, in the radio
broadcasting industry or in any business which uses technology for the audio
transmission of information or entertainment. In consideration of the
foregoing agreements, the Company has issued to SCMC a warrant to purchase up
to 600,000 shares of Class A Common Stock at an exercise price, subject to
adjustment, of $33-3/4, during the six-year period from the date of issuance
and the Company forgave the $2.0 million loan made by the Company to SCMC on
January 23, 1995. Pursuant to such agreement, Mr. Sillerman has agreed with
the Company that he will supervise and control, subject to the direction of
the Company's Board of Directors, the performance by the Company of the
financial consulting and other services previously performed by SCMC. In
addition, the Company anticipates that it will hire certain persons previously
employed by SCMC who provided financial consulting services to the Company.

In December 1994, the Company completed the purchase of the assets of
WRVW-FM, Nashville, Tennessee, from Legacy Broadcasting, Inc., an affiliate of
Messrs. Sillerman and Tytel. The purchase price was $4.6 million, including
transaction costs of $850,000, of which $550,000 was paid to SCMC. None of
Messrs. Sillerman, Tytel or their affiliates received any consideration in
respect of the purchase price as the proceeds were used to repay outstanding
indebtedness. In April 1995, the Company acquired all of the outstanding
shares of Parker Broadcasting Company, the owner and licensee of radio station
KYXY-FM in San Diego, California. The purchase price was $14,500,000,
including transaction costs of $500,000, of which $175,000 was paid to SCMC.

The Company and SCMC entered into an arrangement to jointly lease office
space located at 150 East 58th Street, New York, New York from an unrelated
third party in May 1994. The liability of the Company and SCMC under the lease
arrangement is joint and several except that the liability of SCMC shall not
exceed 14% of the obligation to the landlord. The Company paid $180,000 and
$335,000 related to the lease for the 12 months ended December 31, 1994

<PAGE>

and 1995, respectively. Prior to the execution of the current lease, the
Company sublet space from SCMC at the same address. In 1993 the Company paid
$82,500 to SCMC pursuant to this sublease for the six months ended December
31, 1993.

Mr. Sillerman personally guaranteed the payment of any borrowings under
the Company's $7,500,000 revolving credit facility with Chemical Bank. In
1993, Mr. Sillerman was paid $75,000 in respect of such guarantee. The
guarantee of Mr. Sillerman was released in January 1994. In 1993, Command paid
Mr. Sillerman a fee of $75,000 in consideration of a guarantee of certain
indebtedness of Command. The guarantee was released in 1993 in connection with
the repayment and termination of such indebtedness of Command.

Mr. Tytel, a Director and the Executive Vice President and Secretary of
the Company, is of counsel to the law firm of Baker & McKenzie and was
previously of counsel to the law firm of Winston & Strawn. Winston & Strawn
served as counsel to SCMC, SCP, Capstar and Command in connection with the
Initial Public Offering and related transactions. In connection with the
Initial Public Offering, SCMC paid and guaranteed certain of the Company's
obligations for certain professional fees and disbursements. Baker & McKenzie
is counsel in certain matters to the Company, SCMC, SCP, Multi-Market Radio,
Inc. and certain other affiliates of Mr. Sillerman. Baker & McKenzie
compensates Mr. Tytel based on the fees it receives from providing legal
services to the Company, its affiliates and other clients originated by Mr.
Tytel. The Company paid Baker & McKenzie $842,000 for legal services during
1995. Mr. Tytel's primary employment is as an officer of SCMC.

April

RELATIONSHIP OF THE COMPANY WITH MR. HICKS AND HIS AFFILIATES

On October 7, 1993, Mr. Hicks obtained from the Company a loan in the
principal amount of $2.0 million, bearing interest at the rate of 6% per
annum, payable on the earlier to occur of the termination of his employment
agreement or October 1998. The loan is evidenced by a note which is secured by
133,333 shares of the Class B Common Stock. In connection with the loan, the
Company has no recourse to Mr. Hicks or his assets, other than his shares of
the Class B Common Stock. In 1994, the Company accrued interest income of
$148,000 in respect of the loan. In connection with the Hicks Termination
Agreement (as defined below), the Company has agreed to forgive such loan on
termination of Mr. Hicks' consulting arrangement with the Company (as
described below) or on such earlier date as the Hicks Termination Agreement
may be terminated.

Mr. Hicks and trusts for the benefit of his children are the sole
shareholders of Capstar, Inc. Capstar, Inc. managed the business and affairs
of Capstar pursuant to a management agreement with Capstar dated November 20,
1989. The agreement terminated upon the Capstar Merger. In consideration for
its services to Capstar, Capstar, Inc. was entitled thereunder to receive an
annual fee of $150,000 per year and an additional amount of $30,000 if certain
cash flow targets were met, both of which were adjustable based on increases
in the consumer price index. In addition, Capstar, Inc. was also entitled to
reimbursement of expenses incurred in the performance of management services,
including rent and other office expenses. Total payments to Capstar, Inc.
thereunder were $472,000 and $893,000 for 1992 and 1993, including $700,000
related to the acquisition of WMYI-FM and the merger of Capstar with the
Company.

During 1994, the Company sublet office space in Austin, Texas on a month
to month basis for certain management and accounting operations from Capstar,
Inc. The Company recorded rent expense of $94,335 and $67,000 for the 12
months ended December 31, 1994 and 1995, respectively. In the event of a
"Change of Control" as such term is defined in the employment agreements
between the Company and its executive officers, all sums remaining over the
unexpired term of the current sublease will become immediately due and
payable.

In April 1993, the Company purchased substantially all of the assets and
assumed certain liabilities of WMYI-FM, Greenville-Spartanburg, South
Carolina, from an unrelated third party. The purchase price of approximately
$9.4 million, plus transaction costs of approximately $500,000 and a loan
proposal and commitment fee of $600,000, were funded with a loan from HMC Cap
Bridge, Inc. ("HMC"), a company affiliated with Hicks, Muse & Co.,
Incorporated, an investment firm in which Thomas Hicks, a brother of R. Steven
Hicks, is a principal. In addition, the Company concurrently borrowed $1.5
million from HMC to purchase a note payable to HBP in respect of the
acquisition of WSIX-FM. Thomas Hicks is a principal of HBP. In connection with
the repayment of the HMC loan, the Company paid a $686,000 prepayment penalty
and wrote off unamortized deferred financing costs of $495,000.

On April 16, 1996, the Company and R. Steven Hicks entered into the Hicks
Agreement pursuant to which they have agreed to terminate Mr. Hicks'
employment arrangement with the Company concurrently with the completion of

<PAGE>

the MMR Acquisition in consideration of a payment from the Company to Mr.
Hicks in the amount of $1.8 million. Mr. Hicks has agreed to serve on the
Company's Board of Directors until the next annual meeting of shareholders
following the MMR Acquisition. Mr. Hicks currently owns 143,874 shares of
Class B Common Stock; in connection with the Hicks Agreement, Mr. Hicks has
agreed to convert 75,000 of such shares into an equivalent number of shares of
Class A Common Stock and to sell 68,874 shares of Class B Common Stock plus
210,000 and his right to 200,000 to purchase shares of Class A Common Stock to
the Company for an aggregate purchase price of $12,572,460. The Company
intends to pay such amount to Mr. Hicks from the proceeds of the Offerings.
The Company has agreed that during the period commencing one year from the
date of the MMR Acquisition, Mr. Hicks shall have the right to require the
Company to purchase all of his shares of Class A Common Stock owned on the
date of the agreement at a price equal to the greater of $40.00 or the average
closing price of the Class A Common Stock for the five business days preceding
the repurchase. Mr. Hicks has agreed to serve as a consultant to the Company
for a period of five years commencing on the completion of the MMR Acquisition
and the Company has agreed to compensate him for such services at the rate of
$150,000 per year and to provide Mr. Hicks with an office, secretarial support
and an automobile. Mr. Hicks has agreed that he will not compete with the
Company during the one-year period following the MMR Acquisition, unless the
Company shall terminate the consulting arrangement with Mr. Hicks, except that
he may continue his involvement with Hicks Capital Corporation, Capstar, Inc.
and Gulfstar Communications, Inc., or any affiliates thereof, nor will he
solicit any employees of the Company (other than those based in Austin, Texas)
during such one year period. In consideration of the foregoing, the Company
has agreed to make a payment to Mr. Hicks in the amount of $500,000. In
addition, as discussed above, the Company has agreed to forgive the $2.0
million loan made by the Company to Mr. Hicks upon termination of the Hicks
Agreement.

TRANSACTIONS WITH MMR

On November 13, 1995, the Company and MMR entered into an exchange
agreement (the "Letter Agreement") pursuant to which MMR agreed to acquire
eight FM and four AM radio stations owned by Liberty following the Company's
acquisition of Liberty, in exchange for ten radio stations (the "Swap
Stations") to be acquired by MMR pursuant to the following purchase
agreements. Pursuant to the terms of the MMR Acquisition, the Company and MMR
canceled the Letter Agreement and MMR agreed to use its commercially
reasonable efforts to transfer its rights under the purchase agreements for
the Swap Stations to SFX. On January 26, 1996, MMR entered into an agreement
to acquire substantially all of the assets of WSTZ-FM and WZRX-AM, both
operating in Jackson, Mississippi, for a purchase price of $3.5 million. On
January 22, 1996, MMR entered into an agreement to acquire substantially all
of the assets of WROQ-FM, operating in Greenville, South Carolina, for a
purchase price of $14.0 million. On January 18, 1996, MMR entered into an
agreement to acquire substantially all of the assets of WTRG-FM, WRDU-FM and
WTCK-AM, each operating in the Greensboro, North Carolina market, and WMFR-AM
and WMAG-FM, both operating in the Greensboro, North Carolina market, for a
purchase price which subject to adjustment based on the broadcast cash flow of
WTRG-FM and WRDU-FM. The Company and MMR have agreed that the Company will
finance the purchase of the Swap Stations and that MMR will immediately
thereafter transfer the purchased assets to the Company.

In addition, the Company and MMR have agreed that following the Liberty
Acquisition, the Company and MMR will enter into an LMA pursuant to which MMR
will provide programming to and sell advertising on behalf of the following
stations to be acquired from Liberty: WHCH-FM, WMRQ-FM and WPOP-AM, each
operating in the Hartford, Connecticut market, WSNE-FM, WHJY-FM and WHJJ-AM,
each operating in the Providence, Rhode Island market, WGNA-FM, WGNA-AM,
WPYX-FM, WTRY-AM and WYSR-FM, each operating in the Albany, New York market,
and WMXB-FM, operating in the Richmond, Virginia market (collectively, the
"MMR Liberty Stations"). In connection with such LMA, MMR has agreed to pay to
SFX a monthly fee in an amount equal to the broadcast cash flow of the Liberty
Stations. The LMA will terminate upon the completion of the MMR Acquisition
or, in certain circumstances, the date of termination of the MMR Acquisition
Agreement. In the event that the MMR Acquisition Agreement is terminated,
except in certain circumstances, MMR will have the right, subject to FCC
approval, to acquire the Liberty Stations for $100.0 million, or, in certain
circumstances, to acquire the Liberty Stations pursuant to an exchange of
stations intended to qualify as a like-kind exchange under Section 1031 of the
Internal Revenue Code of 1986, as amended. In addition, in the event that the
Company fails to complete the Liberty Acquisition and the MMR Acquisition
Agreement is terminated, except in certain circumstances, the Company will pay
liquidated damages to MMR in the amount of $3.5 million.

The Company has entered into an agreement and plan of merger pursuant to
which it has agreed to acquire all of the capital stock of MMR. MMR was
organized in 1992 by Michael G. Ferrel, who has agreed to become the Chief
Executive Officer of the Company upon completion of the MMR Acquisition,
Howard J. Tytel and Robert F.X. Sillerman. Mr. Sillerman owns a substantial
non-voting equity interest in MMR, which will be exchanged for capital

<PAGE>

stock of the Company upon completion of the MMR Acquisition. Mr. Sillerman has
also provided advisory services to MMR in connection with the MMR Acquisition
through SCMC. The MMR Acquisition was reviewed and recommended to the Company
by the Special Committee and was approved by the Board of Directors. In
addition, the Company has received the opinion of Furman Selz LLC that the MMR
Acquisition is fair to the Company from a financial point of view.

OTHER TRANSACTIONS

In December 1994, the Board of Directors approved the conversion by
Messrs. Sillerman and Hicks of 62,725 and 10,451 shares of Class A Common
Stock, respectively, into 62,725 and 10,541 shares of Class B Common Stock,
respectively, which was consummated on May 5, 1995.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM

(a)(1) The following consolidated financial statements of SFX Broadcasting, Inc.
and subsidiaries are filed as a part of this report or are incorporated
herein by reference:

Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 1995 and 1994

Consolidated Statements of Operations for each of the three years in
the period ended December 31, 1995.

Consolidated Statements of Shareholders' Equity (Deficiency) for each
of the three years in the period ended December 31, 1995

Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1995

Notes to Consolidated Financial Statements

Report of Independent Auditors

(2) The following Financial Statement Schedule is included herein:

Schedule II - Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.

(3) Listings of Exhibits (included herein)

(b) Reports on form 8-K

<PAGE>

SFX Broadcasting, Inc. and Subsidiaries

Schedule II - Valuation and Qualifying Accounts
(in thousands)

Additions
Balance at Charged Balance at
Beginning to Costs and End of
Description of Year Expenses Deductions Acquisitions Year
- ----------- ------- -------- ---------- ------------ ----
Allowance for
doubtful accounts:
1993 ................ $169 $206 $221 $477 $631
1994 ................ 631 405 375 -- 661
1995 ................ 661 658 519 122 922

<PAGE>

EXHIBIT INDEX

Exhibit
Number Description of Exhibit
- -------
3.1 Restated Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to Amendment No. 3 to Registration Statement
Form S-1 (Reg. No. 33-65442) filed with the Commission on September 29,
1993).

3.2 Certificate of Amendment to the Restated Certificate of Incorporation
of the Company filed with the Delaware Secretary of State's office on
July 29, 1994 (Incorporated by reference to Exhibit 3.2 to Form 10-K
for the period ending December 31, 1994).

3.3 By-laws of the Company (Incorporated by reference to Exhibit 3.2 to
Registration Statement Form S-1 (Reg. No 33-65442) filed with the
Commission on July 2, 1993).

4.1 Form of Certificate for shares of Class A Common Stock (Incorporated
by reference to Exhibit 4.1 to Amendment No.3 to Registration Statement
Form S-1 (Reg. No. 33-65442) filed with the Commission on September 29,
1993).

4.2 Voting Trust Agreement Between Mr. Sillerman, Mr. Tytel and William J.
Magee, Jr. (Incorporated by reference to Exhibit 9 to Amendment No.1 to
Registration Statement Form S-1 (Reg. No. 33-65442) filed with the
Commission on September 7,1993).

10.1 Asset Purchase Agreement between WLIN, Inc. and Capstar (Incorporated
by reference to Exhibit 10.1 to Form 10-K for the period ending
December 31, 1993, filed with the Commission on March 31, 1994).

10.2 Programming Agreement between Legacy Broadcasting Partners of Nashville,
L.P. and Capstar Communications of Tennessee, Inc. (Incorporated by
reference to Exhibit 10.2 to Form 10-K for the period ending December
31, 1993, filed with the Commission on March 31, 1994).

10.3 Asset Acquisition Agreement between Metropolitan Broadcasting
Corporation of Texas and Alpha Broadcasting (Incorporated by reference
to Exhibit 10.3 to Form 10-K for the period ending December 31, 1993,
filed with the Commission on March 31, 1994).

10.4 Form of Employment Agreement between the Company and Mr. Sillerman
(Incorporated by reference to Exhibit 10.2 to Registration Statement
Form S-1 (Reg. No. 33-65442) filed with the Commission on July 2,
1993).

10.5 Form of Employment Agreement between the Company and Mr. Hicks
(Incorporated by reference to Exhibit 10.2 to Registration Statement
Form S-1 (Reg. No. 33-65442) filed with the Commission on July 2,
1993).

10.6 Form of Sublease between the Company and SCMC (Incorporated by reference
to Exhibit 10.3 to Registration Statement Form S-1 (Reg. No. 33-65442)
filed with Commission on July 2, 1993).

10.7 Assignment with Consent of Lease between the Company and SCMC
(Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter
ended March 31, 1994).

10.8 Form of Shared Facilities Agreement between the Company and SCMC
(Incorporated by reference to Exhibit 10.4 to Registration Statement
Form S-1 (Reg. 33-65442) filed with the Commission on July 2, 1993).

10.9 1993 Stock Option Plan of the Company (Incorporated by reference to
Exhibit 10.5 to Registration Statement Form S-1 (Reg. 33-65442) filed
with the Commission on July 2, 1993).

10.10 1994 Stock Option Plan of the Company (Incorporated by reference to
Exhibit B to the Company's Proxy Statement for the 1994 Annual Meeting
of Stockholders).

<PAGE>

11.11 1995 Stock Option Plan of the Company (Incorporated by reference of
Annex A to the Company's Proxy Statement for the 1995 Annual Meeting of
Stockholders).

10.12 Payment Agreement among Carl Brazell, SCMC, Equitable, Command,
Mr. Sillerman and Trustee (Incorporated by reference to Exhibit 10.6 to
Amendment No. 1 to Registration Statement Form S-1 (Reg No. 33-65442)
filed with the Commission on September 7, 1993).

10.13 ML-Lee Agreement among the company, SCMC, Mr. Sillerman and ML-Lee
(Incorporated by reference to Exhibit 10.7 to Amendment No. 2 to
Registration Statement Form S-1 (Reg. No. 33-65442) filed with the
Commission on September 22, 1993).

10.14 Equitable Debt Exchange Agreement among the Company, Equitable and SCMC
(Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to
Registration Statement Form S-1 (Reg. No. 33- 65442) filed with the
Commission on September 7, 1993).

10.15 Equitable Stock Agreement among Command, Equitable and SCMC
(Incorporated by reference to Exhibit 10.9 to Amendment No. 1 to
Registration Statement Form S-1 (Reg. No. 33-65442) filed with the
Commission on September 7, 1993).

10.16 Letter Agreement among the Company, Mr. Sillerman, SCMC and SCP
(Incorporated by reference to Exhibit 10.10 to Amendment No. 1 to
Registration Statement Form S-1 (Reg. No. 33-65442) filed with the
Commission on September 7, 1993).

10.17 Registration Rights Agreement between the Company and Equitable
(Incorporated by reference to Exhibit 10.11 to Amendment No. 1 to
Registration Statement Form S-1 (Reg. No. 33-65442) filed with the
Commission on September 7, 1993).

10.18 Registration Rights Agreement between the Company and ML-Lee
(Incorporated by reference to Exhibit 10.12 to Amendment No. 3 to
Registration Statement Form S-1 (Reg. No. 33-65442) filed with the
Commission on September 29, 1993).

10.19 Form of Employment Agreement Between the Company and Mr. Armstrong
(Incorporated by reference to Exhibit 10.13 to Amendment No. 1 to
Registration Statement Form S-1 (Reg. No. 33-65442) filed with the
Commission on September 7, 1993).

10.20 Purchase and Sale Agreement between SFX Broadcasting of San Diego, Inc.
and Parker Broadcasting Company (Incorporated by reference to Exhibit
10.1 to Form 10-Q for the quarter ended June 30, 1994).

10.21 Real Estate Purchase Agreement between SFX Broadcasting of San Diego,
Inc. and John Parker as Trustee of the John Parker Family Trust
U/D/T/(Incorporated by reference to Exhibit 10.2 to Form 10-Q for the
quarter ended June 30, 1994).

10.22 Asset Purchase Agreement between SFX Broadcasting of Tennessee, Inc.
and Legacy Broadcasting Partners of Nashville, L.P. (Incorporated by
reference to Exhibit 10.3 to Form 10-Q for the quarter ended March 31,
1994).

10.23 Programming Agreement between Cardinal Communications Partners, L.P.
and SFX Broadcasting of Texas (KRLD), Inc. (Incorporated by reference
to Exhibit 10.22 to Form 10-K for the year ended December 31, 1994).

10.24 Programming Agreement between SFX Broadcasting of San Diego, Inc. and
Parker Broadcasting Company (Incorporated by reference to Exhibit 10.23
to Form 10-K for the year ended December 31, 1994).

10.25 Amended and Restated Credit Agreement between the Company and The Bank
of New York as Agents thereunder (Incorporated by reference to Exhibit
10.24 to Form 10-K for the year ended December 31, 1994).

<PAGE>

10.26 Amended and Restated Employment Agreement between the Company and
Mr. Sillerman (Incorporated by reference to Exhibit 10.26 to Amendment
No. 2 to Registration Statement Form S-1 (Reg. No. 33-92086) filed with
the Commission on June 26, 1995).

10.27 Amended and Restated Employment Agreement between the Company and
Mr. Hicks (Incorporated by reference to Exhibit 10.27 to amendment No.
2 to Registration Statement Form S-1 (Reg. No. 33- 92086) filed with
the Commission on June 26, 1995).

10.28 Amended and Restated Employment Agreement between the Company and
Mr. Armstrong (Incorporated by reference to Exhibit 10.28 to Amendment
No.2 to Registration Statement Form S-1 (Reg. No. 33-92086) filed with
the Commission on June 26, 1995).

10.29 Asset Purchase Agreement between Trumper Communications of North
Carolina Limited Partnership and SFX Broadcasting of North Carolina,
Inc. dated as of April 1, 1995 (Incorporated by reference to Exhibit
10.29 to Amendment No. 2 to Registration Statement Form S-1 (Reg. No.
33- 92086) filed with the Commission on June 26, 1995).

10.30 Asset Purchase Agreement between Cardinal Communications Partners, L.P.,
SFX Broadcasting of Texas (KTCK), Inc. and the Company, dated as of
April 24, 1995 (Incorporated by reference to Exhibit 10.30 to Amendment
No. 2 to Registration Statement Form S-1 (Reg. No. 33-92086) filed with
the Commission on June 26, 1995).

10.31 Senior Promissory Note of Sillerman Communications Management
Corporation to the Company in the amount of $2,000,000, dated as of
January 23, 1995 (Incorporated by reference to Exhibit 10.31 to
Amendment No. 2 to Registration Statement Form S-1 (Reg. No. 33-92086)
filed with the Commission on June 26, 1995).

10.32 First Amendment to Amended and Restated Credit Agreement between the
Company and The Bank of New York as Agents thereunder, dated as of
April 21, 1995 (Incorporated by reference to Exhibit 10.32 to Amendment
No. 2 to Registration Statement Form S-1 (Reg. No. 33-92086) filed with
the Commission on June 26, 1995).

10.33 Stock Exchange Agreement between Equitable Deal Flow Fund, L.P., the
Equitable Life Assurance Society of the United States, Equitable
Variable Life Insurance Company and the Company, dated as of December
2, 1994 (Incorporated by reference to Exhibit 10.33 to Amendment No. 2
to Registration Statement Form S-1 (Reg. No. 33-92086) filed with the
Commission on June 26, 1995).

10.34 Stock Purchase Agreement by and among the Company, Liberty Broadcasting,
Incorporated, Josephthall, Littlejohn and Levy Fund, L.P., Michael
Craven and James Thompson dated as of November 15, 1995.

10.35 Letter Agreement between SFX Broadcasting, Inc. and Multi-Market Radio,
Inc. regarding exchange of assets dated November 17, 1995.

10.36 Joint Sales Agreement between SFX Broadcasting of Jackson, Inc. and
Multi-Market Radio Acquisition Corporation.

10.37 Joint Sales Agreement between SFX Broadcasting of South Carolina (WMYI),
Inc. and Multi-Market Radio Acquisition Corporation.

10.38 Joint Sales Agreement by and between Multi-Market Radio Acquisition
Corporation and the Company

10.39 Programming Agreement by and between the Company and Trumper
Communications of North Carolina Limited Partnership

10.40 Asset Purchase Agreement by and between Prism Radio Partners, L.P. and
the Company.

10.41 Joint Sales Agreement between the Company and HMW Communications, Inc.

<PAGE>

10.42 Asset Purchase Agreement by and between the Company and HMW
Communications, Inc.

11.1 Statement Regarding Calculation of Per Share Earnings.

21 List of subsidiaries of the Company.

99.1 Asset Purchase Agreement between Texas Coast Broadcasters, Inc. and
Multi-Market Radio, Inc.

99.2 Asset Purchase Agreement between Lewis Broadcasting Corporation and
Multi-Market Radio Acquisition Corporation.

99.3 Asset Purchase Agreement between ABS Greenville Partners, L.P. and

Multi-Market Radio Acquisition Corporation.

99.4 Asset Purchase Agreement between HMW Communications, Inc. and
Multi-Market Radio Acquisition Corporation.

99.5 Local Market Agreement between Lewis Broadcasting Corporation and
Multi-Market Radio Acquisition Corporation.

99.6 Joint Sales Agreement between HMW Communications, Inc. and Multi-Market
Radio Acquisition Corporation.

99.7 Time Brokerage Agreement between ABS Greenville Partners, L.P. and
Multi-Market Radio Acquisition Corporation.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

SFX BROADCASTING, INC.

(s) Robert F.X. Sillerman
----------------------------
Name: Robert F.X. Sillerman
Title: Executive Chairman

Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<S> <C> <C>
Signature Title Date

(s)Robert F.X. Sillerman Executive Chairman of the Board of Directors April 29, 1996
- -------------------------- Director
Robert F.X. Sillerman

(s)R. Steven Hicks President and Chief Executive Officer, April 29, 1996
- --------------------------- Director (principal executive officer)
R. Steven Hicks

(s)D. Geoffrey Armstrong Executive Vice President, Treasurer April 29, 1996
- ------------------------ and Chief Financial Officer, Director
D. Geoffrey Armstrong (principal financial and accounting officer)

(s)Howard Tytel Executive Vice President, Secretary and April 29, 1996
- --------------------------- Director
Howard Tytel

(s)Richard A. Liese Assistant Secretary and Director April 29, 1996
- ---------------------------
Richard A. Liese

(s)James F. O'Grady Director April 29, 1996
- ---------------------------
James F. O'Grady

(s)Paul Kramer Director April 29, 1996
- ---------------------------
Paul Kramer
</TABLE>

<PAGE>

Exhibit 11.1
Statement Regarding Calculation of Per Share

<TABLE>
<CAPTION>
Earnings
Years Ended December 31,
(dollars in thousands, except per share amounts)
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Primary and Fully Diluted:
Average shares outstanding (1) .................................... 2,589,285 5,749,999 6,595,728
Net effect of dilutive stock options - based on the
treasury stock method using average market price ................. -- 42,386 --
Total ......................................................... 2,589,285 5,792,385 6,595,728
=========== =========== ===========

Net (loss) income ................................................. $ (17,781) $ 1,836 $ (4,396)
Less: preferred stock dividends and accretion ..................... 557 348 291
Net (loss) income attributable to common shareholders ............ (18,338) 1,488 (4,687)
=========== =========== ===========

Net (loss) income per common share ................................ $ (7.08) $ 0.26 $ (0.71)
=========== =========== ===========
</TABLE>

(1) Calculation of weighted average shares for each period reflect stock split
effective October 7, 1993.