CHANCELLOR RADIO BROADCASTING CO, 10-K, 1997-03-28

CHANCELLOR RADIO BROADCASTING CO
10-K, 1997-03-28
RADIO BROADCASTING STATIONS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------------------
FORM 10-K

Annual Report Pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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<S> <C> <C>
Commission File No. 0-27726 Commission File No. 33-80534 Commission File No. 33-80534
CHANCELLOR BROADCASTING CHANCELLOR RADIO CHANCELLOR BROADCASTING
COMPANY BROADCASTING COMPANY LICENSEE COMPANY
(Exact Name of Registrant (Exact Name of Registrant (Exact Name of Registrant
as Specified in Its Charter) as Specified in Its Charter) as Specified in Its Charter)

DELAWARE DELAWARE DELAWARE
(State or other jurisdiction of (State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization) incorporation or organization)

75-2538487 75-2544623 75-2544625
(I.R.S. Employer Identification (I.R.S. Employer Identification (I.R.S. Employer Identification
Number) Number) Number)
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12655 N. CENTRAL EXPRESSWAY, SUITE 405, DALLAS, TEXAS 75243
(Address of Principal Executive Offices, Including Zip Code)

AREA CODE (972) 239-6220
(Registrants' Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF CHANCELLOR BROADCASTING COMPANY

Indicate by check mark whether Chancellor Broadcasting Company, Chancellor
Radio Broadcasting Company and Chancellor Broadcasting Licensee Company (1)
have 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)
have 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. [ ]

The aggregate market value of voting stock held by non-affiliates of
Chancellor Broadcasting Company at March 25, 1997 was $225,223,070. As of March
25, 1997, 10,437,212 shares of the Class A Common Stock, par value $.01 per
share, 8,547,910 shares of the Class B Common Stock, par value $.01 per share,
and zero shares of the Class C Common Stock, par value $.01 per share, of
Chancellor Broadcasting Company were outstanding. There are no shares of voting
stock of Chancellor Radio Broadcasting Company or non-affiliates thereof. As of
March 25, 1997, 1,000 shares of common stock, par value $.01 per share of
Chancellor Radio Broadcasting Company, and 1,000 shares of common stock, par
value $.01 per share of Chancellor Broadcasting Licensee Company were
outstanding.

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TABLE OF CONTENTS
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PAGE
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PART I

ITEM 1. BUSINESS..................................................... 2
ITEM 2. PROPERTIES................................................... 12
ITEM 3. LEGAL PROCEEDINGS............................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 13

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................................... 13
ITEM 6. SELECTED FINANCIAL DATA...................................... 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION........................... 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................... 19

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.......... 20
ITEM 11. EXECUTIVE COMPENSATION....................................... 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 27
ITEM 13. CERTAIN TRANSACTIONS......................................... 28

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.................................................. 31
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PART I

CERTAIN DEFINITIONS AND MARKET AND INDUSTRY DATA

As used in this document, unless the context otherwise requires, (i)
"Chancellor" refers to Chancellor Broadcasting Company (formerly named
Chancellor Corporation); (ii) the "Company" refers to Chancellor and its
subsidiaries, collectively (including the Company's predecessor, Chancellor
Communications); (iii) "Chancellor Radio Broadcasting" refers to Chancellor
Radio Broadcasting Company (formerly named Chancellor Broadcasting Company), a
wholly owned subsidiary of Chancellor; (iv) "Broadcasting Licensee" refers to
Chancellor Broadcasting Licensee Company, a wholly owned subsidiary of
Chancellor Radio Broadcasting; (v) "Chancellor Communications" refers to
Chancellor Communications Corporation and its subsidiaries, collectively, which
were acquired by the Company in October 1994 and which merged with and into
Chancellor Radio Broadcasting in December 1995; (vi) "Old Chancellor
Communications" refers to KFBK-AM/ KGBY-FM, a division of Group W Radio, Inc.
(Cal), which Chancellor Communications acquired in January 1994; (vii) the
"American Media Station Group" refers to the group of 11 radio stations
acquired from American Media, Inc. and certain of its affiliates in October
1994; (viii) "Shamrock Broadcasting" refers to Trefoil Communications, Inc. and
its wholly owned subsidiary, Shamrock Broadcasting, Inc., and their respective
subsidiaries, collectively; (ix) "Malrite" refers to the radio operations of
Malrite Communications Group, Inc., which merged with and into Shamrock
Broadcasting in July 1993; (x) "Colfax" refers to Colfax Communications, Inc.
and its affiliates; (xi) "Omni" refers to OmniAmerica Group; (xii) "American
Radio" refers to America Radio Systems Corporation; (xiii) "SFX" refers to SFX
Broadcasting, Inc.; (xiv) "Secret" refers to Secret Communications. L.P.; (xv)
"Clear Channel" refers to Clear Channel Radio, Inc.; (xvi) "Evergreen" refers
to Evergreen Media Corporation; and (xvii) "Viacom" refers to Viacom
International, Inc.

The terms "broadcast cash flow" and "EBITDA" are referred to in various
places in this document. "Broadcast cash flow" consists of operating income
before depreciation and amortization, corporate expenses and non-cash stock
option compensation expense. EBITDA consists of operating income before
depreciation and amortization and non-cash stock option compensation expense.
Although broadcast cash flow and EBITDA are not measures of performance
calculated in accordance with generally accepted accounting principles
("GAAP"), management believes that broadcast cash flow is useful to a
prospective investor because it is a measure widely used in the broadcast
industry to evaluate a broadcast company's operating performance and that
EBITDA is generally accepted as providing useful information regarding a
company's ability to service and/or incur debt. Neither broadcast cash flow nor
EBITDA should be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income and cash flow statement
data prepared in accordance with GAAP or as a measure of liquidity or
profitability.

The term "duopoly" as used in this report refers to the ownership,
management or common control of two FM or two AM stations that provide
overlapping service in a single market. The term "LMA" refers to a Local
Marketing Agreement, see "Federal Regulation of Radio Broadcasting."

Unless otherwise indicated herein, (i) metropolitan statistical area
("MSA") ranking by population, market ranking by radio advertising revenue,
market radio advertising revenue and the number of viable radio stations per
market have been obtained from Duncan's Radio Market Guide (1996 ed.)
("Duncan's"); (ii) total industry listener and revenue levels have been
obtained from the Radio Advertising Bureau ("RAB"); (iii) all audience share
data and audience rankings, except where specifically stated to the contrary,
have been derived from surveys of persons, 25 to 54, listening Monday through
Sunday, 6 a.m. to 12 midnight, and are based on the average of the four most
recent survey periods, as reported by Arbitron, Radio Market Reports, Metro
Audience Trends, The Arbitron Company (copyright 1996) ("Arbitron"); and (iv)
revenue share data and revenue rankings in the Company's markets have been
obtained from the Miller, Kaplan Market Revenue Report (published monthly), a
publication of Miller, Kaplan, Arase & Co., Certified Public Accountants
("Miller Kaplan"), except with respect to the Nassau-Suffolk (Long Island),
Pittsburgh and Detroit markets, for which revenue share data and revenue
rankings were obtained from Hungerford Radio Revenue Report (published
monthly), a publication of Hungerford, Aldrin, Nichols & Carter, Certified
Public Accountants ("Hungerford"). Duncan's defines "viable stations" as
stations which are active and viable competitors for advertising dollars in the
market. The Company considers revenues per viable station to be an indicator of
the relative level of competition in a given market for radio advertising
revenue. Each of Duncan's, RAB, Arbitron, Miller Kaplan, and Hungerford compile
their audience share, revenue share and other statistical data, as the case may
be, under procedures and methodologies which are described, and which have the
limitations provided, in their respective reports or guides. All such
information is provided herein subject to those limitations.

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ITEM 1. BUSINESS

GENERAL

The Company is one of the largest companies in the United States
exclusively devoted to radio broadcasting. The Company focuses on owning and
operating radio stations in the top 40 U.S. markets, which account for a
disproportionately large percentage of radio advertising revenue. The Company
believes that the large revenue base in these markets generally enables
operators to achieve a greater degree of profitability than operators in
smaller markets. The Company employs a variety of programming formats,
including country, oldies, news/talk, adult contemporary, progressive album
rock, contemporary hit radio, sports and classical, which the Company believes
makes it is less susceptible to changes in listening preferences and reduces
its dependence upon any local economy or advertiser category. For the year
ended December 31, 1996, assuming that each of the acquisitions, dispositions
and exchanges consummated by the Company during 1996 and the Colfax Transaction
and Omni Transaction (each as hereinafter defined) consummated by the Company
in January and February 1997, respectively, had occurred on January 1, 1996, no
single market in which the Company would have operated would have provided more
than 15.0% of the Company's net revenues. On a pro forma basis, after giving
effect to the completed and pending transactions, excluding the Viacom
Acquisition and Evergreen Merger discussed below, as if all such transactions
had occurred on January 1, 1996, the Company would have had net revenues of
$244.8 million and broadcast cash flow of $93.6 million for the year ended
December 31, 1996.

The following table summarizes certain information relating to the
Company's stations as of December 31, 1996, assuming the Company had effected
the Colfax Transaction and the Omni Transaction as of such date, and the
markets they serve.

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AUDIENCE
RADIO SHARE IN TARGET
METROPOLITAN REVENUE TARGET TARGET DEMO- STATION
MARKET AND STATION STATISTICAL MARKET DEMOGRAPHIC DEMOGR- GRAPHIC REVENUE
CALL LETTERS (1) AREA RANK RANK (2) GROUP APHIC (3) RANK (3) RANK FORMAT
- -------------------- ------------- -------- ----------- --------- -------- ---- ------
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Minneapolis-St. Paul 12 15
KTCZ-FM* Men 25-49 6.2% 4 10 Progressive Album Rock
KTCJ-AM*
KDWB-FM Adults 18-34 11.6% 2 6 Contemporary Hit Radio
KFAN-AM Men 18-49 3.8% 11 4 Sports
KEEY-FM Adults 25-54 6.2% 6 N/A(6) Country
KQQL-FM Adults 25-54 6.3% 5 8 Oldies
WBOB-FM Adults 18-49 6.1% 6 9 Young Country
Phoenix 17 17
KMLE-FM Adults 25-54 7.6% 1 3 Country
KISO-AM Adults 25-54 0.7% 21 19 Urban Adult Contemporary
KOOL-FM Adults 25-54 6.6% 3 5 Oldies
KOY-AM Adults 35-64 3.5% 11 14 Adult Standards
KYOT-FM Adults 25-54 5.6% 4 10 Contemporary Jazz
KZON-FM Adults 18-34 5.7% 5 11 Alternative Rock
Pittsburgh 19 24
WWSW-AM* Adults 25-54 8.9% 2 3 Oldies
WWSW-FM*
Denver 26 14
KRRF-AM Men 25-54 -- -- -- Talk
KXKL-FM Adults 25-54 6.1% 5 5 Oldies
KVOD-FM Adults 25-54 1.8% 15(tie) 14 Classical
KIMN-FM Adults 25-54 4.7% 9 10 70's Oldies
KALC-FM Adults 18-34 8.3% 4 9 Hot Adult Contemporary
Cincinnati 30 20
WUBE-FM(7) Adults 25-54 9.8% 2 2 Country
WUBE-AM Adults 35-64 -- -- -- Nostalgia
WYGY-FM(7) Men 18-34 5.3% 6 N/A(6) Young Country
WKYN-AM Men 18-49 -- -- -- Sports/Talk
Sacramento 34 25
KGBY-FM Women 25-54 10.3% 1 3 Adult Contemporary
KHYL-FM Adults 25-54 6.5% 4 4 Oldies
KFBK-AM Adults 25-54 7.5% 1 1 News/Talk
KSTE-AM(8) Adults 25-54 3.5% 11(tie) 7 Talk
Orlando 40 26
WOCL-FM Adults 25-54 6.3% 5 3 Oldies
WOMX-FM Adults 25-54 8.7% 1 2 Adult Contemporary
WJHM-FM Adults 18-34 9.7% 2(tie) 7 Urban Contemporary
WXXL-FM Adults 18-34 10.6% 1 5 Contemporary Hit Radio
</TABLE>
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* AM and FM stations are simulcast
+ Pending transaction
(1) City of license may be different from metropolitan market served.
(2) Ranking by 1996 aggregate gross radio advertising revenue of
the principal MSA served by the station. Source: Duncan's.
(3) Audience share and ranking information pertains to the simulcasted stations
as a combination. Revenue rank for the year ended December 31, 1996 as
reported by Miller Kaplan and Hungerford (in the case of Nassau-Suffolk,
Pittsburgh and Washington, D.C.) Average Quarter Hour Share Estimates,
Monday through Sunday, 6 A.M. to Midnight for persons in the target
demographic and in the applicable Metro Survey Area. Source: Arbitron Radio
Market Report, based on the average of the four quarterly survey periods
consisting of Winter, Spring, Summer and Fall 1996.
(4) Nassau-Suffolk may also be considered part of the greater New York market,
although it is reported separately as a matter of convention.
(5) The Company currently manages certain limited functions of stations
WBAB-FM, WBLI-FM, WHFM and WGBB-AM in Nassau-Suffolk (Long Island), New
York, pursuant to an LMA. On July 1, 1996, the Company entered into an
agreement with SFX under which the Company will exchange WAPE-FM and
WFYV-FM, two Jacksonville, Florida stations acquired from Omni, and $11.0
million in cash for these stations.
(6) Station revenue reported in combination.
(7) WUBE-FM and WYGY-FM are sold in combination and rank second in revenue in
their market.
(8) The Company managed certain limited functions of station KSTE-AM in
Sacramento, California pursuant to an LMA from July 31, 1996 through March
24, 1997, the date it exchanged the West Palm Beach, Florida stations
acquired from Omni for American Radio's station KSTE-AM in Sacramento,
California, plus $33.0 million in cash.

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OPERATING STRATEGY

The Company's senior management team, led by Steven Dinetz, its President
and Chief Executive Officer, has extensive experience in acquiring radio
stations and enhancing their broadcast cash flow. The Company's business
strategy relies upon five key elements:

o Revenue Maximization through Large Local Sales Forces and Effective
Inventory Management. The Company seeks to maximize its share of local
advertising revenue in each of its markets by developing large,
well-trained sales forces that can be employed to efficiently target
available advertising sources. Management believes that large sales
forces enable it to compete effectively against other radio station
operators and position it to obtain additional advertising dollars
that otherwise would be spent on other local media, such as television
and newspapers. In addition, the Company aggressively manages its
stations' inventory position to ensure that revenue is maximized.

o Emphasis on Margin Enhancement Through Strict Cost Controls.
Management maintains tight control of operating expenses to ensure a
focus on profitability throughout the Company. Management requires
each station to prepare daily reports that track station-level
revenues, collections and expenses. These reports enable management to
monitor station performance on a real-time basis and promote greater
accountability on the part of station management.

o Targeted Programming and Marketing Efforts. Management focuses on
increasing both audience share and audience time spent listening by
researching each station's core audience and targeting its programming
format to that audience's preferences. The Company reinforces its
programming efforts through active marketing and promotional
activities that target the same core audiences.

o Decentralized Management Structure. The Company emphasizes the
development of skilled local management and staff with support from
the Company's regional managers. The Company seeks to decentralize
decision-making so that local managers have the flexibility to develop
policies that they consider to be the most effective in improving
station performance in their respective markets. To further motivate
senior management, the Company has established incentive plans that
link compensation directly to station operating performance.

o Optimize Station Portfolio. The Company seeks to acquire radio
stations or radio station groups operating in top 40 markets that
possess programming, demographic, technical and operating attributes
that management believes it can exploit. The Company's goal is to be a
leading radio station operator in each of its markets. However, in
markets where management does not believe that it will be able to
achieve this goal, the Company may explore the exchange of its
stations for radio stations in other markets where the Company can
increase its presence or will consider the sale of stations to raise
funds for future acquisitions.

HISTORY OF THE COMPANY

The Company, whose predecessor Chancellor Communications was formed in
January 1994 by an affiliate of Hicks Muse Tate & Furst Incorporated, a Dallas
and New York based investment firm ("Hicks Muse"), has grown largely through
acquisition and related exchange transactions. Since its inception in 1994, the
Company has completed eight acquisitions, including the acquisition of radio
stations KFBK-AM and KGBY-FM in January 1994, the American Media Station Group
in October 1994, radio station KDWB-FM in July 1995, Shamrock Broadcasting in
February 1996, radio stations KIMN-FM and KALC-FM in July 1996, radio station
WKYN-AM in November 1996, the Colfax Acquisition (as defined) in January 1997,
and the Omni Acquisition (as defined) in February 1997.

The Company's acquisition in February 1996 of Shamrock Broadcasting (the
"Shamrock Acquisition"), the owner and operator of 19 radio stations (11 FM and
8 AM) in 10 of the largest markets in the United States, was the Company's
largest transaction to date and more than doubled the size of the Company's
station portfolio, increasing it at that time from 14 to 33 stations. In July
1996, in order to enhance its position in Denver, which the Company considers
to be an attractive market, the Company exchanged a Houston FM Station acquired
in the Shamrock Acquisition for two FM stations in Denver (the "Denver
Exchange"). In January 1997, the Company disposed of two stations in Detroit,
which it had acquired in the Shamrock Acquisition.

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Since the end of 1996, the Company has completed two additional
significant transactions, including the acquisition from Omni (the "Omni
Acquisition") of eight radio stations located in Orlando, Jacksonville, and
West Palm Beach, Florida and the acquisition from Colfax (the "Colfax
Acquisition") of twelve stations (8 FM and 4 AM) located in two of the
Company's existing markets, Minneapolis-St. Paul and Phoenix, and two new
markets, Milwaukee, Wisconsin and Washington, D. C. The Company exchanged the
West Palm Beach stations acquired from Omni for 1 AM station in Sacramento,
California on March 24, 1997 and has entered into an agreement to exchange the
Jacksonville stations acquired from Omni for 3 FM and 1 AM stations in
Nassau-Suffolk (Long Island), New York, (the original acquisition and the
related exchange transactions collectively being the "Omni Transaction"). After
consummation of the pending exchange, the Company will own and operate 4 FM
stations in Orlando, Florida, 4 FM and 2 AM stations in Nassau-Suffolk and 2 FM
and 2 AM stations in Sacramento, California. The Company has also entered into
an agreement to sell the Colfax Milwaukee stations (the "Milwaukee
Disposition") (the Colfax Acquisition and the related disposition collectively
being the "Colfax Transaction"). As a result of the Colfax Acquisition, the
Company has 5 FM and 2 AM stations in Minneapolis-St. Paul, Minnesota and 4 FM
and 2 AM stations in Phoenix, Arizona, and has entered the Washington, D.C.
market where it has 2 FM and 1 AM stations. Upon completion of the pending
divestiture and exchange transactions, the Company will own and operate 51
stations (34 FM and 17 AM), located in 14 of the 40 largest MSAs in the
country, including six of the top ten MSAs.

The Omni Transaction and Colfax Transaction illustrate the Company's
strategy of optimizing its station portfolio by focusing on markets where it
believes it can achieve a leading position. After the consummation of the
remaining pending transactions, the Company will have become one of the leading
radio station groups in Minneapolis-St. Paul, Phoenix and Orlando and will have
enhanced its leading positions in Nassau-Suffolk and Sacramento. In addition,
the Company will have acquired stations in Washington, D.C., where the Company
can seek to increase its presence through future acquisitions, or which can be
used in a future station exchange or disposition. Moreover, as a result of
these transactions, management expects to combine the acquired stations with
the Company's existing in-market stations to realize synergies and
consolidation savings. The Company currently is unable to predict when it will
consummate the Jacksonville/Long Island swap as it is pending review by the
Department of Justice ("DOJ") under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act").

In February 1997, Chancellor and Chancellor Radio Broadcasting agreed to
acquire 5 radio properties from Viacom International, Inc. (the "Viacom
Acquisition") and to merge with Evergreen Media Corporation ("Evergreen") in a
stock-for-stock transaction (the "Evergreen Merger") with Evergreen surviving
the merger under the name Chancellor Media Corporation. Pursuant to the terms
of the Evergreen Merger, holders of the Class A Common Stock and Class B Common
Stock shall receive 0.9091 shares of common stock of Evergreen for each share
of Class A Common Stock and Class B Common Stock of Chancellor. The Viacom
Acquisition and Evergreen Merger are each subject to customary closing
conditions, including the expiration or earlier termination of the applicable
waiting periods under the HSR Act and approval of the Federal Communications
Commission ("FCC").

INDUSTRY OVERVIEW

Radio stations generate the majority of their revenue from the sale of
advertising time to local and national spot advertisers and national network
advertisers. Radio serves primarily as a medium for local advertising. During
the past decade, local advertising revenue as a percentage of total radio
advertising revenue in a given market has ranged from approximately 74% to 78%.
The growth in total radio advertising revenue tends to be fairly stable and has
generally grown at a rate faster than the Gross National Product ("GNP"). With
the exception of 1991, when total radio advertising revenue fell by
approximately 3.1% compared to the prior year, advertising revenue has risen in
each of the past 15 years more rapidly than either inflation or the GNP. Total
advertising revenue in 1996 of $12.4 billion, which represents a 8.2% increase
over 1995, as reported by RAB, was its highest level in the industry's history.

Radio is considered an efficient means of reaching specifically
identified demographics. Stations are typically classified by the on-air
format, such as country, adult contemporary, oldies and news/talk. A station's
format and style of presentation enable it to target certain demographics and
psychographics. By capturing a specific listening audience share of a market's
radio audience, with particular concentration in a targeted demographic, a
station is able to market its broadcasting time to advertisers seeking to reach
a specific audience. Advertisers and stations

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utilize data published by audience measuring services, such as Arbitron,
to estimate how many people within particular geographical markets and
demographics listen to specific stations.

Stations determine the number of advertisements broadcast hourly that
they believe will maximize available revenue dollars without jeopardizing
listening levels. Although the number of advertisements broadcast during a
given time period may vary, the total number of advertisements broadcast on a
particular station generally does not vary significantly from year to year.

A station's local sales staff generates the majority of its local and
regional advertising sales through direct solicitations of local advertising
agencies and businesses. To generate national advertising sales, a station will
engage a firm that specializes in soliciting radio advertising sales on a
national level. National sales representatives obtain advertising principally
from advertising agencies located outside the station's market and receive
commissions based on the revenue from the advertising obtained.

According to the RAB's Radio Marketing Guide and Fact Book for
Advertisers, 1997, each week, radio reaches approximately 95% of all Americans
over the age of 12. More than one-half of all radio listening is done outside
the home, in contrast to other advertising mediums, and three out of four
adults are reached by car radio each week. The average listener spends
approximately three hours and 20 minutes per day listening to radio. The
highest portion of radio listenership occurs during the morning, particularly
between the time a listener wakes up and the time the listener reaches work.
This "morning drive time" period reaches more than 85% of people over 12 years
of age and, as a result, radio advertising sold during this period achieves
premium advertising rates. Radio listeners have gradually shifted over the
years from AM (amplitude modulation) to FM (frequency modulation) stations. FM
reception, as compared to AM, is generally clearer and provides greater tonal
range and higher fidelity. FM's listener share is now in excess of 75%, despite
the fact that the number of AM and FM commercial stations in the United States
is approximately equal.

COMPETITION; CHANGES IN THE BROADCASTING INDUSTRY

The radio broadcasting industry is a highly competitive business. The
success of each of the Company's stations depends largely upon its audience
ratings and its share of the overall advertising revenue within its market. The
Company's stations compete for listeners and advertising revenue directly with
other radio stations as well as other media within their respective markets.
Radio stations compete for listeners primarily on the basis of program content
that appeals to a target demographic. By building a strong listener base
consisting of a specific demographic in each of its markets, the Company is
able to attract advertisers seeking to reach those listeners.

Factors that are material to a station's competitive position include
management experience, the station's rank in its market, transmitter power,
assigned frequency, audience characteristics, local program acceptance, and the
number and characteristics of other stations in the market area. The Company
attempts to improve its competitive position with promotional campaigns aimed
at the demographics targeted by its stations and by sales efforts designed to
attract advertisers. Recent changes in the FCC's policies and rules permit
increased ownership and operation of multiple local radio stations. Management
believes that radio stations which elect to take advantage of these joint
arrangements may in certain circumstances have lower operating costs and may be
able to offer advertisers more attractive rates and services. Although the
Company operates two or more FM or AM stations in Cincinnati, Denver,
Minneapolis-St. Paul, Orlando, Phoenix, Sacramento, San Francisco, and
Washington, D.C., and assuming the consummation of the pending exchange,
Nassau-Suffolk, the Company's competitors in certain markets include operators
of multiple stations in those markets or operators who already have entered
into local marketing agreements.

Although the radio broadcasting industry is highly competitive, some
barriers to entry exist (which can be mitigated to some extent by changing
existing radio station formats and upgrading power among other things). The
operation of a radio broadcast station requires a license from the FCC and the
number of radio stations that can operate in a given market is limited by the
availability of FM and AM radio frequencies allotted by the FCC to communities
in that market, as well as by the FCC's multiple ownership rules, which
regulate the number of stations which may be owned and controlled by a single
entity. The FCC's multiple ownership rules have changed significantly as a
result of the Telecommunications Act of 1996 (the "Telecom Act"), enacted into
law in February 1996. For a discussion of FCC regulation and the provisions of
the Telecom Act, see "Business -- Federal Regulation of Radio Broadcasting."

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The Company's stations also compete for advertising revenue with other
media, including newspapers, broadcast television, cable television, magazines,
direct mail, coupons and outdoor advertising. In addition, the radio
broadcasting industry is subject to competition from new media technologies
that are being developed or introduced, such as the delivery of audio
programming by cable television systems, by satellite and by digital audio
broadcasting ("DAB"). The radio broadcasting industry historically has grown
despite the introduction of new technologies for the delivery of entertainment
and information, such as broadcast television, cable television, audio tapes
and compact disks. A growing population and greater availability of radios,
particularly car and portable radios, have contributed to this growth. There
can be no assurance, however, that the development or introduction in the
future of any new media technology will not have an adverse effect on the radio
broadcasting industry.

The FCC is currently considering whether to authorize the use of DAB to
deliver audio programming. DAB may provide a medium for the delivery by
satellite or terrestrial means of multiple new, high quality audio programming
formats to local and national audiences. This technology also may be used in
the future by radio broadcast stations either on existing or alternate
broadcasting frequencies or on new frequency bands. In addition, the FCC has
authorized an additional 100 kHz of band width for the AM band and has
allocated frequencies in this new band to certain existing AM station
licensees. Each such licensee, at the end of a five-year transition period for
the licensee, which period may be extended through FCC waivers, is required to
return to the FCC either the license for their existing AM band station or the
license for the expanded AM band station. In addition, the FCC is currently
considering a review of its regulations governing the attribution of broadcast
interests, including, but not limited to, time brokerage agreements and LMAs.
If certain proposals for television LMAs are adopted, the radio LMA rules may
be modified for purposes of applying radio contour overlap.

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

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

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

FCC Licenses. Radio stations operate pursuant to broadcasting licenses
that are presently granted by the FCC for maximum terms of seven years and are
subject to renewal upon application to the FCC. The FCC licenses for the
Company's stations are held by certain of the Company's subsidiaries. During
certain periods when a renewal application is pending, petitions to deny
license renewals can be filed by interested parties, including members of the
public. Historically, the Company's management has not experienced any material
difficulty in renewing any licenses for stations under its control. The FCC is
required to hold hearings on a station's renewal application if a substantial
and material question of fact exists as to whether (a) the station has served
the public interest, convenience or necessity or (b) there have been serious
violations of the Communications Act or the FCC rules thereunder or (c) there
have been other violations of the Communications Act or the FCC rules
thereunder which, taken together, constitute a pattern of abuse.

The FCC classifies each AM and FM station. An AM station operates on
either a clear channel, regional channel, or local channel. A clear channel is
one on which AM stations are assigned to serve wide areas. Clear channel AM
stations are classified as either: Class A stations, which operate unlimited
time and are designated to render primary and secondary service over an
extended area; Class B stations, which operate unlimited time and are designed
to render service only over a primary service area; and Class D stations, which
operate either daytime, limited time, or unlimited time with low nighttime
power. A regional channel is one on which Class B and Class D

7
<PAGE> 10
AM stations may operate and serve primarily a principal center of
population and the rural area contiguous to it. A local channel is one
on which AM stations operate unlimited time and serve primarily a
community and the suburban and rural areas immediately contiguous
thereto. Class C AM stations operate on a local channel and are designed
to render service only over a primary service area that may be reduced
as a consequence of interference.

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

The following table sets forth the market, FCC license classification,
antenna height above average terrain (HAAT), power and frequency of each of the
Company's stations, assuming the consummation of the dispositions and exchanges
contemplated by the Colfax Transaction and Omni Transaction, and the date on
which each station's FCC license expires. Each of the Company's AM stations is
a regional channel station other than WUBE-AM and WGBB-AM, which are local
channel stations, and KFBK-AM which is a clear channel station.

<TABLE>
<CAPTION>
FCC HAAT POWER IN EXPIRATION DATE
MARKET (1) STATION CLASS IN FEET KILOWATTS (2) FREQUENCY OF FCC LICENSE
---------- ------- ----- ------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
New York WHTZ-FM B 1362 6.0 100.3 Mhz June 1998
Nassau-Suffolk WALK-FM B 554 39.0 97.5 Mhz June 1998
WALK-AM B N/A 0.5/0.1 1370 kHz June 1998
WBAB-FM(3)+ A 269 3.0 102.3 Mhz June 1998
WBLI-FM(3)+ B 499 49.0 106.1 Mhz June 1998
WHFM-FM(3)+ A 354 5.0 95.3 Mhz June 1998
WGBB-AM(3)(4)+ C N/A 1.0/0.25 1240 kHz June 1998
Los Angeles KLAC-AM B N/A 5.0 570 kHz December 1997
KZLA-FM B 3137 18.7 93.9 Mhz December 1997
San Francisco KNEW-AM B N/A 5.0 910 kHz December 1997
KSAN-FM(5) B 1211 30.0 94.9 Mhz December 1997
KABL-AM B N/A 5.0 960 kHz December 1997
KBGG-FM B 961 100.0 98.1 Mhz December 1997
Washington D. C. WBIG-FM B 574 36.0 100.3 Mhz October 2003
WGMS-FM B 518 44.0 103.5 Mhz October 2003
WTEM-AM B N/A 5.0/1.0 570 kHz October 2003
Atlanta WFOX-FM C 1572 97.0 97.1 Mhz April 2003
Riverside- KGGI-FM B 1844 2.6 99.1 Mhz December 1997
San Bernardino KMEN-AM B N/A 5.0 1290 kHz December 1997
Minneapolis-St. Paul KTCZ-FM C 1034 100.0 97.1 Mhz April 1997
KTCJ-AM D N/A 0.5/0.004 690 kHz April 1997
KDWB-FM C 1034 100.0 101.3 Mhz April 1997
KFAN-AM(6) B N/A 50.0/25.0 1130 kHz April 1997
KEEY-FM C 1034 100.0 102.1 Mhz April 1997
KQQL-FM C 1089 100.0 107.9 Mhz April 1997
WBOB-FM C 972 98.0 100.3 Mhz April 1997
Phoenix KMLE-FM C 1736 96.0 107.9 Mhz October 1997
KISO-AM C N/A 1.0 1230 kHz October 1997
KOOL-FM C 1654 100.0 94.5 Mhz October 1997
KOY-AM B N/A 5.0/1.0 550 kHz October 1997
KYOT-FM C 1565 96.0 95.5 Mhz October 1997
KZON-FM C 1739 100.0 101.5 Mhz October 1997
Pittsburgh WWSW-AM B N/A 5.0 970 kHz August 1998
WWSW-FM B 810 50.0 94.5 Mhz August 1998
Denver KRRF-AM B N/A 5.0 1280 kHz April 1997
KXKL-FM C 1168 100.0 105.1 Mhz April 1997
KVOD-FM C1 1237 57.0 92.5 Mhz April 1997
KIMN-FM C 1152 97.0 100.3 Mhz April 1997
KALC-FM C 1470 99.0 105.9 Mhz April 1997
Cincinnati WUBE-FM B 915 14.5 105.1 Mhz October 2003
WUBE-AM C N/A 1.0 1230 kHz October 2003
WYGY-FM B 810 19.5 96.5 Mhz October 2003
WKYN-AM B N/A 5.0/0.99 1160 kHz October 2003
</TABLE>

8
<PAGE> 11

<TABLE>
<CAPTION>
FCC HAAT POWER IN EXPIRATION DATE
MARKET (1) STATION CLASS IN FEET KILOWATTS (2) FREQUENCY OF FCC LICENSE
---------- ------- ----- ------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sacramento KGBY-FM B 449 50.0 92.5 Mhz December 1997
KHYL-FM B 557 36.0 101.1 Mhz December 1997
KFBK-AM A N/A 50.0 1530 kHz December 1997
KSTE-AM B N/A 21.0/0.92 650 kHz December 1997
Orlando WOCL-FM C 1581 100.0 105.9 Mhz February 2003
WOMX-FM C 1598 100.0 105.1 Mhz February 2003
WJHM-FM C 1585 28.2 101.9 Mhz February 2003
WXXL-FM C1 824 100.0 106.7 Mhz February 2003
</TABLE>
- ----------------
+ Pending transaction
(1) Actual city of license may be different from metropolitan market served.
(2) Pursuant to FCC rules and regulations, many AM radio stations are
required to operate at a reduced power during nighttime broadcasting
hours, which results in reducing the radio station's coverage area during
those hours of operation. Both power ratings are shown, where applicable.

Ownership Matters. The Communications Act prohibits the assignment of a
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 broadcast,
cable and newspaper properties, the "character" of the licensee and those
persons holding "attributable" interests therein, and compliance with the
Communications Act's limitations on alien ownership, as well as compliance with
other FCC policies, including its equal employment opportunity requirements.
Historically, FCC licenses have generally been renewed. The Company has no
reason to believe that its licenses will not be renewed in the ordinary course,
although there can be no assurance to that effect. The non-renewal of one or
more of the Company's licenses could have a material and adverse effect on the
Company's results of operations, financial condition and cash flow.

In response to the Telecommunications Act, the FCC amended its multiple
ownership rules to eliminate the national limits on ownership of AM and FM
stations, i.e., the former 20 stations per service ownership cap. Additionally,
it established new local ownership rules that use a sliding scale of
permissible ownership, depending on market size. In radio markets with 45 or
more commercial radio stations, a licensee may own up to eight stations, no
more than five of which can be in a single radio service (i.e., no more than 5
AM or 5 FM). In radio markets with 30 to 44 commercial radio stations, a
licensee may own up to seven stations, no more than four of which are in a
single radio service. In radio markets having 15 to 29 commercial radio
stations, a licensee may own up to six radio stations, no more than four of
which are in a single radio service. Finally, with respect to radio markets
having 14 or fewer commercial radio stations, a licensee may own up to five
radio stations, no more than three of which are in the same service; provided
that the licensee may not own more than one half of the radio stations in the
market.

The Communications Act and FCC rules also prohibit the common ownership,
operation or control of a radio broadcast station and a television broadcast
station serving the same geographic market (subject to a waiver of such
prohibition if certain conditions are satisfied) and of a radio broadcast
station and a daily newspaper serving the same geographic market. Under these
rules, absent waivers, the Company would not be permitted to acquire any
newspaper or television broadcast station (other than low-power television) in
any geographic market in which it now owns radio broadcast properties. In
October 1996, the Commission issued a Notice of Inquiry to explore possible
changes in the newspaper/broadcast cross-ownership waiver policy with respect
to newspaper/radio combinations, including the possibility of adopting a waiver
policy based on market size or on the number of independently owned media in a
market.

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 broadcast licenses, the interest of
officers, directors and those who, directly or indirectly, have the right to
vote 5% or more of the corporation's voting stock

9
<PAGE> 12
(or 10% or more of such stock in the case of insurance companies, investment
companies and bank trust departments) are generally attributable, as are
positions as an officer or director of a corporate parent of a broadcast
licensee. The FCC has issued a Notice of Proposed Rule Making ("NPRM") that
contemplates tightening attribution standards where parties have multiple
nonattributable interests in and relationships with stations that would be
prohibited by the FCC's cross-interest rules, if the interests/relationships
were attributable. The NPRM contemplates that this change in attribution will
apply only to persons holding debt or equity interests that exceed certain
benchmarks.

The Communications Act prohibits the issuance of broadcast licenses to,
or the holding of a broadcast license by, any corporation of which 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 non-U.S.
citizens or their representatives or by a foreign government or representative
thereof, or by any corporation organized under the laws of a foreign country.
The Company has been advised that the FCC staff has interpreted this provision
to require a public interest finding in favor of such a grant or holding before
a broadcast license may be granted to or held by any such corporation and have
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 was owned
or voted by Aliens. Accordingly, Chancellor's Second Restated Certificate of
Incorporation restricts the ownership, voting and transfer of the Company's
capital stock, in accordance with the Communications Act and the rules of the
FCC, which prohibits ownership of more than 25% of Chancellor's outstanding
capital stock (or more than 25% of the voting rights it represents) by or for
the account of Aliens or corporations otherwise subject to domination or
control by Aliens. In addition, the Second Restated Certificate of
Incorporation of Chancellor authorizes its board of directors to adopt such
provisions as it deems necessary to enforce these prohibitions.

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

In the past, 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,
in recent 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 that is being substantially programmed by another entity maintains
complete responsibility for, and control over, programming and operations of
its broadcast station and assures compliance with applicable FCC rules and
policies.

The FCC's multiple ownership rules specifically permit radio station LMAs
to continue to be entered into and implemented, but provide that a station
brokering more than 15% of the weekly broadcast time on another station serving
the same market will be considered to have an attributable ownership interest
in the brokered station for purposes of the FCC's multiple ownership rules. As
a result, the Company would not be permitted to enter into an

10
<PAGE> 13
LMA with another local radio station that it could not own under the revised
local ownership rules, unless the Company's programming could constitute 15% or
less of the other local station's programming time on a weekly basis. The FCC
rules also prohibit a broadcast licensee from simulcasting more than 25% of its
programming on another station in the same broadcast service (i.e., AM-AM or
FM-FM) through a time brokerage or LMA arrangement where the brokered and
brokering stations which it owns or programs serve substantially the same area.

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 listener
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 term" (less than the full term) renewal or, for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.

Proposed and Recent Changes. On December 15, 1994, the FCC solicited
updated comment on whether it should liberalize its radio and television
broadcast ownership "attribution" rules by (i) raising the basic benchmark for
attributing ownership in a corporate licensee from 5% to 10% of the licensee's
voting stock; (ii) increasing from 10% to 20% of the licensee's voting stock
the attribution benchmark for "passive investors" in corporate licensees; and
(iii) exempting certain widely-held limited partnership interests from
attribution where each individual interest represents an insignificant
percentage of total partnership equity. This same proceeding also solicited
comment on proposals to limit broadcast ownership rules by considering minority
stockholdings in corporations with a single majority shareholder or non-voting
stock interests that have heretofore been unattributable.

Moreover, Congress and the FCC have under consideration, and in the
future may consider and adopt, new rules, regulations and policies regarding a
wide variety of matters that could affect, directly or indirectly, the
operation, ownership and profitability of the Company's radio stations, result
in the loss of audience share and advertising revenues for the Company's radio
stations, and affect the ability of the Company to acquire additional radio
stations or finance those acquisitions. Such matters include: spectrum use or
other fees on FCC licenses; revisions to the FCC's equal employment opportunity
rules and other matters relating to political broadcasting; technical and
frequency allocation matters; proposals to restrict or prohibit the advertising
of beer, wine and other alcoholic beverages on radio; changes in the FCC's
cross-interest, multiple ownership and cross-ownership policies; changes to
broadcast technical requirements; proposals to allow telephone companies to
deliver audio and video programming to the home through existing phone lines;
new technologies such as DAB; 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 Company is also aware that on November 7, 1996, the FCC issued a
Further Notice of Proposed Rulemaking, which among other things, reviews the
FCC's regulations governing the attribution of broadcast interests, including
time brokerage agreements and LMAs. At this time, no determination can be made
as to what effect, if any, this proposed rulemaking will have on the Company.
This same observation holds true with respect to the FCC's October 1996 Notice
of Inquiry into possible changes in the radio/newspaper cross-ownership waiver
policy.

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

11
<PAGE> 14
Federal Antitrust Laws. In addition to the risks associated with the
acquisition of radio stations, the Company also is aware that the FTC and DOJ,
which evaluate transactions requiring a pre-acquisition filing under the HSR
Act, to determine whether those transactions should be challenged under the
federal antitrust laws, have been increasingly active recently in their review
of radio station acquisitions where an operator proposes to acquire new
stations in its existing markets. In connection with the Omni Transaction, the
DOJ issued a second request to the Company seeking the production of documents
and other information relating to the Orlando area. The Company complied fully
with the second request, and the DOJ ultimately cleared the transaction. The
DOJ also issued second requests to the Company for documents and information
with regard to the transactions in Long Island, New York; Jacksonville,
Florida, and West Palm Beach, Florida (including documents and information
about the Sacramento, California market). The waiting period under the HSR Act
has not expired for the West Palm Beach/Sacramento or the Jacksonville/Long
Island swaps. Although the Company believes that these transactions ultimately
will be consummated as proposed, there can be no assurance that the DOJ will
not require the restructuring of these swaps. If any of these swaps are not
consummated, there can be no assurance that the Company will be able to enter
into comparable transactions.

As part of its increased scrutiny of radio station acquisitions, the DOJ
has stated publicly that it believes that LMAs and other similar agreements
customarily entered into in connection with radio station transfers prior to
the expiration of the waiting period under the HSR Act could violate the HSR
Act. Since then, the DOJ has stated publicly that it will apply its new policy
prohibiting LMAs in connection with purchase agreements until the expiration or
termination of the HSR waiting period prospectively only.

SEASONALITY

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

EMPLOYEES

As of December 31, 1996, the Company employed 1,114 full-time and 410
part-time employees, 127 of whom are represented by American Federation of
Television and Radio Announcers ("AFTRA") locals in San Francisco, Cincinnati,
Los Angeles, Detroit and New York. The union contracts of the Company expire at
various dates commencing in 1997. The Company considers its employee relations
to be good.

The Company employs several on-air personalities with large loyal
audiences in their respective markets. The Company enters into employment
agreements with these personalities to protect their interests in those
relationships that it believes to be valuable. The loss of one of these
personalities could result in a short-term loss of audience share, but the
Company does not believe that any such loss would have a material adverse
effect on the Company's financial condition or results of operations taken as a
whole.

ITEM 2. PROPERTIES

The types of properties required to support each of the Company's radio
stations include offices, studios, transmitter sites and antenna sites. A
station's studios are generally housed within its offices in downtown or
business districts. The transmitter and antenna sites generally are located so
as to provide maximum market coverage.

The Company owns transmitter and antenna sites in Atlanta, Denver, Los
Angeles, Minneapolis-St. Paul, Phoenix, Pittsburgh, Sacramento, Nassau-Suffolk
(Long Island), Riverside-San Bernardino and Washington, D.C.. The Company also
leases transmitter and antenna sites in the Minneapolis-St. Paul and
Riverside-San Bernardino markets and in the markets in which it does not own
transmitter and antenna sites. The Company typically leases studio and office
space, although it owns its facilities in Nassau-Suffolk, Phoenix and
Milwaukee. Although the Company expects to relocate certain of its offices and
studios to reduce costs or improve station operations, the Company generally
considers its facilities to be suitable and of adequate sizes for its current
and intended purposes. The Company does not anticipate any difficulties in
renewing any facility leases or in leasing additional space, if required.

12
<PAGE> 15
The Company owns substantially all its other equipment, consisting
principally of transmitting antennae, transmitters, studio equipment and
general office equipment. The towers, antennae and other transmission equipment
used by the Company's stations are generally in good condition, although
opportunities to upgrade facilities are continuously reviewed.

The principal executive offices of the Company are located at 12655 N.
Central Expressway, Suite 405, Dallas, Texas 75243. The telephone number of the
Company at that address is (972) 239-6220.

ITEM 3. LEGAL PROCEEDINGS

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

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

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

PART II

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

Since the initial public offering of Chancellor's Class A Common Stock at
$20.00 per share in February 1996, the Class A Common Stock has been traded on
the Nasdaq National Market under the symbol "CBCA". The following table sets
forth for the periods indicated the high and low bid prices per share of Class
A Common Stock for each quarterly period or portion thereof since its initial
public offering, as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter (beginning February 9) .................... $ 24.500 $ 20.000
Second Quarter .......................................... 31.750 22.000
Third Quarter ........................................... 44.000 28.500
Fourth Quarter .......................................... 42.000 21.875
1997
First Quarter (Through March 25) ........................ 30.250 23.000
</TABLE>

There is no established public trading market for the Class B Common
Stock of Chancellor or for the common stock of Chancellor Radio Broadcasting or
Broadcasting Licensee. As of March 25, 1997, there were approximately 85
holders of record of the Class A Common Stock, six holders of record of the
Class B Common Stock and no holders of record of the Class C Common Stock of
Chancellor. All of the common stock of Chancellor Radio Broadcasting is held by
Chancellor, and all the common stock of Broadcasting Licensee is held by
Chancellor Radio Broadcasting.

Chancellor has never paid dividends on its shares of common equity and
intends to retain future earnings for use in the Company's business and does
not anticipate declaring or paying any cash or stock dividends on shares of its
common equity in the foreseeable future. Further, any determination to declare
and pay dividends whether in cash, if available, or in stock or other assets,
will be made by the Board of Directors of Chancellor in light of the Company's
earnings, financial position, capital requirements and credit agreements and
such other factors as the Board of Directors deems relevant. Moreover,
Chancellor's sole source for cash from which to make dividend payments will be
dividends distributed or other payments made to it by Chancellor Radio
Broadcasting. The right of Chancellor to participate in any distribution of
earnings or assets of Chancellor Radio Broadcasting is subject to the prior
claims of the creditors of Chancellor Radio Broadcasting and the holders of the
Senior Exchangeable Preferred Stock, the Exchangeable Preferred Stock and other
preferred stock, if any, of Chancellor Radio Broadcasting. The New Credit
Agreement, the Indentures and the terms of the Senior Exchangeable Preferred
Stock and the Exchangeable Preferred Stock contain covenants that restrict or
prohibit Chancellor Radio Broadcasting's ability to pay dividends and make
other distributions to Chancellor.

13
<PAGE> 16

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data has been derived from audited financial
statements and should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition," "Business," the
Consolidated Financial Statements of Chancellor Broadcasting Company, the
Financial Statements of Old Chancellor Communications and the Consolidated
Financial Statements of Shamrock Broadcasting and, in each case, the related
notes thereto, included elsewhere in this document.

THE COMPANY AND OLD CHANCELLOR COMMUNICATIONS

The selected financial data for the Company in the following table
reflects (i) the results of Old Chancellor Communications for the years ended
December 31, 1992 and 1993 and (ii) the results of operations of the Company
from January 10, 1994. The results of the Company are the same for Chancellor
and Chancellor Radio Broadcasting, except as otherwise noted. The Company
acquired radio stations KFBK-AM and KGBY-FM on January 10, 1994, the American
Media Station Group on October 12, 1994, KDWB-FM on July 31, 1995, Shamrock
Broadcasting on February 14, 1996 and the Denver Stations on July 31, 1996 and,
accordingly, the results of their operations are included in those of the
Company since such dates, respectively. In addition, the Company programmed and
sold advertising pursuant to LMAs for radio station KDWB-FM from February 1,
1995, for radio stations KIMN-FM and KALC-FM from April 1, 1996, for the SFX
and Omni stations from July 1996, and for radio station KSTE-AM from August 1,
1996 until their respective dates of acquisition. Accordingly, the revenues
earned and the fees paid under the LMAs are reflected in the Company's results
of operations where applicable.

<TABLE>
<CAPTION>
OLD CHANCELLOR
COMMUNICATIONS THE COMPANY
------------------------ --------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- --------
OPERATING DATA: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues ............................... $ 12,121 $ 14,717 $ 26,317 $ 64,322 $ 178,402
Station operating expenses.................. 8,738 9,738 15,660 37,464 111,209
Depreciation and amortization............... 1,102 1,014 2,954 8,256 20,877
Corporate expenses ......................... 544 568 600 1,816 4,845
Stock option compensation expense (1) ...... -- -- -- 6,360 3,800
Operating income ........................... 1,737 3,397 7,103 10,426 37,670
Interest expense ........................... 724 700 5,247 18,115 35,704
Net income (loss) for Chancellor ........... 399 1,464 (106) (11,531) (18,449)
Net income (loss) for Chancellor Radio
Broadcasting ............................. 399 1,464 (106) (11,531) (6,892)
OTHER DATA:
Broadcast cash flow ........................ $ 3,383 $ 4,979 $ 10,657 $ 26,858 $ 67,192
Broadcast cash flow margin ................. 27.9% 33.8% 40.5% 41.8% 37.7%
EBITDA ..................................... $ 2,839 $ 4,411 $ 10,057 $ 25,042 $ 62,347
Capital expenditures ....................... 86 8 239 1,710 3,209
Ratio of earnings to fixed charges (2) ..... 2.17x 4.51x 1.35x -- --
Deficiency of earnings to fixed charges (2) $ -- $ -- $ -- $ 7,731 $ 17,365
Loss per common share ...................... -- -- (0.02) (1.30) (2.10)
Weighted average number of shares
outstanding (3) ........................ -- -- 5,166,039 8,849,936 16,704,381
BALANCE SHEET DATA (END OF PERIOD):
Working capital, excluding current
portion of long-term debt ................ $ 2,304 $ 1,739 $ 6,178 $ 5,826 $ 29,319
Goodwill and intangible assets, net ........ 13,056 12,679 189,982 208,093 568,129
Total assets ............................... 20,542 19,275 219,576 241,123 690,743
Long-term debt (including current portion) . -- -- 151,664 172,170 355,313
Mandatorily redeemable preferred stock ..... -- -- -- -- 107,222
Total common stockholder's equity .......... 19,084 17,145 59,894 54,723 200,991
</TABLE>
- ---------------
(1) Consists of a non-cash charge resulting from the grant of employee stock
options in 1994.
(2) For purposes of this calculation, "earnings" consist of income
(loss) before income taxes and fixed charges. "Fixed charges" consist
of interest, amortization of deferred financing costs, the component of
rental expense believed by management to be representative of the interest
factor thereon and preferred stock dividends and accretion, where
appropriate.
(3) Reflects the effect of the recapitalization of the number of shares
outstanding which occurred in February 1996 in conjunction with the
Company's initial public offering of its Class A Common Stock.

14
<PAGE> 17

SHAMROCK BROADCASTING

The selected financial data in the following table reflects the results
of Shamrock Broadcasting for the periods presented and reflects the results of
Shamrock Broadcasting's Los Angeles, California (KZLA-FM and KLAC-AM), New
York, New York (WHTZ-FM), San Francisco, California (KSAN-FM and KNEW-AM),
Cleveland, Ohio (WHK-AM and WMMS-FM) and Minneapolis-St. Paul, Minnesota
(KEEY-FM and KFAN-AM) radio stations from their acquisition in July 1993. In
addition, the data reflects the results of Shamrock Broadcasting's Kansas City,
Missouri (KUDL-AM and FM) and Seattle, Washington (KXRX-FM) radio stations
through their respective dates of disposition in September 1993 and June 1994.
Further, the data reflect the results of Shamrock Broadcasting's Cleveland,
Ohio (WHK-AM and WMMS-FM) radio stations from July 1993 through their date of
disposition in April 1994. Shamrock Broadcasting acquired Malrite on July 30,
1993, and, accordingly, its results of operations are included in those of
Shamrock Broadcasting from such date.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (1) PERIOD ENDED
-------------------------------------------------- FEBRUARY 13,
1992 1993 1994 1995 1996 (1)
----------- ----------- ----------- ----------- ---------
OPERATING DATA: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues ................................ $ 48,122 $ 71,740 $ 94,887 $ 94,605 $ 8,464
Station operating expenses................... 37,227 61,043 75,427 73,720 7,762
Depreciation and amortization................ 3,086 6,161 8,999 8,751 349
Corporate expenses .......................... 4,084 4,550 3,355 3,139 2,215
Operating income (loss) ..................... 3,725 (14) 7,106 8,995 (2,534)
Interest expense ............................ 3,252 7,133 12,923 14,703 (1,651)
Net loss .................................... (1,036) (11,835) (1,714) (4,343) (3,115)
OTHER DATA:
Broadcast cash flow ......................... $ 10,895 $ 10,697 $ 19,460 $ 20,885 $ 702
Broadcast cash flow margin .................. 22.6% 14.9% 20.5% 22.1% 8.3%
EBITDA ...................................... $ 6,811 $ 6,147 $ 16,105 $ 17,746 $ (1,513)
Capital expenditures ........................ 1,284 1,118 3,341 1,642 --
Ratio of earnings to fixed charges (2) ...... 1.18x -- -- -- --
Deficiency of earnings to fixed charges (2) . $ -- $ 7,810 $ 5,978 $ 11,749 $ 1,813
BALANCE SHEET DATA (END OF PERIOD):
Working capital, excluding current portion
of long-term debt ......................... $ 6,841 $ 17,052 $ 24,284 $ 20,127
Goodwill and intangible assets, net ......... 46,544 206,123 184,470 184,197
Total assets ................................ 80,650 266,729 245,948 237,490
Long-term debt (including current portion) .. 33,500 166,151 151,241 149,613
Mandatorily redeemable preferred stock ...... -- 70,000 70,000 70,000
Total stockholders' equity (deficit) ........ 19,622 (10,719) (18,052) (28,514)
</TABLE>
- ---------------

(1) Includes the results of operations of the Malrite stations acquired by
Shamrock Broadcasting from their date of acquisition in July 1993.
(2) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges. "Fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by management to be representative of the interest
factor thereon.

15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION

GENERAL

The following discussion and analysis of results of operations and
financial condition of the Company should be read in conjunction with the
consolidated financial statements and related notes thereto of the Company
included elsewhere in this document. Periodically, the Company may make
statements about trends, future plans and the Company's prospects. Actual
results may differ materially from those described in such forward looking
statements based on the risks and uncertainties facing the Company, including
but not limited to, the following: business conditions and growth in the radio
broadcasting industry and general economy; competitive factors; changes in
interest rates; the non-renewal of one or more of the Company's broadcasting
licenses; and those risk factors listed from time to time in documents filed by
the Company with the Securities and Exchange Commission (the "Commission").

The Company has grown largely through acquisitions, as well as through
internally generated growth. Upon completion of the pending divestiture and
exchange transactions, the Company will own and operate 51 radio stations
serving the following top 40 markets: New York, New York; Nassau-Suffolk (Long
Island), New York; Los Angeles, California; San Francisco, California;
Washington, D.C.; Atlanta, Georgia; Riverside-San Bernardino, California;
Minneapolis-St. Paul, Minnesota; Phoenix, Arizona; Pittsburgh, Pennsylvania;
Denver, Colorado; Cincinnati, Ohio; Sacramento, California; and Orlando,
Florida. The Company anticipates that it will be able to consummate all of its
pending transactions; however, the closing of each of such transactions is
subject to FCC approval, and other governmental approvals, which are beyond the
Company's control, and there can be no assurance when those transactions will
be competed or that they will be completed on the terms described herein, or at
all.

In the following analysis, management discusses the "broadcast cash flow"
of its combined station group. Broadcast cash flow consists of operating income
before depreciation and amortization, corporate expenses and non-cash stock
option compensation expense. Although broadcast cash flow is not a measure of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the broadcast
industry to evaluate a radio company's operating performance. However,
broadcast cash flow should not be considered in isolation or as a substitute
for net income, cash flows from operating activities and other income or cash
flow statement data prepared in accordance with GAAP or as a measure of
liquidity or profitability. The discussion of broadcast cash flow appears as
the last paragraph in the discussion of the results of operations.

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

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

Because the Company incurred substantial indebtedness for its
acquisitions for which it has significant debt service requirements, and because
the Company has significant charges for stock option compensation, dividends and
accretion on preferred stock and depreciation and amortization expense related
to the fixed assets and intangibles acquired in its acquisitions, the Company
expects that it will report net losses attributable to common stock for the
foreseeable future, which losses may be greater than those historically
experienced by the Company.

16
<PAGE> 19
RESULTS OF OPERATIONS

The Company's acquisitions, including the acquisition of KFBK-AM and
KGBY-FM in January 1994, the 11-station American Media Station Group in October
1994, the acquisition of KDWB-FM in July 1995, the Shamrock Acquisition in
February 1996, the Denver Exchange in July 1996 and the acquisition of WKYN-AM
in November 1996, have all been accounted for using the purchase method of
accounting. As a result of this acquisition activity, the Company's results of
operations are not directly comparable from period to period.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Net revenues increased 177.4% to $178.4 million for the year ended
December 31, 1996 from $64.3 million for the year ended December 31, 1995.
Station operating expenses (operating expenses exclusive of depreciation,
amortization, corporate and stock option compensation expenses) increased
196.8% to $111.2 million for the year ended December 31, 1996 from $37.5
million for the year ended December 31, 1995. The majority of these increases
were due to the acquisition of Shamrock Broadcasting and KIMN-FM and KALC-FM,
and the various operating agreements with Omni, Secret, SFX and American Radio.
On a same station basis, net revenues increased 8.5% to $198.5 million while
station operating expenses decreased 4.1% to $120.2 million for the year ended
December 31, 1996 from $182.9 million and $125.4 million, respectively, for the
prior year.

Depreciation and amortization increased 152.9% to $20.9 million for the
year ended December 31, 1996 from $8.3 million for the same prior year period.
Interest expense increased 97.1% to $35.7 million for 1996 from $18.1 million
for the 1995 period. These increases, and the extraordinary loss on early
extinguishment of debt of $4.2 million in 1996, were primarily attributable to
the acquisition of Shamrock Broadcasting and the change in capital structure of
the Company related to the financing of such acquisition. Corporate expenses
increased 166.9% to $4.8 million for the year ended December 31, 1996 from $1.8
million for the same period in 1995, as a result of additional personnel and
overhead costs associated with the acquisition of Shamrock Broadcasting and
KIMN-FM and KALC-FM, and the various operating agreements with Omni, Secret,
SFX and American Radio.

During the second quarter of 1995, the Company developed an estimate of
the fair value of its outstanding stock options in the amount of $19.0 million.
Based upon this estimate and the applicable vesting periods, the Company
recognized $4.5 million of non-cash stock option compensation expense during
that quarter, with the remaining amount being amortized over an approximate
four year period. During 1996, the Company recognized non-cash stock option
compensation expense of $3.8 million and non-cash charges for dividends and
accretion on the preferred stock of its subsidiary of $11.6 million.

The deferred tax valuation allowance was originally established due to
the uncertainty surrounding the realizability of the Company's deferred tax
assets using the "more likely than not" criteria. During the fourth quarter of
1996, the Company revised its estimate of the likelihood that it will realize
the majority of its deferred tax assets and adjusted its valuation allowance
accordingly. This revised estimate was the direct result of the acquisition of
Trefoil. Reversal of the valuation allowance related to deferred tax assets
which existed on the date of acquisition or which were acquired as a result of
the Trefoil acquisition were credited against the original purchase accounting
allocation to goodwill. The reversal of the valuation allowance related to
deferred tax assets generated subsequent to the acquisition were credited as a
reduction of income tax expense and extraordinary losses as appropriate.

Income from operations increased 261.3% to $37.7 million for the year
ended December 31, 1996 from $10.4 million for the same 1995 period primarily
as a result of the effect of the completed acquisitions. Chancellor had a net
loss of $18.4 million compared with a net loss of $11.5 million for the prior
year.

Broadcast cash flow increased 149.8% to $67.2 million for the year ended
December 31, 1996 from $26.9 million for 1995. Broadcast cash flow as a
percentage of net revenues decreased to 37.7% for 1996 from 41.8% for 1995. On
a same station basis, broadcast cash flow increased 36.0% to $78.2 million for
the year ended December 31, 1996 from $57.5 million for the same period in
1995. Same station broadcast cash flow as a percentage of net revenues
increased to 39.4% for 1996 from 31.4% for 1995.

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

Net revenues increased 144.4% to $64.3 million for the year ended
December 31, 1995 from $26.3 million for the year ended December 31, 1994.
Station operating expenses increased 139.2% to $37.5 million for the year ended
December 31, 1995 from $15.7 million for the year ended December 31, 1994. The
majority of these

17
<PAGE> 20
increases were due to the acquisition of the American Media stations in October
1994 and the acquisition/LMA for KDWB-FM beginning February 1, 1995.

In 1995, there was a $6.4 million non-cash stock option compensation
expense related to compensatory stock options of Chancellor Broadcasting
Company granted in 1994.

Depreciation and amortization increased 179.5% to $8.3 million for the
year ended December 31, 1995 from $3.0 million for the same period in the prior
year. Interest expense increased 245.2% to $18.1 million for 1995 from $5.2
million for the 1994 period. These increases, and the extraordinary loss on
early extinguishment of debt of $817,819 in 1994, were primarily attributable
to the acquisition of the American Media stations and the resulting change in
capital structure from its financing. Corporate expenses increased 202.8% to
$1.8 million for the year ended December 31, 1995 from approximately $600,000
for the same period in 1994, as a result of additional personnel and overhead
costs associated with the acquisition of the American Media stations and the
LMA for KDWB-FM.

As a result of the foregoing, income from operations increased 46.8% to
$10.4 million for the year ended December 31, 1995 from $7.1 million for the
same 1994 period. The Company had a net loss of $11.5 million compared with a
net loss of $106,000 for the prior year.

Broadcast cash flow increased 152.0% to $26.9 million for the year ended
December 31, 1995 from $10.7 million for 1994. Broadcast cash flow as a
percentage of net revenues increased to 41.8% for 1995 from 40.5% for 1994.

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

Net revenues increased 78.8% to $26.3 million for the year ended December
31, 1994 from $14.7 million for the year ended December 31, 1993. Station
operating expenses increased 61.9% to $15.7 million for the year ended December
31, 1994 from $9.7 million for the year ended December 31, 1993. The majority
of these increases were due to the acquisition of the American Media stations
in October, 1994.

Depreciation and amortization increased 191.3% to $3.0 million for the
year ended December 31, 1994 from $1.0 million for the same period in the prior
year. Interest expense increased 649.6% to $5.2 million for 1994 from $700,000
for the same 1993 period. These increases, and the extraordinary loss on early
extinguishment of debt of $817,819 in 1994, were primarily attributable to the
acquisition of the American Media stations and the resulting change in capital
structure from its financing. Corporation expenses were relatively unchanged
for the two periods.

As a result of the foregoing, income from operations increased 109.1% to
$7.1 million for the year ended December 31, 1994 from $3.4 million for the
same prior year period. The Company had a net loss of $106,000 for the year
ended December 31, 1994 as compared to net income of $1.5 million for the year
ended December 31, 1993.

Broadcast cash flow increased 114.0% to $10.7 million for the year ended
December 31, 1994 from $5.0 million for 1993. Broadcast cash flow as a
percentage of net revenues increased to 40.5% for 1994 from 33.8% for 1993.

LIQUIDITY AND CAPITAL RESOURCES

The pursuit by the Company of its acquisition strategy has required a
significant portion of the Company's capital resources. The Company has agreed
to merge with Evergreen Media Corporation subject to regulatory and shareholder
approval. The Company has also agreed to acquire, for approximately $480.0
million, radio properties from Viacom prior to the expected consummation of this
merger. The Evergreen Merger will not require cash financing as it will be a
stock-for-stock transaction. The Company has financed its past acquisitions
through bank financing and subordinated notes, the sale of preferred stock and
common equity and with proceeds from asset sales. The Company expects that any
required financing for future acquisitions and exchanges will be provided
through the incurrence of debt, the sale of equity securities, internally
generated funds or a combination of the foregoing. There can be no assurance,
however that external financing will be available to the Company on terms
considered favorable by management or that cash flow from operations will be
sufficient to fund the company's acquisition strategy.

As a result of the financing of its acquisitions, the Company has a
substantial amount of long-term indebtedness, and for the foreseeable future,
principal and interest payments under the Company's credit agreement and
interest payments under the Company's outstanding subordinated notes will be
the Company's principal uses of

18
<PAGE> 21
cash. In addition to debt service requirements under the Company's credit
agreement, the Company will require $26.3 million per annum to pay interest on
the subordinated notes. The senior exchangeable preferred stock does not require
the payment of cash dividends through May 14, 2001. Similarly, the exchangeable
preferred stock does not require cash dividends through April 14, 2002, although
the Company will issue additional shares of exchangeable preferred stock in lieu
of cash dividends. The convertible preferred stock will require cash dividends
of $7.0 million per year. Because Chancellor is a holding company with no assets
other than the common stock of Chancellor Radio Broadcasting, Chancellor will
rely on dividends from Chancellor Radio Broadcasting, to permit Chancellor to
pay cash dividends in full on the convertible preferred stock. The Company's
credit agreement, the indentures, the senior preferred certificate of
designation and the terms of the exchangeable preferred stock generally will
limit but will not prohibit Chancellor Radio Broadcasting, from paying such
dividends.

In addition to debt service and dividends on Chancellor's convertible
preferred stock, the Company's principal liquidity requirements will be for
working capital and general corporate purposes, including capital expenditures,
which are not expected to be material in amount. It is expected that when
received, the Company will use the $62.0 million in net cash proceeds from the
Milwaukee Disposition and the station swaps contemplated by the Omni
Transaction to retire a portion of the indebtedness incurred under the
Company's credit agreement to fund the Colfax Acquisition and the Omni
Acquisition. The company is currently unable to predict when it will receive
those additional funds. Management believes that cash from operating activities
and revolving loans under the Company's credit agreement should be sufficient
to permit the Company to meet its financial obligations and fund its
operations. Changes in interest rates affect the Company to the extent that it
has borrowings under its term and revolving credit facilities or it makes
additional borrowings under new agreements.

Net cash provided by operating activities was $24.0 million, $5.5 million
and $0.7 million for the year ended December 31, 1996, 1995 and 1994,
respectively. Changes in the Company's net cash provided by operation
activities are primarily the result of the Company's acquisitions completed and
station operating agreements entered into during the periods.

Net cash used in investing activities was $442.7 million, $26.1 million
and $204.7 million for the year ended December 31, 1996, 1995 and 1994,
respectively. Net cash provided by financing activities was $421.2 million,
$20.4 million and $205.6 million for the year ended December 31, 1996, 1995 and
1994, respectively. These cash flows primarily reflect the borrowings, capital
contributions and expenditures for station acquisitions, dispositions and
swaps. Subsequent to December 31, 1996, the Company refinanced its bank
indebtedness and issued approximately $310.0 million of preferred stock in
connection with the consummation of the Colfax Transaction and the Omni
Transaction. As a result of this refinancing, the Company incurred an
extraordinary charge to write-off deferred financing costs of approximately
$4.5 million in January 1997. See Note 5 to the financial statements for the
pro forma effects of the Colfax and financing transactions.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this Item is included on Pages F-1 through
F-53 and S-1 through S-12 of this Report on Form 10-K and is incorporated
herein by reference.

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

The information called for by this Item is not applicable.

19
<PAGE> 22

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

The directors and executive officers of Chancellor and Chancellor Radio
Broadcasting are listed below. Each of the persons named below holds the
positions set forth opposite his or her name with each of Chancellor and
Chancellor Radio Broadcasting. Each of the directors will hold office until the
next annual meeting of stockholders at which directors of his or her class are
elected and until his or her successor is duly elected and qualified.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven Dinetz + 50 President, Chief Executive Officer and Director
George C. Toulas 45 Senior Executive Vice President and Regional Manager
Rick Eytcheson 47 Executive Vice President and Regional Manager
Samuel L. Weller 41 Executive Vice President and Regional Manager
Jacques Kerrest 50 Senior Vice President and Chief Financial Officer
Eric W. Neumann + 31 Senior Vice President-- Finance
Thomas O. Hicks 51 Chairman of the Board and Director
Jeffrey A. Marcus + 50 Director
John H. Massey + 57 Director
Eric C. Neuman 52 Director
Lawrence D. Stuart, Jr. 52 Director
</TABLE>

+ Each holds the same positions for Broadcasting Licensee.

Steven Dinetz

President, Chief Executive Officer and Director

Mr. Dinetz has served as President, Chief Executive Officer and a
Director of the Company since its formation and prior thereto was the President
and Chief Executive Officer and a Director of Chancellor Communications. Prior
to joining Chancellor Communications, Mr. Dinetz served as a radio broadcasting
consultant and, from October 1988 to January 1993, as the President and Chief
Executive Officer of D&D Broadcasting, which Mr. Dinetz formed to acquire
KOSI-FM and KEZW-AM in Denver, Colorado from Group W. Broadcasting, Inc. in a
leveraged acquisition. Mr. Dinetz has more than 20 years experience in the
radio broadcasting industry and has previously managed 14 radio stations
throughout the United States, including stations in top 40 radio markets such
as New York City, Miami-Fort Lauderdale, Dallas-Fort Worth, and Denver.

George C. Toulas

Senior Executive Vice President and Regional Manager

Mr. Toulas has served as Senior Executive Vice President and Regional
Manager of the Company since November 1996. From October 1994 to October 1996
he served as Executive Vice president and Regional Manager of the Company and
was responsible for the Company's Cincinnati, Minneapolis-St. Paul and Orlando
markets and was General Manager of the Company's Cincinnati stations. From
November 1996, Mr. Eytcheson and Mr. Weller began reporting to Mr. Toulas and
Mr. Dinetz, and Mr. Toulas has had direct responsibility for the Company's
stations in New York, Washington, D.C., Orlando, Atlanta, Minneapolis-St. Paul,
Cincinnati and Milwaukee. Prior to his employment with the Company, Mr. Toulas
was with American Media from 1983 to 1994. During his tenure with American
Media, Mr. Toulas served as Regional Vice President for Cincinnati,
Minneapolis-St. Paul and Orlando and as General Manager of WUBE-AM/FM and
WYGY-FM in Cincinnati from 1989 to 1994 and as General Manager of WOCL-FM in
Orlando from 1986 to 1989. Mr. Toulas has over 20 years experience in
broadcasting management.

20
<PAGE> 23
Rick Eytcheson

Executive Vice President and Regional Manager

Mr. Eytcheson has served as Executive Vice President of the Company, as
Regional Manager of the Company's California markets since October 1994 and as
General Manager of the Company's Sacramento stations from the time of their
acquisition by Chancellor Communications in January 1994 to February 1996.
Prior to joining Chancellor Communications, Mr. Eytcheson had been the General
Manager of KFBK-AM and KGBY-FM under their two previous owners, having held
that position since 1985. Prior to joining KFBK/KGBY, Mr. Eytcheson was the
Vice President and General Manager of KOSO-FM in Modesto, California and
KKNU-FM in Fresno, California, with additional responsibility for the operation
of four radio stations located in Washington, Indiana and Wisconsin. Mr.
Eytcheson joined KOSO-FM as General Sales Manager in 1980, became General
Manager in 1982 and assumed his group management responsibilities in 1983. Mr.
Eytcheson has over 16 years of experience in broadcasting management.

Samuel "Skip" L. Weller

Executive Vice President and Regional Manager

Mr. Weller joined the Company in February 1996 and has served as
Executive Vice President and Regional Manager of the Company's Denver and
Phoenix radio stations and General Manager of the Denver Stations since
February 1996. As of November 1996, Mr. Weller assumed responsibility for the
Pittsburgh and Nassau-Suffolk stations as well as the Phoenix cluster. Prior to
joining the Company, Mr. Weller was the Vice President and General Manager of
KOSI-FM, KEZW-AM and the former KVOD-FM in Denver, Colorado, all of which were
owned by the Tribune Company. Mr. Weller also served as Vice President of Sales
and Marketing of KOSI-FM and KEZW-AM under their previous owner D&D
Broadcasting, which was formed by Steven Dinetz. Mr. Weller has over 20 years
experience in broadcasting management.

Jacques Kerrest

Senior Vice President and Chief Financial Officer

Mr. Kerrest joined the Company in December 1995 and has served as Senior
Vice President and the Chief Financial Officer of the Company since February 9,
1996. Previously he had been Chief Financial Officer of Positive
Communications, Inc. ("Positive") since July 1993 and Secretary of Positive
since September 1994. Prior to joining Positive, he served as the President of
Plenum Associates, Inc., a financial consulting company from April 1990 until
June 1993. He had previously been associated with Chemical Bank for 16 years,
most recently as a Vice President, where he was involved in corporate finance
and media transactions.

Eric W. Neumann

Senior Vice President -- Finance

Mr. Neumann has served as a Senior Vice President of the Company since
its formation. From that time until February 1996, Mr. Neumann was also Chief
Financial Officer of the Company. Mr. Neumann has been associated with Mr.
Dinetz since 1991, when he joined D&D Broadcasting as its controller. Mr.
Neumann is a certified public accountant.

Thomas O. Hicks

Chairman of the Board and Director

Mr. Hicks was elected Chairman of the Board and a director of the Company
in April 1996. Mr. Hicks is Chairman of the Board and Chief Executive Officer
of Hicks, Muse, Tate & Furst Incorporated, a private investment firm located in
Dallas, St. Louis, New York and Mexico City specializing in strategic
investments, leveraged acquisitions and recapitalizations. From 1984 to May
1989, Mr. Hicks was Co-Chairman of the Board and Co-Chief Executive Officer of
Hicks & Haas, Incorporated, a Dallas based private investment firm. Mr. Hicks
serves as a director of Sybron International Corporation, Inc., Berg
Electronics Corp., Neodata Corporation, D.A.C. Vision Inc. and Olympus Real
Estate Corporation.

21
<PAGE> 24
Jeffrey A. Marcus

Director

Mr. Marcus currently serves as the Chairman and Chief Executive Officer
of Marcus Cable Company, the ninth largest cable television multiple system
operator (MSO) in the United States which serves over 1.2 million customers and
which Mr. Marcus formed in 1990. Until November 1988, Mr. Marcus served as
Chairman and Chief Executive Officer of WestMarc Communications, Inc., an MSO
formed through the merger in 1987 of Marcus Communications, Inc. and Western
TeleCommunications, Inc. Mr. Marcus has more than 29 years experience in the
cable television business. Mr. Marcus is a co-owner of the Texas Rangers
Baseball Club and serves as a director or trustee of several charitable and
civic organizations.

John H. Massey

Director

Until August 2, 1996, Mr. Massey served as the Chairman of the Board and
Chief Executive Officer of Life Partners Group, Inc., an insurance holding
company, having assumed those offices in October 1994. Prior to joining Life
Partners, he served, since 1992, as the Chairman of the Board of, and currently
serves as a director of, FSW Holdings, Inc., a regional investment banking
firm. Since 1986, Mr. Massey has served as a director of Gulf-California
Broadcast Company, a private holding company that was sold in May 1996. From
1986 to 1992, he also was President of Gulf-California Broadcast Company. From
1976 to 1986, Mr. Massey was President of Gulf Broadcast Company, which owned
and operated 6 television stations and 11 radio stations in major markets in
the United States. Mr. Massey currently serves as a director of Central Texas
Bankshare Holdings, Inc., Hill Bank and Trust Co., Hill Bancshares Holdings,
Inc., Bank of The Southwest of Dallas, Texas, Columbus State Bank, Columbine
JDS Systems, Inc. and The Paragon Group, Inc.

Eric C. Neuman

Director

Mr. Neuman became a director of the Company in April 1996. Since May
1993, Mr. Neuman has been an officer of Hicks, Muse, Tate & Furst Incorporated
and is currently serving as Senior Vice President. From 1985 to 1993, Mr.
Neuman was a Managing General Partner of Communications Partners, Ltd., a
private investment firm specializing in media and communications businesses.

Lawrence D. Stuart, Jr.

Director

Mr. Stuart became a director of Chancellor and the Company in January
1997. Since October 1995, Mr. Stuart has served as a Managing Director and
Principal of Hicks, Muse, Tate & Furst Incorporated. Prior to joining Hicks
Muse, from 1990 to 1995 he served as the managing partner of the Dallas office
of the law firm Weil, Gotshal & Manges LLP.

ELECTION OF DIRECTORS

The Second Restated Certificate of Incorporation of Chancellor provides
that the Board of Directors shall consist (in addition to such number of
directors as may be elected from time to time by the holders of any class or
series of Chancellor's preferred stock) of at least five but no more than nine
directors, two of whom shall be elected by the holders of the Class A Common
Stock (the "Class A Directors"), voting as a class, and the remainder of whom
(the "Classified Directors") shall be elected by the holders of the Class A
Common Stock and the Class B Common Stock, voting together as a single class.
Currently, both Class A directorships are vacant. The Classified Directors are
divided into three classes of directors, designated as Class I, Class II and
Class III directors. The Class A Directors are elected for one-year terms at
each annual meeting of Chancellor's stockholders. The Classified Directors are
elected for three-year terms. The initial term of office of the Class I
directors expires at the 1997 annual meeting of Chancellor's stockholders, the
initial term of the Class II directors expires at the 1998 annual meeting of
stockholders and the initial term of the Class III directors expires at the 1999
annual meeting of stockholders. Beginning with the 1997 annual meeting, and at
each annual meeting of Chancellor's stockholders thereafter, Classified
Directors in the class to be elected at such meeting will be elected to succeed
those directors

22
<PAGE> 25
whose terms expire at such meeting. The Board of Directors of Chancellor has
established an Audit Committee, to which Messrs. Stuart, Marcus and Massey have
been appointed, and a Compensation Committee, to which Messrs. Neuman, Marcus
and Massey have been appointed. Directors of Chancellor Broadcasting Company are
elected by Chancellor, its sole voting stockholder. Directors of Broadcasting
Licensee are elected by Chancellor Radio Broadcasting, its sole stockholder.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires executive officers and directors of Chancellor and persons who
beneficially own more than ten percent of the Class A Common Stock to file with
the Commission certain reports, and to furnish copies thereof to Chancellor,
with respect to each person's beneficial ownership of Chancellor's equity
securities. Based solely upon a review of the form copies of such persons,
Chancellor's executive officers, directors and beneficial owners of more than
ten percent of the Class A Common Stock have complied with the applicable
reporting requirements, except that Messrs. Neuman and Hicks each filed a Form
3 late, Mr. Toulas filed one Form 4 late reporting one transaction, Mr. Marcus
filed one Form 4 late reporting five transactions, and Mr. Weller filed two
Form 4s late reporting a total of three transactions.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION

The following table sets forth all compensation, including bonuses, stock
option awards and other payments, paid or accrued by the Company for the fiscal
years ended December 31, 1996, 1995 and 1994, to or for the Company's Chief
Executive Officer and the Company's other four most highly compensated
executive officers (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ AWARDS
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OTHER ($) OPTIONS (#)(1)
--------------------------- ---- ---------- --------- --------- --------------

<S> <C> <C> <C> <C> <C>
Steven Dinetz ....................................... 1996 470,283 500,000 4,235 75,000
President, Chief Executive Officer and Director 1995 250,000 90,000 3,785 --
1994 218,117 90,000 -- 863,319(2)

George C. Toulas .................................... 1996 360,070 187,500 5,718 50,000
Senior Executive Vice President and Regional 1995 250,000 55,000 5,518 --
Manager (3) 1994 54,167 15,109 -- --

Rick Eytcheson ...................................... 1996 337,736 162,500 5,207 30,000
Executive Vice President and Regional Manager 1995 243,000 95,616 3,547 --
1994 195,000 64,739 -- --

Samuel L. Weller .................................... 1996 294,003 320,320 64,732 30,000
Executive Vice President and Regional Manager (4)

Jacques Kerrest ..................................... 1996 225,000 175,000 8,598 35,000
Senior Vice President and Chief Financial Officer
</TABLE>
- ---------------
(1) Represents stock options to purchase shares of the Class A Common Stock of
the Company.
(2) Gives effect to the reclassification of Chancellor's Class A Common Stock
on a 1-for-6 basis immediately prior to the consummation of the Initial
Public Offering.
(3) For 1994, represents compensation for the period beginning October 12,
1994, when Mr. Toulas joined the Company, to December 31, 1994.
(4) Represents compensation for the period beginning February 1, 1996, when
Mr. Weller joined the Company.

23
<PAGE> 26

EMPLOYMENT AGREEMENTS

Dinetz Employment Agreement

Mr. Dinetz has entered into a new employment agreement with Chancellor
and Chancellor Radio Broadcasting pursuant to which he serves as President and
Chief Executive Officer of Chancellor and Chancellor Radio Broadcasting. The
new employment agreement is currently scheduled to expire on December 31, 2000,
unless earlier terminated, and provides for a base salary of $500,000 per year
plus an annual bonus of up to $200,000 based on performance criteria
established by Chancellor's Board of Directors at the beginning of each fiscal
year. Each December 31 during the term of the employment agreement, Mr.
Dinetz's base salary for the next succeeding year shall be adjusted based upon
the Consumer Price Index, provided that his annual base salary shall never be
less than $500,000. Unless either party gives written notice to the contrary
prior to December 31 of each year the employment agreement is in effect the
employment agreement will automatically be extended for an additional year so
that, as of each December 31, the remaining term of the employment agreement
will be five years. The employment agreement also provides for participation by
Mr. Dinetz in all benefit programs maintained by Chancellor or its subsidiaries
and provides for certain life, health and disability insurance coverage for Mr.
Dinetz.

The employment agreement may be terminated by Chancellor and Chancellor
Radio Broadcasting at any time prior to the completion of the five year stated
term. If Chancellor and Chancellor Broadcasting terminate Mr. Dinetz's
employment agreement other than for cause (as defined), or if Mr. Dinetz
voluntarily terminates the employment agreement for good reason (as defined),
Chancellor and Chancellor Radio Broadcasting must pay Mr. Dinetz severance
compensation equal to two years of Mr. Dinetz's base salary; provided, however,
that if the decision to terminate the employment agreement results from the
failure of Chancellor or Chancellor Radio Broadcasting to meet certain
specified financial performance criteria, Mr. Dinetz will be entitled to
receive severance compensation equal to one year of Mr. Dinetz's base salary.

In 1994, pursuant to his former employment agreement Mr. Dinetz was
granted options (the "Dinetz Options") to purchase 5,976,415 shares of
Nonvoting Stock, including (i) options vesting equally over five years (from
January 10, 1994) to purchase up to 3,307,722 shares at an exercise price of
$1.00 per share and (ii) options vesting equally over five years (from October
12, 1994) to purchase up to 2,668,582 shares at an exercise price of $1.25 per
share, in each case with such exercise price to increase at a compound rate of
9% per annum. Of the options granted, options for 1,062,004 shares contained a
feature which conditioned their exercise upon the Company's attaining certain
rates of return ("IRR Options"). In September 1995, the Company agreed with Mr.
Dinetz to amend the IRR Options to remove the rate of return feature. The
Company further agreed to amend the exercise price for the Dinetz Options to
provide that all options previously exercisable at $1.00 per share will be
exercisable at $1.25 per share and that all options previously exercisable at
$1.25 per share will be exercisable at $1.40 per share. The Dinetz Options were
also amended to remove the annual compounding of the exercise price. In
accordance with their terms, the Dinetz Options were adjusted in connection
with the recapitalization of Chancellor's common stock immediately prior to the
consummation of the Initial Public Offering. Accordingly, Mr. Dinetz owns, on
an adjusted basis, options exercisable for 487,555 shares having an option
exercise price of $7.50 per share and options exercisable for 375,764 shares
having an option exercise price of $8.40 per share. In addition, on February 9,
1996, Mr. Dinetz was granted options to purchase 75,000 shares of Class A
Common Stock pursuant to the Stock Award Plan (as defined).

Toulas Employment Agreement

Mr. Toulas is a party to an employment agreement with Chancellor and
Chancellor Radio Broadcasting pursuant to which he serves as Regional Manager
of WUBE-AM, WUBE-FM, WYGY-FM and WKYN-AM in Cincinnati, KTCJ-FM, KTCZ-AM,
KDWB-FM, KEEY-FM, KFAN-AM, WBOB-FM and KQQL-FM in Minneapolis-St. Paul,
WOCL-FM, WXXL-FM, WOMX-FM and WJHM-FM in Orlando, WGMS-FM, WBIG-FM and WTEM-AM
in Washington, D.C., WHTZ-FM in New York and WFOX-FM in Atlanta. Mr. Toulas is
also a Senior Executive Vice President of Chancellor and Chancellor Radio
Broadcasting. Mr. Toulas's employment agreement is for a term commencing on
February 14, 1996 and ending upon December 31, 2000, unless otherwise
terminated as allowed in the agreement. The agreement provides for an initial
base salary of $375,000, with an annual increase of between three and five
percent as determined by the board of directors. Mr. Toulas is also entitled to
receive an annual bonus of up to 50% of his then base salary for each fiscal
year, beginning in fiscal year ending December 31, 1996, based on

24
<PAGE> 27

achievement of broadcast cash flow projections established by the board of
directors. The broadcast cash flow projections will be adjusted based upon
acquisitions or disposition of stations under the supervision of Mr. Toulas.
Mr. Toulas is also entitled to the use and paid expenses of an automobile,
allowance for a fitness or similar club, and participation in all employee
benefit plans maintained by Chancellor or any of its subsidiaries. Mr. Toulas's
employment agreement also contains a noncompetition provision pursuant to which
Mr. Toulas has agreed that during the term of his employment contract and for
six months thereafter he will not engage in the broadcasting business within
any community or Arbitron MSA served by those stations managed or overseen by
him. On February 14, 1996, concurrently with the consummation of the Initial
Public Offering, the Company paid to Mr. Toulas $100,000 in satisfaction of a
provision of his former employment agreement providing for a possible cash
payment to Mr. Toulas based on the value of the Company's Cincinnati stations
at a specified future date.

Eytcheson Employment Agreement

Mr. Eytcheson is a party to an employment agreement with Chancellor
and Chancellor Radio Broadcasting pursuant to which he serves as Regional
Manager of KZLA-FM and KLAC-AM in Los Angeles, KSAN-FM, KNEW-AM, KBGG-FM and
KABL-AM in San Francisco, KGGI-FM and KMEN-AM in Riverside-San Bernardino, and
KFBK-AM, KGBY-FM and KHYL-FM in Sacramento. Mr. Eytcheson is also an Executive
Vice President of Chancellor and Chancellor Radio Broadcasting. Mr. Eytcheson's
employment agreement is for a two year term commencing on February 14, 1996,
and is subject to automatic successive one-year renewal terms that take effect
unless notice of non-renewal is given by the Company to Mr. Eytcheson within 30
days prior to the expiration of the then-current term. Mr. Eytcheson's current
base salary is $325,000 per year. Mr. Eytcheson is also entitled to receive an
annual bonus of up to 50% of his then base salary for each fiscal year,
beginning in fiscal year ending December 31, 1996, based on achievement of
broadcast cash flow projections established by the board of directors. The
broadcast cash flow projections will be adjusted based upon acquisitions or
disposition of stations under the supervision of Mr. Eytcheson. Mr. Eytcheson
is also entitled to the use and paid expenses of an automobile, allowance for a
fitness or similar club, and participation in all employee benefit plans
maintained by Chancellor or any of its subsidiaries. Mr. Eytcheson's employment
agreement also contains a noncompetition provision pursuant to which Mr.
Eytcheson has agreed that during the term of his employment contract and for
one year thereafter he will not engage in the radio broadcasting business
within a specified geographic location surrounding the Company's stations under
Mr. Eytcheson's supervision pursuant to the employment agreement. On February
14, 1996, concurrently with the consummation of the Initial Public Offering,
the Company lent $200,000 to Mr. Eytcheson to enable him to purchase shares of
Chancellor's Class A Common Stock in the Initial Public Offering. The loan will
be an unsecured, non-interest bearing loan, which will be forgiven during the
next three years. The Company made this loan to Mr. Eytcheson in satisfaction
of a provision of his former employment agreement providing for a possible cash
payment to Mr. Eytcheson based on the value of the Company's Sacramento
stations at a specified future date.

Weller Employment Agreement

Mr. Weller is a party to an employment agreement with Chancellor and
Chancellor Radio Broadcasting pursuant to which he serves as Regional Manager
of KMLE-FM, KOOL-FM, KYOT-FM, KZON-FM, KISO-AM and KOY-AM in Phoenix, KXKL-FM,
KVOD-FM, KRRF-AM, KIMN-FM and KALC-FM in Denver, WWSW-AM and WWSW-FM in
Pittsburgh, and WALK-FM, WALK-AM, WBAB-FM, WBLI-FM, WHFM-FM and WGBB-AM in
Nassau-Suffolk (Long Island). Mr. Weller is also an Executive Vice President of
Chancellor and Chancellor Radio Broadcasting. The initial term of the
employment agreement commenced on February 1, 1996 and continues for twenty
three months. The employment agreement provides for an annual base salary of
$340,000 and $360,000 in the fiscal years ended December 31, 1997 and 1998,
respectively. Mr. Weller is also entitled to receive a quarterly bonus based on
the percentage of the annual budgeted broadcast cash flow achieved by the
stations for which Mr. Weller has responsibility. The employment agreement also
provides that the Company will supply Mr. Weller with other customary benefits,
including the use of a car and insurance, disability and medical benefits. The
employment agreement also contains a noncompetition provision pursuant to which
Mr. Weller has agreed, subject to certain exceptions, that during the term of
his employment contract and for six months thereafter he will not engage in the
broadcasting business within any community or Arbitron MSA served by those
stations managed or overseen by him.

25
<PAGE> 28

Kerrest Employment Agreement

Mr. Kerrest is a party to an employment agreement with Chancellor and
Chancellor Radio Broadcasting pursuant to which he serves as Senior Vice
President and Chief Financial Officer. Mr. Kerrest's employment agreement is
for a two year term commencing on February 14, 1996, and is subject to
automatic successive one-year renewal terms that take effect unless notice of
non-renewal is given by the Company to Mr. Kerrest within 30 days prior to the
expiration of the then-current term. The agreement provides for an initial base
salary of $225,000, with an annual increase of not less than five percent as
determined by the board of directors. Mr. Kerrest is also entitled to receive
an annual bonus, beginning in fiscal year ending December 31, 1996, based on
achievement of broadcast cash flow projections established by the board of
directors. The employment agreement also provides that the Company will supply
Mr. Kerrest with other customary benefits, including the use of a car and
insurance, disability and medical benefits.

STOCK OPTIONS

The following table shows the value, as of December 31, 1996 of stock
options of Chancellor held by its Chief Executive Officer and other Named
Executive Officers. No stock options were exercised during the year ended
December 31, 1996.
1996 FISCAL YEAR END OPTION VALUES(1)

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END
# ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Steven Dinetz .................................................. 345,326/592,992 5,476,274/8,495,707
George C. Toulas ............................................... 0/50,000 0/150,000
Rick Eytcheson ................................................. 0/30,000 0/93,750
Samuel L. Weller ............................................... 0/30,000 0/56,250
Jacques Kerrest ................................................ 0/35,000 0/93,750
</TABLE>
- ---------------

(1) Assuming a fair market value of $23.75 per share, which was the closing
price per share of the Class A Common Stock on December 31, 1996.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1996, Messrs. Marcus and Massey served as members of the
Compensation Committee of the Board of Directors, of which Mr. Marcus acted as
chairman. Mr. Marcus is the President and Chief Executive Officer of Marcus
Cable Company, a cable television multiple system operator. An affiliate of
Hicks Muse has invested approximately $115.0 million in limited partnership
interests in Marcus Cable Company and is one of its largest limited partners.

COMPENSATION OF DIRECTORS

Beginning in 1997, the non-employee directors of Chancellor (other than
Messrs. Hicks, Stuart and Neuman) receive an annual retainer of $25,000 for
serving as directors of Chancellor and its subsidiaries. Non-employee directors
also receive attendance fees of $1,000 ($500 in the case of telephonic
meetings) for each meeting which they attend. Directors who are officers or
employees of Chancellor or the Company are not presently expected to receive
compensation for their services as directors. Directors of Chancellor are
entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of
Directors or committees thereof.

Each of Messrs. Marcus and Massey has been granted fully vested options
to purchase up to 13,333 shares of Chancellor's Class A Common Stock at an
exercise price of $7.50 per share. These options will expire on October 12,
2004, unless exercised prior to that date. Upon her appointment to the Board of
Directors in January 1996, Matrice Ellis-Kirk was granted a right, which she
has exercised, to purchase up to 2,500 shares of Class A Common Stock at a
price per share equal to the Initial Public Offering price per share. In
addition, Ms. Ellis-Kirk has been granted fully vested options to purchase up
to 6,666 shares of Class A Common Stock at an exercise price equal to $20.00
per share which expire on January 10, 2006. Ms. Ellis-Kirk resigned as a
director of Chancellor and Chancellor Radio Broadcasting on February 21, 1997.

26
<PAGE> 29

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of March 10, 1997, (i) the number and percentage of outstanding shares
of each class of the capital stock of Chancellor that are beneficially owned by
(a) each person or group known by the Company to own beneficially more than 5%
of any class of the capital stock of Chancellor, (b) each director of
Chancellor; (c) each Named Executive Officer and (d) all directors and
executive officers of Chancellor as a group and (ii) the combined percentage of
all classes of the capital stock of Chancellor that is beneficially owned by
each of such persons or group of persons. Except as noted below, each
individual or entity named below is believed to have sole investment and voting
power with respect to all the shares of capital stock reflected below.

<TABLE>
<CAPTION>
PERCENT OF
CLASS A CLASS B PERCENT OF ECONOMIC
COMMON STOCK(1) COMMON STOCK(2) VOTING POWER INTEREST
-------------------- --------------------- ------------ ----------
NUMBER PERCENT NUMBER PERCENT
OF SHARES OF CLASS OF SHARES OF CLASS
--------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Thomas O. Hicks (3) ................... 1,815,365 17.4% 8,484,410 99.3% 90.4% 54.3%
c/o Hicks, Muse, Tate &
Furst Incorporated,
200 Crescent Court
Suite 1600
Dallas, Texas 75201
HM Parties (4) ........................ 1,277,625 12.2% 8,484,410 99.3% 89.8% 51.4%
c/o Hicks, Muse, Tate &
Furst Incorporated,
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Putnam Investments, Inc. (5) .......... 1,915,365 18.4% -- -- 2.0% 10.1%
One Post Office Square
Boston, Massachusetts 02109
AIM Management Group Inc. (6) ......... 818,000 7.8% -- -- * 4.3%
11 Greenway Plaza, Suite 1919
Houston, Texas 77046

OFFICERS AND DIRECTORS
Thomas O. Hicks (3).................... 1,815,365 17.4% 8,484,410 99.3% 90.4% 54.3%
Steven Dinetz (7) ..................... 470,738 4.3% 63,500 * 1.2% 2.7%
George C. Toulas (8) .................. 28,333 * -- -- * *
Rick Eytcheson (9) .................... 29,583 * -- -- * *
Samuel L. Weller (10) ................. 11,250 * -- -- * *
Jacques Kerrest (11) .................. 23,916 * -- -- * *
Jeffrey A. Marcus (12) ................ 35,000 * -- -- * *
John Massey (12) ...................... 23,333 * -- -- * *
Eric C. Neuman ........................ 1,000 * -- -- * *
Lawrence D. Stuart, Jr. ............... 5,451 * -- -- * *
All directors and executive officers of
Chancellor as a group (3) (13) ..... 2,489,652 22.7% 8,547,910 100% 91.2% 56.5%
</TABLE>
- -------------------
* Less than one percent.
(1) The holders of Class A Common Stock are entitled to one vote per share on
all matters submitted to a vote of stockholders of Chancellor. In
addition, the holders of the Class A Common Stock are entitled as a class
to elect two members of the Board of Directors of Chancellor.
(2) The holders of the Class B Common Stock are entitled to vote with the
holders of the Class A Common Stock on all mattes submitted to a vote of
stockholders of Chancellor, except with respect to the election of the
Class A directors, certain "going private" transactions and as otherwise
required by law. Each share of Class B Common Stock is entitled to ten
votes per share on all matters submitted to a vote of stockholders.
(3) Includes 343,672 shares owned of record by Thomas O. Hicks, 190,712
shares owned of record by Mr. Hicks as the trustee for certain trusts of
which his children are beneficiaries and 3,356 shares owned of record by
Mr. Hicks as the co-trustee of a trust for

27
<PAGE> 30

the benefit of unrelated parties. Also includes 1,346,801 shares of Class
B Common Stock owned of record by the Chancellor Business Trust (as
defined) and 1,277,625 shares of Class A Common Stock and 7,137,609
shares of Class B Common Stock owned by five limited partnerships of
which the ultimate general partners are entities controlled by Mr. Hicks
or Hicks Muse. Thomas O. Hicks is the controlling stockholder of Hicks
Muse and serves as Chairman of the Board, President, Chief Executive
Officer, Chief Operating Officer and Secretary of Hicks Muse.
Accordingly, Mr. Hicks may be deemed to be the beneficial owner of all or
a portion of the stock owned of record by such limited partnerships. Mr.
Hicks disclaims beneficial ownership of the shares of Class A Common
Stock and Class B Common Stock not owned by him of record.
(4) Includes 1,346,801 shares of Class B Common Stock owned of record by the
Chancellor Business Trust, 1,277,625 shares of Class A Common Stock and
7,137,609 shares of Class B Common Stock owned by five limited
partnerships of which the ultimate general partners are entities
controlled by Mr. Hicks or Hicks Muse. Thomas O. Hicks is the controlling
stockholder of Hicks Muse and serves as Chairman of the Board, President,
Chief Executive Officer, Chief Operating Officer and Secretary of Hicks
Muse. Accordingly, Mr. Hicks may be deemed to be the beneficial owner of
all or a portion of the stock owned of record by such limited
partnerships. John R. Muse, Charles W. Tate, Jack D. Furst, Lawrence D.
Stuart, Jr., Michael J. Levitt and Alan B. Menkes are officers, directors
and minority stockholders of Hicks Muse and as such may be deemed to
share with Mr. Hicks the power to vote or dispose of shares of stock held
by such partnerships. Messrs. Hicks, Muse, Tate, Furst, Stuart, Levitt
and Menkes disclaim the existence of a group and each of them disclaim
beneficial ownership of shares of stock not owned of record by him. See
"Certain Relationships and Related Transactions -- Chancellor Business
Trust and Related Registration Rights Agreement."
(5) Includes shares of Class A Common Stock which may be deemed to be
beneficially owned by Putnam Investment Management, Inc. and the Putnam
Advisory Company, Inc. ("PAC"), each wholly-owned subsidiaries of such
person and registered investment advisors to certain investment companies
which hold shares of Class A Common Stock. Except for the power to vote,
100,596 of such shares that is shared by PAC with respect to those shares
owned by its institutional clients, each mutual fund's trustees retain
the power to vote the shares of Class A Common Stock held by such fund.
(6) Includes shares held by two wholly-owned subsidiaries of such person
that are registered investment advisors.
(7) Includes (i) options presently exercisable and exercisable within 60 days
of the date of this document to purchase up to 461,588 shares of Class A
Common Stock, (ii) 600 shares held in an individual retirement account
for the benefit of Mr. Dinetz and (ii) 550 shares held by Mr. Dinetz's
daughter. Mr. Dinetz disclaims beneficial ownership of the shares of
Class A Common Stock not owned by him of record.
(8) Includes options presently exercisable and exercisable within 60 days of
the date of this document to purchase up to 10,000 shares of Class A
Common Stock.
(9) Includes (i) options presently exercisable within 60 days of the date of
this document to purchase up to 6,250 shares of Class A Common Stock and
(ii) 6,667 shares held in an individual retirement account for the
benefit of Mr. Eytcheson.
(10) Includes options presently exercisable and exercisable within 60 days of
the date of this document to purchase up to 3,750 shares of Class A
Common Stock.
(11) Includes options presently exercisable and exercisable within 60 days of
the date of this document to purchase up to 6,250 shares of Class A
Common Stock.
(12) Includes options presently exercisable and exercisable within 60 days of
the date of this document by each of Messrs. Marcus and Massey to purchase
up to 13,333 shares ofClass A Common Stock, and (ii) in the case of
Mr. Massey, 10,000 shares of Class A Common Stock held by his wife as her
separate property.
(13) Includes rights and options presently exercisable and exercisable within
60 days of the date of this document to purchase up to 552,154 shares of
Class A Common Stock.

ITEM 13. CERTAIN TRANSACTIONS

Financial Monitoring and Oversight Agreement

Chancellor and Chancellor Radio Broadcasting have entered into a
financial monitoring and oversight agreement (as amended, the "Financial
Monitoring and Oversight Agreement") with Hicks Muse & Co. Partners, L.P.
("Hicks Muse Partners"), an affiliate of Hicks Muse. Pursuant thereto,
Chancellor and Chancellor Radio Broadcasting pay to Hicks Muse Partners an
annual fee adjustable upward or downward at the end of each fiscal year to a
fee equal to 0.25% of the budgeted consolidated annual net sales of the
Company, provided, that such fee shall at no time be less than $500,000 per
year. In the event that Chancellor or any of its subsidiaries acquires another
entity or business during the term of the Financial Monitoring and Oversight
Agreement, the annual fee for the calendar year in which such acquisition
occurs shall be adjusted prospectively as of the closing of such acquisition to
an annual amount equal to 0.25% of the pro forma combined budgeted consolidated
annual net sales of the Company (including the sales of the acquired entity or
business for such entire fiscal year on a pro forma basis). Notwithstanding the
foregoing, so long as certain provisions of the Indenture dated as of October
12, 1994 between Chancellor Radio Broadcasting and U.S. Trust Company of Texas,
N.A., as amended, remain in effect, then in the event that the aggregate
payments payable pursuant to the Financial Monitoring and Oversight Agreement
exceed at any time the aggregate payments that would have been required by the
Company under certain provisions of the Financial Monitoring and Oversight
Agreement as in effect on October 12, 1994 by more than

28
<PAGE> 31

$2.5 million, then the annual fee shall automatically be adjusted (the "Fee
Adjustment") to an amount equal to at least $200,000, adjusted pursuant to a
formula based upon changes in the consumer price index from the prior year,
provided that the annual fee shall never be lower than $200,000. Promptly
following the occurrence of a Fee Adjustment, the Company is obligated to
retain a nationally recognized investment banking firm for the purpose of
rendering a fairness opinion to the effect that the payments under the
Financial Monitoring and Oversight Agreement, without giving effect to the Fee
Adjustment, are fair to the Company from a financial point of view. In the
event that the Company receives such a fairness opinion, Hicks Muse Partners
shall be entitled to receive all payments due to it under the Financial
Monitoring and Oversight Agreement with retroactive effect to the date the Fee
Adjustment occurred. All past due amounts under the Financial Monitoring and
Oversight Agreement bear interest at the prime commercial lending rate plus
5.0%.

Hicks Muse Partners is also entitled to reimbursement for any
out-of-pocket expenses incurred by it in connection with rendering services
under the Financial Monitoring and Oversight Agreement. In addition, Chancellor
and Chancellor Radio Broadcasting have agreed to indemnify Hicks Muse Partners,
its affiliates and shareholders, and their respective directors, officers,
agents, employees and affiliates from and against all claims, actions,
proceedings, demands, liabilities, damages, judgments, assessments, losses and
costs, including fees and expenses, arising out of or in connection with the
services rendered by Hicks Muse Partners in connection with the Financial
Monitoring and Oversight Agreement.

The Financial Monitoring and Oversight Agreement makes available on an
ongoing basis the resources of Hicks Muse Partners concerning a variety of
financial matters. The services that have been and will continue to be provided
by Hicks Muse Partners could not otherwise be obtained by Chancellor and
Chancellor Radio Broadcasting without the addition of personnel or the
engagement of outside professional advisors. The Financial Monitoring and
Oversight Agreement expires on the earlier of (i) April 1, 2006 and (ii) the
date on which HM Fund II and its affiliates cease to own beneficially, directly
or indirectly, any securities of Chancellor.

Financial Advisory Agreement

Chancellor and Chancellor Radio Broadcasting are parties to an agreement
(the "Financial Advisory Agreement") with HM2/Management Partners, L.P.
("HM2"). Pursuant to the Financial Advisory Agreement, HM2 received cash
financial advisory fees of approximately $0.3 million, $6.2 million, $84,000
and $22,500, respectively, upon the closing of the acquisitions of radio
station KDWB in July 1995, Shamrock Broadcasting in February 1996, the Denver
Exchange in July 1996 and radio station WKYN-AM in November 1996, as
compensation for its services as financial advisor for such acquisitions. In
addition, HM2 received approximately $1.9 million in financial advisory fees in
connection with the Omni Transaction and approximately $5.0 million in
connection with the Colfax Transaction. HM2 also is entitled to receive a fee
equal to 1.5% of the transaction value (as defined) for each add-on transaction
(as defined) in which Chancellor, Chancellor Radio Broadcasting or any of their
subsidiaries is involved. HM2 is also entitled to reimbursement for any
out-of-pocket expenses incurred by it in connection with rendering services
under the Financial Advisory Agreement. The term "transaction value" means the
total value of any add-on transaction, including without limitation, the
aggregate amount of the funds required to complete the add-on transaction
(excluding any fees payable pursuant to the Financial Advisory Agreement, but
including the amount of any indebtedness, preferred stock or similar items
assumed or remaining outstanding). The term "add-on transaction" means any
future proposal for a tender offer, acquisition, sale, merger, exchange offer,
recapitalization, restructuring or other similar transaction directly or
indirectly involving Chancellor, Chancellor Radio Broadcasting or any of their
respective subsidiaries and any other person or entity. In addition, Chancellor
and Chancellor Radio Broadcasting have agreed to indemnify HM2, its affiliates
and shareholders, and their respective directors, officers, agents, employees
and affiliates from and against all claims, actions, proceedings, demands,
liabilities, damages, judgments, assessments, losses and costs, including fees
and expenses, arising out of or in connection with the services rendered by HM2
in connection with the Financial Advisory Agreement.

Pursuant to the Financial Advisory Agreement HM2 provides investment
banking, financial advisory and other similar services with respect to the
add-on transactions in which the Company is involved. Such transactions require
additional attention beyond that required to monitor and advise the Company on
an ongoing basis and accordingly the Company pays separate financial advisory
fees with respect to such matters in addition to those paid in connection with
Financial Monitoring and Oversight Agreement. The services that have been and
will continue

29
<PAGE> 32

to be provided by HM2 could not otherwise be obtained by Chancellor and
Chancellor Radio Broadcasting without the addition of personnel or the
engagement of outside professional advisors. The Financial Advisory Agreement
will terminate concurrently with the termination of the Financial Monitoring
and Oversight Agreement.

Stockholders Agreement

Certain stockholders of Chancellor have entered into a stockholders
agreement (the "Stockholders Agreement") with Chancellor, which provides, among
other things, that such stockholders, which include certain affiliates of Hicks
Muse, may require Chancellor, subject to certain registration volume
limitations, to effect up to three demand registrations under the Securities
Act for the sale of such stockholders' shares of Common Stock. The Stockholders
Agreement also provides that in the event Chancellor proposes to register any
shares of its Common Stock under the Securities Act, whether or not for its own
account, the stockholders that are parties to the Stockholders Agreement shall
be entitled, with certain exceptions, to include their shares of Common Stock
in such registration.

Chancellor Business Trust and Related Registration Rights Agreement

At the time of the acquisition of the American Media Station Group,
affiliates of Hicks Muse and certain investment funds operated by Fidelity
Investments formed a business trust (the "Chancellor Business Trust") to hold
shares of the capital stock of Chancellor. The Chancellor Business Trust
currently holds 15.8% of the Class B Common Stock. HM2/GP Partners, L.P., an
affiliate of Hicks Muse (the "Hicks Muse Manager"), acts as manager for, and
has a beneficial interest in, the Chancellor Business Trust. Prior to its
dissolution, the Chancellor Business Trust is entitled to registration rights
under the Stockholders Agreement for the shares of Common Stock held by it.
Upon dissolution of the Chancellor Business Trust and the distribution to the
beneficiaries thereof (other than the Hicks Muse Manager) of the Class B Common
Stock held by the Chancellor Business Trust, such stock will automatically
convert into Class A Common Stock. Such beneficiaries, including the Hicks Muse
Manager, will be entitled to certain registration rights set forth in a
Registration Rights Agreement between Chancellor and the trust unitholders.
Under that agreement, the trust unitholders, subject to certain limitations,
are entitled to require Chancellor to effect a "shelf" registration under the
Securities Act and to keep effective the registration statement for such
offering for a period of 36 months for the purpose of allowing such trust
unitholders to dispose of the shares of Common Stock held by them. In addition,
after the dissolution of he Chancellor business Trust and the distribution of
the Common Stock held thereby, the trust unitholders are entitled to
participate, subject to certain limitations, in any offering registered under
the Securities Act effected by the Company for its own account. The Chancellor
Business Trust may be dissolved at any time by the Hicks Muse Manager. The
Chancellor Business Trust dissolves by its terms on February 9, 1998.

Hicks Muse Equity Investment

In August, 1996, an affiliate of Hicks Muse purchased 1,185,521 shares of
the Class A Common Stock of Chancellor for approximately $23.0 million in
accordance with an agreement entered into between Hicks Muse and Chancellor in
February 1996. The proceeds of this equity investment were contributed by
Chancellor to the capital of Chancellor Radio Broadcasting and were used to
repay borrowings under the existing credit agreement.

Purchase of Exchangeable Preferred Stock

In connection with the funding of the Shamrock Acquisition, affiliates of
Hicks Muse purchased $12.5 million initial liquidation preference of the
Company's 14% Senior Exchangeable Preferred Stock for a purchase price of
approximately $11.9 million (or 95% of the initial liquidation preference of
such shares) and received in connection therewith an aggregate of 92,774 shares
of Class A Common Stock. The net proceeds of the sale of the Senior
Exchangeable Preferred Stock were used to retire the Company's 14% Senior
Exchangeable Preferred Stock at a redemption price of 96.5% of the initial
liquidation preference thereof, plus accumulated and unpaid dividends to the
redemption date. The Hicks Muse purchasers, along with the other purchasers of
the 14% Senior Exchangeable Preferred Stock, are entitled to registration
rights for the sale of the shares of Class A Common Stock issued in connection
with sale of such preferred stock.

30
<PAGE> 33

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. and 2. Financial Statements and Financial Statement Schedules.

The financial statements and schedules listed in the Index to Financial
Statements that appears in Item 8 on Page 19 of this Report on Form 10-K are
filed as part of this report.

3. Exhibits.

EXHIBIT
NO. DESCRIPTION OF DOCUMENT
--- -----------------------

2.1 Asset Purchase Agreement dated as of April 19, 1994, between
American Media, Inc. and Chancellor Holdings Corp. (formerly, MBD
Broadcasting, Inc.) (1)

2.2 Asset Purchase Agreement dated as of April 19, 1994, among SanRiver
Radio, Inc., Mid-Florida Radio, Inc. and Chancellor Holdings Corp.
(formally MBD Broadcasting, Inc.) (1)

2.3 Asset Purchase Agreement dated as of April 19, 1994, between
National Radio Partners, L.P. and Chancellor Holdings Corp.
(formerly, MBD Broadcasting, Inc.) (1)

2.4 Asset Purchase Agreement dated as of April 19, 1994, between
National Radio Partners, L.P. and Chancellor Communications
Corporation (1)

2.5 Local Programming and Marketing Agreement dated February 1, 1995,
between Midcontinent Radio of Minnesota, Inc., as Licensee, Radio
Station KDWB-FM, and Chancellor Broadcasting Company(2)

2.6 Asset Purchase Agreement dated February 1, 1995, between
Midcontinent Radio of Minnesota, Inc., Chancellor Broadcasting
Company and Chancellor Broadcasting Licensee Company (2)

2.7 Escrow Agreement dated February 7, 1995, between Midcontinent Radio
of Minnesota, Inc., Chancellor Broadcasting Company and NationsBank
of Texas, N.A. (2)

2.8 Stock Purchase Agreement dated as of August 3, 1995, among
Chancellor Broadcasting Company, Trefoil Communications, Inc., and
the Selling Securityholders named therein (3)

2.9 Asset Purchase Agreement dated as of May 14, 1996, among
OmniAmerica Group, WAPE-FM License Partnership, WFYV-FM License
Partnership, WEAT-FM License Partnership, WEAT-AM License
Partnership, WXXL License Partnership, WOLL License Partnership,
WJHM-FM License Partnership, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company (7)

2.10 Local Marketing Agreement dated as of June 28, 1996, among
OmniAmerica Group, Chancellor Broadcasting Company and Chancellor
Radio Broadcasting Company (7)

2.11 Exchange Agreement dated as of July 1, 1996, among WBLI, Inc.,
WBLI-FM, Inc., WHFM, Inc., WBAB, Inc., WGBB, Inc., SFX
Broadcasting, Inc. and Chancellor Radio Broadcasting Company (7)

2.12 Local Marketing Agreement dated as of July 1, 1996, among WBLI,
Inc., WBLI-FM, Inc., WHFM, Inc., WBAB, Inc., WGBB, Inc. and
Chancellor Radio Broadcasting Company (7)

2.13 Exchange Agreement dated as of June 24, 1996, among America Radio
Systems Corporation and Chancellor Radio Broadcasting Company (8)

2.14 Local Marketing Agreement dated as of June 24, 1996, among America
Radio Systems Corporation and Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company (8)

2.15 Asset Purchase Agreement dated as of August 24, 1996 by and among
Classical Acquisition Limited Partnership, Radio 100 of Maryland
Limited Partnership, Radio 100 Limited Partnership, Radio 570
Limited Partnership, Radio 94 of Phoenix Limited Partnership, and
Radio 95 of Phoenix Limited Partnership and Chancellor Radio
Broadcasting Company (8)

31
<PAGE> 34

2.16 Agreement and Plan of Merger, dated as of February 19, 1997, among
Chancellor Broadcasting Company, Chancellor Radio Broadcasting
Company and Evergreen Media Corporation (9)

2.17 Joint Purchase Agreement, dated as of February 19, 1997, among
Chancellor Broadcasting Company, Chancellor Radio Broadcasting
Company, Evergreen Media Corporation of Los Angeles and Evergreen
Media Corporation (10)

2.18 Stock Purchase Agreement, dated as of February 16, 1997, between
Viacom International Inc. and Evergreen Media Corporation of Los
Angeles (10)

3.1 Second Restated Certificate of Incorporation of Chancellor
Broadcasting Company, as amended (4)

3.2 Certificate of Incorporation of Chancellor Radio Broadcasting
Company, as amended *

3.3 Certificate of Incorporation of Chancellor Broadcasting Licensee
Company (1)

3.4 Second Restated Bylaws of Chancellor Broadcasting Company (4)

3.5 Bylaws of Chancellor Radio Broadcasting Company, as amended (1)

3.6 Bylaws of Chancellor Broadcasting Licensee Company (1)

3.7 Certificate of Designation for the 12 1/4% Series A Senior
Cumulative Exchangeable Preferred Stock of Chancellor Radio
Broadcasting Company (8)

3.8 Certificate of Designation for the 12% Exchangeable Preferred Stock
of Chancellor Radio Broadcasting Company (11)

3.9 Certificate of Designation for the 7% Convertible Preferred Stock
of Chancellor Broadcasting Company (12)

4.1 Indenture, dated October 1, 1994, governing the outstanding 12 1/2%
Senior Subordinated Notes due 2004 (1)

4.2 First Supplemental Indenture, dated as of February 14, 1996, to the
Indenture dated October 1, 1994, governing the 12 1/2% Senior
Subordinated Notes due 2004 (4)

4.3 Second Supplemental Indenture, dated as of February 14, 1996, to
the Indenture dated October 1, 1994, governing the 12 1/2% Senior
Subordinated Notes due 2004 (4)

4.4 Indenture, dated as of February 14, 1996, governing the outstanding
9 3/8% Senior Subordinated Notes due 2004 (5)

4.5 First Supplemental Indenture, dated as of February 14, 1996, to the
Indenture dated February 14, 1996, governing the 9 3/8% Senior
Subordinated Notes due 2004 (4)

4.6 Indenture, dated as of February 26, 1996, governing the 12 1/4%
Subordinated Exchange Debentures due 2008 (4)

4.7 Indenture, dated as of January 23, 1997, governing the 12%
Subordinated Exchange Debentures due 2009 (11)

10.1 Lease Agreement dated as of May 22, 1989, between Kruse Microwave
and SanRiver Radio, Inc., as amended (1)

10.2 License Agreement dated as of March 1, 1974, between City of New
Hope, Minnesota and National Radio Partners, L.P., as assignee of
American Media, Inc. (1)

10.3 Tower Lease Agreement dated as of November 23, 1988, between United
Television and Shoreview FM Group, a Minnesota general partnership
(1)

10.4 Partnership Agreement dated as of November 23, 1988, of Shoreview
FM Group, a Minnesota general partnership (1)

32
<PAGE> 35

10.5 Tax Sharing Agreement between Chancellor Holdings Corp. and
Chancellor Broadcasting Company(2)

10.6 Amended and Restated Monitoring and Oversight Agreement between
Chancellor Broadcasting Company, Chancellor Radio Broadcasting
Company and HM2/Management Partners, L.P. (4)

10.7 Amended and Restated Stockholders Agreement dated February 14, 1996
among Chancellor Broadcasting Company and certain Holders named
therein (4)

10.8 Registration Rights Agreement dated October 12, 1994 between
Chancellor Broadcasting Company and the Holders named therein (6)

10.9 Letter Agreement dated February 9, 1996 regarding Hicks Muse Equity
Investment among Chancellor Broadcasting Company and HM Fund II (4)

10.10 Sales Agreement, dated as of July 1, 1996, among OmniAmerica Group,
Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company (7)

10.11 Program Consulting Agreement, dated as of June 28, 1996, among
OmniAmerica Group, Chancellor Broadcasting Company and Chancellor
Radio Broadcasting Company (7)

10.12 Consulting Agreement, dated as of May 14, 1996, among Chancellor
Broadcasting Company, Chancellor Radio Broadcasting Company and
Anthony S. Ocepek (7)

10.13 Consulting Agreement, dated as of May 14, 1996, among Chancellor
Broadcasting Company, Chancellor Radio Broadcasting Company and
Carl E. Hirsch (7)

10.14 Consulting Agreement dated as of May 14, 1996, among Chancellor
Broadcasting Company, Chancellor Radio Broadcasting Company and H.
Dean Thacker (7)

10.15 Non-Competition Agreement dated as of May 14, 1996, among
Chancellor Broadcasting Company, Chancellor Radio Broadcasting
Company and Carl E. Hirsch (7)

10.16 First Consent and Amendment dated as of May 13, 1996, among
Chancellor Radio Broadcasting Company, the Banks party thereto and
Bankers Trust Company, as managing agent (7)

10.17 Employment Agreement dated as of February 1, 1996, between
Chancellor Radio Broadcasting Company and Samuel Weller (7)

10.18 Employment Agreement dated as of February 14, 1996, between
Chancellor Radio Broadcasting Company and Rick Eytcheson (8)

10.19 Employment Agreement dated as of February 14, 1996, between
Chancellor Broadcasting Company, Chancellor Radio Broadcasting
Company and George C. Toulas *

10.20 Employment Agreement dated as of February 14, 1996, between
Chancellor Broadcasting Company, Chancellor Radio Broadcasting
Company and Jacques Kerrest *

10.21 Employment Agreement dated as of February 14, 1996 among Chancellor
Broadcasting Company, Chancellor Radio Broadcasting Company and
Steven Dinetz (7)

10.22 Chancellor Broadcasting Company Stock Award Plan *

10.23 Registration Rights Agreement, dated as of January 23, 1997, among
Chancellor Radio Broadcasting Company, BT Securities Corporation,
Credit Suisse First Boston, Goldman, Sachs & Co., NationsBanc
Capital Markets, Inc. and Smith Barney Inc. (11)

10.24 Amended and Restated Credit Agreement, dated as of February 14,
1996 and amended and restated as of January 23, 1997, among
Chancellor Broadcasting Company, Chancellor Radio Broadcasting
Company, various banks, Goldman Sachs Credit Partners L.P., as
documentation agent, NationsBank of Texas, N.A., as syndication
agent, and Bankers Trust, as managing agent and arranger *

11.1 Computation of Per Share Earnings for Chancellor Broadcasting
Company *

33
<PAGE> 36

12.1 Computation of Ratio of Earnings to Fixed Charges for Chancellor
Radio Broadcasting Company *

12.2 Computation of Ratio of Earnings to Fixed Charges for Trefoil
Communications, Inc. *

21.1 Subsidiaries of Chancellor Broadcasting Company (4)

27.1 Financial Data Schedule for Chancellor Broadcasting Company *

27.2 Financial Data Schedule for Chancellor Radio Broadcasting Company *

27.3 Financial Data Schedule for Chancellor Broadcasting Licensee
Company *
- -------------------
* Filed herewith.

(1) Incorporated by reference to the Registration Statement on Form S-1 (File
No. 33-80534) of Chancellor Broadcasting Company as filed with the
Securities and Exchange Commission.
(2) Incorporated by reference to the Quarterly Report on Form 10-Q of
Chancellor Broadcasting Company (File No. 33-80534) for the fiscal quarter
ended March 31, 1995.
(3) Incorporated by reference to the Registration Statement on Form S-1 (File
No. 33-98334) of Chancellor Broadcasting Company as filed with the
Securities and Exchange Commission.
(4) Incorporated by reference to the Annual Report on Form 10-K of Chancellor,
Chancellor Broadcasting and Broadcasting Licensee for the fiscal year
ended December 31, 1995.
(5) Incorporated by reference from the Form 8-K of Chancellor Broadcasting
Company (File No. 0-27726) and Chancellor Radio Broadcasting Company (File
No. 33-98334) as filed with the Securities and Exchange Commission on
February 29, 1996.
(6) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-98336) of Chancellor Broadcasting Company as filed with the
Securities and Exchange Commission.
(7) Incorporated by reference from the Registration Statement on Form S-1
(File No. 333-02782) of Chancellor Radio Broadcasting Company as filed
with the Securities and Exchange Commission.
(8) Incorporated by reference to the Quarterly Report on Form 10-Q of
Chancellor Broadcasting Company (File No. 0-27726) for the fiscal quarter
ended September 30, 1996.
(9) Incorporated by reference to Exhibit 99(a) of the Schedule 13D filed by
Chancellor Broadcasting Company, Thomas O. Hicks and Lawrence D. Stuart,
Jr. on March 3, 1997 with respect to the Class A Common Stock of Evergreen
Media Corporation.
(10) Incorporated by reference to the Form 8-K filed by Chancellor Broadcasting
Company (File No. 0-27726) on March 11, 1997.
(11) Incorporated by reference to the Form 8-K filed by Chancellor Radio
Broadcasting Company (File No. 33-98334) on February 6, 1997.
(12) Incorporated by reference to the Form 8-K filed by Chancellor Broadcasting
Company (File No. 0-27726) on February 6, 1997.

(B) REPORTS ON FORM 8-K.

None.

34
<PAGE> 37

SIGNATURES

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

CHANCELLOR BROADCASTING COMPANY

By /s/ STEVEN DINETZ
--------------------------------------
Steven Dinetz,
President, Chief Executive Officer
and Director

Pursuant to the requirements of the Securities 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>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ STEVEN DINETZ President, Chief Executive Officer and March 25, 1997
- --------------------------------------------
Steven Dinetz Director (Principal Executive Officer of
Registrant)

/s/ JACQUES KERREST Senior Vice President and Chief March 25, 1997
- --------------------------------------------
Jacques Kerrest Financial Officer (Principal Financial
and Accounting Officer of Registrant)

/s/ THOMAS O. HICKS Chairman of the Board and Director March 25, 1997
- --------------------------------------------
Thomas O. Hicks

/s/ JEFFREY A. MARCUS Director March 25, 1997
- --------------------------------------------
Jeffrey A. Marcus

/s/ JOHN H. MASSEY Director March 25, 1997
- --------------------------------------------
John H. Massey

/s/ ERIC C. NEUMAN Director March 25, 1997
- --------------------------------------------
Eric C. Neuman

Director March 25, 1997
- --------------------------------------------
Lawrence D. Stuart, Jr.
</TABLE>

35
<PAGE> 38

SIGNATURES

CHANCELLOR RADIO BROADCASTING COMPANY

By /s/ STEVEN DINETZ
--------------------------------------
Steven Dinetz,
President, Chief Executive Officer
and Director

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ STEVEN DINETZ President, Chief Executive Officer and March 25, 1997
- --------------------------------------------
Steven Dinetz Director (Principal Executive Officer of
Registrant)

/s/ THOMAS O. HICKS Chairman of the Board and Director March 25, 1997
- --------------------------------------------
Thomas O. Hicks

/s/ JEFFREY A. MARCUS Director March 25, 1997
- --------------------------------------------
Jeffrey A. Marcus

/s/ JOHN H. MASSEY Director March 25, 1997
- --------------------------------------------
John H. Massey

/s/ ERIC C. NEUMAN Director March 25, 1997
- --------------------------------------------
Eric C. Neuman

Director March 25, 1997
- --------------------------------------------
Lawrence D. Stuart, Jr.
</TABLE>

36
<PAGE> 39

SIGNATURES

CHANCELLOR BROADCASTING LICENSEE
COMPANY

By /s/ STEVEN DINETZ
--------------------------------------
Steven Dinetz,
President, Chief Executive Officer
and Director

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ STEVEN DINETZ President, Chief Executive Officer and March 25, 1997
- --------------------------------------------
Steven Dinetz Director (Principal Executive Officer of
Registrant)

/s/ JEFFREY A. MARCUS Director March 25, 1997
- --------------------------------------------
Jeffrey A. Marcus

/s/ JOHN H. MASSEY Director March 25, 1997
- --------------------------------------------
John H. Massey
</TABLE>

37
<PAGE> 40

INDEX TO FINANCIAL STATEMENTS
(ITEM 14(A)1)

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
Report of Independent Accountants ...................................................................... F-21
Consolidated Balance Sheets as of December 31, 1995 and 1996 ........................................... F-22
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996 ............. F-23
Consolidated Statements of Changes in Common Stockholder's Equity for the years ended
December 31, 1994, 1995 and 1996 .................................................................... F-24
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 ............. F-25
Notes to Consolidated Financial Statements ............................................................. F-26

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Accountants ...................................................................... F-41
Report of Independent Accountants ...................................................................... F-42
Consolidated Balance Sheets as of December 31, 1994 and 1995 ........................................... F-43
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995 and the
period ended February 13, 1996 ...................................................................... F-44
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994 and 1995
and the period ended February 13, 1996............................................................... F-45
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the
period ended February 13, 1996....................................................................... F-46
Notes to Consolidated Financial Statements ............................................................. F-47
</TABLE>

38
<PAGE> 41

INDEX TO FINANCIAL STATEMENT SCHEDULES
(ITEM 14(A)2)

<TABLE>
<CAPTION>
<S> <C>
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES
Report of Independent Accountants ..................................................................... S-1
Parent Company Condensed Balance Sheets as of December 31, 1995 and 1996 .............................. S-2
Parent Company Condensed Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 .................................................................... S-3
Parent Company Condensed Statements of Changes in Stockholders' Equity for
the years ended December 31, 1994, 1995 and 1996 .................................................... S-4
Parent Company Condensed Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 .................................................................... S-5
Notes to Condensed Financial Statements ............................................................... S-6
Schedule II -- Valuation and Qualifying Accounts ...................................................... S-7
CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES
Report of Independent Accountants ..................................................................... S-8
Schedule II -- Valuation and Qualifying Accounts ...................................................... S-9
TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Accountants ..................................................................... S-10
Report of Independent Accountants ..................................................................... S-11
Schedule II -- Valuation and Qualifying Accounts ...................................................... S-12
</TABLE>

39
<PAGE> 42

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Chancellor Broadcasting Company:

We have audited the accompanying consolidated balance sheets of
Chancellor Broadcasting Company and Subsidiaries (collectively the "Company")
as of December 31, 1995 and 1996 and the related consolidated statements of
operations, changes in common stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company as of December 31, 1995 and 1996 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
February 13, 1997,
except for Note 15 as
to which the date is
February 19, 1997

F-1

<PAGE> 43

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash .......................................................................... $ 1,314,214 $ 3,788,546
Accounts receivable, net of allowance for doubtful accounts of $263,528
and $1,023,660, respectively ................................................ 13,243,292 46,584,705
Prepaid expenses and other .................................................... 546,405 2,753,731
------------- --------------
Total current assets ..................................................... 15,103,911 53,126,982
Restricted cash ................................................................. -- 20,363,329
Property and equipment, net ..................................................... 17,925,845 49,122,932
Intangibles and other, net ...................................................... 203,808,395 551,406,094
Deferred financing costs, net ................................................... 4,284,413 16,723,346
------------- --------------
Total assets ............................................................. $ 241,122,564 $ 690,742,683
============= ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................................. $ 1,873,888 $ 4,409,389
Accrued liabilities ........................................................... 4,692,948 12,529,831
Accrued interest .............................................................. 2,710,891 6,868,839
Current portion of long-term debt ............................................. 4,062,500 400,000
------------- --------------
Total current liabilities ................................................ 13,340,227 24,208,059
Long-term debt .................................................................. 168,107,242 354,913,499
Deferred income taxes ........................................................... 4,952,361 2,606,314
Other ........................................................................... -- 801,572
------------- --------------
Total liabilities ........................................................ 186,399,830 382,529,444
------------- --------------
Commitments (Note 11)
Redeemable senior cumulative exchangeable preferred stock of subsidiary, par
value $.01 per share; 1,000,000 shares authorized, none and 1,000,000 shares
issued and outstanding, respectively; preference in liquidation of
$109,110,301 .................................................................. -- 107,222,416
Common stockholders' equity:
Class A common stock, par value $.01 per share; 40,000,000 shares authorized,
302,107 and 9,937,320 shares issued, respectively, and
302,107 and 9,881,656 shares outstanding, respectively ...................... 3,021 99,373
Class B common stock, par value $.01 per share; 10,000,000 shares authorized,
63,500 and 8,547,910 shares issued and outstanding, respectively ............ 635 85,479
Class C common stock, par value $.01 per share; 10,000,000 shares authorized,
8,484,410 and zero shares issued and outstanding, respectively .............. 84,844 --
Additional paid-in capital .................................................... 66,271,500 231,930,337
Accumulated deficit ........................................................... (11,637,266) (30,086,232)
Treasury stock ................................................................ -- (1,038,134)
------------- --------------
Total common stockholders' equity ........................................ 54,722,734 200,990,823
------------- --------------
Total liabilities and stockholders' equity ............................... $ 241,122,564 $ 690,742,683
============= ==============
</TABLE>

The accompanying notes are an integral part of the
financial statements.

F-2
<PAGE> 44

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996
------------- ------------- --------------

<S> <C> <C> <C>
Gross broadcasting revenues ..................................... $ 30,080,829 $ 73,278,860 $ 203,188,125
Less agency commissions ......................................... 3,763,734 8,956,717 24,786,594
------------- ------------- --------------
Net revenues ............................................. 26,317,095 64,322,143 178,401,531
------------- ------------- --------------
Operating expenses:
Programming, technical and news ............................... 5,678,829 11,734,285 40,987,411
Sales and promotion ........................................... 7,137,039 17,556,256 47,026,490
General and administrative .................................... 2,844,284 8,174,189 23,195,565
Depreciation and amortization ................................. 2,954,159 8,256,268 20,877,374
Corporate expenses ............................................ 599,657 1,815,535 4,844,985
Stock option compensation ..................................... -- 6,360,000 3,800,000
------------- ------------- --------------
19,213,968 53,896,533 140,731,825
------------- ------------- --------------
Income from operations ................................... 7,103,127 10,425,610 37,669,706
Other (income) expense:
Interest expense .............................................. 5,246,827 18,114,549 35,703,862
Other, net .................................................... (19,265) 42,402 68,419
------------- ------------- --------------
Income (loss) before provision for income taxes and
extraordinary loss ..................................... 1,875,565 (7,731,341) 1,897,425
Provision for income taxes ...................................... 1,163,716 3,799,955 4,612,551
Dividends and accretion on preferred stock of subsidiary ........ -- -- 11,556,943
------------- ------------- --------------
Net income (loss) before extraordinary loss .............. 711,849 (11,531,296) (14,272,069)
Extraordinary loss on early extinguishment of debt, net of
income tax benefit ........................................... 817,819 -- 4,176,897
------------- ------------- --------------
Net loss ................................................. (105,970) (11,531,296) (18,448,966)
Loss on repurchase of preferred stock ........................... -- -- 16,570,065
------------- ------------- --------------
Net loss attributable to common stock .................... $ (105,970) $ (11,531,296) $ (35,019,031)
============= ============= ==============

Loss applicable to common stock:
Income (loss) before extraordinary loss ...................... $ 0.14 $ (1.30) $ (1.85)
Extraordinary loss ........................................... (0.16) -- (0.25)
------------- ------------- --------------
Net loss ..................................................... $ (0.02) $ (1.30) $ (2.10)
============= ============= ==============
Weighted average number of shares outstanding ................... 5,166,039 8,849,936 16,704,381
============= ============= ==============
</TABLE>

The accompanying notes are an integral part of the
financial statements.

F-3
<PAGE> 45

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK
------------------------ --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>

Balance, January 1, 1994 .......... -- -- 166 $ 2 -- --
Issuance of common stock on
January 10, 1994................ 302,107 $ 3,021 63,334 633 3,884,211 $ 38,842
Issuance of common stock on
October 12, 1994................ -- -- -- -- 4,600,033 46,000
Net loss .......................... -- -- -- -- -- --
----------- ----------- ---------- --------- ----------- ---------
Balance, December 31, 1994 ........ 302,107 3,021 63,500 635 8,484,244 84,842
Stock option compensation ......... -- -- -- -- -- --
Issuance of common stock on
June 29, 1995.................... -- -- -- -- 166 2
Net loss .......................... -- -- -- -- -- --
----------- ----------- ---------- --------- ----------- ---------

Balance, December 31, 1995 ........ 302,107 3,021 63,500 635 8,484,410 84,844
Stock option compensation ......... -- -- -- -- -- --
Issuance of common stock on
February 14, 1996 .............. 8,447,192 84,472 -- -- -- --
Loss on repurchase of preferred
stock of subsidiary on
February 21, 1996 -- -- -- -- -- --
Repurchase of common stock on
February 21, 1996 ................. (55,664) -- -- -- -- --
Issuance of common stock on
August 9, 1996 ................. 1,185,521 11,855 -- -- -- --
Issuance of common stock on
August 20, 1996 ................ 2,500 25 -- -- -- --
Conversion of common stock on
October 22, 1996 ............... -- -- 8,484,410 84,844 (8,484,410) (84,844)
Net loss .......................... -- -- -- -- -- --
----------- ----------- ---------- --------- ----------- ---------
Balance, December 31, 1996 ........ 9,881,656 $ 99,373 8,547,910 $ 85,479 -- $ --
=========== =========== ========== ========= =========== =========
<CAPTION>

ADDITIONAL
PAID-IN ACCUMULATED TREASURY
CAPITAL DEFICIT STOCK TOTAL
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>

Balance, January 1, 1994 ............ $ 998 -- -- $ 1,000
Issuance of common stock on
January 10, 1994 ................. 25,456,504 -- -- 25,499,000
Issuance of common stock on
October 12, 1994 ................. 34,454,000 -- -- 34,500,000
Net loss ............................ -- $ (105,970) -- (105,970)
------------- ------------- ------------- -------------
Balance, December 31, 1994 .......... 59,911,502 (105,970) -- 59,894,030
Stock option compensation ........... 6,360,000 -- -- 6,360,000
Issuance of common stock on
June 29, 1995 ..................... (2) -- -- --
Net loss ............................ -- (11,531,296) -- (11,531,296)
------------- ------------- ------------- -------------

Balance, December 31, 1995 .......... 66,271,500 (11,637,266) -- 54,722,734
Stock option compensation ........... 3,800,000 -- -- 3,800,000
Issuance of common stock on
February 14, 1996 ................ 155,390,782 -- -- 155,475,254
Loss on repurchase of preferred
stock of subsidiary on
February 21, 1996 (16,570,065) -- -- (16,570,065)
Repurchase of common stock on
February 21, 1996 ................... -- -- $ (1,038,134) (1,038,134)
Issuance of common stock on
August 9, 1996 ................... 22,988,145 -- -- 23,000,000
Issuance of common stock on
August 20, 1996 .................. 49,975 -- -- 50,000
Conversion of common stock on
October 22, 1996 ................. -- -- -- --
Net loss ............................ -- (18,448,966) -- (18,448,966)
------------- ------------- ------------- -------------
Balance, December 31, 1996 .......... $ 231,930,337 $ (30,086,232) $ (1,038,134) $ 200,990,823
============= ============= ============= =============
</TABLE>

The accompanying notes are an
integral part of the financial statements.

F-4

<PAGE> 46

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1995 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $ (105,970) $ (11,531,296) $ (18,448,966)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 2,954,159 8,256,268 20,877,374
Amortization of deferred financing costs ............... 226,000 791,000 2,633,583
Stock option compensation .............................. -- 6,360,000 3,800,000
Deferred income taxes .................................. 1,490,716 3,788,877 4,548,481
Dividends and accretion on preferred stock
of subsidiary ........................................ -- -- 11,556,943
Extraordinary loss ..................................... 490,819 -- 4,176,897
Changes in assets and liabilities, net of the effects
of acquired businesses:
Accounts receivable, net ............................. (9,675,567) (2,343,520) (13,408,364)
Prepaids and other ................................... 216,036 (214,868) (982,637)
Accounts payable ..................................... 1,509,064 (541,914) 1,429,070
Accrued liabilities .................................. 1,334,397 447,196 3,706,725
Accrued interest ..................................... 2,251,654 459,237 4,157,948
---------------- --------------- ----------------
Net cash provided by operating activities .......... 691,308 5,470,980 24,047,054
---------------- --------------- ----------------
Cash flows from investing activities:
Purchases of broadcasting properties ..................... (204,509,849) (24,351,529) (439,533,609)
Purchases of other property and equipment ................ (238,648) (1,709,897) (3,208,553)
---------------- --------------- ----------------
Net cash used in investing activities .............. (204,748,497) (26,061,426) (442,742,162)
---------------- --------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ................. 168,910,299 -- 277,627,630
Proceeds from borrowings under revolving debt facility ... 5,639,237 54,458,819 101,966,762
Repayment of long-term debt .............................. (25,000,000) (2,437,500) (109,816,233)
Repayments of borrowings under revolving debt facility ... (3,975,539) (31,633,467) (105,540,183)
Issuance of preferred stock of subsidiary ................ -- -- 175,412,322
Repurchase of preferred stock ............................ -- -- (95,462,423)
Issuance of common stock ................................. 60,000,000 -- 178,525,254
Repurchase of common stock ............................... -- -- (1,038,134)
Payment of preferred stock dividends ..................... -- -- (505,555)
---------------- --------------- ----------------
Net cash provided by financing activities .......... 205,573,997 20,387,852 421,169,440
---------------- --------------- ----------------
Net increase (decrease) in cash .................... 1,516,808 (202,594) 2,474,332
Cash, at beginning of year ................................. -- 1,516,808 1,314,214
---------------- --------------- ----------------
Cash, at end of year ....................................... $ 1,516,808 $ 1,314,214 $ 3,788,546
================ =============== ================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (NOTE 5):
Cash paid during the period for:
Interest ............................................ $ 2,769,173 $ 16,864,312 $ 28,912,331
Income taxes ........................................ $ -- $ -- $ 62,407
</TABLE>

The accompanying notes are an
integral part of the financial statements.

F-5
<PAGE> 47

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

Chancellor Broadcasting Company, formerly Chancellor Corporation
("Chancellor") and its subsidiaries (collectively, the "Company") operate in a
single industry segment, which segment encompasses the ownership and management
of radio broadcast stations located in markets throughout the United States.
Chancellor conducts its business through Chancellor Radio Broadcasting Company
("Chancellor Broadcasting") and has no operations or cash flows of its own.
Chancellor and Chancellor Broadcasting were formed in June 1994 to acquire and
operate radio stations owned by American Media, Inc. and two corporations and
one partnership affiliated with American Media, Inc. (collectively, the
"American Media Station Group") and by Chancellor Communications Corporation
("Chancellor Communications"). That transaction was consummated on October 12,
1994. Chancellor Communications was formed in 1993 to acquire and operate radio
stations KGBY-FM and KFBK-AM. That transaction closed on January 10, 1994 and
the consolidated financial statements include the activity of all the stations
since their respective dates of acquisition.

In June 1995, the 1,000 shares of common stock of Chancellor
Communications held by an affiliate of Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse") were exchanged for additional shares of common stock of
Chancellor, which subsequently contributed these shares to Chancellor
Broadcasting as an additional capital contribution. As a result, Chancellor
Communications became a wholly owned subsidiary of Chancellor Broadcasting.
Chancellor Communications was then merged with the Company. The transactions
had no effect on the financial position or results of operations of the
Company.

Chancellor Broadcasting Licensee Company is a wholly-owned non-operating
legal entity formed to hold title to the Company's broadcast licenses. Such
entity has no significant other assets and no material liabilities,
contingencies or commitments. Consistent with industry practice for financial
reporting purposes, no material value has been specifically allocated to the
licenses. Accordingly, no financial statement information has been provided
herein due to its immateriality to investors.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of Chancellor
and its subsidiaries Chancellor Broadcasting and Chancellor Broadcasting
Licensee Company for all periods presented, and its subsidiaries Trefoil
Communications, Inc., Shamrock Broadcasting Inc., Shamrock Radio Licenses,
Inc., Shamrock Broadcasting Licenses of Denver, Inc. and Shamrock Broadcasting
of Texas, Inc. from their date of acquisition. All significant intercompany
accounts and transactions have been eliminated.

Cash

The Company maintains cash in demand deposits with financial
institutions. The Company had no cash equivalents during the periods presented.
All highly liquid investments with an original maturity of less than three
months are considered cash equivalents.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation
and amortization. Depreciation is determined using the straight-line method
over the estimated useful lives of the various classes of assets, which range
from three to twenty-five years. Leasehold improvements are amortized over the
shorter of their useful lives or the terms of the related leases. Costs of
repairs and maintenance are charged to operations as incurred.

Intangibles

Goodwill represents the excess of cost over the fair values of the
identifiable tangible and other intangible net assets acquired and is being
amortized over the straight-line method over forty years. Other intangible
assets comprise amounts paid for pending acquisitions, agreements not to
compete, a tower lease advantage and organization costs incurred in the
incorporation of the Company. Other intangibles, excluding pending acquisition
costs, are being amortized by the straight-line method over their estimated
useful lives ranging from three to ten

F-6
<PAGE> 48
CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

years. Pending acquisition costs are deferred and capitalized as part of
completed acquisitions or expensed in the period in which the pending
acquisition is terminated.

The Company evaluates intangible assets for potential impairment by
analyzing the operating results, future cash flows on an undiscounted basis,
trends and prospects of the Company's stations, as well as by comparing them to
their competitors. The Company also takes into consideration recent acquisition
patterns within the broadcast industry, the impact of recently enacted or
potential FCC rules and regulations and any other events or circumstances which
might indicate potential impairment.

Deferred Financing Costs

Costs associated with obtaining debt financing are capitalized and
amortized using the interest method over the term of the related debt. As a
result of refinancing the Company's original credit facility, during the year
ended December 31, 1994 unamortized deferred financing costs of approximately
$818,000 were expensed as an extraordinary item in the consolidated statements
of operations. As a result of refinancing the Company's second credit facility,
the early redemption of $20.0 million of its existing notes (defined) and the
prepayment of $18.7 million of it's a Term Loan Facility (defined) from its
third credit facility, during the year ended December 31, 1996 unamortized
deferred financing costs of $3.4 million, less $543,500 of tax benefit, were
expensed as an extraordinary item in the consolidated statements of operations.
Approximately $5.1 million, $118,000 and $18.6 million of new financing costs
were incurred for the years ended December 31, 1994, 1995 and 1996,
respectively. Accumulated amortization at December 31, 1995 and 1996, amounted
to approximately $959,000 and $2.8 million, respectively.

Revenue Recognition

Broadcasting operations derive revenue primarily from the sale of program
time and commercial announcements to local, regional and national advertisers.
Revenue is recognized when the programs and commercial announcements are
broadcast.

Barter Transactions

Barter transactions represent advertising time exchanged for promotional
items, advertising, supplies, equipment, and services. Barter revenue is
recorded at the fair value of the goods or services received and is recognized
in income when the advertisements are broadcast. Goods or services are charged
to expense when received or used. Advertising time owed and goods or services
due the Company are included in accounts payable and accounts receivable,
respectively.

Advertising Costs

The Company incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred and totaled
approximately $1.4 million, $4.2 million and $16.2 million for the years ended
December 31, 1994, 1995 and 1996, respectively.

Stock Option Compensation

Stock option compensation expense is recognized in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".

Income Taxes

Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to
be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.

F-7
<PAGE> 49

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Chancellor, Chancellor Radio Broadcasting and Chancellor Broadcasting
Licensee Company have elected to file consolidated federal income tax returns
(the "Chancellor Group") and Trefoil Communications, Inc., Shamrock
Broadcasting Inc., Shamrock Radio Licenses, Inc., Shamrock Broadcasting
Licenses of Denver, Inc. and Shamrock Broadcasting of Texas, Inc. have elected
to file consolidated federal income tax returns (the "Shamrock Group"). Each of
these groups have entered into a tax sharing agreement governing the allocation
of any consolidated federal income tax liability among its members. In general,
each subsidiary allocates and pays income taxes computed as if each subsidiary
filed a separate federal income tax return. Similar principles apply to any
consolidated state and local income tax liabilities.

Concentration of Credit Risk

The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast
areas. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
Credit losses have been within management's expectations and adequate
allowances for any uncollectible trade receivables are maintained.

Income (Loss) Per Share

Net income (loss) per share is based on the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding during
each respective period. Proceeds from the exercise of the dilutive stock
options are assumed to be used to repurchase outstanding shares of the
Company's common stock at the average fair market value during the period. The
calculation of income (loss) per common share is adjusted for the
recapitalization as discussed in Note 8 and dividends and accretion on
preferred stock.

Reclassifications

Certain prior year amounts have been reclassified to conform with the
current year's presentation.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
------------- --------------

<S> <C> <C>
Land ....................................................................... $ 1,572,229 $ 3,036,663
Building and building improvements ......................................... 3,159,848 9,202,378
Towers and antenna systems ................................................. 3,689,972 14,476,104
Studio, technical and transmitting equipment ............................... 7,830,375 23,026,564
Office equipment, furniture and fixtures ................................... 2,484,261 5,521,010
Record library ............................................................. 1,800,510 2,193,236
Vehicles ................................................................... 362,787 1,117,908
Construction in progress ................................................... 503,504 78,877
------------- --------------
21,403,486 58,652,740
Less accumulated depreciation .............................................. (3,477,641) (9,529,808)
------------- --------------
$ 17,925,845 $ 49,122,932
============= ==============
</TABLE>

Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $0.9 million, $2.6 million and $6.5 million, respectively.

F-8
<PAGE> 50

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
------------- --------------
<S> <C> <C>
Goodwill ................................................................... $ 205,971,820 $ 567,377,120
Noncompete agreements ...................................................... 1,950,000 2,025,000
Tower lease advantage ...................................................... 305,000 305,000
Pending acquisition costs .................................................. 3,246,265 2,620,474
Other ...................................................................... 45,718 626,220
------------- --------------
211,518,803 572,953,814
Less accumulated amortization .............................................. (7,710,408) (21,547,720)
------------- --------------
$ 203,808,395 $ 551,406,094
============= ==============
</TABLE>

Amortization expense for intangible assets for the years ended December
31, 1994, 1995 and 1996 was $2.0 million, $5.7 million and $14.3 million,
respectively.

5. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES

On January 9, 1994, Chancellor Communications purchased substantially all
the assets and assumed certain liabilities of KGBY-FM and KFBK-AM for
approximately $49.5 million, including acquisition costs. Liabilities assumed
were limited to certain ongoing contractual rights and obligations. The
acquisition has been accounted for as a purchase and, accordingly, the results
of operations associated with the acquired assets have been included in the
accompanying statements from the date of acquisition.

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment ................................................... $ 4,921
Goodwill and other intangibles ........................................... 44,401
Prepaid expenses and other assets ........................................ 413
Accrued liabilities ...................................................... (205)
----------
Total acquisition ................................................ $ 49,530
==========
</TABLE>

On October 12, 1994, Chancellor Radio Broadcasting purchased
substantially all the assets and assumed certain liabilities consisting solely
of accrued expenses and future payments under ongoing contracts of the American
Media Station Group (other than KHYL-FM in Sacramento, California) for
approximately $139.5 million in cash, including acquisition costs and payments
in respect of agreements not to compete. On the same date, Chancellor
Communications purchased all the assets and certain liabilities consisting
solely of accrued expenses and future payments under ongoing contracts of
KHYL-FM for approximately $15.5 million in cash, including acquisition costs
and payments in respect of an agreement not to compete. These acquisitions have
been accounted for as purchases and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment ................................................... $ 12,671
Goodwill and other intangibles ........................................... 142,618
Prepaid expenses and other assets ........................................ 353
Accrued liabilities ...................................................... (662)
-----------
Total acquisition ................................................ $ 154,980
==========
</TABLE>

F-9
<PAGE> 51

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Simultaneously with the closing of these transactions, Chancellor
acquired all of Chancellor Communications' outstanding nonvoting stock in
exchange for newly issued shares of Chancellor's nonvoting stock. Chancellor
contributed all the acquired shares of Chancellor Communication's nonvoting
stock to Chancellor Radio Broadcasting, as a result of which Chancellor
Communications became a subsidiary of Chancellor Radio Broadcasting. Because
these entities are under common management and control, this exchange has been
accounted for at historical cost in a manner similar to a pooling of interests.

On July 31, 1995, the Company purchased substantially all the assets and
assumed certain liabilities of KDWB-FM for approximately $22.6 million,
including acquisition costs. Liabilities assumed were limited to certain
ongoing contractual rights and obligations. The acquisition has been accounted
for as a purchase and, accordingly, the results of operations associated with
the acquired assets have been included in the accompanying statements from the
date of acquisition.

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment ................................................... $ 1,866
Goodwill and other intangibles ........................................... 21,032
Prepaid expenses and other assets ........................................ 82
Other liabilities ........................................................ (383)
-----------
Total acquisition ................................................ $ 22,597
==========
</TABLE>

On February 14, 1996, the Company acquired all of the outstanding capital
stock of Trefoil Communications, Inc. ("Trefoil") for approximately $408.0
million, including acquisition costs. Trefoil is a holding company, the sole
asset of which is the capital stock of Shamrock Broadcasting, Inc. ("Shamrock
Broadcasting"). The acquisition of Trefoil was financed through a new credit
agreement, new senior subordinated notes, Chancellor's initial public stock
offering, senior exchangeable preferred stock and the issuance of unregistered
common stock of Chancellor. The acquisition of Trefoil was accounted for as a
purchase for financial accounting purposes and a non-taxable business
combination for tax purposes and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Cash ..................................................................... $ 38
Accounts receivable, net ................................................. 18,636
Prepaid expenses and other assets ........................................ 1,274
Property and equipment ................................................... 36,429
Goodwill and other intangibles ........................................... 361,425
Deferred tax asset ....................................................... 5,464
Accrued liabilities ...................................................... (14,564)
Other noncurrent liabilities ............................................. (702)
----------
Total acquisition ................................................ $ 408,000
==========
</TABLE>

Simultaneously with the acquisition of Trefoil, the Company entered into
a time brokerage agreement with Evergreen Media Corporation for the outsourcing
of certain limited functions of WWWW-FM and WDFN-AM, both Detroit stations
acquired with Trefoil, and an option to purchase such stations for $30.0
million of cash. These stations were operated pursuant to this agreement until
January 30, 1997, the date on which the disposition of these stations occurred.
Subsequent to the acquisition of Trefoil, KTBZ-FM, a Houston station acquired
with Trefoil, was operated by Secret Communications, L.P. ("Secret") under a
Local Marketing Agreement ("LMA")/Exchange Agreement with the Company. In March
1996, the Company entered into an agreement to exchange KTBZ-FM and $5.6
million of cash to Secret for KALC-FM and KIMN-FM, Denver, Colorado. The
Company began managing certain limited functions of these stations, pursuant to
an LMA, effective April 1, 1996 and closed on the exchange

F-10
<PAGE> 52

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of the stations effective July 31, 1996. The exchange has been accounted for
using the fair values of the assets exchanged plus the $5.6 million of
additional cash and $0.8 million of additional acquisition costs, and was
allocated to the net assets acquired based upon their estimated fair market
values. The excess of the purchase price over the estimated fair value of net
assets acquired amounted to approximately $28.7 million, which has been
accounted for as goodwill and is being amortized over 40 years using the
straight line method.

The exchange is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Prepaid expenses and other assets ........................................ $ 163
Property and equipment ................................................... 2,363
Goodwill and other intangibles ........................................... 28,657
Accrued liabilities ...................................................... (138)
----------
Total acquisition ................................................ $ 31,045
==========
</TABLE>

On May 15, 1996, the Company entered into an agreement to acquire
substantially all the assets and certain liabilities of OmniAmerica Group
("Omni") for an aggregate price of $178.0 million, including $163.0 million of
cash and $15.0 million of Chancellor's Class A Common Stock. On June 24, 1996,
the Company entered into an agreement with American Radio Systems Corporation
("American Radio") whereby it will exchange the West Palm Beach, Florida
stations acquired from Omni for American Radio's KSTE-AM and $33.0 million of
cash. KSTE-AM is located in Rancho Cordova, California and is part of the
Sacramento market. On July 1, 1996, Chancellor entered into an agreement with
SFX Broadcasting, Inc. ("SFX") whereby it will exchange the Jacksonville,
Florida stations being acquired pursuant to the Omni acquisition agreement and
$11.0 million of cash for SFX's WBAB-FM, WBLI-FM, WGBB-AM and WHFM-FM,
Nassau-Suffolk, New York. Pursuant to various agreements, the Company began
managing certain limited functions of the remaining Omni stations and the SFX
stations beginning July 1, 1996, and station KSTE-AM beginning August 1, 1996.

On November 22, 1996, the Company acquired substantially all the assets
of WKYN-AM, Florence, Kentucky, for approximately $1.4 million, including
transaction costs. WKYN-AM serves the Cincinnati, Ohio market.

On January 23, 1997, the Company acquired substantially all the assets
and certain liabilities of Colfax Communications ("Colfax") for an aggregate
price of $373.0 million. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition will be accounted for as a
purchase. Pursuant to the acquisition agreement, at December 31, 1996 the
Company had $20.4 million of cash in a restricted escrow account which was
remitted to Colfax at closing. On January 29, 1997, the Company entered into an
agreement to sell WMIL-FM and WOKY-AM, Milwaukee, Wisconsin stations acquired
from Colfax, to Clear Channel Radio, Inc. for $40.0 million in cash.

On February 13, 1997, the Company acquired substantially all the assets
and certain liabilities of Omni for $163.0 million of cash and $15.0 million of
Chancellor Class A Common Stock. Liabilities assumed were limited to certain
ongoing contractual rights and obligations. The acquisition will be accounted
for as a purchase.

The following summarizes the unaudited consolidated pro forma data as
though the acquisitions of KDWB-FM, Shamrock Broadcasting Company and KIMN-FM
and KALC-FM had occurred as of the beginning of 1995 (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue ................................... $ 64,322 $ 162,360 $ 178,402 $ 187,198
Net income (loss) before extraordinary loss ... (11,531) (21,477) (14,272) (15,113)
Net loss ...................................... (11,531) (21,477) (18,449) (15,113)
Net loss before extraordinary loss per share .. (1.30) (1.16) (1.85) (0.82)
Net loss per share ............................ (1.30) (1.16) (2.10) (0.82)
</TABLE>

F-11
<PAGE> 53

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
(UNAUDITED)
<S> <C> <C>
Total assets ............................................ $ 690,743 $ 1,053,833
============= =============

Current liabilities ..................................... $ 24,208 $ 40,598
Long-term liabilities ................................... 358,322 410,359
Preferred stock ......................................... 107,222 404,585
Common stockholders' equity ............................. 200,991 198,291
------------- -------------
Total liabilities and stockholders' equity .............. $ 690,743 $ 1,053,833
============= =============
</TABLE>

6. ACCRUED LIABILITIES

Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Salaries .................................................. $ 534,297 $ 3,697,072
Sales commissions ......................................... 889,010 2,149,167
Rep commissions ........................................... 561,189 1,549,048
Other ..................................................... 2,708,452 5,134,544
--------------- ---------------
$ 4,692,948 $ 12,529,831
=============== ===============
</TABLE>

7. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Term loan ................................................. $ 67,562,500 $ 74,968,527
Revolving credit loan ..................................... 24,607,242 20,344,972
Subordinated notes due 2004 ............................... 80,000,000 260,000,000
--------------- ---------------
172,169,742 355,313,499
Less current portion ...................................... 4,062,500 400,000
--------------- ---------------
$ 168,107,242 $ 354,913,499
=============== ===============
</TABLE>

The Company's term and revolving credit facilities were refinanced on
January 23, 1997, in conjunction with the acquisition of Colfax Communications
under a new bank credit agreement (the "New Credit Agreement") with Bankers
Trust Company, as administrative agent, and other institutions party thereto.
The New Credit Agreement includes a $225.0 million term loan facility (the
"Term Loan Facility") and a revolving loan facility (the "Revolving Loan
Facility" and, together with the Term Loan, the "New Bank Financing"). The
Revolving Loan Facility originally provides for borrowings up to $120.0
million, which is subsequently reduced as and when the Company receives the net
cash proceeds of the pending station swaps and dispositions. In connection with
the refinancing of the term and revolving loan facilities in January 1997, the
Company incurred an extraordinary charge to write-off deferred finance costs of
approximately $4.5 million.

The New Bank Financing is collateralized by (i) a first priority
perfected pledge of all capital stock and notes owned by the Company and (ii) a
first priority perfected security interest in all other assets (including
receivables, contracts, contract rights, securities, patents, trademarks, other
intellectual property, inventory, equipment and real estate) owned by the
Company, excluding FCC licenses, leasehold interests in studio or office space
and leasehold and partnership interests in tower or transmitter sites in which
necessary consents to the granting of a security interest cannot be obtained
without payments to any other party or on a timely basis. The New Bank
Financing also is guaranteed by the subsidiaries of Chancellor and Chancellor
Radio Broadcasting, whose guarantees are

F-12
<PAGE> 54

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

collateralized by a first priority perfected pledge of the capital stock
Chancellor Radio Broadcasting. The Term Loan Facility is due in increasing
quarterly installments beginning in 1997 and matures in January 2003. All
outstanding borrowings under the Revolving Facility mature in January 2003. The
facilities bear interest at a rate equal to, at the Company's option, the prime
rate of Bankers Trust Company, as announced from time to time, or the London
Inter-Bank Offered Rate ("LIBOR") in effect from time to time, plus an
applicable margin rate. The Company pays quarterly commitment fees in arrears
equal to either .375% or .250% per annum on the unused portion of the Revolving
Facility, depending upon whether the Company's leverage ratio is equal to or
greater than 4.5:1 or less than 4.5:1, respectively. The bank financing
facilities which existed on December 31, 1996 accrued interest at the prime
rate plus 1.25% (9.5%) on $3.0 million and the LIBOR rate plus 2.50% (8.125%)
on $92.0 million of borrowings.

In connection with the IPO (defined), the Company redeemed 25% of its
Existing Notes (defined) for approximately $22.2 million. The redemption was
completed in March 1996 and resulted in an extraordinary charge of $2.8
million. The remaining $60.0 million 12 1/2% Senior Subordinated Notes due 2004
(the "Existing Notes") mature October 1, 2004, and bear interest at 12.5% per
annum. On February 14, 1996, in conjunction with the acquisition of Trefoil
Communications, Inc., the Company issued $200.0 million aggregate principal
amount of 9 3/8% Senior Subordinated Notes due 2004 (the "New Notes" and,
together with the Existing Notes, the "Notes"), which mature on October 1,
2004, and bear interest at 9.375% per annum. Interest on the Notes is paid
semi-annually. The Existing and New Notes are redeemable, in whole or in part,
at the option of the Company on or after October 1, 1999 and February 1, 2000,
respectively, at redemption prices expressed as a percentage of the principal
amount, ranging from 100.000% to 105.556%, plus accrued interest thereon to the
date of acquisition. In addition, prior to January 31, 1999, the Company may
redeem up to 25% of the original aggregate principal amount of the New Notes
with the net proceeds of one or more public equity offerings. The Notes are
unsecured obligations of the Company, ranking subordinate in right of payment
to all senior debt of the Company. The New Notes rank pari passu in right of
payment to the Existing Notes. The Notes are guaranteed on a senior subordinated
basis by Chancellor Radio Broadcasting Company's subsidiaries.

Scheduled debt maturities for the Company's outstanding long-term debt at
December 31, 1996 for each of the next five years and thereafter are as
follows:

<TABLE>
<C> <C>
1997 .................................................. $ 400,000
1998 .................................................. 400,000
1999 .................................................. 9,874,886
2000 .................................................. 11,296,119
2001 .................................................. 17,469,864
Thereafter ............................................ 315,872,630
---------------
$ 355,313,499
===============
</TABLE>

See Note 5 for pro forma effects of the New Bank Financing subsequent to
year end. Both the New Bank Financing and Notes indentures contain certain
covenants, including, among others, limitations on the incurrence of additional
debt, in the case of the New Bank Financing; requirements to maintain certain
financial ratios; and restrictions on the payment of dividends to stockholders
and from the subsidiaries to Chancellor.

8. CAPITAL STRUCTURE

In February 1996, Chancellor sold 7.7 million shares of its Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), in an
initial public offering, (the "IPO"), which generated net proceeds of $142.4
million, and in a private placement, issued $100.0 million of exchangeable
redeemable preferred stock (the "Acquisition Preferred Stock") of Chancellor
Radio Broadcasting and 742,192 shares of Class A common stock of Chancellor to
an affiliated entity and other investors.

Immediately prior to the IPO, Chancellor effected a recapitalization of
its current capital stock. Pursuant to the recapitalization, each six shares of
Chancellor's Nonvoting Stock were reclassified into one share of Class A Common
Stock. Each six shares of Chancellor's Voting Stock were reclassified into one
share of Class B Common

F-13
<PAGE> 55

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock and each six shares of Convertible Nonvoting Stock were reclassified into
one share of Class C Common Stock. In connection with the recapitalization,
63,334 shares of Class A Common Stock were exchanged for an equal number of
shares of Class B Common Stock, and an additional 8,484,410 shares of Class A
Common Stock were exchanged for an equal number of shares of Class C Common
Stock. The recapitalization has been given retroactive effect in the financial
statements.

In February 1996, subsequent to the IPO, the Company completed a private
placement of $100.0 million of newly authorized Senior Cumulative Exchangeable
Preferred Stock (the "Old Preferred Stock"). Upon completion, the proceeds of
the Old Preferred Stock were used to redeem the Acquisition Preferred Stock and
55,664 shares of Class A Common Stock. The redemption resulted in a charge to
net loss attributable to common stock of approximately $16.6 million and an
additional reduction of stockholders' equity of approximately $1.0 million.

In June 1996, the holders of Chancellor's Class C Common Stock filed an
application with the FCC to convert the stock into Chancellor's Class B Common
Stock. The holders of Class C Common Stock received approval of their
applications and subsequently converted their stock on October 22, 1996.

In August 1996 pursuant to an agreement entered into at the time of the
IPO, Chancellor sold 1.2 million shares of Class A Common Stock in a private
placement to an affiliated entity, which generated proceeds of $23.0 million
which were contributed to Chancellor Radio Broadcasting.

In September 1996, the Company completed an exchange offering whereby it
exchanged the Old Preferred Stock for 1,000,000 shares of 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock (the "Senior Exchangeable
Preferred Stock") in a transaction registered under the Securities Act of 1933,
as amended. The terms of the Senior Exchangeable Preferred Stock are
substantially identical to those of the Old Preferred Stock. Dividends on the
Senior Exchangeable Preferred Stock accrue from its date of issuance and are
payable quarterly commencing November 15, 1996, at a rate per annum of 12 1/4%
of the then effective liquidation preference per share. Dividends may be paid,
at the Company's option, on any dividend payment date occurring on or prior to
February 15, 2001 either in cash or by adding such dividends to the then
effective liquidation preference of the Senior Exchangeable Preferred Stock.
The Senior Exchangeable Preferred Stock is redeemable at the Company's option,
in whole or in part at any time on or after February 15, 2001, at various
redemption prices, plus, accumulated and unpaid dividends to the date of
redemption. In addition, prior to February 15, 1999, the Company may, at its
option, redeem the Senior Exchangeable Preferred Stock with the net cash
proceeds from one or more Public Equity Offerings (as defined), at various
redemption prices, plus, accumulated and unpaid dividends to the redemption
date; provided, however, that after any such redemption there is outstanding at
least 75% of the number of shares of Senior Exchangeable Preferred Stock
originally issued.

The Company is required, subject to certain conditions, to redeem all of
the Senior Exchangeable Preferred Stock outstanding on February 15, 2008, at a
redemption price equal to 100% of the then effective liquidation preference
thereof, plus, accumulated and unpaid dividends to the date of redemption. Upon
the occurrence of a change of control (as defined), the Company must offer to
purchase all of the then outstanding shares of Senior Exchangeable Preferred
Stock at a price equal to 101% of the then effective liquidation preference
thereof, plus, accumulated and unpaid dividends to the date of purchase.
Subject to certain conditions, the Senior Exchangeable Preferred Stock is
exchangeable in whole, but not in part, at the option of the Company, on any
dividend payment date for the Company's 12 1/4% subordinated exchange
debentures due 2008.

On January 23, 1997, Chancellor completed a private placement of $100.0
million of newly authorized 7% Convertible Preferred Stock (the "Convertible
Preferred Stock") and Chancellor Radio Broadcasting completed a private
placement of $200.0 million of newly authorized 12% Exchangeable Preferred
Stock (the "Exchangeable Preferred Stock").

Dividends on the Convertible Preferred Stock accrue from its date of
issuance and are payable quarterly commencing April 15, 1997, at a rate per
annum of 7% of the liquidation preference per share. The liquidation preference
of the Convertible Preferred Stock is $50.00 per share. The Convertible
Preferred Stock is convertible at the option of the holder at any time after
March 23, 1997, unless previously redeemed, into Class A Common Stock of
Chancellor at a conversion price of $32.90 pre share of Class A Common Stock,
subject to adjustment in certain

F-14
<PAGE> 56

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

events. In addition, after January 19, 2000, the Company may, at its option,
redeem the Convertible Preferred Stock, in whole or in part, at specified
redemption prices plus accrued and unpaid dividends through the redemption
date. Upon the occurrence of a change of control (as defined), Chancellor must,
subject to certain conditions, offer to purchase all of the then outstanding
shares of Convertible Preferred Stock at a price equal to 101% of the
liquidation preference thereof, plus accrued and unpaid dividends to the date
of purchase.

Dividends on the Exchangeable Preferred Stock will accrue from the date
of its issuance and will be payable semi-annually commencing July 15, 1997, at
a rate per annum of 12% of the liquidation preference per share. Dividends may
be paid, at the Company's option, on any dividend payment date occurring on or
prior to January 15, 2002 either in cash or in additional shares of
Exchangeable Preferred Stock. The liquidation preference of the Exchangeable
Preferred Stock will be $100.00 per share. The Exchangeable Preferred Stock is
redeemable at the Company's option, in whole or in part at any time on or after
January 15, 2002, at the redemption prices set forth herein, plus accrued and
unpaid dividends to the date of redemption. In addition, prior to January 15,
2000, the Company may, at its option, redeem the Exchangeable Preferred Stock
with the net cash proceeds from one or more Public Equity Offerings (as
defined), at various redemption prices plus accrued and unpaid dividends to the
redemption date; provided, however, that after any such redemption there is
outstanding at least $150.0 million aggregate liquidation preference of
Exchangeable Preferred Stock. The Company is required, subject to certain
conditions, to redeem all of the Exchangeable Preferred Stock outstanding on
January 15, 2009, at a redemption price equal to 100% of the liquidation
preference thereof, plus accrued and unpaid dividends to the date of
redemption. Upon the occurrence of a Change of Control (as defined), the
Company will, subject to certain conditions, offer to purchase all of the then
outstanding shares of Exchangeable Preferred Stock at a price equal to 101% of
the liquidation preference thereof, plus accrued and unpaid dividends to the
repurchase date. In addition, prior to January 15, 1999, upon the occurrence of
a Change of Control, the Company will have the option to redeem the
Exchangeable Preferred Stock in whole but not in part at a redemption price
equal to 112% of the liquidaton preference thereof, plus accrued and unpaid
dividends to the date of redemption. The Exchangeable Preferred Stock will,
with respect to dividend rights and rights on liquidation, rank junior to the
Senior Exchangeable Preferred Stock. Subject to certain conditions, the
Exchangeable Preferred Stock is exchangeable in whole, but not in part, at the
option of the Company, on any dividend payment date for the Company's 12%
subordinated exchange debentures due 2009, including any such securities paid
in lieu of cash interest.

In addition to the accrued dividends discussed above, the recorded value
of the Senior Exchangeable Preferred Stock, the Convertible Preferred Stock and
the Exchangeable Preferred Stock includes or will include an amount for the
accretion of the difference between the stock's fair value at date of issuance
and its mandatory redemption amount, calculated using the effective interest
method.

9. INCOME TAXES

All of the Company's revenues were generated in the United States. The
provision for income taxes for continuing operations consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current:
State ............................................. $ -- $ 11,098 $ 64,070
Deferred:
Federal .......................................... 1,267,109 3,220,528 3,866,209
State ............................................. 223,607 568,329 682,272
-------------- ------------- -------------
Total provision ......................... $ 1,490,716 $ 3,799,955 $ 4,612,551
============= ============= =============
</TABLE>

F-15
<PAGE> 57

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense differs from the amount computed by applying the
federal statutory income tax rate of 34% to income before income taxes for the
following reasons:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------- ------------- -------------

<S> <C> <C> <C>
U.S. federal income tax at statutory rate ............ $ 637,692 $ (2,628,656) $ 645,125
State income taxes, net of federal benefit ........... 112,533 (463,880) 113,846
Valuation allowance provided for loss carryforward
generated during the current period ............... 720,490 6,589,750 307,000
Reconciliation of return to estimate ................. -- 71,510 --
Permanent difference ................................. 20,001 231,231 3,546,580
------------- ------------- -------------
$ 1,490,716 $ 3,799,955 $ 4,612,551
============= ============= =============
<CAPTION>

DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
The deferred tax assets (liabilities) consist of the following:
Loss carryforwards expiring 2009 and 2010 ........................... $ 4,766,240 $ 11,806,985
Deferred stock option compensation deduction ........................ 2,544,000 4,064,000
Tax credits ......................................................... -- 2,951,555
Other ............................................................... 105,411 680,819
------------- -------------
Gross deferred tax assets ........................................ 7,415,651 19,503,359
------------- -------------
Depreciation and amortization ....................................... (5,057,772) (21,488,463)
------------- -------------
Deferred tax assets valuation allowance ............................. (7,310,240) (621,210)
------------- -------------
Net deferred tax liabilities ..................................... $ (4,952,361) $ (2,606,314)
============= =============
</TABLE>

The Company's tax credits and net operating loss carryforwards at
December 31, 1996 begin expiring in 1997 and 2001, respectively. The Company
has provided a valuation allowance for those tax credits which do not meet a
"more likely than not" realizability test.

10. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) Savings Plan, whereby eligible employees can
contribute up to either 15% of their salary, per year, subject to certain
maximum contribution amounts. Prior to 1996, the Company had not made any
contributions to the plan, nor is it required to in future periods. However,
the Company did elect to make a discretionary match for 1996 of approximately
$250,000. Employees become eligible to participate in the plan after the
completion of one year of service and the attainment of age twenty-one.

11. COMMITMENTS

The Company leases real property, office space, broadcasting equipment
and office equipment under various noncancellable operating leases. Certain of
the Company's leases contain escalation clauses, renewal options and/or
purchase options. In addition, the Company assumed lease obligations in
connection with the acquisition of Trefoil on February 14, 1996. The Company
also has employment and rating survey agreements in excess of one year, and has
entered into a twelve-year financial monitoring and oversight agreement with
Hicks Muse & Co. Partners, L.P., which is an affiliate of Hicks, Muse, Tate &
Furst Incorporated.

F-16
<PAGE> 58

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum payments under the noncancellable operating lease
agreements at December 31, 1996 are approximately as follows:

<TABLE>
<C> <C>
1997 .................................................... $ 6,023,586
1998 .................................................... 4,865,095
1999 .................................................... 4,277,779
2000 .................................................... 3,564,247
2001 .................................................... 2,805,282
Thereafter .............................................. 13,080,261
-------------
$ 34,616,250
=============
</TABLE>

Rent expense was approximately $227,000, $1.3 million and $4.8 million
for the years ended December 31, 1994, 1995 and 1996, respectively.

12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:

For cash, short-term debt, and other current amounts receivable and
payable, and the variable-rate term debt, the carrying amount approximates fair
value.

For the fixed-rate long-term debt, the fair value is estimated based on
quoted market prices. The carrying values at December 31, 1995 and 1996 was
$80.0 million and $260.0 million, respectively, and the estimated fair values
at each date were $85.4 million and $267.8 million, respectively.

For Chancellor Radio Broadcasting's Senior Exchangeable Preferred Stock,
the fair value of $113.75 per share at December 31, 1996 is estimated based on
quoted market prices.

13. STOCK-BASED COMPENSATION

During 1994, Chancellor's Board of Directors granted options to purchase
996,068 shares of its common stock to the senior management of the Company at
exercise prices of $6.00 and $7.50. The option agreements vest over a five year
period and originally contained certain performance criteria and indexed
exercise prices. On September 30, 1995, Chancellor entered into an agreement
with its senior management to substantially revise and amend these option
agreements to eliminate certain of the performance criteria provisions and to
adjust and fix the exercise prices at $7.50 and $8.40, respectively. Management
developed an estimate of the fair value of the stock options in the amount of
$19.0 million. Based upon this estimate and the applicable vesting periods, the
Company recognized stock option compensation expense and a corresponding credit
to equity of $6.4 million in 1995, with the remaining amount to be amortized
over an approximate four year period.

During 1994, Chancellor's Board of Directors adopted a stock option plan
for its non-employee directors providing for the grant of options and stock
awards for up to 480,000 shares of its common stock. Upon election to the Board
of Directors, each person shall be granted a stock option to purchase a number
of shares of common stock equal to the number of shares of common stock
acquired by purchase by such person upon their initial election to the Board of
Directors. Each option shall be immediately vested, will have a maximum term of
ten years and an exercise price, as determined by the plan committee, equal to
or greater than the fair market value of the common stock on the respective
dates of grant.

In February 1996, Chancellor's Board of Directors adopted a stock award
plan for the Company's management, employees and non-employee directors,
elected after the date of adoption of the plan, providing for the grant of
options and stock awards for up to 916,456 shares of Chancellor's Class A
Common Stock. The Company's compensation committee has the sole authority to
grant stock options and to establish option exercise prices and vesting
schedules. However, per-share exercise prices shall not be less than the fair
market value of the stock on the respective date of grant and if the
compensation committee does not determine a vesting schedule, such option shall
vest 20% on the first anniversary of the respective date of grant and the
remaining 80% shall vest pro rata on a

F-17
<PAGE> 59

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

monthly basis over the four-year period following the first anniversary of the
date of grant. Non-employee directors elected after the effective date of this
plan automatically are granted a fully-vested option to purchase 5,000 shares
of Chancellor's Class A Common Stock on the date he or she first becomes a
member of the Board of Directors. Terms of all options are limited to ten
years.

A summary of the Company's option activity follows. The Company has
elected to continue expense recognition under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and accordingly, has
included certain required pro forma information. Estimates of weighted-average
grant-date fair values of options granted and pro forma option compensation
amounts were determined using the Black-Scholes Single Option approach assuming
an expected option term of 6 years, interest rates ranging from 5.5% to 7.2%, a
dividend yield of zero and a volatility factor of .4 (zero for options issued
prior to the Company's initial public offering in February 1996).

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1994 1995 1996
---------------------------- ----------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- --------- ----------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year -- $ -- 996,068 $ 7.27 1,022,734 $ 7.89
Granted:
Exercise price:
equals FMV 996,068 7.27 26,666 7.50 713,916 26.03
less than FMV -- -- 996,068 7.90 -- --
Exercised -- -- -- -- -- --
Canceled -- -- (996,068) 7.27 (9,000) 24.51
----------- --------- ----------- --------- ----------- --------
End of year 996,068 $ 7.27 1,022,734 $ 7.89 1,727,650 $ 15.30
=========== ========= =========== ========= =========== ========

Exercisable as of
end of year -- $ -- 225,879 $ 7.85 431,758 $ 8.06
=========== ========= =========== ========= =========== ========

Weighted-average grant-date fair value of options granted:
Exercise price:
equals FMV -- 3.59 12.69
less than FMV -- 21.56 --
</TABLE>

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ------------------------
WEIGHTED AVERAGE
---------------------------- WEIGHTED AVE-
RANGE OF REMAINING EXERCISE RAGE EXERCISE
EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE
--------------- ---------- ------------------ ------ ------- --------------
<S> <C> <C> <C> <C> <C>
$7.50 - $7.50 577,971 7.06 $ 7.50 247,188 $ 7.50
8.40 - 8.40 444,763 7.83 8.40 177,904 8.40
20.00 - 25.25 431,916 9.14 20.51 6,666 20.00
31.00 - 36.75 273,000 9.75 34.81 -- --
---------- ------- ------- -------- ------
$7.50 - $36.75 1,727,650 8.20 $ 15.30 431,758 $ 8.06
========== ======= ======= ======== ======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Historical net loss ................................... $ (11,531,296) $ (18,448,966)
Pro forma adjustment for stock option compensation .... (781,465) (1,524,302)
Pro forma tax benefit ................................. 312,586 609,721
------------- -------------
Pro forma net loss .................................... $ (12,000,175) $ (19,363,547)
============= =============

Pro forma loss per share .............................. $ (1.36) $ (1.16)
</TABLE>

F-18
<PAGE> 60

14. RELATED PARTY TRANSACTIONS

The Company has entered into a twelve-year agreement (the "Financial
Monitoring and Oversight Agreement") with Hicks Muse & Co. Partners, L.P.
("Hicks Muse Partners") and HM2/Management Partners, L.P. ("HM2"), each of
which is an affiliate of Hicks Muse. Chancellor and the Company paid Hicks Muse
Partners an annual fee of $82,000, $200,000 and $408,000 for financial
oversight and monitoring services for the years ended December 31, 1994, 1995
and 1996, respectively. The annual fee is adjustable each December 31,
according to a formula based on changes in the consumer price index. HM2
received fees of approximately $0.3 million, $2.4 million and $6.2 million upon
consummation of the acquisitions of KDWB-FM, the American Media Station Group
and Trefoil Communications, Inc., respectively, and is entitled to receive a
fee equal to 1.5% of the transaction value (as defined) upon the consummation
of each add-on transaction (as defined) involving Chancellor or any of its
subsidiaries.

Effective April 1, 1996, the Company entered into a revised financial
monitoring and oversight agreement with Hicks & Muse & Co. Partners, L.P. and
HM2/Management Partners, L.P., each of which is an affiliate of Hicks, Muse,
Tate & Furst Incorporated. The annual fee for financial oversight and
monitoring services to the Company has been adjusted to $500,000. The annual
fee is adjustable each January 1, to an amount equal to the budgeted
consolidated annual net sales of the Company for the then-current fiscal year,
multiplied by 0.25%, provided, however, that in no event shall the annual fee
be less than $500,000.

The Financial Monitoring and Oversight Agreement makes available the
resources of HM2 and Hicks Muse Partners concerning a variety of financial
matters. The services that have been and will continue to be provided by HM2
and Hicks Muse Partners could not otherwise be obtained by Chancellor and the
Company without the addition of personnel or the engagement of outside
professional advisors.

In February of 1996, the Company lent $200,000 to an affiliate of the
Company. The loan is unsecured, does not bear interest and will be forgiven
during the next three years.

15. SUBSEQUENT EVENTS

On February 14, 1997, Chancellor Radio Broadcasting completed a private
placement of an additional $10.0 million of Convertible Preferred Stock
pursuant to its over-allotment option. The net proceeds of this offering were
used to repay borrowings under the Revolving Credit Facility.

On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered
into an agreement to merge with Evergreen Media Corporation ("Evergreen") in a
stock-for-stock transaction (the "Merger"), with Evergreen remaining as the
surviving corporation (the "Surviving Company"). Pursuant to the agreement,
shareholders of the Company's common stock will receive 0.9091 shares of
Evergreen's common stock. Consummation of the merger is subject to shareholder
approval and certain other closing conditions including regulatory approval.

On February 19, 1997, the Company and Evergreen entered into a joint
purchase agreement whereby in the event that consummation of the stock purchase
agreement between Evergreen and Viacom International, Inc. ("Viacom") occurs
prior to the consummation of the Merger, the Company will be required to
purchase the Viacom subsidiaries which own four of the ten Viacom stations for
$480 million and Evergreen will be required to purchase the Viacom subsidiaries
which own six of the ten Viacom stations for $595 million. In the event that
consummation of the stock purchase agreement between Evergreen and Viacom
occurs after the consummation of the Merger, the Surviving Company will
acquire the stock of certain Viacom subsidiaries which own and operate ten
radio stations in five major markets. Consummation of the transaction is
dependent upon certain closing conditions including regulatory approval.

16. UNCERTAINTIES AND THE USE OF ESTIMATES AND ASSUMPTIONS

On February 8, 1996, the President signed into law the Telecommunications
Act of 1996. Among other things, this legislation requires the Federal
Communications Commission (the "FCC"), to relax its numerical restrictions on
local ownership and affords renewal applicants significant new protections from
competing applications for their broadcast licenses. The new legislation will
enable the Company to retain all of its radio stations and to acquire more
properties; at the same time, this legislation will also allow other broadcast
entities to increase their ownership in markets where the Company currently
operates stations. The Company's management is unable to determine the ultimate
effect of this legislation on its competitive environment.

The pending acquisition, exchange and merger agreements are subject to
various governmental approvals, including the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
Federal Communications Commission.

F-19
<PAGE> 61

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

disclosure of contingent assets and liabilities at the dates of financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual amounts could differ from those estimates.

17. RECENT ACCOUNTING PRONOUNCEMENT

The Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share" in March 1997, which establishes standards for computing and
presenting earnings per share. The disclosure requirements of SFAS No. 128 will
be effective for the Company's financial statements beginning in 1997.
Management has not yet determined the impact that the adoption of SFAS No. 128
will have on the financial statements of the Company.

18. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
1996 FISCAL QUARTERS
----------------------------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------

<S> <C> <C> <C> <C>
Net revenues ..................... $ 25,642,239 $ 44,425,668 $ 52,770,414 $ 55,563,210
Income from operations ........... 2,831,163 11,028,609 12,107,887 11,702,047
Income before extraordinary
loss ........................... (7,585,314) (2,355,054) (1,061,804) (3,269,897)
Net loss ......................... (12,231,235) (2,355,054) (2,025,071) (1,837,606)
Net loss attributable to
common stock ................... (28,801,300) (2,355,054) (2,025,071) (1,837,606)
Net loss per share before
extraordinary loss ............. (1.83) (0.14) (0.06) (0.18)
Net loss per share ............... (2.18) (0.14) (0.11) (0.10)
</TABLE>

The above results reflect the acquisition of Shamrock Broadcasting on
February 13, 1996, the exchange of KTBZ-FM for KIMN-FM and KALC-FM on July 31,
1996, and the various operating agreements with Omni, Secret, SFX and American
Radio which began during the third quarter. First and third quarter results
include extraordinary losses related to the early extinguishment of debt.
Fourth quarter results reflect an extraordinary tax benefit related to the
previously recognized extraordinary losses on early extinguishment of debt
resulting from management's change in estimate as to the likelihood of it
utilizing its deferred tax assets.

F-20
<PAGE> 62

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Chancellor Radio Broadcasting Company:

We have audited the accompanying consolidated balance sheets of
Chancellor Radio Broadcasting Company and Subsidiaries (collectively the
"Company") as of December 31, 1995 and 1996 and the related consolidated
statements of operations, changes in common stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
February 13, 1997,
except for Note 15 as
to which the date is
February 19, 1997

F-21
<PAGE> 63

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash .......................................................................... $ 1,314,214 $ 3,788,546
Accounts receivable, net of allowance for doubtful accounts of $263,528
and $1,023,660, respectively ................................................ 13,243,292 46,584,705
Prepaid expenses and other .................................................... 546,405 2,753,731
------------- --------------
Total current assets ..................................................... 15,103,911 53,126,982
Restricted cash ................................................................. -- 20,363,329
Property and equipment, net ..................................................... 17,925,845 49,122,932
Intangibles and other, net ...................................................... 203,808,395 551,406,094
Deferred financing costs, net ................................................... 4,284,413 16,723,346
------------- --------------
Total assets ............................................................. $ 241,122,564 $ 690,742,683
============= ==============

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
Accounts payable .............................................................. $ 1,873,888 $ 4,409,389
Accrued liabilities ........................................................... 4,692,948 12,529,831
Accrued interest .............................................................. 2,710,891 6,868,839
Current portion of long-term debt ............................................. 4,062,500 400,000
------------- --------------
Total current liabilities ................................................ 13,340,227 24,208,059
Long-term debt .................................................................. 168,107,242 354,913,499
Deferred income taxes ........................................................... 4,952,361 2,606,314
Other ........................................................................... -- 801,572
------------- --------------
Total liabilities ........................................................ 186,399,830 382,529,444
------------- --------------
Commitments (Note 11)
Redeemable senior cumulative exchangeable preferred stock, par value $.01 per
share; 1,000,000 shares authorized, none and 1,000,000 shares issued
and outstanding, respectively; preference in liquidation of $109,110,301 ...... -- 107,222,416
Common stockholder's equity:
Common stock, par value $.01 per share; 2,000 shares authorized, 1,000 shares
issued and outstanding, respectively ........................................ 10 10
Additional paid-in capital .................................................... 66,359,990 219,520,102
Accumulated deficit ........................................................... (11,637,266) (18,529,289)
------------- --------------
Total common stockholder's equity ........................................ 54,722,734 200,990,823
------------- --------------
Total liabilities and stockholder's equity ............................... $ 241,122,564 $ 690,742,683
============= ==============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-22
<PAGE> 64

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996
------------ ------------- --------------

<S> <C> <C> <C>
Gross broadcasting revenues ..................................... $ 30,080,829 $ 73,278,860 $ 203,188,125
Less agency commissions ......................................... 3,763,734 8,956,717 24,786,594
------------- ------------- --------------
Net revenues ............................................. 26,317,095 64,322,143 178,401,531
------------- ------------- --------------
Operating expenses:
Programming, technical and news ............................... 5,678,829 11,734,285 40,987,411
Sales and promotion ........................................... 7,137,039 17,556,256 47,026,490
General and administrative .................................... 2,844,284 8,174,189 23,195,565
Depreciation and amortization ................................. 2,954,159 8,256,268 20,877,374
Corporate expenses ............................................ 599,657 1,815,535 4,844,985
Stock option compensation ..................................... -- 6,360,000 3,800,000
------------- ------------- --------------
19,213,968 53,896,533 140,731,825
------------- ------------- --------------
Income from operations ................................... 7,103,127 10,425,610 37,669,706
Other (income) expense:
Interest expense .............................................. 5,246,827 18,114,549 35,703,862
Other, net .................................................... (19,265) 42,402 68,419
------------- ------------- --------------
Income (loss) before provision for income taxes and
extraordinary loss ..................................... 1,875,565 (7,731,341) 1,897,425
Provision for income taxes ...................................... 1,163,716 3,799,955 4,612,551
------------- ------------- --------------
Net income (loss) before extraordinary loss .............. 711,849 (11,531,296) (2,715,126)
Extraordinary loss on early extinguishment of debt, net of
income tax benefit ........................................... 817,819 -- 4,176,897
------------- ------------- --------------
Net loss ................................................. (105,970) (11,531,296) (6,892,023)
Dividends and accretion on preferred stock ...................... -- -- 11,556,943
Loss on repurchase of preferred stock ........................... -- -- 16,570,065
------------- ------------- --------------
Net loss attributable to common stock .................... $ (105,970) $ (11,531,296) $ (35,019,031)
============= ============= ==============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-23
<PAGE> 65

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>

Balance, December 31, 1993 ............. -- -- -- -- --
Issuance of common stock
on January 10, 1994 ................. 1,000 $ 10 $ 25,499,990 -- $ 25,500,000
Issuance of common stock
on October 12, 1994 ................. 1,000 10 34,499,990 -- 34,500,000
Net loss ............................... -- -- -- $ (105,970) (105,970)
--------- ----------- ------------- ------------- -------------
Balance, December 31, 1994 ............. 2,000 20 59,999,980 (105,970) 59,894,030
Stock option compensation .............. -- -- 6,360,000 -- 6,360,000
Contribution of stock held by affiliate
of Hicks, Muse, Tate & Furst ........ (1,000) (10) 10 -- --
Net loss ............................... -- -- -- (11,531,296) (11,531,296)
--------- ----------- ------------- ------------- -------------
Balance, December 31, 1995 ............. 1,000 10 66,359,990 (11,637,266) 54,722,734
Loss on repurchase of preferred stock .. -- -- (16,570,065) -- (16,570,065)
Dividends and accretion on preferred
stock ............................... -- -- (11,556,943) -- (11,556,943)
Capital contributions .................. -- -- 181,287,120 -- 181,287,120
Net loss ............................... -- -- -- (6,892,023) (6,892,023)
--------- ----------- ------------- ------------- -------------
Balance, December 31, 1996 ............. 1,000 $ 10 $ 219,520,102 $ (18,529,289) $ 200,990,823
========= =========== ============= ============= ==============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-24
<PAGE> 66

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1995 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $ (105,970) $ (11,531,296) $ (6,892,023)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 2,954,159 8,256,268 20,877,374
Amortization of deferred financing costs ............... 226,000 791,000 2,633,583
Stock option compensation .............................. -- 6,360,000 3,800,000
Deferred income taxes .................................. 1,490,716 3,788,877 4,548,481
Extraordinary loss ..................................... 490,819 -- 4,176,897
Changes in assets and liabilities, net of the effects of
acquired businesses:
Accounts receivable, net ............................. (9,675,567) (2,343,520) (13,408,364)
Prepaids and other ................................... 216,036 (214,868) (982,637)
Accounts payable ..................................... 1,509,064 (541,914) 1,429,070
Accrued liabilities .................................. 1,334,397 447,196 3,706,725
Accrued interest ..................................... 2,251,654 459,237 4,157,948
---------------- --------------- ----------------
Net cash provided by operating activities .......... 691,308 5,470,980 24,047,054
---------------- --------------- ----------------
Cash flows from investing activities:
Purchases of broadcasting properties ..................... (204,509,849) (24,351,529) (439,533,609)
Purchases of other property and equipment ................ (238,648) (1,709,897) (3,208,553)
---------------- --------------- ----------------
Net cash used in investing activities .............. (204,748,497) (26,061,426) (442,742,162)
---------------- --------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ................. 168,910,299 -- 277,627,630
Proceeds from borrowings under revolving debt facility ... 5,639,237 54,458,819 101,966,762
Repayment of long-term debt .............................. (25,000,000) (2,437,500) (109,816,233)
Repayments of borrowings under revolving debt facility ... (3,975,539) (31,633,467) (105,540,183)
Issuance of preferred stock .............................. -- -- 175,412,322
Repurchase of preferred stock ............................ -- -- (95,462,423)
Additional capital contributions ......................... 60,000,000 -- 178,525,254
Distribution of additional paid in capital ............... -- -- (1,038,134)
Payment of preferred stock dividends ..................... -- -- (505,555)
---------------- --------------- ----------------
Net cash provided by financing activities .......... 205,573,997 20,387,852 421,169,440
---------------- --------------- ----------------
Net increase (decrease) in cash .................... 1,516,808 (202,594) 2,474,332
Cash, at beginning of year ................................. -- 1,516,808 1,314,214
---------------- --------------- ----------------
Cash, at end of year ....................................... $ 1,516,808 $ 1,314,214 $ 3,788,546
================ =============== ================

The accompanying notes are an integral part of the financial statements.

F-25
<PAGE> 67

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

Chancellor Radio Broadcasting Company, formerly Chancellor Broadcasting
Company ("Chancellor Radio Broadcasting") and its wholly owned subsidiaries
(collectively, the "Company") operate in a single industry segment, which
segment encompasses the ownership and management of radio broadcast stations
located in markets throughout the United States. Chancellor Radio Broadcasting,
a wholly owned subsidiary of Chancellor Broadcasting Company, formerly
Chancellor Corporation ("Chancellor"), was formed in June 1994 to acquire and
operate radio stations owned by American Media, Inc. and two corporations and
one partnership affiliated with American Media, Inc. (collectively, the
"American Media Station Group") and by Chancellor Communications Corporation
("Chancellor Communications"). That transaction was consummated on October 12,
1994. Chancellor Communications was formed in 1993 to acquire and operate radio
stations KGBY-FM and KFBK-AM. That transaction closed on January 10, 1994 and
the consolidated financial statements include the activity of all the stations
since their respective dates of acquisition.

In June 1995, the 1,000 shares of common stock of Chancellor
Communications held by an affiliate of Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse") were exchanged for additional shares of common stock of
Chancellor, which subsequently contributed these shares to Chancellor Radio
Broadcasting as an additional capital contribution. As a result, Chancellor
Communications became a wholly owned subsidiary of Chancellor Radio
Broadcasting. Chancellor Communications was then merged with the Company. The
transactions had no effect on the financial position or results of operations
of the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Cash

Property and Equipment

Intangibles

F-26
<PAGE> 68

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

years. Pending acquisition costs are deferred and capitalized as part of
completed acquisitions or expensed in the period in which the pending
acquisition is terminated.

Deferred Financing Costs

Revenue Recognition

Barter Transactions

Advertising Costs

Stock Option Compensation

Stock option compensation expense is recognized in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".

Income Taxes

F-27
<PAGE> 69

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Concentration of Credit Risk

Reclassifications

Certain prior year amounts have been reclassified to conform with the
current year's presentation.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
------------- --------------

Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was $0.9 million, $2.6 million and $6.5 million, respectively.

F-28
<PAGE> 70

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
------------- --------------
<S> <C> <C>
Goodwill ................................................................... $ 205,971,820 $ 567,377,120
Noncompete agreements ...................................................... 1,950,000 2,025,000
Tower lease advantage ...................................................... 305,000 305,000
Pending acquisition costs .................................................. 3,246,265 2,620,474
Other ...................................................................... 45,718 626,220
------------- --------------
211,518,803 572,953,814
Less accumulated amortization .............................................. (7,710,408) (21,547,720)
------------- --------------
$ 203,808,395 $ 551,406,094
============= ==============
</TABLE>

Amortization expense for intangible assets for the years ended December
31, 1994, 1995 and 1996 was $2.0 million, $5.7 million and $14.3 million,
respectively.

5. ACQUISITIONS AND DISPOSITIONS OF BROADCASTING PROPERTIES

The acquisition is summarized as follows (in thousands):

<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Property and equipment ................................................... $ 12,671
Goodwill and other intangibles ........................................... 142,618
Prepaid expenses and other assets ........................................ 353
Accrued liabilities ...................................................... (662)
----------
Total acquisition ................................................ $ 154,980
==========
</TABLE>

F-29
<PAGE> 71

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The acquisition is summarized as follows (in thousands):

F-30
<PAGE> 72

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The exchange is summarized as follows (in thousands):

On February 13, 1997, the Company acquired substantially all the assets
and certain liabilities of Omni. Liabilities assumed were limited to certain
ongoing contractual rights and obligations. The acquisition will be accounted
for as a purchase.

<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue ................................... $ 64,322 $ 162,360 $ 178,402 $ 187,198
Net income (loss) before extraordinary loss ... (11,531) (8,319) (2,715) (310)
Net loss ...................................... (11,531) (8,319) (6,892) (310)
</TABLE>

F-31
<PAGE> 73

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following summarizes the unaudited consolidated pro forma balance
sheet as of December 31, 1996 as though the acquisition of Colfax, the issuance
of the Exchangeable Preferred Stock, the issuance of Chancellor's Convertible
Preferred Stock (including the over-allotment), and the New Credit Agreement
had occurred on that date (in thousands):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
(UNAUDITED)
<S> <C> <C>
Total assets ............................................ $ 690,743 $ 1,053,833
============= =============

Current liabilities ..................................... $ 24,208 $ 40,598
Long-term liabilities ................................... 358,322 410,359
Preferred stock ......................................... 107,222 404,585
Common stockholders' equity ............................. 200,991 198,291
------------- -------------
Total liabilities and stockholder's equity .............. $ 690,743 $ 1,053,833
============= =============

6. ACCRUED LIABILITIES

Accrued liabilities consist of the following:
DECEMBER 31,
--------------------------------
1995 1996
--------------- ---------------
Salaries .................................................. $ 534,297 $ 3,697,072
Sales commissions ......................................... 889,010 2,149,167
Rep commissions ........................................... 561,189 1,549,048
Other ..................................................... 2,708,452 5,134,544
--------------- ---------------
$ 4,692,948 $ 12,529,831
=============== ===============
</TABLE>

7. LONG-TERM DEBT

Long-term debt consists of the following:

The Company's term and revolving credit facilities were refinanced on
January 23, 1997, in conjunction with the acquisition of Colfax Communications
under a new bank credit agreement (the "New Credit Agreement") with Bankers
Trust Company, as administrative agent, and other institutions party thereto.
The New Credit Agreement includes a $225.0 million term loan facility (the
"Term Loan Facility") and a revolving loan facility (the "Revolving Loan
Facility" and, together with the Term Loan, the "New Bank Financing"). The
Revolving Loan Facility originally provides for borrowings up to $120.0
million, which is subsequently reduced as and when the Company receives the net
cash proceeds of the pending station swaps and dispositions. In connection with
the refinancing of the term and revolving loan facilities, the Company incurred
an extraordinary charge to write-off deferred finance costs of approximately
$4.5 million.

F-32
<PAGE> 74

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Loan Facility is due in increasing quarterly installments beginning in 1997 and
matures in January 2003. All outstanding borrowings under the Revolving
Facility mature in January 2003. The facilities bear interest at a rate equal
to, at the Company's option, the prime rate of Bankers Trust Company, as
announced from time to time, or the London Inter-Bank Offered Rate ("LIBOR") in
effect from time to time, plus an applicable margin rate. The Company pays
quarterly commitment fees in arrears equal to either .375% or .250% per annum
on the unused portion of the Revolving Facility, depending upon whether the
Company's leverage ratio is equal to or greater than 4.5:1 or less than 4.5:1,
respectively. The bank financing facilities which existed on December 31, 1996
accrued interest at the prime rate plus 1.25% (9.5%) on $3.3 million and the
LIBOR rate plus 2.50% (8.125%) on $92.0 million of borrowings.

In connection with the IPO (defined), the Company redeemed 25% of its
Existing Notes (defined) for approximately $22.2 million. The redemption was
completed in March 1996 and resulted in an extraordinary charge of $2.8
million. The remaining $60.0 million 12 1/2% Senior Subordinated Notes due 2004
(the "Existing Notes") mature October 1, 2004, and bear interest at 12.5% per
annum. On February 14, 1996, in conjunction with the acquisition of Trefoil
Communications, Inc., the Company issued $200.0 million aggregate principal
amount of 9 3/8% Senior Subordinated Notes due 2004 (the "New Notes" and,
together with the Existing Notes, the "Notes"), which mature on October 1,
2004, and bear interest at 9.375% per annum. Interest on the Notes is paid
semi-annually. The Existing and New Notes are redeemable, in whole or in part,
at the option of the Company on or after October 1, 1999 and February 1, 2000,
respectively, at redemption prices expressed as a percentage of the principal
amount, ranging from 100.000% to 105.556%, plus accrued interest thereon to the
date of acquisition. In addition, prior to January 31, 1999, the Company may
redeem up to 25% of the original aggregate principal amount of the New Notes
with the net proceeds of one or more public equity offerings. The Notes are
unsecured obligations of the Company, ranking subordinate in right of payment
to all senior debt of the Company. The New Notes rank pari passu in right of
payment to the Existing Notes. The Notes are guaranteed on a senior
subordinated basis by Chancellor Radio Broadcasting Company's subsidiaries.

Scheduled debt maturities for the Company's outstanding long-term debt at
December 31, 1996 for each of the next five years and thereafter are as
follows:

<TABLE>
<S> <C>
1997 ............................................ $ 400,000
1998 ............................................ 400,000
1999 ............................................ 9,874,886
2000 ............................................ 11,296,119
2001 ............................................ 17,469,864
Thereafter ...................................... 315,872,630
---------------
$ 355,313,499
===============
</TABLE>

8. CAPITAL STRUCTURE

F-33
<PAGE> 75

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock. In connection with the recapitalization, 63,334 shares of Class A Common
Stock were exchanged for an equal number of shares of Class B Common Stock, and
an additional 8,484,410 shares of Class A Common Stock were exchanged for an
equal number of shares of Class C Common Stock. The recapitalization has been
given retroactive effect in the financial statements.

F-34
<PAGE> 76

Stock, in whole or in part, at specified redemption prices plus accrued and
unpaid dividends through the redemption date. Upon the occurrence of a change
of control (as defined), Chancellor must, subject to certain conditions, offer
to purchase all of the then outstanding shares of Convertible Preferred Stock
at a price equal to 101% of the liquidation preference thereof, plus accrued
and unpaid dividends to the date of purchase.

9. INCOME TAXES

All of the Company's revenues were generated in the United States. The
provision for income taxes for continuing operations consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1994 1995 1996
------------- ------------- -------------

<S> <C> <C> <C>
Current:
State ............................................. $ -- $ 11,098 $ 64,070
Deferred:
Federal .......................................... 1,267,109 3,220,528 3,866,209
State ............................................. 223,607 568,329 682,272
-------------- ------------- -------------
Total provision ......................... $ 1,490,716 $ 3,799,955 $ 4,612,551
============= ============= =============
</TABLE>

F-35
<PAGE> 77

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense differs from the amount computed by applying the
federal statutory income tax rate of 34% to income before income taxes for the
following reasons:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------- ------------- -------------

10. EMPLOYEE BENEFIT PLAN

11. COMMITMENTS

F-36
<PAGE> 78

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum payments under the noncancellable operating lease
agreements at December 31, 1996 are approximately as follows:

<TABLE>
<C> <C>
1997 ...................................................... $ 6,023,586
1998 ...................................................... 4,865,095
1999 ...................................................... 4,277,779
2000 ...................................................... 3,564,247
2001 ...................................................... 2,805,282
Thereafter ................................................ 13,080,261
-------------
$ 34,616,250
=============
</TABLE>

Rent expense was approximately $227,000, $1.3 million and $4.8 million
for the years ended December 31, 1994, 1995 and 1996, respectively.

12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:

For cash, short-term debt, and other current amounts receivable and
payable, and the variable-rate term debt, the carrying amount approximates fair
value.

For Chancellor Radio Broadcasting's Senior Exchangeable Preferred Stock,
the fair value of $113.75 per share at December 31, 1996 is estimated based on
quoted market prices.

13. STOCK-BASED COMPENSATION

F-37
<PAGE> 79

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1994 1995 1996
---------------------------- ----------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- ---------------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year -- $ -- 996,068 $ 7.27 1,022,734 $ 7.89
Granted:
Exercise price:
equals FMV 996,068 7.27 26,666 7.50 713,916 26.03
less than FMV -- -- 996,068 7.90 -- --
Exercised -- -- -- -- -- --
Canceled -- -- (996,068) 7.27 (9,000) 24.51
----------- --------- ----------- --------- ----------- --------
End of year 996,068 $ 7.27 1,022,734 $ 7.89 1,727,650 $ 15.30
=========== ========= =========== ========= =========== ========

Exercisable as of
end of year -- $ -- 225,879 $ 7.85 431,758 $ 8.06
=========== ========= =========== ========= =========== ========

Weighted-average grant-date fair value of options granted: Exercise price:
equals FMV -- 3.59 12.69
less than FMV -- 21.56 --
</TABLE>

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ------------------------
WEIGHTED AVERAGE WEIGHTED
---------------------------- AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE
--------------- ---------- ------------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$7.50 - $7.50 577,971 7.06 $ 7.50 247,188 $ 7.50
8.40 - 8.40 444,763 7.83 8.40 177,904 8.40
20.00 - 25.25 431,916 9.14 20.51 6,666 20.00
31.00 - 36.75 273,000 9.75 34.81 -- --
---------- ------- ------- ----------- ------
$7.50 - $36.75 1,727,650 8.20 $ 15.30 431,758 $ 8.06
========== ======= ======= =========== ======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Historical net loss ................................... $ (11,531,296) $ (6,892,023)
Pro forma adjustment for stock option compensation .... (781,465) (1,524,302)
Pro forma tax benefit ................................. 312,586 609,721
------------- -------------
Pro forma net loss .................................... $ (12,000,175) $ (7,806,604)
============= =============
</TABLE>

F-38
<PAGE> 80

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. RELATED PARTY TRANSACTIONS

In February of 1996, the Company lent $200,000 to an affiliate of the
Company. The loan is unsecured, does not bear interest and will be forgiven
during the next three years.

15. SUBSEQUENT EVENTS

On February 19, 1997, Chancellor and Chancellor Radio Broadcasting entered
into an agreement to merge with Evergreen Media Corporation ("Evergreen") in a
stock-for-stock transaction (the "Merger"), with Evergreen remaining as the
surviving corporation (the "Surviving Company"). Pursuant to the agreement,
shareholders of the Company's common stock will receive 0.9091 shares of
Evergreen's common stock. Consummation of the Merger is subject to shareholder
approval and certain other closing conditions including regulatory approval.

On February 19, 1997, the Company and Evergreen entered into a joint
purchase agreement whereby in the event that consummation of the stock purchase
agreement between Evergreen and Viacom International, Inc. ("Viacom") occurs
prior to the consummation of the Merger, the Company will be required to
purchase the Viacom subsidiaries which own four of the ten Viacom stations for
$480 million and Evergreen will be required to purchase the Viacom subsidiaries
which own six of the ten Viacom stations for $595 million. In the event that
consummation of the stock purchase agreement between Evergreen and Viacom occurs
after the consummation of the Merger, the Surviving will acquire the stock of
certain Viacom subsidiaries which own and operate ten radio stations in five
major markets. Consummation of the transaction is dependent upon certain closing
conditions including regulatory approval.

16. UNCERTAINTIES AND THE USE OF ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual amounts could differ from those estimates.

F-39
<PAGE> 81

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. RECENT ACCOUNTING PRONOUNCEMENT

F-40
<PAGE> 82

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Trefoil Communications, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows, present fairly, in all material respects, the financial position of
Trefoil Communications, Inc. and its subsidiaries at December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As discussed in Note 16 to the financial statements, the Company was sold
to Chancellor Radio Broadcasting Company, formerly Chancellor Broadcasting
Company, on February 14, 1996.

PRICE WATERHOUSE LLP

Los Angeles, California
February 14, 1996

F-41
<PAGE> 83

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Chancellor Broadcasting Company:

We have audited the accompanying consolidated statements of operations,
changes in common stockholders' equity, and cash flows of Trefoil
Communications, Inc. and Subsidiaries for the period January 1, 1996 through
February 13, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the the consolidated results of their
operations and their cash flows for the period January 1, 1996 through February
13, 1996, in conformity with generally accepted accounting principles.

As discussed in Note 16 to the financial statements, the Company was sold
to Chancellor Radio Broadcasting Company on February 14, 1996.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
March 24, 1997

F-42
<PAGE> 84

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................................... $ 9,639 $ 4,857
Receivables, net of allowance for doubtful accounts of $1,535 and $1,630,
respectively ................................................................. 22,468 22,397
Prepaid expenses and other current assets ...................................... 1,312 917
---------- ---------
Total current assets .............................................................. 33,419 28,171
Property and equipment, at cost, net of accumulated depreciation and
amortization (Note 4) .......................................................... 18,308 17,204
Intangible assets, net of accumulated amortization of $16,705 and $22,071,
respectively ................................................................... 184,470 184,197
Other assets ...................................................................... 9,751 7,918
---------- ---------
$ 245,948 $ 237,490
========== =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt .............................................. $ 7,000 $ 6,500
Accounts payable ............................................................... 2,771 2,233
Accrued expenses (Note 4) ...................................................... 6,066 5,715
Income taxes payable ........................................................... 298 96
---------- ---------
Total current liabilities ......................................................... 16,135 14,544
Long-term debt (Note 6) ........................................................... 98,000 92,500
Convertible senior notes (Note 8) ................................................. 30,000 30,000
Payable to affiliates (Note 14) ................................................... 16,241 20,613
Deferred income taxes (Note 10) ................................................... 18,877 19,218
Other long-term liabilities (Note 4) .............................................. 14,747 19,129
---------- ---------
194,000 196,004
Mandatorily redeemable preferred stock (Note 9):
7.5% Series A cumulative convertible preferred stock $.10 par value; authorized,
issued and outstanding 70,000 shares ......................................... 70,000 70,000
Stockholders' equity:
Preferred stock $.10 par value; authorized 30,000 shares; none issued and
outstanding
Common stock $.10 par value; authorized 50,000 shares; issued and outstanding
10,364 shares ................................................................ 1 1
Additional paid-in capital ..................................................... 41,656 41,656
Accumulated deficit ............................................................ (59,709) (70,171)
---------- ---------
(18,052) (28,514)
Commitments and contingencies (Notes 12 and 15)
---------- ---------
$ 245,948 $ 237,490
========== =========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-43
<PAGE> 85

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------- FEBRUARY 13,
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Gross broadcasting revenues ......................................... $ 109,219 $ 108,849 $ 9,698
Less agency commissions ............................................. 14,332 14,244 1,234
----------- ----------- -----------
Net revenues ................................................. 94,887 94,605 8,464
----------- ----------- -----------

Costs and expenses:
Station operating expenses ....................................... 75,427 73,720 7,762
Corporate expenses ............................................... 3,355 3,139 2,215
Depreciation and amortization .................................... 3,038 2,992 349
Amortization of intangibles ...................................... 5,961 5,759 672
----------- ----------- -----------
87,781 85,610 10,998
----------- ----------- -----------
Operating income (loss) .......................................... 7,106 8,995 (2,534)
----------- ----------- -----------

Other income (expenses):
Interest expense ................................................. (12,923) (14,703) (1,651)
Gain (loss) on sale of broadcast assets (Note 11) ................ 5,462 -- --
Miscellaneous, net ............................................... (4) 78 (49)
----------- ----------- -----------
(7,465) (14,625) (1,700)
----------- ----------- -----------
Loss before income taxes and extraordinary loss ..................... (359) (5,630) (4,234)
Income tax benefit (expense) (Note 10) .............................. (1,355) 1,287 1,694
----------- ----------- -----------
Loss before extraordinary loss ................................... (1,714) (4,343) (2,540)
Extraordinary loss on early extinguishment of debt .................. -- -- (4,451)
----------- ----------- -----------
Net loss ............................................................ (1,714) (4,343) (6,991)
Dividends on mandatorily redeemable preferred stock ................. (5,619) (6,119) (809)
----------- ----------- -----------
Loss applicable to common stock ..................................... $ (7,333) $ (10,462) $ (7,800)
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-44
<PAGE> 86

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK
$0.10 PAR VALUE ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ............... 10,364 $ 1 $ 41,656 $ (52,376) $ (10,719)
Net loss .............................. (1,714) (1,714)
Mandatorily redeemable preferred
dividend ............................ (5,619) (5,619)
--------- ------- ----------- ----------- -----------
Balance, December 31, 1994 ............... 10,364 1 41,656 (59,709) (18,052)
Net loss .............................. (4,343) (4,343)
Mandatorily redeemable preferred
dividend ............................ (6,119) (6,119)
--------- ------- ----------- ----------- -----------
Balance, December 31, 1995 ............... 10,364 1 41,656 (70,171) (28,514)
Additional capital contributions ...... 156,326 156,326
Net loss .............................. (6,991) (6,991)
Mandatorily redeemable preferred
dividend ............................ (809) (809)
--------- ------- ----------- ----------- -----------
Balance, February 13, 1996 ............... 10,364 $ 1 $ 197,982 $ (77,971) $ 120,012
========= ======= =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-45
<PAGE> 87

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
-------------------------- FEBRUARY 13,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $ (1,714) $ (4,343) $ (6,991)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation of property and equipment ......................... 3,038 2,992 349
Amortization of intangible and other assets .................... 6,736 6,569 672
(Gain) loss on disposal of assets .............................. (5,462) -- --
Deferred income taxes .......................................... (279) (168) 1,694
Non-cash interest expense ...................................... 3,180 4,479 81
Non-cash extraordinary loss .................................... -- -- 4,451
Changes in assets and liabilities which increase (decrease) cash:
Receivables .................................................. 263 71 3,379
Prepaid expenses and other current assets .................... (8) 395 (342)
Accounts payable, accrued expenses and
income taxes payable ....................................... (2,356) (1,078) 1,568
Other net .................................................... 358 (529) --
----------- ----------- -----------
Cash from operating activities .............................. 3,756 8,388 4,861
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Station acquisitions ............................................. -- (5,528) --
Purchase of property and equipment ............................... (3,341) (1,642) --
Proceeds from disposal of broadcast assets ....................... 22,802 -- --
----------- ----------- -----------
Cash from (used in) investing activities .................... 19,461 (7,170) --
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from affiliate borrowings ............................... 6,000 -- --
Additional capital contributions ................................. -- -- 156,326
Principal payments of long-term debt ............................. (24,000) (6,000) (151,252)
Dividends paid ................................................... -- -- (14,753)
---------- ----------- -----------
Cash used in financing activities ........................... (18,000) (6,000) (9,679)
---------- ----------- -----------
Net increase (decrease) in cash ..................................... 5,217 (4,782) (4,818)
Cash beginning of period ............................................ 4,422 9,639 4,857
----------- ----------- -----------
Cash end of period .................................................. $ 9,639 $ 4,857 $ 39
=========== =========== ===========
</TABLE>

SEE NOTE 5 FOR NON-CASH DISCLOSURE.

The accompanying notes are an integral part of the financial statements.

F-46
<PAGE> 88

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- THE COMPANY

The accompanying consolidated financial statements of Trefoil
Communications, Inc. (the "Company", formerly Shamrock Holdings, Inc.) include
the accounts of the Company and its subsidiaries. All significant intercompany
transactions and balances have been eliminated. As of December 31, 1995, the
Company's broadcasting subsidiary ("Broadcasting") owned and operated ten radio
properties in major markets across the United States. In August 1995, the
Company's shareholders entered into an agreement to sell their interest in the
Company, see Note 16.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition

Broadcasting revenues are derived primarily from the sale of program time
and commercial announcements to local, regional and national advertisers.
Revenue is recognized when programs and commercial announcements are broadcast.

Barter transactions

The Company trades certain advertising time for various goods and
services. These transactions are recorded at the estimated fair value of the
goods or services received. The related revenue is recognized when commercials
are broadcast; goods or services received are recorded as assets or expenses
when received or used, respectively.

Use of estimates in preparation of financial statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Property and equipment

Expenditures for additions, renewals and betterments are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is computed on the straight-line method based on the estimated
useful lives of the assets.

Intangible assets

Intangible assets represent the purchase price of broadcasting properties
in excess of the fair value of net tangible assets acquired and include value
allocated to FCC broadcasting licenses and goodwill. Intangible assets are
amortized on the straight-line basis over forty years.

The Company evaluates intangible assets for potential impairment by
analyzing the operating results, trends and prospects of the Company's
stations, as well as by comparing them to their competitors. The Company also
takes into consideration recent acquisition patterns within the broadcast
industry, the impact of recently enacted or potential FCC rules and regulations
and any other events or circumstances which might indicate potential
impairment.

Income taxes

The Company files a consolidated federal income tax return and combined
California franchise tax return with its subsidiaries. Effective January 1,
1993, the Company prospectively adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The adoption of
SFAS 109 changed the Company's method of accounting for income taxes from the
deferred method (APB 11) to an asset and liability approach. The asset and
liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.

F-47
<PAGE> 89

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- ACQUISITION

In February 1995, the Company acquired for $5.5 million cash (including
acquisition costs) the broadcast license and assets of a second FM radio
station in Denver, Colorado. The acquisition has been accounted for as a
purchase and resulted in an excess of acquisition costs over fair value of the
net assets acquired of $5 million which has been allocated to intangible
assets, primarily FCC broadcasting licenses and goodwill. Pro forma results for
the acquisition of the Denver station are not presented as they are not
materially different from historical results.

NOTE 4 -- COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS

<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE -----------------------------
IN YEARS 1994 1995
----------- ------------- --------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT
Land and land improvements .......................................... $ 2,874,000 $ 2,828,000
Buildings and leasehold improvements ................................ 10-- 40 6,183,000 6,274,000
Transmittal and technical equipment ................................. 4-- 20 17,872,000 18,703,000
Furniture and fixtures .............................................. 5-- 10 4,167,000 4,811,000
Automotive .......................................................... 2-- 5 622,000 645,000
Construction in progress ............................................ 175,000 138,000
------------- --------------
31,893,000 33,399,000
Less: Accumulated depreciation and amortization ........................ (13,585,000) (16,195,000)
------------- --------------
$ 18,308,000 $ 17,204,000
============= ==============

ACCRUED EXPENSES
Salaries and other employee compensation ...................................... $ 3,300,000 $ 2,794,000
Interest ...................................................................... 461,000 383,000
Payable to affiliate .......................................................... 802,000 1,346,000
Other ......................................................................... 1,503,000 1,192,000
------------- --------------
$ 6,066,000 $ 5,715,000
============= ==============

OTHER LONG-TERM LIABILITIES
Deferred compensation ......................................................... $ 3,689,000 $ 3,547,000
Dividends payable on mandatorily redeemable preferred stock ................... 7,825,000 13,944,000
Interest ...................................................................... 1,034,000 1,140,000
Other ......................................................................... 2,199,000 498,000
------------- --------------
$ 14,747,000 $ 19,129,000
============= ==============
</TABLE>

NOTE 5 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
DECEMBER 31, PERIOD ENDED
---------------------------- FEBRUARY 13,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash paid (received) during the period for:
Interest ......................................................... $ 9,763,000 $ 9,562,000 $ 2,034,000
Income taxes ..................................................... 1,397,000 217,000 --
Station acquisitions:
Property and equipment ........................................ -- 434,000 --
FCC licenses and goodwill ..................................... -- 5,094,000 --
Other assets .................................................. -- -- --
Net working capital ........................................... -- -- --
Common stock issued ........................................... -- -- --
</TABLE>

F-48
<PAGE> 90

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- LONG-TERM DEBT

Long-term debt comprises the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------- --------------
<S> <C> <C>
Revolving bank credit at varying interest rates; payable quarterly.
Principal payments in varying amounts quarterly; final
installment due 2003 ..................................................... -- $ 99,000,000
Bank term loans at varying interest rates; payable quarterly.
Principal payments in varying amounts quarterly; final
installment due 2000 ..................................................... $ 95,500,000 --
Revolving bank credit at varying interest rates; payable quarterly.
Principal payments in varying amounts quarterly; final
installment due 2001 ..................................................... 9,500,000 --
------------- --------------
105,000,000 99,000,000
Less: Current portion (7,000,000) (6,500,000)
------------- --------------
$ 98,000,000 $ 92,500,000
============= ==============
</TABLE>

In August 1995, the Company restructured and amended its existing bank
credit agreement by entering into an eight year, $105 million revolving credit
agreement which extended the final maturity to 2003 and modified quarterly
principal repayments. Costs of $954,000 related to the amended credit agreement
and of $4.8 million incurred when the credit agreement was entered into were
capitalized and are being amortized over 8 years. These costs are included in
other assets in the balance sheet.

Borrowings under the credit agreement are secured by substantially all of
the Company's assets. Interest is charged at varying rates according to
alternatives selected by the Company at the time funds are borrowed. Currently,
interest accrues at floating rates (8.31% and 9.13% at December 31, 1995 and
1994, respectively). As borrowings under the credit agreement are at market
interest rates, the carrying value of the Company's long-term debt reflects its
fair value.

The credit agreement imposes restrictive covenants on the Company with
respect to, among other things, the maintenance of certain financial ratios and
limits on capital expenditures, new indebtedness, investments, disposition of
assets and declaration of cash dividends.

At December 31, 1995, aggregate scheduled mandatory principal reductions
of the Company's bank debt and borrowings from affiliates (Note 14) are as
follows:

<TABLE>
<CAPTION>
YEAR AMOUNTS
---- -------------
<C> <C>
1996 ........................................... $ 6,500,000
1997 ........................................... 10,000,000
1998 ........................................... 10,000,000
1999 ........................................... 15,000,000
2000 ........................................... 15,000,000
After 2000 ..................................... 63,113,000
-------------
$ 119,613,000
=============
</TABLE>

NOTE 7 -- STOCKHOLDERS' EQUITY

During 1993, the number of authorized shares of common stock was
increased to 50,000 shares, 10,364 of which were outstanding at December 31,
1995. The Company has reserved 3,658 and 8,535 shares of common stock for
issuance upon the conversion of the convertible senior notes ("Senior Notes",
Note 8) and Series A cumulative convertible preferred stock ("Series A
Preferred Stock", Note 9), respectively.

NOTE 8 -- CONVERTIBLE SENIOR NOTES

On July 30, 1993, the Company issued $30 million in ten-year Senior Notes
to Trefoil Capital Investors, L.P. ("Trefoil"). The notes are convertible into
shares of the Company's common stock at a conversion rate of $8,201

F-49
<PAGE> 91

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

per share, subject to certain anti-dilution adjustments, and are redeemable by
the Company at any time on or after July 30, 1996, initially at a specified
premium to par, declining to par for redemptions on or after July 30, 2001.
Mandatory redemptions of $7.5 million and $11.25 million are due July 30, 2001
and 2002, respectively, and any remaining unpaid principal is due in 2003.

Interest accrues at the rate of 7.5% per annum and is payable
semi-annually on January 31 and July 31. Interest is payable in cash, however,
through January 31, 1998, the Company may elect to pay interest by issuing
additional paid-in-kind notes ("PIK Notes"). PIK Notes are not convertible and
must be redeemed on a pro rata basis in accordance with the redemption schedule
of the Senior Notes. Interest on the PIK Notes accrues at 10% per annum, which
payment terms are identical to the Senior Notes, including the option to issue
additional PIK Notes for interest obligations.

PIK Notes of $4.9 million were outstanding as of December 31, 1995.
Accrued interest on the Senior Notes as of December 31, 1995 and 1994 has been
included in payable to affiliates and classified as a long-term liability.

Based on the transaction described in Note 16, management considers the
fair market value of the Senior Notes to approximate their carrying value.

NOTE 9 -- MANDATORILY REDEEMABLE PREFERRED STOCK

Concurrent with the sale of the Senior Notes, the Company issued 70,000
shares of Series A Preferred Stock to Trefoil for $70 million.

With respect to dividend rights and rights on liquidation, dissolution
and winding up, Series A Preferred Stock ranks senior to the common stock and
senior to any other series or class of preferred stock which may be issued by
the Company (collectively, "Junior Securities").

In the event of any liquidation, dissolution or winding up of the
Company, holders of Series A Preferred Stock will be entitled to receive in
preference to holders of Junior Securities an amount equal to $1,000 per share
plus all accrued but unpaid dividends.

As long as shares of Series A Preferred Stock remain outstanding, the
holders of such shares are entitled to receive, when, as and if declared by the
Board of Directors, out of assets of the Company legally available therefore,
cumulative cash dividends at an annual rate of 7.5% (if in arrears, compounded
quarterly at a rate of 8.625% per annum with respect to dividends in arrears,
through the date of payment of such arrearages), payable quarterly in arrears
on the last business day of each calendar quarter.

Each share of Series A Preferred Stock is convertible at the option of
the holder into one share of common stock at $8,201 per common share, subject
to certain antidilution adjustments (the "Conversion Price").

The Series A Preferred Stock may be redeemed by the Company any time
after the third anniversary of the issuance date (in integral multiples having
an aggregate stated value of at least $7 million) if (i) all quarterly
dividends on the Series A Preferred Stock have been paid in full, (ii) the
Company has consummated an initial public offering for its common stock and
(iii) the market price of the common stock is equal to at least 165% of the
Conversion Price for at least twenty out of thirty consecutive trading days
preceding the notice of redemption. In any such event, the redemption price per
share will be equal to $1,000, plus accrued and unpaid dividends to the
redemption date.

The Company is required to redeem 14,000 shares of the original issue on
July 30, 2003, 28,000 shares on July 30, 2004 and any remaining outstanding
shares in 2005. The number of shares to be redeemed by the Company on any
mandatory redemption date shall be reduced by the number of shares optionally
redeemed by the Company prior to such date, to the extent such shares have not
previously been credited against the Company's mandatory redemption
obligations. If the Company shall fail to redeem shares of Series A Preferred
Stock when required, the annual dividend rate on the outstanding shares of
Series A Preferred Stock will be increased to 9.375% (compounded quarterly with
respect to dividends in arrears at a rate of 10.780% per annum) of the stated
value of such shares plus accrued and unpaid dividends from the date of failure
to redeem through the date of redemption. If

F-50
<PAGE> 92

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

less than all of the outstanding shares of Series A Preferred Stock are to be
redeemed, the shares of Series A Preferred Stock to be redeemed shall be
selected pro rata.

Although not declared by the Company's Board of Directors, dividends on
the Series A Preferred Stock have been accrued in the accompanying financial
statements. Based on management intentions, including restrictions on the
payment of dividends imposed by the Company's bank credit agreement, accrued
dividends have been classified as a long-term liability.

Based on the transaction described in Note 16, management considers the
fair market value of the Series A Preferred Stock to approximate their carrying
value.

NOTE 10 -- INCOME TAXES

All of the Company's revenues were generated in the United States. The
income tax benefit (expense) on income from continuing operations is comprised
of the following:

DECEMBER 31, PERIOD ENDED
---------------------------- FEBRUARY 13,
1994 1995 1996
------------- ------------- --------------
<S> <C> <C> <C>
Current:
Federal ....................................................... $ (578,000) $ 1,025,000 $ 321,000
State ......................................................... (1,056,000) 94,000 29,000
------------- ------------- --------------
(1,634,000) 1,119,000 350,000
Deferred:
Federal ....................................................... (501,000) 168,000 52,000
State ......................................................... 780,000 -- --
------------- ------------- --------------
279,000 168,000 52,000
------------- ------------- --------------
$ (1,355,000) $ 1,287,000 $ 402,000
============= ============= ==============
</TABLE>

Deferred tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------- --------------

<S> <C> <C>
Deferred gain .............................................................. $ 15,549,000 $ 15,358,000
Amortization of FCC licenses and other intangibles ......................... 5,519,000 5,687,000
Depreciation ............................................................... 3,194,000 2,741,000
Other ...................................................................... 519,000 560,000
------------- --------------
Gross deferred tax liabilities ........................................... 24,781,000 24,346,000
------------- --------------
Net operating loss carryforward ............................................ (878,000) (584,000)
AMT and other credit carryforward .......................................... (3,316,000) (2,943,000)
Deferred compensation and other deductions ................................. (2,586,000) (2,627,000)
------------- --------------
Gross deferred tax assets ................................................ (6,780,000) (6,154,000)
Valuation allowance ...................................................... 876,000 1,026,000
------------- --------------
Net deferred tax assets .................................................. (5,904,000) (5,128,000)
------------- --------------
$ 18,877,000 $ 19,218,000
============= ==============
</TABLE>

The Company has a federal net operating loss (NOL) carryover of $1.7
million, subject to various limitations on its utilization. The Company also
has AMT Credit and Investment Tax Credit carryforwards for tax purposes of $2.2
million and $734,000, respectively. The above carryovers expire in the years
2000 through 2003, except the AMT credit which has no expiration. Under SFAS
109, the Company has recorded valuation allowances against the realization of
the federal tax benefits from net operating losses and investment tax credits
in the amounts of $292,000 and $734,000, respectively. The valuation allowances
are based on management's estimates and analysis, which include the impact of
tax laws which may limit the Company's ability to utilize such loss
carryforwards and tax credits.

F-51
<PAGE> 93

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The principal items causing an effective rate which differs from the
Federal statutory rate are summarized as follows:

YEAR ENDED DECEMBER 31, PERIOD ENDED
---------------------------- FEBRUARY 13,
1994 1995 1996
------------- ------------- --------------
<S> <C> <C> <C>
Federal statutory rate ..................................... $ 125,000 $ 1,971,000 $ 351,000
Amortization of intangibles ................................ (1,703,000) (1,627,000) (190,000)
State taxes, net of federal benefit ........................ (180,000) 61,000 11,000
Reduction of tax reserve ................................... -- 1,109,000 --
SFAS 109 rate adjustment ................................... -- -- --
Recognition of net operating loss carryover ................ 504,000 -- --
Other, net ................................................. (101,000) (227,000) 230,000
------------- ------------- --------------
$ (1,355,000) $ 1,287,000 $ 402,000
============= ============= ==============
</TABLE>

NOTE 11 -- RADIO BROADCASTING DISPOSITIONS

In April 1994, the Company sold the broadcast license and assets of its
radio stations in Cleveland, Ohio for $12.1 million (excluding disposal costs).
This sale resulted in a gain of $670,000, before related income taxes. A
portion of the sale proceeds was utilized to reduce bank debt by $11 million.

In June 1994, the Company sold the broadcast license and assets of its
radio station in Seattle, Washington for $12.0 million (excluding disposal
costs). This sale resulted in a gain of $4.8 million, before related income
taxes. A portion of the sale proceeds was utilized to reduce bank debt by $11
million.

NOTE 12 -- COMMITMENTS

The following are the future minimum rental payments under operating
leases (net of minimum rentals under noncancelable subleases) that have initial
or remaining lease terms in excess of one year:

<TABLE>
<CAPTION>
YEAR AMOUNTS
- ---- -------------
<C> <C>
1996 .................................................... $ 3,290,000
1997 .................................................... 3,029,000
1998 .................................................... 2,422,000
1999 .................................................... 1,701,000
2000 .................................................... 1,314,000
After 2000 .............................................. 5,604,000
-------------
$ 17,360,000
=============
</TABLE>

Certain leases contain renewal options with the same lease terms, except
that rentals may be adjusted to current market rates at the time of renewal.
Rental expense under operating leases for the period ended February 13, 1996
and the years ended December 31, 1995 and 1994 aggregated $0.3 million, $2.9
million and $3.3 million, respectively.

NOTE 13 -- EMPLOYEE BENEFIT PLANS

The Company maintains an elective Employees' Savings Plan for all
employees not covered by a collective bargaining agreement and who have one or
more years of continuous employment. The Company contributes 50% of the annual
contributions made by employees up to a maximum of 3% of each participating
employee's compensation. Participants are at all times fully vested in their
contributions, and the Company's contribution becomes fully vested to the
participant after seven years of continuous employment. The Company's
contributions for the period ended February 13, 1996 and the years ended
December 31, 1995 and 1994 aggregated $0, $453,000 and $568,000, respectively.

The Company also maintains a non-qualified, unfunded incentive
compensation plan for certain key employees providing for payments upon
separation of employment, death or disability. As of December 31, 1995 the
liability recorded for the value of amounts awarded to participants under the
plan was approximately $3.5 million.

F-52
<PAGE> 94

TREFOIL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- AFFILIATE TRANSACTIONS

Both Shamrock Holdings of California ("SHOC") and Trefoil are related
parties of the Company through commonality of certain officers and directors.
In addition to the financing transactions described at Notes 8 and 9, the
Company made payments to SHOC for interest on cash advances, office space rent
and an executive management fee in the aggregate of $20,000, $175,000 and
$174,000 for the period ended February 13, 1996 and the years ended December
31, 1995 and 1994, respectively. In July 1993, the Company entered into an
executive management agreement with Trefoil in consideration for a fee based on
the Company's broadcasting revenues. For the period ended February 13, 1996 and
the years ended December 31, 1995 and 1994, the statement of operations
includes in corporate expenses a charge of $63,000, $544,000 and $544,000,
respectively, for fees payable to Trefoil. In connection with the issuance of
the Senior Notes and the Series A Preferred Stock, the Company paid Trefoil $3
million for financial advisory services. These costs were capitalized and are
being amortized over the term of the Senior Notes and Series A Preferred Stock.
These costs are included in other assets in the balance sheet.

Payable to affiliates comprises the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------- --------------
<S> <C> <C>
Note payable to affiliate at varying interest rates; payable quarterly.
No stated maturity ....................................................... $ 7,898,000 $ 9,007,000
Note payable to affiliate at varying interest rates; payable quarterly.
No stated maturity ....................................................... 6,030,000 6,750,000
PIK notes (Note 8) ......................................................... 2,313,000 4,856,000
------------- --------------
$ 16,241,000 $ 20,613,000
============= ==============
</TABLE>

On December 16, 1994, the Company issued a $6 million promissory note to
Trefoil, $5.75 million of which was used in 1995 for the acquisition of a radio
station in Denver. The note bears interest at LIBOR plus 7% (12.938% at
December 31, 1995) and has no stated maturity. Accrued interest is added to the
principal of the note at the end of each calendar quarter and, accordingly, the
outstanding balances at December 31, 1995 and December 31, 1994 include
$720,000 and $30,000 of interest expensed in 1995 and 1994, respectively.

On September 29, 1993, the Company issued a $7 million promissory note to
SHOC and used the proceeds to reduce Broadcasting's bank debt. The note bears
interest at LIBOR plus 7% (12.938% at December 31, 1995) and has no stated
maturity. Accrued interest is added to the principal of the note at the end of
each calendar quarter and, accordingly is included in the outstanding balance
at December 31, 1995 and 1994. Interest expense includes for the period ended
February 13, 1996 and the years ended December 31, 1995 and 1994 $129,000,
$1,109,000 and $747,000, respectively.

Based on the transaction described in Note 16, management considers the
fair market value of these notes to approximate their carrying value.

NOTE 15 -- LITIGATION

The Company is a plaintiff or defendant in several legal actions, the
probable outcome of which are not considered material, either individually or
in the aggregate.

NOTE 16 -- SUBSEQUENT EVENT -- SALE OF THE COMPANY

On February 14, 1996, the Company's shareholders completed the sale of
all issued and outstanding shares of the Company to Chancellor Radio
Broadcasting Company, formerly Chancellor Broadcasting Company, ("Chancellor")
for $395 million in cash. A portion of the proceeds was utilized to pay-off
bank debt, convertible senior notes, payable to affiliates and redeem
outstanding preferred stock and pay dividends payable thereon. As of the
closing date, the Company, along with Broadcasting, became wholly-owned
subsidiaries of Chancellor. No accounts in the accompanying financials have
been adjusted for the effects of this transaction; however, the statement of
operations for the period ended February 13, 1996 includes an extraordinary
loss on the early extinguishment of debt of $2.5 million, net of tax of $1.7
million, resulting from the early extinguishment of bank debt and convertible
senior notes discussed above.

F-53
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Chancellor Broadcasting Company:

Our report on the consolidated financial statements of Chancellor
Broadcasting Company and Subsidiaries is included in this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules of Chancellor Broadcasting Company
and Subsidiaries herein.

In our opinion, these financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
February 13, 1997, except
for Note 15 to the financial
statements as to which the
date is February 19, 1997

S-1
<PAGE> 96

CHANCELLOR BROADCASTING COMPANY

PARENT COMPANY CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
------------- --------------
ASSETS
<S> <C> <C>
Investment in subsidiaries, at equity ........................................... $ 54,722,734 $ 200,990,823
============= ==============

STOCKHOLDERS' EQUITY
Stockholders' equity:
Class A common stock, par value $.01 per share; 40,000,000 shares authorized,
302,107 and 9,937,320 shares issued, respectively, and
302,107 and 9,881,656 shares outstanding, respectively ...................... 3,021 99,373
Class B common stock, par value $.01 per share; 10,000,000 shares authorized,
63,500 and 8,547,910 shares issued and outstanding, respectively ............ 635 85,479
Class C common stock, par value $.01 per share; 10,000,000 shares authorized,
8,484,410 and zero shares issued and outstanding, respectively .............. 84,844 --
Additional paid-in capital .................................................... 66,271,500 231,930,337
Accumulated deficit ........................................................... (11,637,266) (30,086,232)
Treasury stock ................................................................ -- (1,038,134)
------------- --------------
Total common stockholders' equity ........................................ $ 54,722,734 $ 200,990,823
============= ==============
</TABLE>

The accompanying notes are an integral part of the financial statements.

S-2
<PAGE> 97

CHANCELLOR BROADCASTING COMPANY

PARENT COMPANY CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1995 1996
------------ ------------- --------------

<S> <C> <C> <C>
Net loss - equity in losses of unconsolidated subsidiaries ...... $ (105,970) $ (11,531,296) $ (35,019,031)
============= ============= ==============

Net loss per share .............................................. $ (0.02) $ (1.30) $ (2.10)
============= ============= ==============
Weighted average number of shares outstanding ................... 5,166,039 8,849,936 16,704,381
============= ============= ==============
</TABLE>

The accompanying notes are an integral part of the financial statements.

S-3
<PAGE> 98

CHANCELLOR BROADCASTING COMPANY

PARENT COMPANY CONDENSED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK
------------------------------ ----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- ------------- ------------- -------------

<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 ...... -- -- 166 $ 2 -- --
Issuance of common stock on
January 10, 1994 ............ 302,107 $ 3,021 63,334 633 3,884,211 $ 38,842
Issuance of common stock on
October 12, 1994 ............ -- -- -- -- 4,600,033 46,000
Net loss ...................... -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------

Balance, December 31, 1994 .... 302,107 3,021 63,500 635 8,484,244 84,842
Stock option compensation ..... -- -- -- -- -- --
Issuance of common stock on
June 29, 1995 ............... -- -- -- -- 166 2
Net loss ...................... -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------

Balance, December 31, 1995 .... 302,107 3,021 63,500 635 8,484,410 84,844
Stock option compensation ..... -- -- -- -- -- --
Issuance of common stock on
February 14, 1996 .......... 8,447,192 84,472 -- -- -- --
Loss on repurchase of preferred
stock of subsidiary on
February 21, 1996 .......... -- -- -- -- -- --

Repurchase of common stock on
February 21, 1996 ........... (55,664) -- -- -- -- --
Issuance of common stock on
August 9, 1996 ............. 1,185,521 11,855 -- -- -- --
Issuance of common stock on
August 20, 1996 ............ 2,500 25 -- -- -- --
Conversion of common stock on
October 22, 1996 ........... -- -- 8,484,410 84,844 (8,484,410) (84,844)
Net loss ...................... -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Balance, December 31, 1996 .... 9,881,656 $ 99,373 8,547,910 $ 85,479 -- $ --
============= ============= ============= ============= ============= =============

ADDITIONAL
PAID-IN ACCUMULATED TREASURY
CAPITAL DEFICIT STOCK TOTAL
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 ...... $ 998 -- -- $ 1,000
Issuance of common stock on
January 10, 1994 ............ 25,456,504 -- -- 25,499,000
Issuance of common stock on
October 12, 1994 ............ 34,454,000 -- -- 34,500,000
Net loss ...................... -- $ (105,970) -- (105,970)
------------- ------------- ------------- -------------

Balance, December 31, 1994 .... 59,911,502 (105,970) -- 59,894,030
Stock option compensation ..... 6,360,000 -- -- 6,360,000
Issuance of common stock on
June 29, 1995 ............... (2) -- -- --
Net loss ...................... -- (11,531,296) -- (11,531,296)
------------- ------------- ------------- -------------

Balance, December 31, 1995 .... 66,271,500 (11,637,266) -- 54,722,734
Stock option compensation ..... 3,800,000 -- -- 3,800,000
Issuance of common stock on
February 14, 1996 .......... 155,390,782 -- -- 155,475,254
Loss on repurchase of preferred
stock of subsidiary on
February 21, 1996 .......... (16,570,065) -- -- (16,570,065)

Repurchase of common stock on
February 21, 1996 .......... -- -- $ (1,038,134) (1,038,134)
Issuance of common stock on
August 9, 1996 ............. 22,988,145 -- -- 23,000,000
Issuance of common stock on
August 20, 1996 ............ 49,975 -- -- 50,000
Conversion of common stock on
October 22, 1996 ........... -- -- -- --
Net loss ...................... -- (18,448,966) -- (18,448,966)
------------- ------------- ------------- -------------
Balance, December 31, 1996 .... $ 231,930,337 $ (30,086,232) $ (1,038,134) $ 200,990,823
============= ============= ============= =============
</TABLE>

The accompanying notes are an integral part of the financial statements.

S-4
<PAGE> 99

CHANCELLOR BROADCASTING COMPANY

PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS

Cash flows from financing activities:
Issuance of common stock ................................. 60,000,000 -- 178,525,254
Repurchase of common stock ............................... -- -- (1,038,134)
---------------- --------------- ----------------
Net cash provided by financing activities .......... 60,000,000 -- 177,487,120
---------------- --------------- ----------------
Net increase (decrease) in cash .................... -- -- --
Cash, at beginning of year ................................. -- -- --
---------------- --------------- ----------------
Cash, at end of year ....................................... $ -- $ -- $ --
================ =============== ================
</TABLE>

The accompanying notes are an integral part of the financial statements.

S-5
<PAGE> 100

CHANCELLOR BROADCASTING COMPANY

NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS

1. GENERAL

The accompanying condensed financial statements of Chancellor
Broadcasting Company (the "Company") should be read in conjunction with the
consolidated financial statements of the Company and its subsidiaries included
in the Company's Annual Report on Form 10-K.

2. OBLIGATIONS, GUARANTEES AND COMMITMENTS

The Company has guaranteed the obligations under a senior credit facility
and senior note agreements of its subsidiary Chancellor Radio Broadcasting
Company. Such obligations prohibit the subsidiary from making loans or
transfers or paying dividends to the Company without the consent of the lenders
subject to certain provisions in the Senior Credit Facility. See note 6 to
consolidated financial statements regarding these obligations.

3. OTHER

See notes 8 and 13 to consolidated financial statements for a description
of the preferred stock, common stock and other equity securities of the
Company.

S-6
<PAGE> 101

CHANCELLOR BROADCASTING COMPANY AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------- ----------------------------- ------------- -----------
BALANCE AT CHARGED TO AMOUNTS BALANCE
BEGINNING COSTS AND AMOUNTS WRITTEN AT END
OF PERIOD EXPENSES ACQUIRED OFF OF PERIOD
------------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996....... $ 263,528 $ 810,000 $ 1,041,336 $ 1,091,204 $ 1,023,660
Year ended December 31, 1995....... 118,844 222,996 -- 78,312 263,528
Year ended December 31, 1994....... -- 213,249 -- 94,405 118,844
</TABLE>

S-7
<PAGE> 102

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Chancellor Radio Broadcasting Company:

Our report on the consolidated financial statements of Chancellor Radio
Broadcasting Company and Subsidiaries is included in this Form 10-K. In
connection with our audits of such financial statements, we have also
audited the financial statement schedule of Chancellor Radio Broadcasting
Company and Subsidiaries herein.

In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
February 13, 1997, except
for Note 15 to the financial
statements as to which the
date is February 19, 1997

S-8
<PAGE> 103

CHANCELLOR RADIO BROADCASTING COMPANY AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------- ----------------------------- ------------- -----------
BALANCE AT CHARGED TO AMOUNTS BALANCE
BEGINNING COSTS AND AMOUNTS WRITTEN AT END
OF PERIOD EXPENSES ACQUIRED OFF OF PERIOD
------------- -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996....... $ 263,528 $ 810,000 $ 1,041,336 $ 1,091,204 $ 1,023,660
Year ended December 31, 1995....... 118,844 222,996 -- 78,312 263,528
Year ended December 31, 1994....... -- 213,249 -- 94,405 118,844
</TABLE>

S-9
<PAGE> 104

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Stockholders and Board of Directors
of Trefoil Communications, Inc.

Our audits of the consolidated financial statements of Trefoil Communications,
Inc. referred to in our report dated February 14, 1996 appearing on page F-41
of the 1996 Annual Report on Form 10-K of Chancellor Broadcasting Company, also
included an audit of the Financial Statement Schedule for the years ended
December 31, 1995 and 1994 appearing on page S-12 of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements of Trefoil Communications, Inc. for
the periods indicated above.

PRICE WATERHOUSE LLP

Los Angeles, California
February 14, 1996

S-10
<PAGE> 105

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Chancellor Radio Broadcasting Company:

Our report on the consolidated financial statements of Trefoil
Communications Inc. for the period January 1, 1996 through February 13, 1996 is
included in this Form 10-K. In connection with our audit of such financial
statements, we have also audited the financial statement schedule of Trefoil
Communications, Inc. and Subsidiaries herein for the period January 1, 1996
through February 13, 1996.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
March 24, 1997

S-11
<PAGE> 106

TREFOIL COMMUNICATIONS, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------- --------------------------- --------------- -----------
BALANCE AT CHARGED TO AMOUNTS BALANCE
BEGINNING COSTS AND AMOUNTS WRITTEN AT END
OF PERIOD EXPENSES ACQUIRED OFF OF PERIOD
------------- ------------ ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Period ended February 13, 1996 .... $ 1,630,000 $ 76,000 $ -- $ -- $ 1,706,000
Year ended December 31, 1995 ...... 1,535,000 650,000 -- 555,000 1,630,000
Year ended December 31, 1994 ...... 1,553,000 673,000 -- 691,000 1,535,000
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EXHIBIT INDEX

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EXHIBIT
NO. DESCRIPTION OF DOCUMENT
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2.1 Asset Purchase Agreement dated as of April 19, 1994, between
American Media, Inc. and Chancellor Holdings Corp. (formerly, MBD
Broadcasting, Inc.) (1)