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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-22486

CAPSTAR COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 13-3649750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 CONGRESS AVENUE
SUITE 1400
AUSTIN, TEXAS 78701
(Address of principal executive offices) (Zip Code)

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

Registrants' telephone number, including area code: (512) 340-7800

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

NONE
(Title of Class)

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

NONE
(Title of Class)

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

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

At March 15, 1999, 1,006 shares of common stock, par value $0.01 per share
("Capstar Communications Common Stock"), of Capstar Communications, Inc. were
outstanding. There is no public market for the Capstar Communication Common
Stock.

DOCUMENTS INCORPORATED BY REFERENCE

No Documents are incorporated by reference into Parts I, II or III.
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2

TABLE OF CONTENTS

FORM 10-K

PAGE NO.
--------

PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 24
Item 3. Legal Proceedings........................................... 24
Item 4. Submission of Matters to a Vote of Security Holders......... 26
PART II
Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters......................................... 26
Item 6. Selected Historical Financial Data.......................... 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 27
Item 7A. Quantitative and Qualitative Disclosure about Market Risk... 36
Item 8. Financial Statements and Supplementary Data................. 36
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 36
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 36
Item 11. Executive Compensation...................................... 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 46
Item 13. Certain Relationships and Related Transactions.............. 49
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 56

GLOSSARY OF CERTAIN TERMS

PAGE
-----

10 3/4% CCI Notes........................................... 29
11 3/8% CCI Notes........................................... 31
Affiliate Stockholders...................................... 53
Capstar Broadcasting........................................ 2
Capstar Broadcasting Financial Advisory Agreement........... 53
Capstar Broadcasting Monitoring and Oversight Agreement..... 52
Capstar Communications...................................... 2
Capstar Communications Common Stock......................... Cover
Capstar L.P................................................. 47
Capstar Partners............................................ 2
Capstar Partners Financial Advisory Agreement............... 53
Capstar Partners Monitoring and Oversight Agreement......... 52
Capstar Radio............................................... 2
CCI Series E Preferred Stock................................ 29
Chancellor Exchange Station................................. 50
Chancellor Media............................................ 4
Class A Common Stock........................................ 8
Class B Common Stock........................................ 8
Class C Common Stock........................................ 8
Code........................................................ 43
Common Stock................................................ 8
Continuing Directors........................................ 45
DAB......................................................... 17
DARS........................................................ 17
Deferral Election........................................... 50
DOJ......................................................... 19
FCC......................................................... 4
FTC......................................................... 19
Fund III Inc................................................ 47
GAAP........................................................ 26
Hicks Muse.................................................. 2
Hicks Muse Parties.......................................... 47
Hicks Muse Partners......................................... 52
HM3/Capstar................................................. 47
HSR Act..................................................... 20
JSA......................................................... 4
Katz........................................................ 54
LMA......................................................... 4
Named Executive Officers.................................... 38
Non-Exchange Acquisition.................................... 51
Second Request.............................................. 20
Spin-Off.................................................... 29
Stock Option Plan........................................... 39
Stockholders................................................ 9
Warrants.................................................... 45

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4

PART I

ITEM 1. BUSINESS

As used in this Annual Report on Form 10-K, unless the context otherwise
requires, (i) "Capstar Communications" refers to Capstar Communications, Inc.,
(ii) "Capstar Radio" refers to Capstar Radio Broadcasting Partners, Inc., the
parent of Capstar Communications, and its subsidiaries (iii) "Capstar
Broadcasting" refers to Capstar Broadcasting Corporation, the ultimate parent
company of Capstar Communications, and (iv) "Capstar Partners" refers to Capstar
Broadcasting Partners, Inc., the direct parent of Capstar Radio.

GENERAL

Upon consummation of the pending transactions, Capstar Communications owns
or programs, or will own or program, a nationwide portfolio of 112 owned and
operated stations and 2 programmed stations in 28 markets. This portfolio
includes clusters of four or more stations in 16 markets and comprises the
leading station group, in terms of revenue share and/or audience share, in 16
markets.

R. Steven Hicks, an executive with over 30 years of experience in the radio
broadcasting industry, and Hicks, Muse, Tate & Furst Incorporated, a
Dallas-based private equity firm ("Hicks Muse"), formed Capstar Broadcasting to
capitalize on the consolidation opportunities produced by the Telecommunications
Act of 1996. R. Steven Hicks and Hicks Muse recognized that the Telecom Act
created a unique opportunity to consolidate stations in mid-sized markets and,
accordingly, created a company that was designed specifically to address this
market opportunity. Because the Telecom Act enabled operators in mid-sized
markets for the first time to form clusters of four or more stations in
individual markets, R. Steven Hicks and Hicks Muse believed that Capstar
Broadcasting could achieve the economies of scale necessary to support an
investment in higher quality managers, programming and systems in these markets.
In connection with this strategy, Capstar Broadcasting acquired SFX
Broadcasting, Inc. (SFX was subsequently renamed Capstar Communications) in May
1998. The acquisition has allowed Capstar Broadcasting to upgrade its stations'
programming, sales, promotions, engineering and administrative operations to
standards previously seen only in larger markets. Management believes that this
has positioned Capstar Communications to generate revenue growth in these
markets in excess of historical growth rates, to increase its audience and
revenue shares within these markets and, by capitalizing on economies of scale,
to achieve increases in its broadcast cash flow growth rates and margins.

Capstar Communications' large national portfolio of 114 stations has
created significant revenue and cash flow growth opportunities previously
unavailable to mid-sized market operators. For example, Capstar Communications
is utilizing innovative computer networking technology to distribute high
quality programming created in centralized locations to selected stations
throughout the country, while maintaining the local character of each broadcast.
This has allowed management to reduce staffing and programming costs while
substantially increasing the quality of programming. Furthermore, management
believes that Capstar Communications' well-developed infrastructure allows it to
efficiently acquire and integrate additional stations.

STATION PORTFOLIO

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

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5

The following table sets forth certain information regarding Capstar
Communications' station portfolio, assuming consummation of its pending
acquisitions and dispositions:

NUMBER OF COMPANY COMPANY
METROPOLITAN STATIONS REVENUE AUDIENCE
STATISTICAL --------- SHARE SHARE
MARKET(1) AREA RANK(2) FM AM RANK(2) RANK(2)
--------- ------------ --- --- ------- --------

ATLANTIC STAR (NORTHEAST REGION)
Providence, RI....................................... 32 2 1 2 2
Hartford, CT......................................... 45 4 1 2 2
Albany-Schenectady-Troy, NY.......................... 59 4 2 1 2
Harrisburg-Lebanon-Carlisle, PA...................... 76 1 1 1 2
Springfield, MA...................................... 80 2 1 1 3
New Haven, CT(3)..................................... 101 2 -- 1 1
-- --
Subtotal................................... 15 6
SOUTHERN STAR (SOUTHEAST REGION)
Jacksonville, FL..................................... 52 4 2 1 1
Greenville, SC....................................... 58 3 1 1 2
Savannah, GA......................................... 153 4 2 1 1
-- --
Subtotal................................... 11 5
PACIFIC STAR (WEST REGION)
Honolulu, HI......................................... 60 4 3 1 1
Tucson, AZ........................................... 61 2 2 1 2
Fresno, CA........................................... 65 6 3 2 2
Modesto-Stockton, CA................................. 122 3 2 2 2
-- --
Subtotal................................... 15 10
GULFSTAR (SOUTHWEST REGION)
Austin, TX(3)........................................ 49 3 1 2 2
-- --
Subtotal................................... 3 1
CENTRAL STAR (MIDWEST REGION)
Milwaukee, WI........................................ 31 1 1 4 5
Grand Rapids, MI..................................... 66 3 1 2 3
Wichita, KS(4)....................................... 89 2 -- 1 2
Springfield, IL...................................... 194 2 1 3 3
Battle Creek-Kalamazoo, MI........................... 235 2 2 1 1
-- --
Subtotal................................... 10 5
SEA STAR (SOUTHEAST ATLANTIC REGION)
Charlotte, NC........................................ 37 3 -- 2 2
Indianapolis, IN..................................... 38 2 1 2 3
Greensboro, NC....................................... 42 2 1 3 3
Nashville, TN........................................ 44 4 1 1 1
Raleigh, NC.......................................... 48 4 -- 1 1
Richmond, VA(3)...................................... 57 4 1 2 2
Jackson, MS.......................................... 119 4 1 1 2
Pensacola, FL........................................ 121 3 -- 1 1
Biloxi, MS........................................... 137 2 -- 1 1
-- --
28 5
-- --
Total(5)................................... 82 32
== ==

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NA Information not available.

t Tied with another radio station group.

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6

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

(2) Metropolitan Statistical Area Rank, Company Revenue Share Rank and Company
Audience Share Rank obtained from BIA Research-Media Access Pro, Version 2.5
Radio Analysis Database (current as of February 24, 1999). Revenue figures
based upon 1998 gross revenue for the indicated markets. Company Audience
Share Rank based on average quarter hour estimates for the last available
reporting period ending Fall 1998 for the demographic of persons ages 12+,
listening Monday through Sunday, 6 a.m. to midnight. To account for
listeners lost to other nearby markets, a radio station's "local" audience
share is derived by comparing the radio station's average quarter hour share
to the total average quarter hour share for all stations whose signals are
heard within the Metropolitan Statistical Area, excluding audience share for
listeners who listen to stations whose signals originate outside the
Metropolitan Statistical Area.

(3) Capstar Communications provides certain sales and marketing services under
joint sales agreements ("JSA") to stations WYBC-FM in New Haven, Connecticut
and pending consummation of an acquisition to station KFMK-FM in Austin,
Texas. Capstar Communications provides under local marketing agreements
("LMAs") certain sales, programming and marketing services to station
WLEE-AM in Richmond, Virginia. The chart includes these stations.

(4) The table does not include station KNSS-AM in Wichita, Kansas that must be
sold in order for Capstar Radio to complete the acquisition of Triathlon
Broadcasting Company.

(5) The table does not include the stations subject to LMAs with Chancellor
Media Corporation ("Chancellor Media"). See "Item 13. Certain Relationships
and Related Transactions -- Chancellor Exchange Agreement."

OPERATING STRATEGY

Capstar Communications' primary goals are to achieve revenue growth rates
at its stations that are significantly in excess of historical growth rates
achieved in comparable markets and to increase its operating margins at these
stations at growth rates which exceed the average operating margin growth rates
being achieved in large markets. Key elements of its operating strategy are as
follows:

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

Capstar Communications believes that multiple station ownership allows it
to more effectively pursue national, network and regional advertisers, a source
of revenues which was previously limited in mid-sized markets. For example,
Capstar Communications' participation in The AMFM Radio Networks, a national
radio network owned by Chancellor Media illustrates, Capstar Communications'
ability to attract new sources of network revenues to its stations as a result
of its large audience reach.

Utilize Sophisticated Revenue Generating Techniques. Following the
acquisition of a station or station group, Capstar Communications implements
sophisticated techniques such as advertising inventory management systems and
centralized sales training programs to allow such stations to serve their
advertising clients better and to compete more effectively with other media.
Historically, inventory management systems have been very labor intensive.
Capstar Broadcasting has designed and created a state-of-the-art advertising
inventory management system known as Galaxy(TM). The Galaxy(TM) system is
similar to the SABRE(TM) airline
4
7

reservation system. It is an online, demand-based, centralized purchasing system
that will allow advertisers to determine the availability of inventory, or
available advertising time slots, and the current advertising rates. The
Galaxy(TM) system will simplify the purchasing process, which is a very
important factor in mid-sized markets where very little advertising is
outsourced to media buyers. The Galaxy(TM) system will keep up-to-the-minute
tallies on available inventory, or advertising time slots, which will enable
Capstar Communications to maximize advertising rates. Capstar Communications
began installation of the Galaxy(TM) system in March 1999 and is scheduled to
complete installation at substantially all of its stations by December 1, 1999.
Capstar Broadcasting is designing an enhancement to the Galaxy(TM) system which,
when completed, will integrate the advertising inventory management systems of
all of its stations, providing up-to-the-minute information on available
advertising time slots at all of Capstar Communications' stations and permitting
advertisers, with a single phone call, to buy advertising time from any
combination of Capstar Broadcasting's stations and in any market in which
Capstar Communications operates. Management believes that the enhancement will
be completed and implemented sometime during 2000.

Capstar Broadcasting has created Star Performance Group to improve the
business performance of Capstar Communications' stations by improving human
performance. Star Performance Group creates and provides customized training and
development programs for Capstar Communications' employees in the areas of
sales, marketing and management. Capstar Communications also utilizes in-depth
music research studies to improve the quality of the programming and its
responsiveness to the local market. Management believes that many single station
or single market operators cannot justify the costs associated with utilizing
these management techniques.

Use Innovative Computer Technology to Enhance Programming. Capstar
Communications is an industry leader in using computer network technology to
deliver high quality programming. Capstar Broadcasting's StarSystem(TM), a
company-owned programming distribution network, is designed to broadcast quality
programming from its two centralized locations in Austin, Texas and Ft.
Lauderdale, Florida to selected stations. With this system, a single radio
personality is able to introduce programming in multiple markets by digitally
transferring customized introductions for each local market and inserting them
into the playlist via a wide area computer network. StarSystem(TM)enables
Capstar Communications to make high quality on-air talent available on a
cost-effective basis in markets that previously could not afford that level of
programming while still maintaining a station's local identity. Management
believes that in addition to the cost reductions associated with StarSystem(TM),
this system provides a competitive advantage by allowing management to implement
format changes quickly and to integrate newly acquired stations and clusters
more efficiently. As of March 1, 1999, Capstar Broadcasting has installed this
digital technology at 20 stations at a one time cost of approximately $43,000
per station, which has resulted in average cost reductions of approximately
$44,000 at each such station on an annualized basis. Capstar Broadcasting
intends to expand its StarSystem(TM) to the remaining stations by June 30, 1999,
and plans to develop additional regionalized programming centers during 1999 to
continue its expansion of StarSystem(TM).

Create Low Cost Operating Structure. Management believes that it can create
a low cost operating structure in mid-sized markets for the following reasons:

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

- The ownership of multiple stations within a market allows Capstar
Communications to achieve substantial cost savings through the
consolidation of facilities, management, sales and administrative
personnel and operating resources (such as on-air talent, programming and
music research); and

- Capstar Broadcasting, as a result of its large station portfolio,
combined with the consolidated purchasing power of other companies
affiliated with Hicks Muse, has realized volume discounts in such areas
as national representation commissions, employee benefits, casualty
insurance premiums and other operating expenses.

5
8

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

ACQUISITION STRATEGY

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

6
9

THE TRANSACTIONS

Completed Transactions

Since May 29, 1998 (the date of Capstar Broadcasting's acquisition of
Capstar Communications), Capstar Communications has completed the following
acquisitions and dispositions of radio stations:

STATIONS
ACQUIRED/
DISPOSED
OF
DATE PURCHASE/SALE ---------
SELLER/PURCHASER CLOSED PRICE(1) FM AM REGION
---------------- -------------- --------------- --- --- ---------------
($ IN MILLIONS)

ACQUISITIONS
Butler Broadcasting Company,
Ltd.............................. May 1998 90.3 2 1 GulfStar
Chancellor Media Corporation of Los
Angeles and Affiliates........... May 1998 53.0 2 -- Southern Star
Pacific Star Communications,
Inc.............................. May 1998 6.5 3 1 Pacific Star
Patterson Broadcasting, Inc........ May 1998 -- 22 12 AS/SoS/GS/CS/PS
Jacor Broadcasting Corporation..... August 1998 5.0 -- 1 Sea Star
Boswell Broadcasting
Incorporated..................... September 1998 10.0 1 -- GulfStar
DISPOSITIONS
Clear Channel Radio, Inc. ......... May 1998 11.5 1 -- Southern Star
Chancellor Media Corporation....... May 1998 143.3 1 -- GulfStar
HBC Houston, Inc. and HBC
Houston License Corporation...... May 1998 54.0 1 -- GulfStar
Cox Radio, Inc..................... May 1998 48.0 3 1 Atlantic Star
Jacor Broadcasting Corporation..... August 1998 5.0 -- 1 Atlantic Star
Boswell Broadcasting
Incorporated..................... September 1998 10.0 1 -- GulfStar

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

(1) Includes transaction costs.

Pending Transactions

Capstar Communications has also entered into the following:

- One agreement to acquire one additional FM station in a mid-sized market
for which Capstar Communications currently provides services pursuant to
a JSA for $8.5 million; and

- One agreement to dispose of one AM station for $500,000.

Upon completion of the pending transactions, Capstar Communications will
own and operate more than 112 stations and program more than 2 stations in
primarily mid-sized markets located throughout the United States. Consummation
of each of the pending transactions is subject to numerous conditions, including
governmental approvals. Accordingly, the actual date of consummation of each of
the pending transactions may vary from the anticipated closing dates. No
assurances can be given that any or all of the pending transactions will be
consummated or that, if completed, they will be successful.

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10

Pending Radio Station Acquisition and Dispositions. The following table
summarizes the pending acquisition and disposition of radio stations:

STATIONS TO
BE ACQUIRED/
DISPOSED OF
------------ EXPECTED ESTIMATED
SELLER/PURCHASER FM AM REGION CLOSING DATE PURCHASE PRICE(1)
- ---------------- --- --- ------------ ------------ -----------------
($ IN MILLIONS)

ACQUISITION
R. Steven Hicks(2).................. 1 -- GulfStar April 1999 $8.5
== == ====
DISPOSITION
Truth Broadcasting Corporation...... -- 1 Sea Star August 1999 0.5
== == ====

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(1) Includes transaction costs.

(2) See "Item 13. Certain Relationships and Related Transactions -- Round Rock,
Texas Construction Permit."

Chancellor Merger

On August 26, 1998, Capstar Broadcasting and Chancellor Media entered into
an agreement to merge in a stock-for-stock transaction that will create the
nation's largest radio broadcasting entity. Under the merger agreement:

- Chancellor Media will acquire Capstar Broadcasting in a reverse merger in
which Capstar Broadcasting will be renamed Chancellor Media Corporation;

- each share of Class A common stock, par value $0.01 per share, of Capstar
Broadcasting ("Class A Common Stock") and Class C common stock, par value
$0.01 per share, of Capstar Broadcasting ("Class C Common Stock") will
represent 0.4955 shares of voting common stock in the combined entity;

- each share of Class B Common Stock par value $0.01 per share, of Capstar
Broadcasting ("Class B Common Stock" and together with the Class A Common
Stock and the Class C Common Stock, the "Common Stock") will represent
0.4955 shares of nonvoting common stock of the combined entity;

- each share of Chancellor Media common stock will represent one share of
the combined entity; and

- each share of Chancellor Media preferred stock will represent one share
of preferred stock of the combined entity.

The completion of the merger depends upon the satisfaction of a number of
conditions, including the following:

- stockholder approval of both Capstar Broadcasting and Chancellor Media;

- the expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which
waiting period has terminated;

- the receipt of regulatory approval from the FCC, which regulatory
approval has been received;

- the consent of the lenders under the Capstar Broadcasting credit facility
and Chancellor Media's credit facility; and

- other customary conditions.

There can be no assurance that all of the conditions to the merger will be
satisfied. Either company may waive compliance with the conditions at its
discretion if permitted by law.

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Thomas O. Hicks, R. Steven Hicks and Capstar Broadcasting Partners, L.P.,
an affiliate of Hicks Muse (collectively, the "Stockholders"), entered into a
voting agreement, on August 26, 1998, under which each Stockholder has agreed,
among other things, to vote the number of shares of Common Stock held by or
controlled by him or it with respect to approval of the merger and the merger
agreement in favor of such proposals and any other transactions contemplated by
the merger agreement.

Chancellor Media is a diversified multi-media company that:

- owns and/or operates a radio station portfolio, as of March 1, 1999,
consisting of 125 radio stations in 23 of the largest U.S. markets and
Puerto Rico, 112 stations of which were then owned and 13 stations of
which were then operated under time brokerage agreements which allow
Chancellor Media to program another person's stations and sell the
advertising. Eleven of the 13 stations operated under the brokerage
agreement are owned by Capstar Communications. See "Item 13. Certain
Relationships and Related Transactions -- Chancellor Exchange Agreement";

- operates a national radio network, The AMFM Radio Networks;

- provides national media sales representation through Katz Media
Corporation, a wholly-owned subsidiary; and

- has a significant outdoor advertising presence.

On January 20, 1999, Chancellor Media announced that its board of directors
engaged the investment banking firm of BT Alex. Brown Incorporated as financial
advisor for the purpose of assisting management and the board of directors of
Chancellor Media in developing, reviewing and structuring a range of strategic
alternatives intended to maximize Chancellor Media's stockholder value. On
February 11, 1999, Chancellor Media announced that it added additional advisors
Morgan Stanley Dean Witter, Hicks Muse, Goldman, Sachs & Co., Greenhill & Co.,
LLC and Chase Securities Inc. to assist it in exploring these alternatives,
which include the potential sale, merger or consolidation of the entire company
or some of its operating assets. On March 15, 1999, Chancellor Media announced
that it had completed the review of strategic alternatives and announced a
series of steps that it anticipates will better position Chancellor Media
strategically, operationally and financially, including the following:

- a determination not to pursue the sale, merger or consolidation of
Chancellor Media at such time; and

- the addition of a new senior management team, which now includes R. Steve
Hicks as vice chairman of the board and president and chief executive
officer of Chancellor Media's newly created Chancellor Media Services
Group, D. Geoffrey Armstrong as executive vice president and chief
financial officer, and William S. Banowsky, Jr. as executive vice
president and general counsel.

In light of Chancellor Media's announcements, it is possible that the terms
and/or structure of the merger may change, including reversing the structure of
the merger such that Capstar Broadcasting would merge with a wholly-owned
subsidiary of Chancellor Media, or the merger may not be completed at all. If
the terms and structure of the merger remain unchanged and all conditions to the
merger are satisfied or waived, Capstar Broadcasting believes that the merger
will be consummated during the second or early third quarter of 1999.

The description of the merger agreement and the voting agreement above is
not complete. You should read a copy of the merger agreement and the voting
agreement incorporated herein by reference as an exhibit to this Annual Report
on Form 10-K.

Other Transactions

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

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12

the ability of Capstar Communications to enter into a definitive agreement. See
"-- Risks Associated with Business Activities -- Difficulty of Integrating
Acquisitions."

REGIONAL OPERATING GROUPS

Regional Executives

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

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

Southern Star. Southern Star is managed by its president, Rick Peters. Mr.
Peters has more than 26 years of radio broadcasting experience, including, most
recently, serving as the President of Peters Communications, Inc., a programming
consulting firm affiliated with radio stations in various mid-sized and large
markets.

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

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

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

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

Regional Station Portfolios

The following tables set forth certain information regarding to Capstar
Communications' station portfolio in each of its six regions, assuming
consummation of the pending transactions.

ATLANTIC STAR (NORTHEAST REGION)

METROPOLITAN COMPANY COMPANY
STATISTICAL TARGET REVENUE AUDIENCE
MARKET AND AREA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) RANK(2) GROUP RANK(2) RANK(2) FORMAT
- ----------------------- ------------ ----------- ------- -------- ------

PROVIDENCE, RI.............. 32 2 2
WHJJ-AM..................... 35+ News/Talk
WHJY-FM..................... 25-54 Album Rock
WSNE-FM..................... F35-54 Adult Contemporary
HARTFORD, CT................ 45 2 2
WHCN-FM..................... 18-34 Classic Rock
WKSS-FM..................... F25-54 Top 40
WMRQ-FM..................... 18-54 Modern Rock
WWYZ-FM..................... 25-54 Country
WPOP-AM..................... 35+ Sports

10
13

ALBANY-SCHENECTADY-TROY,
NY........................ 59 1 2
WGNA-FM..................... 25-54 Country
WGNA-AM..................... 25-54 Country
WPYX-FM..................... 18-34 Album Rock
WTRY-AM..................... 25-54 Oldies
WTRY-FM..................... 18-34 Oldies
WXLE-FM..................... F25-54 Jammin' Oldies
HARRISBURG-LEBANON-CARLISLE,
PA........................ 76 1 2
WTCY-AM..................... 35-54 Urban Adult Contemporary
WNNK-FM..................... 18-34 Contemporary Hits
SPRINGFIELD, MA............. 80 1 3
WHMP-AM..................... M35-64 News/Talk/Sports
WHMP-FM..................... 25-54 Rock Alternative
WPKX-FM..................... 25-54 Country
NEW HAVEN, CT............... 101 1 1
WPLR-FM..................... 18-34 Album Rock
WYBC-FM(3).................. 18-34 Urban Adult Contemporary

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

F Female

M Male

(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules. The table does not include any stations owned and operated
or programmed by Chancellor Media or third parties

(2) Metropolitan Statistical Area Rank, Company Revenue Share Rank and Company
Audience Share Rank obtained from BIA Research-Media Access Pro Version 2.5
Radio Analysis Database (current as of February 24,1999). Revenue figures
based upon 1998 gross revenue for the indicated markets. Company Audience
Share Rank obtained from Arbitron's Radio Market Reports, based on average
quarter hour estimates for the last available reporting period ending Fall
1998, for the demographic of persons ages 12+, listening Monday through
Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby
markets, a radio station's "local" audience share is derived by comparing
the radio station's average quarter hour share to the total average quarter
hour share for all stations whose signals are heard within the Metropolitan
Statistical Area, excluding audience share for listeners who listen to
stations whose signal originate outside the Metropolitan Statistical Area.

(3) Capstar Communications provides certain sales and marketing services to
station WYBC-FM in New Haven, Connecticut under a JSA.

11
14

SOUTHERN STAR (SOUTHEAST REGION)

JACKSONVILLE, FL............ 52 1 1
WAPE-FM..................... 18-54 Contemporary Hits
WFYV-FM..................... 25-54 Album Rock
WMXQ-FM..................... 25-54 Adult Contemporary
WKQL-FM..................... 35-64 Oldies
WOKV-AM..................... 35+ News/Talk
WBWL-AM..................... M18-54 Sports
GREENVILLE, SC.............. 58 1 2
WGVL-AM..................... 25-54 Gospel/Country
WMYI-FM..................... 25-54 Adult Contemporary
WROQ-FM..................... 25-54 Classic Rock
WSSL-FM..................... 25-54 Country
SAVANNAH, GA................ 153 1 1
WCHY-AM..................... 35-64 Disney
WCHY-FM..................... 25-54 Country
WYKZ-FM..................... 25-54 Soft Adult Contemporary
WAEV-FM..................... 18-34 Adult Contemporary
WSOK-AM..................... 25-54 Gospel
WLVH-FM..................... 25-54 Urban Adult Contemporary

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

M Male

(2) Metropolitan Statistical Area Rank, Company Revenue Share Rank and Company
Audience Share Rank obtained from BIA Research-Media Access Pro, Version 2.5
Radio Analysis Database (current as of February 24, 1999). Revenue figures
based upon 1998 gross revenue for the indicated markets. Company Audience
Share Rank based on average quarter hour estimates for the last available
reporting period ending Fall 1998, for the demographic of persons ages 12+,
listening Monday through Sunday, 6 a.m. to midnight. To account for
listeners lost to other nearby markets, a radio station's "local" audience
share is derived by comparing the radio station's average quarter hour share
to the total average quarter hour share for all stations whose signals are
heard within the Metropolitan Statistical Area, excluding audience share for
listeners who listen to stations whose signal originate outside the
Metropolitan Statistical Area.

PACIFIC STAR (WEST REGION)

METROPOLITAN COMPANY COMPANY
STATISTICAL TARGET REVENUE AUDIENCE
MARKET AND AREA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) RANK(2) GROUP RANK(2) RANK(2) FORMAT
----------------------- ------------ ----------- ------- -------- ------

HONOLULU, HI............... 60 1 1
KSSK-AM.................... 25-54 Hot Adult Contemporary
KSSK-FM.................... 25-54 Hot Adult Contemporary
KUCD-FM.................... 35-54 Modern Adult Contemporary
KHVH-AM.................... 35-64 News/Talk
KKLV-FM.................... M35-54 Classic Rock

12
15

METROPOLITAN COMPANY COMPANY
STATISTICAL TARGET REVENUE AUDIENCE
MARKET AND AREA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) RANK(2) GROUP RANK(2) RANK(2) FORMAT
----------------------- ------------ ----------- ------- -------- ------

KIKI-AM.................... 18-34 Urban
KIKI-FM.................... 18-34 Urban
TUCSON, AZ................. 61 1 2
KCEE-AM.................... F25-54 Nostalgia
KNST-AM.................... 25-54 News/Talk/Sports
KRQQ-FM.................... 25-54 Contemporary Hits
KWFM-FM.................... 35-64 Oldies
FRESNO, CA................. 65 2 2
KBOS-FM.................... 18-34 Contemporary Hits
KVBL-AM.................... M18-49 Sports/Talk
KRZR-FM.................... M18-49 Album Rock
KRDU-AM.................... NA Religion
KSOF-FM.................... 25-54 Soft Rock
KEZL-FM.................... 35-54 Smooth Jazz
KFSO-FM.................... 35-64 Oldies
KALZ-FM.................... 35-54 Adult Contemporary
KCBL-AM.................... 35-54 Sports Talk
MODESTO-STOCKTON, CA(3).... 122 2 2
KFRY-FM.................... 25-54 Country
KJAX-AM.................... 35-64 News/Talk
KJSN-FM.................... 25-54 Adult Contemporary
KFIV-AM.................... 35-64 News/Talk
KOSO-FM.................... 25-54 Adult Contemporary

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

F Female

M Male

NA Information not available.

(2) Metropolitan Statistical Area Rank, Company Revenue Share Rank and Company
Audience Share Rank obtained from BIA Research-Media Access Pro, Version 2.5
Radio Analysis Database (current as of February 24, 1999). Revenues figures
based upon 1998 gross revenue for the indicated markets. Company Audience
Share Rank based on average quarter hour estimates for the last available
reporting period ending Fall 1998 for the demographic of persons ages 12+,
listening Monday through Sunday, 6 a.m. to midnight. To account for
listeners lost to other nearby markets, a radio station's "local" audience
share is derived by comparing the radio station's average quarter hour share
to the total average quarter hour share for all stations whose signals are
heard within the Metropolitan Statistical Area excluding audience share for
listeners who listen to stations whose signal originate outside the
Metropolitan Statistical Area.

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

13
16

GULFSTAR (SOUTHWEST REGION)

METROPOLITAN COMPANY COMPANY
STATISTICAL TARGET REVENUE AUDIENCE
MARKET AND AREA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) RANK(2) GROUP RANK(2) RANK(2) FORMAT
----------------------- ------------ ----------- ------- -------- ------

AUSTIN, TX................. 49 2 2
KASE-FM.................... 18-34 Country
KVET-FM.................... 25-54 Country
KVET-AM.................... M18-54 Sports
KFMK-FM(3)*................ 25-54 Jammin' Oldies

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

F Female

M Male

NA Information not available.

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

(2) Metropolitan Statistical Area Rank, Company Revenue Share Rank and Company
Audience Share Rank obtained from BIA Research-Media Access Pro, Version 2.5
Radio Analysis Database (current as of February 24, 1999). Revenues figures
based upon 1998 gross revenue for the indicated markets. Company Audience
Share Rank based on average quarter hour estimates for the last available
reporting period ending Fall 1998 for the demographic of persons ages 12+,
listening Monday through Sunday, 6 a.m. to midnight. To account for
listeners lost to other nearby markets, a radio station's "local" audience
share is derived by comparing the radio station's average quarter hour share
to the total average quarter hour share for all stations whose signals are
heard within the Metropolitan Statistical Area excluding audience share for
listeners who listen to stations whose signal originate outside the
Metropolitan Statistical Area.

(3) Pending the consummation of the pending acquisitions, the Company provides
certain sales and marketing services to station KFMK-FM in Austin, Texas
under a JSA.

CENTRAL STAR (MIDWEST REGION)

METROPOLITAN COMPANY COMPANY
STATISTICAL TARGET REVENUE AUDIENCE
MARKET AND AREA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) RANK(2) GROUP RANK(2) RANK(2) FORMAT
----------------------- ------------ ----------- ------- -------- ------

MILWAUKEE, WI.............. 31 4 5
WISN-AM.................... 35-64 Talk
WLTQ-FM.................... 25-54 Lite Adult Contemporary
GRAND RAPIDS, MI........... 66 2 3
WGRD-FM.................... 18-34 Modern Rock
WNWZ-AM.................... 35+ News
WLHT-FM.................... 25-54 Adult Contemporary
WTRV-FM.................... F35-64 Soft Adult Contemporary
WICHITA, KS(3)............. 89 1 1
KKRD-FM.................... 18-34 Contemporary Hits
KRZZ-FM.................... 18-34 Classic Rock
SPRINGFIELD, IL............ 194 3 3
WFMB-AM.................... M35-64 News/Talk/Sports
WFMB-FM.................... 18-34 Country
WCVS-FM.................... 25-54 Classic Hits

14
17

METROPOLITAN COMPANY COMPANY
STATISTICAL TARGET REVENUE AUDIENCE
MARKET AND AREA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) RANK(2) GROUP RANK(2) RANK(2) FORMAT
----------------------- ------------ ----------- ------- -------- ------

BATTLE CREEK/KALAMAZOO,
MI....................... 235 1 1
WBCK-AM.................... 35-64 News/Talk
WBXX-FM.................... 25-54 Adult Contemporary
WRCC-AM.................... 45+ Nostalgia
WWKN-FM.................... 35-64 Oldies

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

F Female

M Male

(2) Metropolitan Statistical Area Rank, Company Revenue Share Rank and Company
Audience Share Rank obtained from BIA Research-Media Access Pro, Version 2.5
Radio Analysis Database (current as of February 24, 1999). Revenue figures
based upon 1998 gross revenue for the indicated markets. Company Audience
Share Rank based on average quarter hour estimates for the last available
reporting period ending Fall 1998, for the demographic of persons ages 12+,
listening Monday through Sunday, 6 a.m. to midnight. To account for
listeners lost to other nearby markets, a radio station's "local" audience
share is derived by comparing the radio station's average quarter hour share
to the total average quarter hour share for all stations whose signals are
heard within the Metropolitan Statistical Area, excluding audience share for
listeners who listen to stations whose signal originate outside the
Metropolitan Statistical Area.

(3) The table does not include station KNSS-AM in Wichita, Kansas that Capstar
Radio must sell in order to consummate the acquisition of Triathlon
Broadcasting Company.

SEA STAR (SOUTHEAST ATLANTIC REGION)

METROPOLITAN COMPANY COMPANY
STATISTICAL TARGET REVENUE AUDIENCE
MARKET AND AREA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) RANK(2) GROUP RANK(2) RANK(2) FORMAT
----------------------- ------------ ----------- ------- -------- ------

CHARLOTTE, NC.............. 37 2 2
WKKT-FM.................... 18-54 Country
WLYT-FM.................... F35-64 Lite Adult Contemporary
WRFX-FM.................... M18-54 Album Rock
INDIANAPOLIS, IN........... 38 2 3
WNDE-AM.................... M18-54 News/Talk
WRZX-FM.................... 18-44 Alternative
WFBQ-FM.................... 25-54 Album Rock
GREENSBORO, NC............. 42 3 3
WHSL-FM.................... 25-54 Country
WMAG-FM.................... 18-34 Adult Contemporary
WMFR-AM.................... 35+ News/Talk
NASHVILLE, TN.............. 44 1 1
WRVW-FM.................... 25-54 Adult Contemporary
WSIX-FM.................... 18-64 Country
WJZC-FM.................... 35-64 Smooth Jazz
WNRQ-FM.................... 35-64 Classic Rock
WLAC-AM.................... 35+ News/Talk

15
18

METROPOLITAN COMPANY COMPANY
STATISTICAL TARGET REVENUE AUDIENCE
MARKET AND AREA DEMOGRAPHIC SHARE SHARE
STATION CALL LETTERS(1) RANK(2) GROUP RANK(2) RANK(2) FORMAT
----------------------- ------------ ----------- ------- -------- ------

RALEIGH, NC................ 48 1 1
WDCG-FM.................... 25-54 Contemporary Hits
WRDU-FM.................... 25-54 Album Rock
WRSN-FM.................... 25-54 Adult Contemporary
WTRG-FM.................... 35-64 Oldies
RICHMOND, VA............... 57 2 2
WMXB-FM.................... 35-64 Hot Adult Contemporary
WRCL-FM.................... 35-64 Oldies
WKHK-FM.................... 25-54 Country
WKLR-FM.................... 25-54 Classic Rock
WLEE-AM(3)................. 35-54 Oldies
JACKSON, MS................ 119 1 2
WJDX-AM.................... 25-54 Sports
WFTF-FM.................... 25-54 Young Country
WMSI-FM.................... 25-54 Country
WSTZ-FM.................... 25-54 Rock
WQJQ-FM.................... 35-64 Classic Top 40
PENSACOLA, FL.............. 121 1 1
WMEZ-FM.................... F25-54 Soft Adult Contemporary
WXBM-FM.................... 25-54 Country
WWSF-FM.................... 35-54 Oldies
BILOXI, MS................. 137 1 1
WKNN-FM.................... 25-54 Country
WMJY-FM.................... 25-54 Adult Contemporary

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

F Female

M Male

NA Information not available.

(2) Metropolitan Statistical Area Rank, Company Revenue Share Rank and Company
Audience Share Rank obtained from BIA Research-Media Access Pro, Version 2.5
Radio Analysis Database (current as of February 24, 1999). Revenue figures
based upon 1998 gross revenue for the indicated markets. Company Audience
Share Rank obtained from Arbitron's Radio Market Reports, based on average
quarter hour estimates for the last available reporting period ending Fall
1998, for the demographic of persons ages 12+, listening Monday through
Sunday, 6 a.m. to midnight. To account for listeners lost to other nearby
markets, a radio station's "local" audience share is derived by comparing
the radio station's average quarter hour share to the total average quarter
hour share for all stations whose signals are heard within the Metropolitan
Statistical Area, excluding audience share for listeners who listen to
stations whose signal originate outside the Metropolitan Statistical Area.

(3) CCI provides certain sales, programming, and marketing services to station
WLEE-AM in Richmond, Virginia under an LMA.

COMPETITION; CHANGES IN BROADCASTING INDUSTRY

The radio broadcasting industry is highly competitive. The success of each
of Capstar Communications' stations depends largely upon its audience ratings
and its share of the overall advertising revenue within its market. Capstar
Communications' stations compete for listeners and advertising revenue directly
with other

16
19

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

Factors that are material to a radio station's competitive position include
management experience, the station's local audience rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other radio stations and other
advertising media in the market area. Capstar Communications attempts to improve
its competitive position with promotional campaigns aimed at the demographic
groups targeted by its stations and by sales efforts designed to attract
advertisers.

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

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

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

FEDERAL REGULATION OF RADIO BROADCASTING

The ownership, operation and sale of radio stations are subject to
extensive regulation by the FCC, which acts under authority granted by the
Communications Act of 1934, as amended. Following is a brief summary of certain
provisions of the Communications Act and of specific FCC regulations and
policies.

FCC Licenses. Radio stations operate pursuant to broadcasting licenses that
are ordinarily granted by the FCC for maximum terms of eight years and are
subject to renewal upon application to the FCC. The FCC is

17
20

required to hold hearings on a station's renewal application if a substantial or
material question of fact exists as to whether:

- the station has served the public interest, convenience and necessity;

- the licensee has committed serious violations of the Communications Act
or the FCC rules; or

- the licensee has committed other violations that, taken together,
constitute a pattern of abuse.

The vast majority of FCC broadcast licenses are routinely renewed, and Capstar
Communications has no reason to believe that its licenses will not be renewed at
their expiration dates. The non-renewal of one or more licenses could have a
material adverse effect on the business of Capstar Communications. Moreover, the
laws, policies and regulations of the FCC may change significantly over time and
there can be no assurance that those changes will not have a negative effect on
Capstar Communications' business.

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

The Communications Act and the FCC rules impose specific limits on the
number of commercial radio stations Capstar Broadcasting can own in a single
market. These rules preclude Capstar Communications from acquiring certain
stations that it might otherwise seek to acquire. The rules also effectively
prevent Capstar Communications from selling stations in a market to a buyer that
has reached its ownership limit in the market. The ownership rules are as
follows:

- in markets with 45 or more commercial radio stations, ownership is
limited to eight stations, no more than five of which can be either AM or
FM;

- in markets with 30 to 44 commercial radio stations, ownership is limited
to seven stations, no more than four of which can be either AM or FM;

- in markets with 15 to 29 commercial radio stations, ownership is limited
to six stations, no more than four of which can be either AM or FM; and

- in markets with 14 or fewer commercial radio stations, ownership is
limited to five stations or no more than 50% of the market's total,
whichever is lower, and no more than three of which can be either AM or
FM.

Under the FCC's ownership attribution rules, interests held by Capstar
Communications' officers, directors and certain voting stockholders in broadcast
stations not owned by Capstar Communications must be counted as if they were
owned by Capstar Communications for purposes of applying the FCC's multiple
ownership rules. Thomas O. Hicks, the controlling stockholder of Capstar
Broadcasting, is the principal stockholder and exercises de facto control over
Chancellor Media, which owns and operates or programs 125 radio stations in 23
markets and Puerto Rico. Because Chancellor Media and Capstar Communications
have a common attributable stockholder, in markets where both companies own
radio stations (e.g., Dallas, Texas) those stations are currently deemed to be
commonly owned for purposes of applying the local radio ownership limits.

Similarly, because Capstar Communications and LIN Television Corporation, a
television company controlled by Hicks Muse, have a common attributable
stockholder (Thomas O. Hicks) and because Capstar Communications operates radio
stations in certain markets where LIN operates television stations, those
operations require an FCC waiver of the rule that normally prohibits the same
owner from owning a television station and a radio station in the same market
(the "one-to-a-market" rule). To date, all required one-to-a-market waivers in
regard to LIN and Capstar Communications overlaps have been obtained. The FCC is
considering changes to its one-to-a-market rule and waiver policy and to its
ownership attribution rules. It is
18
21

possible, but not at all certain, that revised regulations could require Capstar
Communications to divest interests in some stations in order to comply with a
more restrictive limit on radio-television cross-ownership in the same market.
In general, there can be no assurance that the FCC's existing rules or any newly
adopted rules will not have a negative effect on Capstar Communications'
business, financial condition and results of operations.

Finally, the FCC has recently issued public notices suggesting that it may
have concerns about radio station acquisitions that would give the acquiring
party an excessive share of the radio advertising revenues in a given market or
would otherwise result in excessive concentration of ownership. It is not clear
how the FCC will proceed in this area or how any policy it may adopt will
interact with the review of similar issues by the U.S. Department of Justice
("the DOJ") and the Federal Trade Commission ("FTC").

Local Marketing Agreements. Capstar Communications has previously entered
into what have commonly been referred to as local marketing agreements or LMAs.
Under a typical LMA, separately owned and licensed radio stations agree to
function cooperatively in programming, advertising sales and similar matters,
subject to the requirement that the licensee of each station maintain
independent control over the programming and operations of its own station. The
FCC's multiple ownership rules specifically permit radio station LMAs, but
provide that a licensee or a radio station that provides the programming for
more than 15% of the weekly broadcast time on another station in the same market
will be considered to have an attributable ownership interest in that station
for purposes of the FCC's multiple ownership rules.

Joint Sales Agreements. Capstar Communications has previously entered into
cooperative arrangements commonly known as joint sales agreements or JSAs. Under
the typical JSA, a station licensee obtains for a fee the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical JSA also customarily involves
the provision by the selling licensee of certain sales, accounting and "back
office" services to the station whose advertising is being sold. Unlike an LMA,
a JSA normally does not involve programming.

The FCC has determined that issues of joint advertising sales should be
left to enforcement by antitrust authorities, and therefore, does not generally
regulate joint sales practices between stations. Stations for which a licensee
sells time under a JSA are not deemed by the FCC to be attributable interests of
that licensee. However, in a pending rulemaking proceeding, the FCC is
considering whether to change that policy and make JSAs attributable ownership
interests, particularly when JSAs contain provisions for the supply of
programming services and/or other elements typically associated with LMAs. If
JSAs become attributable interests as a result of changes in the FCC rules,
Capstar Communications may be required to terminate JSAs Capstar Communications
has with a radio station which Capstar Communications could not own under the
FCC's multiple ownership rules.

Programming and Operation. The Communications Act requires Capstar
Communications to serve the "public interest." Capstar Communications is
required to present programming that is responsive to issues relevant to a
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. Capstar Communications must pay
regulatory and application fees and follow various rules promulgated under the
Communications Act that regulate, among other things, political advertising,
sponsorship identifications, the advertisement of contests and lotteries,
obscene and indecent broadcasts, and technical operations, including limits on
human exposure to radio frequency radiation. Failure to observe these or other
rules and policies can result in the imposition of various sanctions, including
monetary forfeitures, the grant of "short term" (less than the full term)
license renewal or, for particularly egregious violations, the denial of a
license renewal application or the revocation of a license.

Federal Antitrust Laws. In addition to the risks associated with the
acquisition of radio stations, Capstar Communications is also aware of the
possibility that certain acquisitions it proposes to make may be investigated by
the FTC or the DOJ, which are the agencies responsible for enforcing the federal
antitrust laws. The agencies have recently investigated several radio station
acquisitions where an operator proposed to
19
22

acquire new stations in its existing markets. Capstar Communications cannot
predict the outcome of any specific DOJ or FTC investigation, which are
necessarily fact specific. Any decision by the FTC or the DOJ to challenge a
proposed acquisition could affect the ability of Capstar Communications to
consummate the acquisition or to consummate it on the proposed terms.

For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended (the "HSR Act"), and the rules
promulgated thereunder require the parties to file Notification and Report Forms
with the FTC and the DOJ and to observe specified waiting period requirements
before consummating the acquisition. During the initial 30-day period after the
filing, the agencies decide which of them will investigate the transaction. The
DOJ has been the agency involved in all of Capstar Communications' transactions.
If the investigating agency determines that the transaction does not raise
significant antitrust issues, then it will either terminate the waiting period
or allow it to expire after the initial 30 days. On the other hand, if the
agency determines that the transaction requires a more detailed investigation,
then at the conclusion of the initial 30-day period, it will issue a formal
request for additional information ("Second Request"). The issuance of a Second
Request extends the waiting period until the twentieth calendar day after the
date of substantial compliance by all parties to the acquisition. Thereafter,
such waiting period may only be extended by court order or with the consent of
the parties. In practice, complying with a Second Request can take a significant
amount of time. In addition, if the investigating agency raises substantive
issues in connection with a proposed transaction, then the parties frequently
engage in lengthy discussions or negotiations with the investigating agency
concerning possible means of addressing those issues. Such discussions and
negotiations can be time-consuming, and the parties may agree to delay
consummation of the acquisition during their pendency.

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

Capstar Communications is subject to the following consent decrees and
letter agreements with the DOJ:

- Capstar Communications, Inc. has entered into a consent decree with the
DOJ and Chancellor Media with respect to the Long Island, New York market
under which Capstar Communications has agreed not to acquire WALK-FM;

- Capstar Broadcasting and Capstar Communications have executed a consent
decree with the DOJ that, among other things, requires Capstar
Broadcasting to give the DOJ notice of any acquisition in the Long
Island, New York; Houston, Texas; Pittsburgh, Pennsylvania; Greenville,
South Carolina; and Jackson, Mississippi markets at least 30 days prior
to the consummation thereof for a period of up to ten years unless
Capstar Broadcasting or Chancellor Media do not own stations in these
areas at the time of the proposed acquisitions; and

- as a result of a pending acquisition of Capstar Broadcasting and
Triathlon Broadcasting Company, Capstar Broadcasting has agreed in a
letter agreement with the DOJ that, concurrently with the consummation of
the Triathlon acquisition, Capstar Radio will sell station KNSS-AM (owned
by Capstar Communications) and stations KEYN-FM, KWSJ-FM, KFH-AM and
KQAM-AM (owned by Triathlon).

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

As of December 31, 1998, Capstar Communications had a staff of
approximately 1,582 full-time employees and approximately 675 part-time
employees. There are no collective bargaining agreements between Capstar
Communications and its employees. Capstar Communications believes that its
relations with its employees are good.

RISKS ASSOCIATED WITH BUSINESS ACTIVITIES

Potential Negative Consequences of Substantial Indebtedness

As of December 31, 1998, Capstar Communications had outstanding, on a
consolidated basis, long-term indebtedness (including current portions) of
$698.6 million, a retained earnings of $582,000, and stockholders' equity of
approximately $1,614.6 million.

The level of Capstar Communications' indebtedness could have several
negative consequences to the holders of the 11 3/8% CCI Notes, the 10 3/4% CCI
Notes and the CCI Series E Preferred Stock, including but not limited to the
following:

- much of Capstar Communications' cash flow will be dedicated to debt
service and will not be available for other purposes;

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

- Capstar Communications' ability to obtain financing in the future may be
limited.

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

Capstar Communications' ability to satisfy its debt service obligations
will depend upon its future financial and operating performance. If Capstar
Communications cannot satisfy its debt service obligations, it may be forced to
find alternative sources of funds by selling assets, restructuring, refinancing
debt, or seeking additional equity capital. There can be no assurance that any
of these alternative sources would be available on satisfactory terms or at all.

Restrictions Imposed on Capstar Communications by Terms of Indebtedness

The various indentures and agreements governing the debt instruments of
Capstar Communications and the certificate of designation governing the
preferred stock of Capstar Communications contain covenants that restrict
Capstar Communications' ability to:

- incur additional indebtedness, issue preferred stock, incur liens, pay
dividends or make certain other payments;

- sell assets;

- enter into transactions with affiliates; or

- merge or consolidate with any other person.

These agreements also require Capstar Communications to maintain specified
leverage ratios and interest coverage ratios. Capstar Communications' ability to
meet those financial ratios can be affected by events beyond its control, and
there can be no assurance that it will meet those tests. A breach of any of
these covenants or failure to meet these financial ratios could result in a
default under one or more of the indentures which would allow the noteholders to
declare all amounts outstanding immediately due and payable.

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Fixed Charges Negatively Impact Results of Operations

Capstar Communications had net losses attributable to common stock of $56.9
million and $59.8 million for the years ended December 31, 1996, and 1997,
respectively and $218.8 million and $582,000 in the five months ended May 31,
1998 and the seven months ended December 31, 1998, respectively. It is expected
that current interest and amortization charges and increases thereto relating to
acquisitions will have a negative impact on Capstar Communications' results of
operations.

Difficulty of Integrating Acquisitions

Capstar Communications pursues growth through the acquisition of radio
companies, radio station groups and individual radio stations primarily in
mid-sized markets. Capstar Communications' acquisition strategy involves
numerous risks, including increasing interest expense requirements, difficulties
in the integration of operations, systems and the management of a large and
geographically diverse group of stations, the diversion of management's
attention from other business concerns and the potential loss of key employees
of acquired stations. This rapid growth through acquisitions has required senior
management to spend a considerable amount of time integrating the
administrative, operational, and financial resources of Capstar Communications
with each newly-acquired radio station. Capstar Communications' future
performance and profitability will depend in part on its ability to integrate
successfully the operations and systems of acquired radio stations, to hire
additional personnel, and to implement necessary enhancements to its management
systems to respond to changes in its business. Depending on the nature, size and
timing of future acquisitions, Capstar Communications may be required to raise
additional financing necessary to consummate its future acquisitions, increasing
its debt service obligations. The availability of additional financing cannot be
assured. Depending on the terms of the potential acquisition, additional
financing may not be permitted under the agreements that govern the outstanding
indebtedness of Capstar Communications or additional financing may not be
available on terms acceptable to Capstar Communications' management. There can
be no assurance that any future acquisitions will not have a material adverse
effect on Capstar Communications' financial condition or results of operations.

Chancellor Media Local Marketing Agreements

Chancellor Media provides services for eleven of Capstar Communications'
stations in large markets under separate LMAs for approximately $49.4 million
per year. Chancellor Media has agreed to acquire such stations in exchange for
radio stations to be identified by Capstar Broadcasting over a three-year period
ending February 20, 2001 with corresponding decreases in the amount of the LMA
fees received as stations are exchanged. No assurances can be given that
stations acquired by Capstar Communications in exchange for these eleven
stations will generate cash flows comparable to the LMA fees received from
Chancellor Media, either initially when such stations are acquired or at all.
See "Item 13. Certain Relationships and Related Transactions -- Chancellor
Exchange Agreement."

Control of the Company

Capstar Broadcasting, through its indirect subsidiary Capstar Radio, owns
all of the outstanding Capstar Communications Common Stock. Thomas O. Hicks and
affiliates of Hicks Muse own approximately 94.7% of the total voting power of
the outstanding common stock of Capstar Broadcasting. Thomas O. Hicks is the
controlling stockholder of Hicks Muse and serves as its Chairman of the Board.
Accordingly, Thomas O. Hicks has a great deal of influence over the management
policies of Capstar Broadcasting and Capstar Communications and, subject to
certain limited exceptions, all matters submitted to a vote of the holders of
its common stock. In addition, the combined voting power of Thomas O. Hicks may
have the effect of discouraging selected transactions involving an actual or
potential change of control of Capstar Broadcasting.

Potential Conflicts of Interest as a Result of Cross-Ownership

Thomas O. Hicks is a shareholder, director, principal, managing director or
executive officer of various entities affiliated with Hicks Muse, including
Chancellor Media, LIN Television Corporation and Sunrise

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Broadcasting, Inc. Each of these companies is in the business of making
significant investments in the broadcasting business and may compete with
Capstar Communications for advertising revenues and broadcast related businesses
that would be complementary to the business of Capstar Communications. As a
result of this cross-ownership of various communications businesses, regulatory
and other restrictions may prevent Capstar Communications from acquiring radio
stations in markets where Chancellor Media, LIN and Sunrise own or operate
broadcasting businesses because of FCC rules. In addition, Hicks Muse has
required, and in the future may require, Capstar Communications to divest itself
of one or more radio stations in a market to permit the ownership of radio and
television broadcast stations in such market by other entities in which Hicks
Muse has significant equity interests.

Competition for Advertising Revenue and Audience Ratings

Radio broadcasting is a highly competitive business. Capstar
Communications' radio stations compete for audiences and advertising revenues
with other radio stations, as well as with other media, such as newspapers,
magazines, cable television, outdoor advertising, direct mail and the Internet.
Audience ratings and market shares are subject to change and any adverse change
in a particular market could have a material adverse effect on Capstar
Communications' revenues in that market. For example, another radio station in a
market could convert its programming format to a format similar to one of
Capstar Communications' stations in that market, a new station in a market could
adopt a competitive format or an existing competitor could strengthen its
operations and Capstar Communications' stations in that market could suffer a
reduction in ratings and/or advertising revenue and could require increased
promotional and other expenses. Consequently, Capstar Communications may not be
able to maintain or increase its current audience ratings or advertising
revenues.

Potential Effects of Radio Broadcasting Regulation

The radio broadcasting industry is subject to regulation by various
governmental agencies. In particular, under the Communications Act of 1934, as
amended, the FCC licenses radio stations and extensively regulates their
ownership and operation. Capstar Communications depends on its ability to hold
its FCC broadcasting licenses, which are ordinarily issued for eight years and
are renewable. Although it is rare for the FCC to deny a license renewal
application, there can be no assurance that renewal applications will be
approved or that if granted the renewals will not include restrictive conditions
or qualifications. In addition, limitations on the ownership of radio stations
under the FCC's current rules, or under revised rules being considered by the
FCC, could restrict the ability of Capstar Communications to consummate future
transactions in certain circumstances and could require that some radio stations
be sold.

For a more detailed explanation of the significant regulatory issues
affecting the radio broadcasting industry, see "-- Federal Regulation of Radio
Broadcasting."

Possible Delay in Consummation of the Pending Transactions due to Antitrust
Review

As a result of the recent consolidation of ownership in the radio broadcast
industry, the DOJ has been looking closely at acquisitions in the industry,
including some of Capstar Communications' transactions. The consummation of each
of the pending transactions is, and any of the future transactions contemplated
by Capstar Communications will likely be, subject to the notification filing
requirements, applicable waiting periods and possible review by the DOJ or the
FTC under the HSR Act. DOJ review of certain transactions has caused, and may
continue to cause, delays in anticipated closings of certain transaction and, in
some cases, any result in attempts by the DOJ to enjoin such transactions or
negotiate modifications to the proposed terms. These delays, injunctions or
modifications could have a negative effect on Capstar Communications and result
in the abandonment of some otherwise attractive opportunities. Although Capstar
Communications does not believe that its acquisition strategy as a whole will be
adversely affected in any material respect by antitrust review or by additional
divestitures that it may have to make as a result of antitrust review, there can
be no assurance that this will be the case. See "-- Federal Regulation of Radio
Broadcasting -- Federal Antitrust Laws."

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Dependence on Management

Capstar Communications' business depends upon the continued efforts,
abilities and expertise of its executive officers and other key employees,
including its regional presidents. Capstar Broadcasting has employment
agreements with several key employees, including R. Steven Hicks and its
regional presidents. The loss of any of these individuals could have an adverse
effect on Capstar Communications' business.

Do Not Place Undue Reliance on Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21 E of the
Securities Exchange Act of 1934. The words "anticipate," "believe," "expect,"
"plan," "intend," "estimate," "project," "foresee," "will," "could," "may" and
similar expressions are intended to identify forward-looking statements. All
statements other than statements of historical facts included in this Annual
Report on Form 10-K, including those regarding Capstar Communications' financial
position, operating strategy, acquisition strategy, projected costs and plans
and objectives of management for future operations are forward-looking
statements. The matters discussed in this Risks Associated with Business
Activities section and other factors noted throughout this Annual Report on Form
10-K are cautionary statements identifying factors with respect to any such
forward-looking statements that could cause actual results to differ materially
from those in such forward-looking statements. All forward-looking statements
contained herein are expressly qualified in their entirety by such cautionary
statements. You are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date on which this Annual
Report on Form 10-K is filed.

ITEM 2. PROPERTIES

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

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

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

ITEM 3. LEGAL PROCEEDINGS

In October 1996, Cardinal Communications Partners, L.P. filed a compliant
in the United States District Court, Northern District of Texas, Dallas
Division, against SFX Broadcasting, Inc. (the predecessor to Capstar
Communications) and other defendants. The complaint concerned Cardinal's sale of
radio station KTCK-AM to SFX in 1995. The claims asserted in the complaint
included breach of contract, fraud, negligent misrepresentation, quantum meruit
and unjust enrichment. The complaint sought declaratory relief, actual and
punitive damages and attorneys' fees all in unspecified amount. SFX reached an
agreement with Cardinal effective August 1, 1997, that settled and resolved the
claims asserted in the lawsuit. As a result of
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the settlement agreement, all of the claims have been dismissed against all of
the defendants, with prejudice, except for one claim. This claim, alleging
breach of contract related to deferred payments, was dismissed without
prejudice, subject to renewal by Cardinal through an agreed arbitration
procedure. In October 1998, the parties completed an arbitration regarding the
deferred payment. In November 1998, the parties settled the claim for
approximately $3.1 million, excluding legal fees of approximately $0.2 million.

On August 29, 1997, two lawsuits were commenced against SFX and its
directors in the Court of Chancery of the State of Delaware (New Castle County).
The plaintiffs in the lawsuits are Harbor Finance Partners (C.A. No. 15891) and
Steven Lieberman (C.A. No. 15901). The complaints are identical and allege that
the consideration to be paid as a result of the acquisition of SFX to the
holders of the Class A common stock of SFX was unfair and that the individual
defendants breached their fiduciary duties. Both complaints sought to have the
actions certified as class actions and sought to enjoin the SFX acquisition or,
in the alternative, monetary damages. The parties agreed that the lawsuits could
be consolidated in one action entitled In Re SFX Broadcasting, Inc. Shareholders
Litigation (C.A. No. 15891). On March 17, 1998, the parties entered into a
Memorandum of Understanding, pursuant to which the parties reached an agreement
providing for a settlement of the lawsuit. Pursuant to the settlement, SFX
agreed not to seek an amendment to the SFX merger agreement with Capstar
Broadcasting to reduce the consideration to be received by the stockholders of
SFX in the SFX acquisition in order to offset the indemnity obligations of SFX
Entertainment, Inc., a former subsidiary of SFX. The settlement also provides
for SFX to pay plaintiff's counsel an aggregate of $950,000, including all fees
and expenses as approved by the court. The settlement is conditioned on the
completion of confirmatory discovery and court approval. Pursuant to the
settlement, the defendants have denied, and continue to deny, that they have
acted in bad faith or breached any fiduciary duty. There can be no assurance
that the court will approve the settlement. The parties currently are engaging
in confirmatory discovery.

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

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

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

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

- award costs and attorneys' fees.

In March 1999, the court issued an opinion dismissing two of Nodding's counts
and granting summary judgment in favor of Noddings on one count. The court held
that Noddings is entitled to 0.2983 shares of SFX Entertainment stock per
warrant. Capstar Communications intends to continue to defend this action
through a motion for reargument and if necessary an appeal.

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On September 9, 1998, Capstar Broadcasting was notified of an action filed
on behalf of all owners of securities of Chancellor Media against Chancellor
Media, Hicks Muse and the individual directors of Chancellor Media in the Court
of Chancery of the State of Delaware in and for New Castle County, Delaware.
While the complaint does not name Capstar Broadcasting as a defendant, the
complaint alleges that Chancellor Media and its directors breached their duties
to the alleged class by entering into an "overly generous offer for Capstar
assets." The action is relevant to Capstar Broadcasting because inter alia, the
plaintiff seeks an injunction prohibiting the proposed Chancellor Merger with
Capstar Broadcasting. As Capstar Broadcasting is not a defendant in this action,
Capstar Broadcasting has no obligation to appear or participate.

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

Capstar Communications did not submit any matters to a vote of its security
holders during the fourth quarter of the fiscal year ending December 31, 1998.

PART II

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

The Capstar Communications Common Stock is not registered under the
Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, and
is not listed on any national securities exchange. There is no established
public trading market for the Capstar Communications Common Stock. All of the
Capstar Communications Common Stock is held by Capstar Radio.

Capstar Communications did not declare or pay dividends in 1998 and 1997,
respectively, on the Capstar Communications Common Stock.

Because Capstar Communications is a holding company with no significant
assets other than the capital stock of its direct and indirect subsidiaries, the
only way it can pay dividends in the future is by indirectly receiving dividends
from its subsidiaries. Capstar Communications is restricted from paying
dividends by the terms of its indebtedness.

ITEM 6. SELECTED HISTORICAL FINANCIAL DATA

The operating and other data in the following table have been derived from
the audited consolidated financial statements of Capstar Communications for the
years ended December 31, 1996, 1997 and 1998, all of which are included
elsewhere in this Annual Report on Form 10-K, and from the audited consolidated
financial statements of Capstar Communications for the years ended December 31,
1994 and 1995. The selected balance sheet data in the following table have been
derived from the audited consolidated financial statements of Capstar
Communications as of December 31, 1997 and 1998 which are included elsewhere in
this Annual Report on Form 10-K, and from the audited consolidated financial
statements of Capstar Communications as of December 31, 1994, 1995 and 1996.

Broadcast cash flow consists of operating income before depreciation,
amortization, duopoly integration costs and acquisition related costs, corporate
expenses, settlement of options and warrants, LMA fees and nonrecurring and
unusual charges. EBITDA (before settlement of options and warrants, LMA fees,
nonrecurring and unusual charges and income (loss) from operations to be
distributed to shareholders) consists of operating income before depreciation,
amortization, duopoly integration costs and acquisition related costs, LMA fees
and nonrecurring and unusual charges. Broadcast cash flow and EBITDA (before
settlement of options and warrants, LMA fees, nonrecurring and unusual charges
and income (loss) from operations to be distributed to shareholders) are
discussed because they are measures widely used in the broadcasting industry to
evaluate a radio company's operating performance. Broadcast cash flow and EBITDA
(before settlement of options and warrants, LMA fees, nonrecurring and unusual
charges and income (loss) from operations to be distributed to shareholders) are
not measures of performance calculated in accordance with generally accepted
accounting principals ("GAAP"). Accordingly, you should also review Capstar

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Communications' consolidated statements of operations and cash flows that are
prepared in accordance with GAAP. Since broadcast cash flow and EBITDA (before
settlement of options and warrants, LMA fees, nonrecurring and unusual charges
and income (loss) from operations to be distributed to shareholders) are not
calculated in accordance with GAAP, you should not compare them to similarly
titled information used by other companies.

YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)

OPERATING DATA:
Net revenue....................... $ 55,556 $ 76,830 $ 143,061 $ 270,364 $ 353,638
Station operating expenses........ 33,956 51,039 92,816 167,063 192,235
Corporate expenses................ 2,964 3,797 6,261 6,837 8,745
Depreciation, amortization,
duopoly integration costs and
acquisition related costs...... 5,873 9,137 17,311 38,232 73,353
Nonrecurring and unusual charges,
including adjustments to
broadcast rights agreements.... -- 5,000 28,994 20,174 35,425
Operating income (loss)........... 12,763 7,857 (2,373) 37,434 (31,305)
Interest expense.................. (9,332) (12,903) (34,897) (64,506) (67,072)
Net income (loss)................. 1,836 (4,396) (50,852) (21,247) (191,255)
Net income (loss) attributable to
common stock................... 1,488 (4,687) (56,913) (59,757) (218,298)
OTHER DATA:
Broadcast cash flow............... $ 21,600 $ 25,791 $ 50,245 $ 103,301 $ 161,403
Broadcast cash flow margin........ 38.9% 33.6% 35.1% 38.2% 45.6%
EBITDA (before settlement of
options and warrants, LMA fees,
nonrecurring and unusual
charges and income (loss) from
operations to be distributed to
shareholders).................. $ 18,636 $ 21,994 $ 43,984 $ 96,464 $ 152,658
Cash flows related to:
Operating activities........... 1,174 499 (13,447) 5,047 (32,660)
Investing activities........... (6,184) (25,697) (470,513) (499,051) (447,032)
Financing activities........... (2,083) 33,897 502,668 494,068 547,619
Capital expenditures.............. 1,951 3,261 3,224 12,409 17,049
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents......... $ 3,194 $ 11,893 $ 10,601 $ 24,686 $ 11,391
Intangible and other assets,
net............................ 102,152 129,543 664,103 1,039,394 3,323,486
Total assets.............. 145,808 187,337 859,327 1,375,615 3,526,641
Total debt and capital
lease obligations....... 81,516 81,850 481,460 764,702 698,589
Redeemable preferred stock........ 2,466 3,285 152,053 375,796 148,669
Total stockholders'
equity.................. 48,856 83,061 94,517 74,825 1,614,550

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

GENERAL

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

- what factors affect Capstar Communications' business;

- what Capstar Communications' earnings and costs were in 1998 and 1997;
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- why those earnings and costs were different from the year before;

- where Capstar Communications' earnings come from;

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

- what Capstar Communications' expenditures for acquisitions and other
capital needs were in 1998 and what management expects them to be in
1999; and

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

As you read this Management's Discussion and Analysis, it may be helpful to
refer to Capstar Communications' Consolidated Financial Statements on pages F-1
through F-30, which present the results of operations for 1998, 1997 and 1996.
In Management's Discussion and Analysis, management analyzes and explains the
annual changes in the specific line items in the consolidated statements of
operations and other data. You should know that these changes are not
historically comparable because of the numerous acquisitions and dispositions
that Capstar Communications has completed in 1997 and 1998. Management's
analysis may be important to you in making decisions about your investments in
Capstar Communications.

Capstar Broadcasting and Chancellor Media have agreed to merge. The merger
is discussed in more detail in "Item 1. Business -- The
Transactions -- Chancellor Merger." The merger with Chancellor Media may impact
many of the matters discussed in this Management's Discussion and Analysis,
including earnings, results of operations, expenses, liquidity and capital
resources.

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

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

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

In the following analysis, management discusses broadcast cash flow and
EBITDA (before settlement of options and warrants, LMA fees, nonrecurring and
unusual charges and income (loss) from operations to be distributed to
shareholders) because they are measures widely used in the broadcasting industry
to evaluate a radio company's operating performance. Broadcast cash flow
consists of operating income before depreciation, amortization, duopoly
integration costs and acquisition related costs, corporate expenses, LMA fees,
settlement of options and warrants and nonrecurring and unusual charges. EBITDA
(before settlement of options and warrants, LMA fees, nonrecurring and unusual
charges and income (loss) from operations to be distributed to shareholders)
consists of operating income before depreciation, amortization, duopoly
integration costs and acquisition related costs, LMA fees and settlements of
options and warrants and nonrecurring and unusual charges. You should know that
broadcast cash flow and EBITDA (before settlement of options
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and warrants, LMA fees, nonrecurring and unusual charges and income (loss) from
operations to be distributed to shareholders) are not measures of performance
calculated in accordance with GAAP. Accordingly, you should also review Capstar
Communications' statements of operations and cash flows that are prepared in
accordance with GAAP.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Net Revenue. Net revenue increased $83.2 million or 30.8% to $353.6 million
in the year ended December 31, 1998 from $270.4 million in the year ended
December 31, 1997. This increase was attributable to the acquisitions of radio
stations and revenue generated from JSAs and LMAs entered into during the year
ended December 31, 1998. On a same station basis, for stations owned or operated
as of December 31, 1998, net revenue increased $30.8 million or 9.0% to $371.6
million from $340.8 million in the year ended December 31, 1997. The increase
was primarily attributable to growth in the sale of time to local and national
advertisers.

Station Operating Expenses. Station operating expenses increased $25.2
million or 15.1% to $192.2 million in the year ended December 31, 1998 from
$167.0 million in the year ended December 31, 1997. The increase was primarily
attributable to the station operating expenses of the radio station acquisitions
and the JSAs and the LMAs entered into during the year ended December 31, 1998.
As a percent of revenue, historical operating expenses have declined from 61.8%
in 1997 to 54.3% in 1998 as a result of cost saving measures implemented by
Capstar Communications in connection with its acquisitions, the spreading of
fixed costs over a larger revenue base and significant LMA fees earned during
the period.

Corporate Expenses. Corporate expenses increased $1.9 million or 27.9% to
$8.7 million in the year ended December 31, 1998 from $6.8 million in the same
period during 1997 primarily as a result of higher salary expense for additional
staffing.

Other Operating Expenses. Depreciation, amortization, duopoly integration
costs and acquisition related costs increased $35.2 million or 92.1% to $73.4
million in the year ended December 31, 1998 from $38.2 million in the same
period in 1997 primarily due to radio station acquisitions consummated in 1998.
Settlement of options and warrants expense related to certain options and
warrants increased $73.6 million to $74.2 million in 1998 from $0.6 million in
1997 due to settlement of all outstanding options and warrants in connection
with the acquisition of Capstar Communications by Capstar Broadcasting.

In 1998, Capstar Communications recorded non-recurring and unusual charges
of $35.4 million which consisted primarily of (i) $5.6 million of compensation
expense related to bonuses and options issued, (ii) $1.4 million relating to the
settlement of lawsuits, (iii) $0.5 million relating to the increase in value of
certain stock appreciation rights, (iv) $16.6 million relating to the consent
solicitations from the holders of its 10 3/4% Senior Subordinated Notes due 2006
(the "10 3/4% CCI Notes") and the holders of its Series E Cumulative
Exchangeable Preferred Stock (the "CCI Series E Preferred Stock") in connection
with the spin-off of the stock of SFX Entertainment, Inc. from Capstar
Communications in April 1998 (the "Spin-Off"), (v) $6.3 million of expenses,
primarily legal, accounting and regulatory fees associated with the acquisition
of Capstar Communications by Capstar Broadcasting and the consent solicitations
in connection with the Spin-Off and (vi) $5.0 million related to a brokers
contract due upon a change in control.

In 1997, Capstar Communications recorded non-recurring and unusual charges
of $20.2 million which consisted primarily of (i) $12.2 million relating to
bonuses paid to officers of Capstar Communications, (ii) a write-off of a $2.5
million loan made to Robert F.X. Sillerman, Capstar Communications' former chief
executive officer, (iii) charges of $1.7 million relating to the increase in
value of certain stock appreciation rights and (iv) $3.8 million of other
expenses, primarily legal, accounting and regulatory fees.

Other Income (Expense). Interest expense, net, increased $4.7 million or
7.6% to $66.4 million in the year ended December 31, 1998 from $61.7 million in
the same period in 1997 primarily due to the interest expense associated with
indebtedness incurred in connection with Capstar Communications' acquisitions.

In 1998 and 1997, net income (loss) of the live entertainment business of
SFX Entertainment, Inc., the company spun-off from Capstar Communications, was
included in the results of Capstar Communications as
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income (loss) from operations to be distributed to shareholders. SFX
Entertainment's operating results consisted of $122.7 million and $96.1 million
of concert revenue, $(5.3) million and $5.1 million of operating income (loss)
and $(10.7) million and $4.3 million of income before income taxes for the years
ended December 31, 1998 and 1997, respectively. The decrease in income from
operations was due primarily to newly acquired businesses and the seasonality of
the live entertainment business. The loss before income taxes also increased due
to higher levels of interest expense on acquisition related debt. The income
(loss) of operations distributed to shareholders, net of taxes was $(86.4)
million and $3.8 million for the years ended December 31, 1998 and 1997,
respectively. The significant increase in the loss in 1998 was due, in addition
to the factors mentioned above, to income tax expense of $75.7 million in 1998
related to the tax consequences to Capstar Communications of the Spin-Off.

Net Loss. Capstar Communications' net loss was $191.2 million in 1998
compared to $21.2 million in 1997 due to the factors discussed above.

Net Loss Attributable to Common Stock. Net loss attributable to common
stock increased to $218.3 million in 1998 from $59.8 million in 1997 due to the
factors mentioned above offset by a decrease in preferred stock dividends due to
various redemptions done coincidental to the acquisition of Capstar
Communications by Capstar Broadcasting.

Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $58.1 million or 56.2% to $161.4 million in the year ended
December 31, 1998 from $103.3 million in the year ended December 31, 1997. The
broadcast cash flow margin was 45.6% in the year ended December 31, 1998 as
compared to 38.2% in the same period in 1997 due primarily to cost saving
measures implemented by Capstar Communications in connection with its
acquisitions, the spreading of fixed costs over a larger revenue base and
significant LMA fees earned during the period. On a same station basis, for
stations owned or operated as of December 31, 1998, broadcast cash flow
increased 17.2% from 1997.

EBITDA (before settlement of options and warrants, LMA fees, nonrecurring
and unusual charges and income (loss) from operations to be distributed to
shareholders). As a result of the factors described above, EBITDA (before
settlement of options and warrants, LMA fees, nonrecurring and unusual charges
and income (loss) from operations to be distributed to shareholders) increased
$56.3 million or 58.4% to $152.7 million in the year ended December 31, 1998
from $96.4 million in the year ended December 31, 1997.

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

Net Revenue. Net revenue increased $127.3 million or 89.0% to $270.3
million in the year ended December 31, 1997 from $143.0 million in the year
ended December 31, 1996. This increase was attributable to the acquisition of
radio stations and revenue generated from JSAs and LMAs entered into during the
year ended December 31, 1997. On a same station basis, for stations owned or
operated as of December 31, 1997, net revenue increased 9.0% from 1996. This
increase was primarily attributable to growth in the sale of time to local and
national advertisers.

Station Operating Expenses. Station operating expenses increased $74.2
million or 80.0% to $167.0 million in the year ended December 31, 1997 from
$92.8 million in the year ended December 31, 1996. The increase was primarily
attributable to the station operating expenses of the radio station acquisitions
and the JSAs and the LMAs entered into during the year ended December 31, 1997.
As a percent of revenue, historical operating expenses declined from 64.9% in
1996 to 61.8% in 1997 as a result of cost saving measures implemented by Capstar
Communications in connection with its acquisitions and the spreading of fixed
costs over a larger revenue base.

Corporate Expenses. Corporate expenses increased $0.6 million or 9.2%
during 1997 to $6.8 million from $6.2 million in 1996 as a result of higher
salary expense for additional staffing.

Other Operating Expenses. Depreciation, amortization, duopoly integration
costs and acquisition related costs increased $20.9 million or 120.9% to $38.2
million in 1997 from $17.3 million in 1996 primarily due to radio station
acquisitions consummated in 1997. Settlement of options and warrants expense
increased $550,000 or to $600,000 in the year ended December 31, 1997 from
approximately $50,000 in the year ended
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December 31, 1996 due to compensation charges in connection with options and
warrants issued to Capstar Communications' executives.

In 1997, Capstar Communications recorded non-recurring and unusual charges
of $20.2 million which consisted primarily of (i) $12.2 million relating to
bonuses paid to officers of Capstar Communications, (ii) a write-off of a $2.5
million loan made to Robert F.X. Sillerman, Capstar Communications' former Chief
Executive Officer, (iii) charges of $1.7 million relating to the increase in
value of certain stock appreciation rights and (iv) $3.8 million of other
expenses, primarily legal, accounting and other regulatory fees.

In 1996, Capstar Communications recorded non-recurring and unusual charges
of $29.0 million which consisted primarily of (i) $12.5 million relating to
payments in excess of the fair market value of stock repurchased from Capstar
Communications' former president and the write-off of a $2.3 million loan made
to Capstar Communications' former president and accrued interest thereon, (ii)
$5.6 million relating to a write-off of a $2.0 million loan to SCMC and accrued
interest thereon and the issuance of 600,000 warrants to SCMC, (iii) $4.6
million for the repurchase of an officers options and (iv) a charge of $1.6
million related to the termination of the Texas Rangers broadcasting agreement.

Other Income (Expense). Interest expense, net, increased $30.8 million or
100% to $61.7 million in the year ended December 31, 1997 from $30.9 million
during the same period in 1996 primarily due to indebtedness incurred in
connection with Capstar Communications' acquisitions.

Capstar Communications recorded a loss on sale of radio station KTCK-AM
Dallas of $1.9 million in 1996.

In 1997, net income of the live entertainment business of SFX
Entertainment, Inc. of $3.8 million was included in the results of operations of
Capstar Communications as income from operations to be distributed to
shareholders. SFX Entertainment's 1997 operating results consisted of $96.1
million of concert revenue, $5.1 million of operating income and $4.3 million of
income before income taxes.

Capstar Communications incurred an extraordinary loss totaling $15.2
million for the year ended December 31, 1996 which consisted primarily of
payments of $9.0 million for the repurchase premium and consent payments related
to the early redemption of $79.4 million of Capstar Communications' 11 3/8%
Senior Subordinated Notes due 2000 (the "11 3/8% CCI Notes") and related consent
solicitations and the write-off of $5.6 million of debt issue costs.

Net Loss. The Company's net loss was $21.2 million in 1997 compared to a
net loss of $50.9 million in 1996 due to the factors discussed above.

Net Loss Attributable to Common Stock. Net loss attributable to common
stock increased to $59.8 million in 1997 from $56.9 million in 1996 due to
dividends on a retired series of preferred stock, dividends on the CCI Series E
Preferred Stock, partially offset by the decrease in net loss discussed above.

Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $53.1 million or 105.6% to $103.3 million in the year ended
December 31, 1997 from $50.2 million in the year ended December 31, 1996. The
broadcast cash flow margin was 38.2% in the year ended December 31, 1997 as
compared to 35.1% in the same period in 1996. On a same station basis, for
stations owned or operated as of December 31, 1997, broadcast cash flows
increased 19% from 1996.

EBITDA (before settlement of options and warrants, LMA fees, nonrecurring
and unusual charges and income (loss) from operations to be distributed to
shareholders). As a result of the factors described above, EBITDA (before
settlement of options and warrants, LMA fees, nonrecurring and unusual charges
and income (loss) from operations to be distributed to shareholders) increased
$52.4 million or 119.1% to $96.4 million in the year ended December 31, 1997
from $44.0 million in the year ended December 31, 1996.

LIQUIDITY AND CAPITAL RESOURCES

Capstar Communications' acquisition strategy requires a great deal of
capital. Capstar Communications has historically used the proceeds of bank debt,
debt offerings, and cash flow from operations to fund the

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implementation of its acquisition strategy. Capstar Communications' business has
generated sufficient cash flow from operations to finance its existing
operations and debt service requirements, and management anticipates that this
will continue to be the case. A brief summary of each of Capstar Communications'
outstanding debt or preferred equity instruments follows.

In May 1998, the 10 3/4% CCI Notes and the 11 3/8% CCI Notes remained
outstanding after the acquisition of Capstar Communications. In July 1998,
Capstar Communications redeemed $154.0 million aggregate principal amount of the
10 3/4% CCI Notes for an aggregate purchase price of $172.8 million, including a
$16.6 million redemption premium and $2.2 million of accrued interest. Because
the acquisition resulted in a change of control of Capstar Communications,
Capstar Communications was required to make an offer to purchase all of the
10 3/4% CCI Notes and the CCI 11 3/8% Notes. In July 1998, Capstar
Communications purchased $1.9 million aggregate principal amount of the 10 3/4%
CCI Notes for an aggregate purchase price of $1.9 million, including a $18,000
purchase premium and $31,000 of accrued interest. The carrying value of the
10 3/4% CCI Notes approximated their fair value at the date of redemption.
Capstar Communications did not purchase any 11 3/8% CCI Notes. Capstar
Communications pays interest of approximately $15.8 million on the 10 3/4% CCI
Notes semi-annually on May 15 and November 15 of each year. The 10 3/4% CCI
Notes mature on May 15, 2006. Capstar Communications pays interest of
approximately $32,000 on the 11 3/8% CCI Notes semi-annually on April 1 and
October 1 of each year. The 11 3/8% CCI Notes mature on October 1, 2000. As of
December 31, 1998, the outstanding principal balances were $294.1 million and
$566,000 on the 10 3/4% CCI Notes and 11 3/8% CCI Notes, respectively.

Upon completion of the acquisition of Capstar Communications, 2,392,022
shares of CCI Series E Preferred Stock remained outstanding. Capstar
Communications is required to pay dividends on the CCI Series E Preferred Stock
semi-annually on January 15 and July 15 of each year at the rate per share of
$12.625 per year. Until January 15, 2002, Capstar Communications may pay
dividends either in cash or in additional shares of CCI Series E Preferred
Stock. Since July 15, 1998, Capstar Communications has paid the required
dividend by issuing additional shares. Capstar Communications intends to
continue to pay the dividend in additional shares, rather than cash, through
January 15, 2002. In July 1998, Capstar Communications redeemed 1,196,011 shares
of CCI Series E Preferred Stock for an aggregate purchase price of $141.7
million, including a $15.1 million redemption premium and $7.0 million of
accrued dividends. The carrying value of the CCI Series E Preferred Stock
approximated its fair value at the date of redemption. Because the acquisition
resulted in a change of control, Capstar Communications was required to make an
offer to purchase all of the CCI Series E Preferred Stock. In July 1998, Capstar
Communications purchased 5,004 shares of the CCI Series E Preferred Stock for an
aggregate purchase price of $536,000, including a $5,000 purchase premium and
$31,000 of accrued dividends. As of March 1, 1999, 1,346,091 shares of the CCI
Series E Preferred Stock were issued and outstanding with a liquidation
preference equal to $100.00 per share or approximately $134.6 million.

In connection with the spin-off SFX Entertainment, Inc., Capstar
Communications incurred an estimated federal income tax liability of
approximately $93.0 million. SFX Entertainment, Inc. indemnified Capstar
Communications for approximately $93.0 million of such estimated tax liability.
The full indemnity obligation of SFX Entertainment, Inc. has been satisfied.
These estimated federal income taxes were paid in full on March 15, 1999.

Chancellor Media is providing services for ten large market stations owned
by Capstar Communications under separate LMAs with Capstar Broadcasting for
approximately $49.4 million per year. In addition, Chancellor Media has agreed
to acquire such stations in exchange for radio stations to be identified by
Capstar Broadcasting over a three-year period beginning in May 1998, with
corresponding decreases in the amount of the LMA fees as stations are exchanged.
In 1998, Chancellor Media paid Capstar Broadcasting approximately $28.8 million
in LMA fees. During 1999, Capstar Broadcasting expects to receive approximately
$49.4 in LMA fees from Chancellor Media. During the pendency of the merger with
Chancellor Media, Capstar Broadcasting does not anticipate effecting any
exchanges with Chancellor Media. Chancellor Media is currently assessing whether
the terms of the letter agreement will be modified upon the consummation of the
merger with Chancellor Media. See "Item 13. Certain Relationships and Related
Transactions -- Chancellor Exchange Agreement."
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On May 29, 1998, Capstar Communications borrowed approximately $438.2
million (the "BT Loan") from Bankers Trust Company and used such proceeds to
repay the approximately $317.7 million outstanding balance (including principal
and interest) of the SFX's credit facility and purchased Patterson Broadcasting,
Inc. and certain radio stations from Pacific Star Communications, Inc., a former
subsidiary of Capstar Radio.

On May 29, 1998, Capstar Communications received proceeds of approximately
$109.1 million in cash from the sales of station KKPN-FM in Houston, Texas,
stations WBLI-FM, WBAB-FM, WGBB-AM and WHM-FM in Long Island, New York and
station WING-FM in Dayton, Ohio, the proceeds of which were used to fund in part
the acquisition of Patterson Broadcasting, Inc. and certain radio stations from
Pacific Star Communications, Inc.

On May 29, 1998, Capstar Communications also entered into a loan for
approximately $441.4 million with Capstar Radio, which is payable on the earlier
of demand or May 31, 2005. The loan consists of a $1.4 billion revolver.
Borrowings under the loan bear interest at the per annum interest rate available
to Capstar Radio under its credit facility for revolving loans that are
Eurodollar loans with a three month interest period applicable thereto. Interest
is payable quarterly commencing on August 31, 1998, and thereafter on the last
day of each November, February, May and August during the term of the loan and
at maturity. Advances under the loan may be made only if, among other things, at
the time such advance is made (both before and after giving effect thereto) such
additional indebtedness is permitted pursuant to the terms of the indenture
governing the 10 3/4% CCI Notes and the certificate of designation governing the
CCI Series E Preferred Stock. Capstar Communications as of March 1, 1999 had
borrowings of approximately $347.0 million outstanding under the loan with a
weighted average effective interest rate of 7.3% per annum.

In addition to debt service and tax liabilities, Capstar Communications'
principal liquidity requirements in 1999 will be for working capital and general
corporate purposes, including capital expenditures estimated at $20.0 million,
to consummate its pending acquisitions and, as appropriate opportunities arise,
to acquire additional radio stations or complementary broadcast-related
businesses. Capstar Communications believes that the disposition of certain
assets, cash from operating activities, LMA fees from Chancellor Media, should
be sufficient to permit Capstar Communications to meet its obligations. In the
future, Capstar Communications may require additional financing, either in the
form of additional debt or equity securities. Capstar Communications evaluates
potential acquisition opportunities on an on-going basis and has had, and
continues to have, preliminary discussions concerning the purchase of additional
stations. Capstar Communications expects that in connection with the financing
of future acquisitions, it may consider disposing of stations in its current
markets.

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

Upon completion of the SFX merger, Capstar Communications became subject to
the restrictive covenants found in the instruments governing the outstanding
indebtedness of Capstar Broadcasting, Capstar Partners and Capstar Radio,
including Capstar Broadcasting's outstanding note payable to Chancellor Media,
Capstar Partner's 12 3/4% Senior Discount Notes due 2009 and its 12% Senior
Exchangeable Preferred Stock, par value $.01 per share, Capstar Radio's 9 1/4%
Senior Subordinated Notes due 2007 and Capstar Broadcasting's credit facility.

Net cash (used in) provided by operating activities was approximately $20.9
million, $(11.7) million and $5.0 million for the seven months ended December
31, 1998, five months ended May 31, 1998 and year ended December 31, 1997,
respectively. Changes in Capstar Communications' net cash provided by operating
activities are primarily the result of completed acquisitions and station
operating agreements entered into during the periods and their effects on income
from operations and working capital requirements.

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Net cash used in investing activities was $48.7 million, $398.3 million and
$499.1 million for the seven months ended December 31, 1998, five months ended
May 31, 1998 and year ended December 31, 1997, respectively. Net cash provided
by financing activities was $65.2 million, $482.5 million and $494.1 million for
the seven months ended December 31, 1998, five months ended May 31, 1998 and
year ended December 31, 1997, respectively. These cash flows primarily reflect
borrowings, capital contributions and expenditures for stations acquisitions and
dispositions.

RECENT PRONOUNCEMENT

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

IMPACT OF THE YEAR 2000 ISSUE

The Year 2000 issue concerns the inability of computer programs and
embedded computer chips to properly recognize and process date sensitive
information when the year changes to 2000, or "00." Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail causing a disruption in the operations of a company.

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

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

Management has determined that the software underlying StarSystem(TM) is
Year 2000 compliant. StarSystem's(TM) wide area computer network is, however,
dependent on the systems of Capstar Communications' telecommunications services
providers. Capstar Communications has sent a questionnaire to each of its
telecommunications services providers asking it to update Capstar Communications
on the status of its Year 2000 compliance. Until such questionnaires are
returned and reviewed, Capstar Communications will be unable to fully assess the
potential for disruption in its programming and operations arising from this
third party risk.

Management has been assured by its vendors that Capstar Communications'
digital automation systems are Year 2000 compliant. Capstar Communications has
tested over 50% of these systems to insure their Year 2000 compliance and
expects to complete testing of all of these systems by the end of 1999.

Capstar Communications employs advertising scheduling and billing systems
at each of its stations. Capstar Communications has received Year 2000
compliance certificates from the vendors providing the

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software applications underlying Capstar Communications' existing advertising
scheduling and billing systems, certifying that such applications are Year 2000
compliant. Not all of the hardware underlying Capstar Communications' existing
advertising scheduling and billing systems are Year 2000 compliant. As part of
Capstar Communications' capital improvement program, the Galaxy(TM) system,
which is Year 2000 compliant, will replace Capstar Communications' existing
advertising scheduling and billing systems. Management began installation of the
Galaxy(TM)system at its stations in March 1999 and is scheduled to complete the
installation of the Galaxy(TM) system at substantially all of its stations by
December 1, 1999. To insure Year 2000 compliance of its advertising scheduling
and billing systems, management intends to begin replacement of noncompliant
hardware with Year 2000 compliant hardware in the 18 markets in which Capstar
Communications operates that are not scheduled to have the Galaxy(TM) system
installed until the third quarter of 1999. Management estimates that such
hardware replacements will be completed by the end of July 1999 at a total cost
of approximately $90,000.

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

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

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

Costs specifically associated with ensuring that Capstar Communications'
systems and the systems of third parties on which Capstar Communications is
dependent are Year 2000 compliant are currently expected to be approximately
$1.0 million, of which $600,000 has been incurred to date. The costs of
developing and installing the Galaxy(TM) system are not included in this amount
because such system is being developed and installed for primarily operational,
and not Year 2000 compliance, reasons. These cost estimates are subject to
change once Capstar Communications has fully assessed its systems and responses
are obtained from third party vendors and service providers. Any change in cost
may be material. Funding of these costs is anticipated to come from cash flows
generated by business operations and/or borrowings under Capstar Communications'
credit facility.

Capstar Communications is in the process of identifying the most reasonably
likely worst case scenarios that may affect its operations due to Year 2000
noncompliance of Capstar Communications' systems or the systems of third
parties. Initially, Capstar Communications believes that the failure of its
advertising scheduling and billing systems and the temporary loss of power at
some of its stations due to Year 2000 noncompliance are the most reasonably
likely worst case scenarios. Many of Capstar Communications' stations and
transmitter sites currently have on-site generators in the event of power
outages. As part of Capstar Communications' capital improvement program,
management has begun installation of generators at each of its remaining
stations and transmitter sites and expects to have approximately 98% coverage of
its stations and transmitter sites by year end. Capstar Communications believes
that the installation of the Galaxy(TM) system or the upgrade of the hardware on
its existing advertising scheduling and billing systems and

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the installation of generators at substantially all of its stations will resolve
possible disruptions in the business operations of Capstar Communications that
would result from such risks. Capstar Communications may identify additional
worst case scenarios once it has fully assessed its mission critical systems and
obtained responses from third party vendors and service providers. Capstar
Communications expects to develop other contingency plans to mitigate the
possible disruption in business operations that may result from Capstar
Communications' systems or the systems of third parties that are not Year 2000
compliant.

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Capstar Communications has not entered into derivative financial
instruments, derivative commodity instruments or other similar instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this item is included on pages F-1 through
F-32 of this annual report on Form 10-K.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

The following table provides information concerning the directors and
executive officers of Capstar Communications:

NAME AGE POSITION
---- --- --------

R. Steven Hicks............................ 49 Chief Executive Officer, President and
Director
William S. Banowsky, Jr.................... 37 Executive Vice President and General
Counsel
Paul D. Stone.............................. 39 Executive Vice President and Chief
Financial Officer
John D. Cullen............................. 45 Chief Operating Officer
James T. Shea, Jr. ........................ 45 President of Atlantic Star
James P. Donahoe........................... 47 President of GulfStar and Pacific Star
Mary K. Quass.............................. 49 President of Central Star
Rick Peters................................ 47 President of Southern Star
John King.................................. 48 President of Sea Star
Jack A. Morgan............................. 48 Director

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

R. Steven Hicks has served as President, Chief Executive Officer and a
director since May 1998. Mr. Hicks founded Capstar Broadcasting in October 1996.
In addition, Mr. Hicks has served as the Vice Chairman of Chancellor Media and
President and Chief Executive Officer of Chancellor Media's media services group
since March 1999. Prior to joining Capstar Broadcasting, Mr. Hicks acted as
Chairman of the Board and Chief Executive Officer of GulfStar Communications,
Inc. from January 1987 to July 1997 and as President and Chief Executive Officer
of SFX Broadcasting Inc. from November 1993 to May 1996. Mr. Hicks is a 31-year
veteran of the radio broadcasting industry, including 18 years as a station
owner. Mr. Hicks is the brother of Thomas O. Hicks.

William S. Banowsky, Jr. has served as Executive Vice President, General
Counsel and Secretary since May 1998. Mr. Banowsky joined Capstar Broadcasting
in January 1997. Since March 1999, Mr. Banowsky has served as Executive Vice
President and General Counsel of Chancellor Media. Mr. Banowsky was an attorney
with Snell, Banowsky & Trent, P.C., Dallas, Texas, for six years before joining
Capstar Broadcasting. Prior to that time, he was an attorney for Johnson &
Gibbs, P.C., Dallas, Texas, for four years.

Paul D. Stone has served as Chief Financial Officer and Executive Vice
President since May 1998. Mr. Stone joined Capstar Broadcasting in January 1997.
Prior to joining Capstar Broadcasting, he was an Executive Vice President and
the Chief Financial Officer of GulfStar Communications, Inc. from April 1996
until January 1997. Prior to January 1997, Mr. Stone was Vice President and
Controller of Hicks Muse for six years. He is a Certified Public Accountant.

John D. Cullen has served as the Chief Operating Officer since February
1999. Mr. Cullen previously served as the President of GulfStar from March 1996
to February 1999 and as interim Chief Operating Officer from March 1998 to
September 1998. From 1992 to February 1996, Mr. Cullen served as a regional
manager of SFX's radio stations in the Greenville-Spartanburg, Raleigh-Durham,
Charlotte and Greensboro-Winston-Salem markets. Mr. Cullen is a 17-year veteran
of the radio broadcasting industry.

James T. Shea, Jr. has been employed by Capstar Broadcasting since October
1996 and was named President of Atlantic Star in June 1997. Prior to joining
Capstar Broadcasting, Mr. Shea served as Chief Operating Officer of Commodore
Media, Inc. from January 1995 to October 1996. Mr. Shea joined Commodore as the
President of its MidAtlantic Region in March 1992. He joined Wilks-Schwartz in
1980 and served in various positions, including Executive Vice President,
General Manager and Partner, until 1992.

James P. Donahoe has been employed by Capstar Broadcasting since May 1998
and was named President of GulfStar and Pacific Star in February 1999. From
December 1996 to May 1998, Mr. Donahoe served as a regional vice president of
SFX. In addition to his duties as regional vice president, Mr. Donahoe has
served as vice president and general manager of several SFX stations in San
Diego, California since October 1995. Prior to joining SFX, Mr. Donahoe served
as general manager for Commonwealth Broadcasting in Las Vegas, Nevada.

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

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

John King has served as President of Sea Star since July 1998. From 1990 to
July 1998, Mr. King was employed by SFX in various capacities, including
regional vice president for the Southeast Atlantic region,

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general manager of several SFX stations in Nashville, Tennessee, vice president
for programming in Jackson, Mississippi, Greenville, South Carolina and
Nashville, and program director in Nashville. Mr. King began his career in the
radio broadcasting industry as a disc jockey in Beckley, West Virginia in 1971.

Jack A. Morgan has served as a director since May 1998. Mr. Morgan is
employed as Chief Executive Officer of AGM Memorials, Inc., a diversified
granite fabricator. From December 1993 through April 1996, Mr. Morgan served in
various positions, including Executive Vice President, Chief Operating Officer
and Chief Financial Officer for Schlotzsky's Inc. Prior to December 1993, Mr.
Morgan worked at several other companies including Bestway Rental, Inc., Medical
Polymers, Inc and an affiliate of Greyhound Lines, Inc.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Capstar Communications does not have a class of equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934. No
reporting persons have filed or been required to file reports require by Section
16(a) of the Securities Exchange Act of 1934 since the acquisition by Capstar
Broadcasting in May 1998. Capstar Broadcasting is not aware of any late filings
during 1998 before the acquisition.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
paid by Capstar Broadcasting in 1998, 1997, and 1996 to each person who has
served as the Chief Executive Officer of Capstar Communications during 1998 and
the four other most highly compensated executive officers of Capstar for
services rendered during the fiscal year ended December 31, 1998 (the "Named
Executive Officers"):

SUMMARY COMPENSATION TABLE

LONG TERM
COMPENSATION AWARD
------------------------
SECURITIES
ANNUAL COMPENSATION(1) UNDERLYING PAYOUTS
---------------------- OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#) PAYOUTS($) COMPENSATION($)
- --------------------------- ---- --------- ---------- ---------- ---------- ---------------

R. Steven Hicks............... 1998 561,730 1,500,000 2,196,406(2) -- --
Chief Executive Officer 1997 500,000 750,000 748,435(2) -- --
Since May 1998.............. 1996 135,400 -- 930,000(2) -- --
Robert F. X. Sillerman(3)..... 1998 -- -- -- -- --
Former Chief Executive 1997 400,000 12,500,000 150,000 -- --
Officer 1996 307,000 -- 175,000 -- --
William S. Banowsky, Jr....... 1998 287,122 600,000 150,000 -- --
Executive Vice President, 1997 200,000 300,000 169,998 -- --
General Counsel and
Secretary 1996 -- -- -- -- --
Paul D. Stone................. 1998 287,250 600,000 150,000 -- --
Executive Vice President 1997 200,000 300,000 169,998 -- --
and Chief Financial Officer 1996 -- -- -- -- --
James T. Shea, Jr............. 1998 289,733 250,000 30,000 -- --
President of Atlantic Star 1997 282,692 150,000 -- -- --
1996 262,500 -- 72,088 170,000 3,412,495(4)
John D. Cullen................ 1998 304,161 300,000 50,000 -- 41,661
Chief Operating Officer; 1997 204,575 70,000 50,000 -- --
Former President of Gulfstar 1996 112,500 35,000 -- -- --

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

(1) Except for payments to Mr. Sillerman, annual compensation for each Named
Executive Officer in 1998 was paid by Capstar Broadcasting. Each Named
Executive Officer (except Mr. Sillerman) was employed by Capstar
Broadcasting.

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(2) Represents warrants in 1996 and 1998 and options and warrants in 1997. The
1998 amount includes 1,508,437 warrants which were granted prior to 1998 and
then amended in 1998. See "-- Warrants."

(3) Mr. Sillerman served as Chief Executive Officer of Capstar Communications
until May 1998. From January 1998 to May 1998, Mr. Sillerman was paid by SFX
Entertainment, Inc., a former subsidiary of Capstar Communications, for his
services as Chief Executive Officer. Capstar Communications and SFX
Entertainment accounted for such services as an allocation to intercompany
overhead. Information was not available from SFX Entertainment to identify
the amount of intercompany overhead allocable as compensation to Mr.
Sillerman.

In connection with the acquisition of Capstar Communications by Capstar
Broadcasting, Mr. Sillerman entered into a consulting, non-competition and
termination agreement with Capstar Communications. At the effective time of
the acquisition, Mr. Sillerman resigned as Chief Executive Officer and
director. Mr. Sillerman received $2.0 million for consulting services and
$23.0 million for his agreement not to compete with Capstar Communications.
See "-- Employment Agreements -- Robert F. X. Silverman Consulting and
Noncompetition Agreement."

(4) Represents the amount paid in connection with Capstar Broadcasting's
acquisition of Commodore Media, Inc. in settlement of such executive
officer's outstanding options to purchase shares of common stock of
Commodore Media, Inc.

The following table sets forth certain information concerning stock option
grants or amendments during the year ended December 31, 1998, to the Named
Executive Officers pursuant to the 1998 Capstar Broadcasting Corporation Amended
and Restated Stock Option Plan (the "Stock Option Plan").

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -----------------------------------
NAME GRANTED(#) IN 1998 SHARE DATE 0%($) 5%($) 10%($)
---- ---------- ---------- --------- ---------- --------- ---------- ----------

R. Steven Hicks.............. 500,000(1) 9.42% $14.00 5-31-03 2,500,000 5,225,714 8,790,522
187,969(1) 3.54% 17.10 7-08-08 357,141 2,603,182 6,049,050
930,000(2) 17.53% 14.40 10-16-06 4,278,000 13,530,470 26,852,540
255,317(2) 4.81% 15.40 2-20-07 919,141 3,548,852 7,376,594
323,120(2) 6.09% 18.10 7-08-07 290,808 4,085,298 9,873,177
Robert F. X. Sillerman....... -- -- -- -- -- -- --
William S. Banowsky, Jr...... 150,000(1) 2.83% 14.00 5-31-03 750,000 1,567,714 2,566,453
Paul D. Stone................ 150,000(1) 2.83% 14.00 5-31-03 750,000 1,567,714 2,566,453
James T. Shea, Jr............ 30,000 0.57% 19.00 6-15-04 -- 193,855 439,790
John D. Cullen............... 50,000 0.94% 17.50 4-01-04 75,000 398,091 807,983

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

(1) See "-- Warrants."

(2) These warrants were granted prior to 1998. In April 1998, Capstar
Broadcasting amended and restated these warrants by fixing the exercise
price. See "-- Warrants."

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The following table provides information about the number of shares issued
upon option exercises under the Stock Option Plan by the Named Executive
Officers during 1998, and the value realized by such Named Executive Officers.

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

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
SHARES ACQUIRED VALUE ---------------------------- ---------------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE($)
- ---- --------------- ----------- ----------- ------------- -------------- ----------------

R. Steven Hicks....... -- -- 1,047,051(2) 1,149,355(2) 8,303,954 8,552,209
-- -- 52,418 117,580 573,589 1,249,638
Robert F. X.
Sillerman........... -- -- -- -- -- --
William S. Banowsky,
Jr. ................ -- -- -- 150,000(2) -- 1,331,250
-- -- 52,418 117,580 573,589 1,249,638
Paul D. Stone......... -- -- -- 150,000(2) -- 1,331,250
-- -- 52,418 117,580 573,589 1,249,638
James T. Shea, Jr. ... -- -- 48,059 54,029 618,760 425,623
John D. Cullen........ -- -- 12,497 87,502 119,659 627,832

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

(1) Based upon the per share closing price of Class A Common Stock on December
31, 1998, of $22.875 per share.

(2) See "-- Warrants."

DIRECTORS COMPENSATION

Directors who are officers, employees or otherwise affiliates of Capstar
Communications do not receive compensation. Non-employee directors receive an
annual retainer of $25,000. Each director is entitled to reimbursement of his
reasonable expenses in connection with his services.

EMPLOYMENT AGREEMENTS

R. Steven Hicks Employment Agreement. Capstar Broadcasting has entered into
an employment agreement with R. Steven Hicks pursuant to which Mr. Hicks serves
as President and Chief Executive Officer. Mr. Hicks' employment agreement
terminates on December 31, 2001, and will be automatically renewed for
successive one-year terms unless Mr. Hicks or Capstar Broadcasting gives the
other party written notice of his or its intention not to renew the employment
agreement at least six months prior to the date the employment agreement would
otherwise expire (but no more than 12 months prior to such expiration date). Mr.
Hicks' annual base salary for 1999 is $577,500 and is subject to annual
increases at least equal to five percent of the then current base salary. He is
also entitled to receive such annual performance bonuses as the board of
directors of Capstar Broadcasting may determine. Further, Mr. Hicks is eligible
to receive stock options to purchase shares of Class A Common Stock. If Capstar
Broadcasting terminates Mr. Hicks' employment for cause or Mr. Hicks terminates
his employment for other than good reason, Capstar Broadcasting must pay Mr.
Hicks all accrued obligations and other benefits earned prior to the date of
termination. If Capstar Broadcasting terminates Mr. Hicks' employment agreement
other than for cause or Mr. Hicks terminates his employment agreement for good
reason, Mr. Hicks' employment agreement provides for (A) a lump sum payment of
(x) two times Mr. Hicks' then current annual salary and (y) any accrued
obligations and other benefits earned prior to the date of termination and (B)
unless the board of directors of Capstar Broadcasting determines that Mr. Hicks
has not satisfactorily performed his obligations and duties under the agreement,
the immediate vesting of all stock options between Capstar Broadcasting and Mr.
Hicks and the right to exercise those options until the earlier of (x) the
expiration date of those options or (y) the 90th day after Mr. Hicks'
termination. Mr. Hicks' employment agreement has been amended to

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provide that, upon consummation of the merger with Chancellor Media, each of Mr.
Hicks' outstanding options or warrants (except for Mr. Hicks' warrant to
purchase 500,000 shares of Class C Common Stock) will become immediately vested
and exercisable.

Robert F. X. Sillerman Employment Agreement. Prior to the acquisition of
Capstar Communications by Capstar Broadcasting in May 1998, Mr. Sillerman served
as the Executive Chairman and principal executive officer of Capstar
Communications. Mr. Sillerman's employment agreement provided for a five year
term ending December 31, 2002, subject to automatic five year renewals. Mr.
Sillerman's annual base pay under the agreement was $400,000, subject to
periodic adjustments. Mr. Sillerman was also entitled to receive an annual
incentive bonus in accordance with a formula to be determined by the board of
directors, upon the recommendation of the compensation committee. In addition,
the agreement provided for a $2.5 million loan to Mr. Sillerman, which loan was
a full-recourse obligation of Mr. Sillerman and bore interest. Subsequently, the
principal of such loan was forgiven. Accrued interest at the time of
forgiveness, approximately $100,000, was paid by Mr. Sillerman. Consummation of
the acquisition of Capstar Communications by Capstar Broadcasting triggered
certain "change of control" provisions in Mr. Sillerman's employment agreement.
These provisions provided that Mr. Sillerman was due approximately $3.3 million.
SFX Entertainment, Inc., a subsidiary of Capstar Communications prior to the
acquisition, assumed this obligation.

Robert F. X. Sillerman Consulting and Noncompetition Agreement. In
connection with the acquisition of Capstar Communications, Mr. Sillerman entered
into a consulting and noncompetition agreement with the parent of Capstar
Communications. Pursuant to the agreement, Mr. Sillerman, among other things,
resigned as an officer and director of the company. Mr. Sillerman is serving as
consultant to Capstar Communications until May 2000, and Mr. Sillerman has
agreed not to compete with Hicks Muse radio companies, including Capstar
Broadcasting and Chancellor Media, until May 2003. Mr. Sillerman received $2.0
million for his consulting services and $23.0 million for his agreement not to
compete.

William S. Banowsky, Jr. Employment Agreement. Capstar Broadcasting has
entered into an employment agreement with William S. Banowsky, Jr. pursuant to
which Mr. Banowsky serves as Executive Vice President and General Counsel. Mr.
Banowsky's employment agreement terminates on December 31, 2001, and will be
renewed automatically for successive one-year terms unless Mr. Banowsky or
Capstar Broadcasting gives the other party written notice of his or its
intention not to renew the employment agreement at least six months prior to the
date the employment agreement would otherwise expire (but not more than 12
months prior to such expiration date). Mr. Banowsky's annual base salary for
1999 is $325,000, subject to annual increases at least equal to five percent of
the then current base salary. Mr. Banowsky is also entitled to receive such
annual bonuses as the board of directors of Capstar Broadcasting may determine.
Further, Mr. Banowsky is eligible to receive stock options to purchase shares of
Class A Common Stock. If Capstar Broadcasting terminates Mr. Banowsky's
employment for cause or Mr. Banowsky terminates his employment for other than
good reason, Capstar Broadcasting must pay Mr. Banowsky all accrued obligations
and other benefits earned prior to the date of termination. If Capstar
Broadcasting terminates Mr. Banowsky's employment agreement other than for cause
or Mr. Banowsky terminates his employment agreement for good reason, Mr.
Banowsky's employment agreement provides for (A) a lump sum payment of (x) two
times Mr. Banowsky's then current annual salary and (y) any accrued obligations
and other benefits earned prior to the date of termination and (B) unless the
board of directors of Capstar Broadcasting determines that Mr. Banowsky has not
satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between Capstar Broadcasting and Mr.
Banowsky and the right to exercise those options until the earlier of (x) the
expiration date of those options or (y) the 90th day after Mr. Banowsky's
termination. Mr. Banowsky's employment agreement has been amended to provide
that, upon consummation of the merger with Chancellor Media, each of Mr.
Banowsky's outstanding options or warrants will become immediately vested and
exercisable.

Paul D. Stone Employment Agreement. Capstar Broadcasting has entered into
an employment agreement with Paul D. Stone pursuant to which Mr. Stone serves as
Executive Vice President and Chief Financial Officer. Mr. Stone's employment
agreement terminates on December 31, 2001, and will be renewed automatically for
successive one-year terms unless Mr. Stone or Capstar Broadcasting gives the
other party written notice of his or its intention not to renew the employment
agreement at least six months prior to the
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date the employment agreement would otherwise expire (but no more than 12 months
prior to such expiration date). Mr. Stone's annual base salary for 1999 is
$325,000, subject to annual increases at least equal to five percent of the then
current base salary. Mr. Stone is also entitled to receive such annual bonuses
as the board of directors of Capstar Broadcasting may determine. Further, Mr.
Stone is eligible to receive stock options to purchase shares of Class A Common
Stock. If Capstar Broadcasting terminates Mr. Stone's employment for cause or
Mr. Stone terminates his employment for other than good reason, Capstar
Broadcasting must pay Mr. Stone all accrued obligations and other benefits
earned prior to the date of termination. If Capstar Broadcasting terminates Mr.
Stone's employment agreement other than for cause or Mr. Stone terminates his
employment agreement for good reason, Mr. Stone's employment agreement provides
for (A) a lump sum payment of (x) two times Mr. Stone's then current annual
salary and (y) any accrued obligations and other benefits earned prior to the
date of termination and (B) unless the board of directors of Capstar
Broadcasting determines that Mr. Stone has not satisfactorily performed his
obligations and duties under the agreement, the immediate vesting of all stock
options between Capstar Broadcasting and Mr. Stone and the right to exercise
those options until the earlier of (x) the expiration date of those options or
(y) the 90th day after Mr. Stone's termination. Mr. Stone's employment agreement
has been amended to provide that, upon consummation of the merger with
Chancellor Media, Mr. Stone's outstanding options or warrants will become
immediately vested and exercisable.

James T. Shea, Jr. Employment Agreement. Capstar Broadcasting has entered
into an employment agreement with James T. Shea, Jr. pursuant to which Mr. Shea
serves as the President and Chief Executive Officer of Atlantic Star. Mr. Shea's
employment agreement terminates on April 30, 1999. Mr. Shea's annual base salary
for 1999 is $303,186, which increases at the beginning of each calendar year by
an amount not less than five percent of his then current base salary. Mr. Shea
is also entitled to receive annual bonuses as the board of directors of Capstar
Broadcasting may determine, provided that the bonus shall not be less than
$150,000. In addition, the employment agreement provides for an automobile
allowance, participation in the retirement, savings, and welfare benefit plans
of Capstar Broadcasting and a life insurance policy with a death benefit of
$650,000. If Capstar Broadcasting terminates Mr. Shea's employment for cause,
Capstar Broadcasting is obligated to pay Mr. Shea's then accrued base salary,
reimbursable expenses, and any other compensation then due and owing. In
addition, Capstar Broadcasting must continue to fund Mr. Shea's life insurance
policy. If the employment agreement is terminated due to death or disability,
without cause or by Mr. Shea for good reason, Mr. Shea will be entitled to (i)
the continuation of his annual base salary, as then in effect, for a 12-month
period commencing on the termination date, (ii) a pro rata amount of his annual
bonus, (iii) any annual base salary and annual bonus then accrued but not yet
paid, (iv) the continuation of his welfare benefits for a 12-month period
commencing on the termination date, (v) the continuation of his life insurance
policy, (vi) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans and programs,
(vii) reimbursement for certain expenses incurred as of the termination date but
not yet paid as of the date of termination and (viii) any other rights afforded
to him under other written agreements between Mr. Shea and Capstar Broadcasting.

John D. Cullen Employment Agreement. Capstar Broadcasting has entered into
an employment agreement with John D. Cullen pursuant to which Mr. Cullen serves
as Chief Operating Officer. Mr. Cullen's employment agreement terminates on
March 31, 2001 unless sooner terminated in accordance with the terms of the
employment agreement. Mr. Cullen's annual base salary for 1999 is $300,000
subject to annual increases as determined by the board of directors of Capstar
Broadcasting. Mr. Cullen is also entitled to receive annual bonuses as
established by the board of directors of Capstar Broadcasting. If Capstar
Broadcasting terminates Mr. Cullen's employment for cause or Mr. Cullen resigns
(and Capstar Broadcasting has not breached the employment agreement), Capstar
Broadcasting must pay Mr. Cullen all accrued obligations and other benefits
earned prior to the date of termination. If Capstar Broadcasting terminates Mr.
Cullen's employment without cause or Mr. Cullen terminates his employment due to
a material breach of the employment agreement by Capstar Broadcasting (which
breach is not cured within 30 days after receipt of notice of breach), then
Capstar Broadcasting must pay Mr. Cullen his current salary (in equal monthly
installments) for a one year period, plus a pro rata portion of any bonuses that
would otherwise have been payable to Mr. Cullen.

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The board of directors has not appointed a compensation committee. The
compensation committee of Capstar Broadcasting determines the compensation of
each of Capstar Communications' executives.

STOCK OPTION PLAN

The Stock Option Plan gives certain individuals and key employees of
Capstar Broadcasting who are responsible for the continued growth of Capstar
Broadcasting an opportunity to acquire a proprietary interest in Capstar
Broadcasting, and thus to create in such persons an increased interest in and a
greater concern for the welfare of Capstar Broadcasting. The Stock Option Plan
provides for grant of options to acquire up to 4,700,000 shares of Class A
Common Stock. As of March 1, 1999, grants of stock options with respect to
4,574,411 shares of Class A Common Stock have been made under the Stock Option
Plan.

The Stock Option Plan is administered by the Compensation Committee of
Capstar Broadcasting's Board of Directors; provided, that for purposes of
determining the performance goals applicable to employees who constitute
"covered employees" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), and granting stock options, "Compensation
Committee" as used in this summary description of the Stock Option Plan means a
sub-committee of the Compensation Committee members who qualify as both a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, and as an "outside director" within
the meaning of Section 162(m) of the Code, and such performance goals and stock
option grants shall be subject to ratification by the unanimous approval of all
members of the Compensation Committee and further ratification by Capstar
Broadcasting's Board of Directors. The Compensation Committee has authority,
subject to the terms of the Stock Option Plan (including the formula grant
provisions and the provisions relating to incentive stock options contained
therein), to determine when and to whom to make grants or awards under the Stock
Option Plan, the number of shares to be covered by the grants or awards, the
types and terms of the grants and awards, and the exercise price of stock
options. Moreover, the Compensation Committee has the authority, subject to the
provisions of the Stock Option Plan, to establish such rules and regulations as
it deems necessary for the proper administration of the Stock Option Plan and to
make such determinations and interpretations and to take such action in
connection with the Stock Option Plan and any grants and awards thereunder as it
deems necessary or advisable. The Compensation Committee's determinations and
interpretations under the Stock Option Plan are final, binding and conclusive on
all participants and need not be uniform and may be made by the Compensation
Committee selectively among persons who receive, or are eligible to receive,
grants and awards under the Stock Option Plan.

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

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

In the event of a change of control or sale of Capstar Broadcasting, all
outstanding stock options may, subject to the sole discretion of the
Compensation Committee, become exercisable in full at such time or times as the
Compensation Committee may determine. Each stock option accelerated by the
Compensation Committee shall terminate on such date (not later than the stated
exercise date) as the Compensation Committee determines.
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Unless an option or other agreement provides otherwise, upon the date of
death of an optionee (or upon the termination of an optionee because of such
optionee's disability), the person who acquires the right to exercise the option
of such optionee (or the optionee in the case of disability) must exercise such
option within 180 days after the date of death (or termination in the case of
disability), unless a longer period is expressly provided in such incentive
stock option or a shorter period is established by the Compensation Committee,
but in no event after the expiration date of such option. Following an
optionee's termination of employment for cause, all stock options held by such
optionee will immediately be canceled as of the date of termination of
employment. Following an optionee's termination of employment for other than
cause, such optionee must exercise his stock option within 30 days after the
date of such termination, unless a longer period is expressly provided in such
stock option or other agreement or a shorter period is established by the
Compensation Committee, provided that no incentive stock option shall be
exercisable more than three months after such termination.

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

The Stock Option Plan has been amended to provide that, upon the
consummation of the merger with Chancellor Media, with respect to any
outstanding option, if on or before the second anniversary of the consummation
of the merger, the employment of a optionee is terminated (other than for cause,
voluntary resignation, death or disability) or a optionee resigns after a
material diminution of their duties, the optionee's options will vest in full
and the options may be exercised until the termination of the option.

WARRANTS

Under the terms of a stockholders agreement, Capstar Broadcasting has
granted the following five warrants to R. Steven Hicks:

- Amended and Restated Warrant dated April 1, 1998, immediately exercisable
to purchase up to 744,000 shares of Class C Common Stock and exercisable
to purchase up to an additional 186,000 shares on the earlier to occur of
June 30, 2001 or immediately preceding a Sale of the Company, as defined
below, if R. Steven Hicks is then employed in any capacity with Capstar
Broadcasting, for a per share exercise price of $14.40. A "Sale of the
Company" means a capital reorganization in which

(1) the stockholders of Capstar Broadcasting receive cash consideration
for each share of Common Stock held by such stockholder that, when
added to any cash consideration attributable to any prior capital
reorganization, equals or exceeds the Qualifying Cash Consideration,
as defined below;

(2) a majority of directors of the purchaser or surviving entity in such
capital reorganization consists of persons who are not Continuing
Directors, as defined below; and

(3) such purchaser or surviving entity is not an affiliate of Hicks Muse;

- Amended and Restated Warrant dated April 1, 1998, immediately exercisable
to purchase up to 204,254 shares of Class C Common Stock and exercisable
to purchase up to an additional 51,063 shares on the earlier to occur of
June 30, 2001 or immediately preceding a Sale of the Company if R. Steven
Hicks is then employed in any capacity with Capstar Broadcasting, for a
per share exercise price of $15.40;

- Amended and Restated Warrant dated April 1, 1998, immediately exercisable
to purchase up to 98,797 shares of Class C Common Stock and exercisable
to purchase up to an additional 224,323 shares on the earlier to occur of
June 30, 2001 or immediately preceding a Sale of the

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Company if R. Steven Hicks is then employed in any capacity with Capstar
Broadcasting, for a per share exercise price of $18.10;

- Warrant dated April 1, 1998, exercisable to purchase up to 187,969 shares
of Class C Common Stock on the earlier to occur of June 30, 2001 or
immediately preceding a Sale of the Company for a per share exercise
price of $17.10; and

- Warrant dated April 1, 1998, exercisable to purchase up to 500,000 shares
of Class C Common Stock for a per share exercise price of $14.00 if the
fair market value of the Class A Common Stock, calculated on a daily
basis, equals or exceeds $60.00 per share for a period of 180 consecutive
days during the period commencing on April 1, 1998 and ending on May 31,
2003. Subject to certain exceptions, after the warrant becomes
exercisable, the warrant may be exercised from time to time until, and
including, the later to occur of May 31, 2003 and the 90th day after the
warrant becomes exercisable. Twenty percent of the shares of Class C
Common Stock issuable pursuant to the warrant vest on the first
anniversary date of the warrant, and 1/60th of such shares of Class C
Common Stock vest on the last day of each calendar month thereafter. If a
Sale of the Company is completed, then the shares of Class C Common Stock
issuable pursuant to the warrant fully vest and become exercisable
immediately prior to the consummation of the Sale of the Company.

Such warrants terminate upon either a Sale of the Company or a capital
reorganization in which:

- the stockholders of Capstar Broadcasting receive only cash consideration
for each share of Common Stock held by such stockholder that is less than
the Qualifying Cash Consideration;

- a majority of directors of the purchaser or surviving entity in such
capital reorganization consists of persons who are not either members of
the Board of Directors of Capstar Broadcasting immediately prior to the
capital reorganization or designees of Hicks Muse and its affiliates
("Continuing Directors"); and

- such purchaser or surviving entity is not an affiliate of Hicks Muse.

"Qualifying Cash Consideration" means cash consideration for each share of
Common Stock received pursuant to a capital reorganization that equals or
exceeds the lesser of

- $60.00 per share or

- the greater of

(1) a per share amount equal to $14.00 compounded at an annual rate of 30%
for the period from April 3, 1998 to the end of the calendar month
immediately preceding the consummation of such capital reorganization
or

(2) $19.00 per share compounded at an annual rate of 20% for the period
commencing on May 26, 1998 and ending on the last day of the calendar
month immediately preceding the consummation of such capital
reorganization.

William S. Banowsky, Jr. and Paul D. Stone were also granted warrants
(together with the warrants granted to R. Steven Hicks, the "Warrants"), in
April 1998 for Messrs. Banowsky and Stone to each purchase up to 150,000 shares
of Class A Common Stock at an exercise price of $14.00 per share. Except as to
vesting upon consummation of the merger with Chancellor Media, the terms of
these warrants are the same as the terms of the fifth warrant granted to R.
Steven Hicks.

Each Warrant also contains provisions addressing the vesting and
exercisability of such Warrant under various events of termination of employment
of the grantee.

Upon the consummation of the merger of Capstar Broadcasting and Chancellor
Media, each Warrant, other than the fifth Warrant granted to R. Steven Hicks,
will fully vest and be exercisable until the earlier to

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occur of May 31, 2003 or a Sale of the Company. R. Steven Hicks' fifth Warrant
will vest upon consummation of the merger and will become exercisable only if on
or before May 31, 2003, either of the following occurs:

- the fair market value of the voting common stock of the combined entity,
calculated on a daily basis, equals or exceeds $60.00 per share for a
period of 180 consecutive days during the period commencing on April 1,
1998 and ending on May 31, 2003; or

- a Sale of the Company.

LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS

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

Capstar Communications' directors have entered into an indemnification
agreement with Capstar Broadcasting. The indemnification agreements provide that
Capstar Broadcasting will indemnify the director to the fullest extent permitted
by law and to advance certain expenses to the director.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Capstar Communications is a subsidiary of Capstar Radio. As of March 15,
1999, Capstar Radio owned 1,006 shares of Capstar Communications Common Stock,
which represented all of the outstanding common stock of Capstar Communications.

The following table sets forth certain information regarding (i) the
beneficial ownership of each class of the Common Stock as of March 1, 1999, by
(a) each person or group beneficially owning five percent or more of any class
of the Common Stock of Capstar Broadcasting, (b) each director of Capstar
Communications, (c) each Named Executive Officer, and (d) all directors and
executive officers of Capstar Communications as a group and (ii) the combined
percentage of all classes of the Common Stock that is beneficially owned by each
of such person or group of persons. Except as noted below and pursuant to
applicable community property laws, Capstar Communications believes that each
individual or entity named below has sole investment and voting power with
respect to the shares of Common Stock set forth opposite such stockholder's
name.

CLASS A CLASS B CLASS C
COMMON STOCK(1) COMMON STOCK(2) COMMON STOCK(3)
-------------------- -------------------- --------------------- PERCENT OF PERCENTAGE
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT TOTAL OF TOTAL
OF OF OF OF OF OF ECONOMIC VOTING
NAME OF BENEFICIAL OWNER SHARES(4) CLASS(4) SHARES(4) CLASS(4) SHARES(4) CLASS(4) INTEREST POWER
- ------------------------ --------- -------- --------- -------- ---------- -------- ---------- ----------

Hicks Muse Parties(5).......... 272,727 * 5,119,724 84.2% 60,944,528 90.2% 61.7% 86.0%
200 Crescent Court
Suite 1600
Dallas, TX 75201
Thomas O. Hicks(5)(6).......... 718,551 2.1% 5,119,724 84.2% 68,102,712 99.3% 4.4% 94.7%
200 Crescent Court
Suite 1600
Dallas, Texas 75201
BT Capital Partners, Inc....... -- -- 961,999 15.8% -- -- * --
130 Liberty Street
25th Floor
New York, NY 10006

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College Retirement Equities
Fund(7)...................... 2,659,157 7.8% -- -- -- -- 2.5% *
730 Third Avenue
New York, NY 10017
Wellington Management Company,
LLP(8)....................... 1,770,300 5.2% -- -- -- -- 1.7% *
75 State Street
Boston, MA 02109
Merrill Lynch Asset Management,
L.P.(9)...................... 1,736,150 5.1% -- -- -- -- 1.6% *
World Financial Center
North Tower
250 Vesey Street
New York, NY 10381
R. Steven Hicks(10)............ 74,753 * -- -- 2,544,499 3.7% 2.4% 3.5%
John D. Cullen(11)............. 355,963 1.1% -- -- -- -- * *
William S. Banowsky, Jr.(12)... 115,663 * -- -- -- -- * *
Paul D. Stone(13).............. 290,888 * -- -- -- -- * *
Jack Morgan.................... -- -- -- -- -- -- * *
James T. Shea, Jr.(14)......... 88,322 * -- -- -- -- * *
All directors and executive
officers as a group (10
persons)..................... 1,115,491 3.3% -- -- 2,544,499 3.7% 3.4% 3.7%

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

* Less than one percent.

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

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

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

(4) Percentage ownership is based on 33,989,792 shares of Class A Common Stock,
6,081,723 shares of Class B Common Stock, and 67,538,121 shares of Class C
Common Stock outstanding as of March 1, 1999.

(5) Includes (i) 272,727 shares of Class A Common Stock owned of record by
Capstar Boston Partners, L.L.C., a limited liability company of which the
manager is a limited partnership whose ultimate general partner is Hicks,
Muse Fund III Incorporated ("Fund III Inc."), (ii) 5,119,724 shares of
Class B Common Stock owned of record by Capstar BT Partners, L.P., a
limited partnership of which the ultimate general partner is Fund III Inc.,
and (iii) 60,944,528 shares of Class C Common Stock owned of record by
Capstar Broadcasting Partners, L.P. ("Capstar L.P."), a limited partnership
of which the ultimate general partner is HM3/Capstar, Inc. ("HM3/Capstar")
(Capstar Boston Partners, L.L.C., Capstar BT Partners, L.P. and Capstar
L.P., collectively, the "Hicks Muse Parties"). Thomas O. Hicks

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is a controlling stockholder and serves as Chief Executive Officer and
Chairman of the Boards of Directors of Fund III Inc. and HM3/Capstar.
Accordingly, Thomas O. Hicks may be deemed to be the beneficial owner of
the Common Stock held by the Hicks Muse Parties. Mr. Thomas O. Hicks
disclaims beneficial ownership of the shares of Common Stock not owned of
record by him.

(6) In addition to the shares of Class A Common Stock of the Hicks Muse
Parties, the number of shares of Class A Common Stock includes (i) 102,550
shares owned of record by Thomas O. Hicks, (ii) 219,781 shares owned of
record by a private foundation controlled by Thomas O. Hicks, (iii) 51,240
shares owned of record by certain trusts for the benefit of Thomas O.
Hicks' children and for which Thomas O. Hicks serves as sole trustee, (iv)
5,000 shares owned by a trust for the benefit of unrelated parties for
which Thomas O. Hicks serves as co-trustee, (v) 66,753 shares beneficially
owned by R. Steven Hicks that are subject to a voting agreement in which
Thomas O. Hicks controls the vote and (vi) 500 shares owned by Dean McClure
Taylor that are subject to a voting agreement in which Thomas O. Hicks
controls the vote. The shares of Class B Common Stock includes the shares
of the Hicks Muse Parties. In addition to the shares of Class C Common
Stock of the Hicks Muse Parties, the number of shares of Class C Common
Stock includes (i) 4,595,007 shares owned of record by Thomas O. Hicks,
(ii) 10,000 shares owned of record by R. Steven Hicks' children, (iii)
1,487,447 shares owned of record by R. Steven Hicks, (iv) 1,047,052 shares
purchasable pursuant to the terms of Steve Hicks' Warrants, which are
beneficially owned by R. Steven Hicks, and (v) 18,678 shares owned of
record by certain trusts for which Thomas O. Hicks serves as sole trustee.
The shares of Class C Common Stock beneficially owned by R. Steven Hicks
are subject to a voting agreement in which Thomas O. Hicks controls the
vote. Hicks Muse is a party to the voting agreement, which agreement
requires, among other things, the parties to the voting agreement to vote
their shares in favor of the election to Capstar Broadcasting's Board of
Directors of such individuals as may be designated by Hicks Muse and its
affiliates. Accordingly, Thomas O. Hicks may be deemed to be the beneficial
owner of all of the Common Stock subject to the voting agreement. Thomas O.
Hicks disclaims beneficial ownership of the shares of Common Stock not
owned of record by him.

(7) This information was provided to the Securities and Exchange Commission and
Capstar Broadcasting in Schedule 13G, dated February 11, 1999.

(8) This information was provided to the Securities and Exchange Commission and
Capstar Broadcasting in Schedule 13G, dated December 31, 1998. Wellington
Management Company, LLP reports shared voting power of 1,520,300 shares and
shared dispositive power of 1,770,330 shares.

(9) This information was provided to the Securities and Exchange Commission and
Capstar Broadcasting in Schedule 13G, dated February 3, 1999.

(10) The number of shares of Class A Common Stock includes (i) 58,085 shares
issuable upon the exercise of stock options that are currently vested, (ii)
5,668 shares subject to stock options that are exercisable within 60 days,
(iii) 500 shares owned by Dean McClure Taylor for which R. Steven Hicks
serves as custodian under the Texas Uniform Transfers to Minors Act, (iv)
1,000 shares owned by Steven Hicks' wife, (v) 2,000 shares owned by R.
Steven Hicks' children and (vi) 7,500 shares owned of record by R. Steven
Hicks. The number of shares of Class C Common Stock includes (i) 1,487,447
shares owned of record by R. Steven Hicks, (ii) 10,000 shares owned of
record by R. Steven Hicks' children and (iii) 1,047,051 shares purchasable
by R. Steven Hicks pursuant to the terms of certain of Steve Hicks'
Warrants. R. Steven Hicks has voting rights to the shares owned by his
children under the terms of a stockholders agreement. R. Steven Hicks
disclaims beneficial ownership of the shares of Common Stock not owned by
him of record. The shares owned of record by R. Steven Hicks and his
children are subject to a voting agreement in the stockholders agreement.
See "Item 13. Certain Relationships and Related
Transactions -- Stockholders Agreements -- Affiliate Stockholders
Agreement."

(11) Includes (i) 329,298 shares owned of record by Mr. Cullen, (ii) 14,165
shares issuable upon the exercise of stock options that are currently
vested, and (iii) 12,500 shares subject to stock options that are
exercisable within 60 days.

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(12) Includes (i) 51,910 shares owned of record by Mr. Banowsky, (ii) 58,085
shares issuable upon the exercise of stock options that are currently
vested, and (iii) 5,668 shares subject to stock options that are
exercisable within 60 days.

(13) Includes (i) 227,135 shares owned of record by Mr. Stone, (ii) 58,085
shares issuable upon the exercise of stock options that are currently
vested and (iii) 5,668 shares subject to stock options that are exercisable
within 60 days.

(14) Includes (i) 40,263 shares owned of record by Mr. Shea and (ii) 48,059
shares issuable upon the exercise of stock options that are currently
vested.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CHANCELLOR MERGER

See "Item 1. Business -- The Transactions -- Chancellor Merger" for a
description of the proposed merger of Chancellor Media and Capstar Broadcasting.

The employment agreements with R. Steven Hicks, William S. Banowsky, Jr.,
and Paul D. Stone were amended to provide that upon consummation of the merger
with Chancellor Media, each such executive's outstanding options and warrants,
other than Mr. Hicks' warrant to purchase 500,000 shares of Class C Common
Stock, will fully vest and be exercisable, in the case of the options, until the
expiration of the options in accordance with their terms without regard to any
termination of employment provisions contained therein and, in the case of the
warrants, until the earlier to occur of May 31, 2003 or a Sale of the Company.
Mr. Hicks' warrant to purchase 500,000 shares of Class C Common Stock will vest
upon the consummation of the merger and will become exercisable only if on or
before May 31, 2003, either of the following occurs:

- a Sale of the Company.

As of March 1, 1999, Mr. Hicks had options to acquire 169,998 shares of
Class A Common Stock and warrants to acquire 930,000, 255,317, 323,120, and
187,969 shares of Class C Common Stock. As of March 1, 1999, Mr. Banowsky and
Mr. Stone each had options to acquire 169,998 shares of Class A Common Stock and
a warrant to acquire 150,000 shares of Class A Common Stock.

In connection with the merger with Chancellor Media, R. Steven Hicks'
employment agreement with Capstar Broadcasting will terminate and Chancellor
Media will enter into a new five year employment agreement with Mr. Hicks. Mr.
Hicks will serve as the vice chairman of the board of directors of the combined
entity. Mr. Hick's base salary will be $600,000 per year. If the combined
company terminates Mr. Hicks' employment for other than cause or Mr. Hicks'
terminates his employment for good reason prior to the first anniversary of such
agreement, the employment agreement will provide a lump sum payment of Mr.
Hicks' unpaid base salary for the remainder of the year. In addition, if the
combined company terminates his employment for good reason or other than for
cause Mr. Hicks' warrant to purchase 500,000 shares of Class C Common Stock will
become immediately vested and exercisable.

The merger agreement between Capstar Broadcasting and Chancellor Media
provides that Mr. Hicks, Mr. Banowsky, and Mr. Stone will receive a lump sum
payment of $1,500,000, $600,000 and $600,000, respectively, if immediately
before the merger, each is employed by Capstar Broadcasting.

In March 1999, Mr. Hicks was appointed Vice Chairman of Chancellor Media
and President and Chief Executive Officer of Chancellor Media's media services
group. In addition, in March 1999, Mr. Banowsky was appointed Executive Vice
President and General Counsel of Chancellor Media.

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CHANCELLOR EXCHANGE AGREEMENT

On February 20, 1998, Capstar Broadcasting and Chancellor Media entered
into an exchange agreement pursuant to which Chancellor Media would acquire
stations KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, Texas, KODA-FM, KKRW-FM and
KQUE-AM in Houston, Texas, KPLN-FM and KYXY-FM in San Diego, California, and
WVTY-FM, WJJJ-FM, WXDX-FM and WDVE-FM in Pittsburgh, Pennsylvania (collectively
the "Chancellor Exchange Stations") for an aggregate purchase price of
approximately $637.5 million in a series of purchases and exchanges over a three
year period ending February 20, 2001. The Chancellor Exchange Stations were
acquired by Capstar Broadcasting in connection with the acquisition of SFX
Broadcasting, Inc. in May 1998. On May 29, 1998, as part of the SFX acquisition,
Chancellor Media exchanged stations WAPE-FM and WFYV-FM in Jacksonville, Florida
(valued at $53.0 million) plus approximately $90.3 million in cash to Capstar
Broadcasting in exchange for station KODA-FM in Houston, Texas. In the case of
the remaining Chancellor Exchange Stations, Capstar Broadcasting will identify
mid-sized radio stations for exchange with Chancellor Media. The purchase price
for the remaining ten Chancellor Exchange Stations will be approximately $494.3
million. Capstar Broadcasting and Chancellor Media intend for such exchanges to
qualify as like-kind exchanges. Capstar Broadcasting and Chancellor Media are
currently assessing whether the terms of the exchange agreement will be modified
upon consummation of the merger with Chancellor Media. During the pendency of
the Chancellor Merger, the Company does not anticipate effecting any exchanges
with Chancellor Media.

Chancellor Media is providing services to the Chancellor Exchange Stations,
other than KODA-FM which was purchased by Chancellor Media, pursuant to separate
LMAs until such stations are exchanged. Chancellor Media will retain the
advertising revenues it generates while it provides services to the Chancellor
Exchange Stations under such LMAs. During 1998, Capstar Broadcasting received
approximately $28.8 million in LMA fees from Chancellor Media. During 1999,
Capstar Broadcasting expects to receive approximately $49.4 in LMA fees, subject
to Chancellor Media's acquisition of one or more of the Chancellor Exchange
stations in 1999. The LMA fees will decrease as each Chancellor Exchange Station
is exchanged.

Pursuant to the exchange agreement, on May 29, 1998, Capstar Broadcasting
paid approximately $1.7 million (net of prorations and expenses) to Chancellor
Media. Capstar Broadcasting had agreed to sell station KKPN-FM for $54.0
million. Chancellor Media was entitled to 50% of the sale proceeds in excess of
$50.0 million.

CHANCELLOR NOTE

In May 1998, Capstar Broadcasting borrowed $150.0 million from Chancellor
Media. The loan ranks pari passu in right of payment to Capstar Broadcasting's
guaranty of the indebtedness under the its credit facility. In addition, Capstar
Broadcasting has pledged the common stock of Capstar Partners on a first
priority basis to Chancellor Media as security for the loan.

Interest on the loan accrues at a rate of 12% per annum and is payable
quarterly, of which 5/6 is payable in cash and 1/6 is, at Capstar Broadcasting's
option, either be payable in cash or added to the principal amount of the loan.
Capstar Broadcasting may elect to defer the payment of the cash portion of any
interest due until the earlier to occur of Capstar Broadcasting's election to
pay the cash portion in full, a required mandatory prepayment of the loan or the
maturity of the loan (a "Deferral Election"). In the event of a Deferral
Election, the interest rate will increase, effective as of the first day of the
fiscal quarter in which such Deferral Election occurred, from 12% to 14% per
annum, of which 6/7 shall be payable in cash and 1/7 shall, at Capstar
Broadcasting's option, either be payable in cash or added to the principal
amount of the loan. If Capstar Broadcasting has not completed acquisitions
during the exchange period as described above (excluding (i) the sale by
Chancellor Media of stations WAPE-FM and WFYV-FM in Jacksonville, Florida plus
$90.25 million in cash to Capstar Broadcasting in exchange for station KODA-FM
in Houston, Texas and (ii) the acquisition of stations KVET-AM, KASE-FM and
KVET-FM in Austin, Texas) (x) with an aggregate purchase price of $100.0 million
by May 29, 1999, (y) with an aggregate purchase price of $200.0 million by May
29, 2000, and (z) with an aggregate purchase price of $300.0 million by May 29,
2001, the interest rate applicable from time to time during each such previous
12-month period will be retroactively increased by 2% per annum. If, as a result
of the foregoing sentence, during any period ending on an interest payment date
the loan accrued
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interest at (x) a rate per annum of 14%, the interest payment made on such
interest payment date shall be retroactively adjusted as of such interest
payment date so that the portion of such interest payment added to the principal
of the loan shall equal 1/7 and the portion of such interest payment paid in
cash shall equal 6/7, or (y) a rate per annum of 16%, the interest payment made
on such interest payment date shall be retroactively adjusted as of such
interest payment date so that the portion of such interest payment added to
principal of the loan shall equal 1/8 and the portion of such interest payment
paid in cash shall equal 7/8. Any amount due and accruing which is in cash and
is so added to the principal amount of the loan shall bear interest at the rate
otherwise applicable to the principal amount of the loan. In 1998, Capstar
Broadcasting did not make a Deferral Election and paid approximately $10.6
million in interest to Chancellor Media. During the pendency of the merger with
Chancellor Media, Capstar Broadcasting does not anticipate exchanging any
stations with Chancellor Media.

Capstar Broadcasting may prepay the loan at anytime; provided, that any
prepayment shall not affect the rights of Chancellor Media to require
prepayment. Chancellor Media has the right to require Capstar Broadcasting to
prepay that portion of the loan equal to 50% of the cash purchase price payable
for Capstar Exchange Stations, upon the consummation of the purchase of a
Chancellor Exchange Station under a purchase agreement as contemplated under the
exchange agreement with Chancellor Media. Chancellor Media also has the option
to require Capstar Broadcasting to prepay any remaining portion of the loan
(including accrued interest) if Chancellor Media has given notice of prepayment
on the first to occur of (i) 30 days prior to the closing of the transfer of the
final Chancellor Exchange Station and (ii) Chancellor Media's election under the
exchange agreement with Chancellor Media to purchase all remaining Chancellor
Exchange Stations for cash, in either case, such prepayment to occur on the
closing of the acquisitions referred to in clause (i) or (ii), as applicable,
above. If a Deferral Election occurs during the 12-month period commencing on
the date of issuance of the loan and ending on the anniversary thereof or during
any successive 12-month period, and (x) during such 12-month period Capstar
Broadcasting and Chancellor Media exchange a Capstar Exchange Station for a
Chancellor Exchange Station, and (y) Chancellor Media required Capstar
Broadcasting to prepay a portion of the loan in connection with such exchange,
the prepayment amount set forth in the third sentence of this paragraph with
respect to such Capstar Exchange Station will be increased to equal (x) 50% of
the purchase price therefore plus (y) the product of 50% of the purchase price
therefore multiplied by a fraction, the numerator of which is the number of days
of such Deferral Election existing during such 12-month period and the
denominator of which is 360. Any additional amounts payable as a result of the
foregoing sentence must be paid within 10 days following the end of the
applicable 12-month period.

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

Limitation on Incurrence of Indebtedness. The loan provides that Capstar
Broadcasting may not, and may not permit any of its subsidiaries to incur,
create or assume indebtedness after the date of the loan, if, on the date of and
after giving effect to the incurrence of any such indebtedness, the ratio of
consolidated indebtedness on a pro forma basis to consolidated EBITDA would
exceed 9.0 to 1. The aggregate liquidation preference of all preferred stock of
Capstar Broadcasting and its subsidiaries is indebtedness for purposes of
calculating such ratio. The ratio calculation must be made in a manner
consistent with the leverage ratio calculation made under Capstar Broadcasting's
credit facility, provided that Capstar Broadcasting was entitled during 1998 to
include in EBITDA at least $10.0 million in net revenues from The AMFM Radio
Networks (whether or not such amounts were actually received). In addition,
borrowings under Capstar Broadcasting's credit facility do not count as
indebtedness in the ratio calculation except to the extent such borrowings
exceed $50.0 million.

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

Upon an event of default, all principal and accrued but unpaid interest on
the loan will become immediately due and payable.

MONITORING AND OVERSIGHT AGREEMENTS

Capstar Broadcasting Monitoring and Oversight Agreement. Capstar
Broadcasting is subject to a monitoring and oversight agreement (the "Capstar
Broadcasting Monitoring and Oversight Agreement") with Hicks, Muse & Co.
Partners, L.P., an affiliate of Hicks Muse ("Hicks Muse Partners"). Capstar
Broadcasting agreed to pay to Hicks Muse Partners an annual fee for ongoing
financial oversight and monitoring services. The annual fee is adjustable upward
or downward at the end of each fiscal year to an amount equal to 0.2% of the
budgeted consolidated annual net sales of the Company for the then-current
fiscal year; provided, that such fee may not at any time be less than $100,000
per year. The annual fee will be reduced by the amount previously paid for such
period by Capstar Partners under the Capstar Partners Monitoring and Oversight
Agreement as discussed below. Capstar Broadcasting will indemnify Hicks Muse
Partners, its affiliates and shareholders, and their respective directors,
officers, agents, employees and affiliates from and against all claims, actions,
proceedings, demands, liabilities, damages, judgments, assessments, losses and
costs, including fees and expenses, arising out of or in connection with the
services rendered by Hicks Muse Partners in connection with the Capstar
Broadcasting Monitoring and Oversight Agreement. Capstar Broadcasting was not
required to pay Hicks Muse Partners any monitoring and oversight fees in 1998.

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

Capstar Partners Monitoring and Oversight Agreement. Capstar Partners is
subject to a monitoring and oversight agreement (the "Capstar Partners
Monitoring and Oversight Agreement") with Hicks Muse Partners. Capstar Partners
agreed to pay to Hicks Muse Partners an annual fee for ongoing financial
oversight and monitoring services. The annual fee is adjustable upward or
downward at the end of each fiscal year to an amount equal to 0.2% of the
budgeted consolidated annual net sales of Capstar Partners for the then-current
fiscal year; provided, that such fee may not at any time be less than $100,000
per year. For the year ended December 31, 1998, Capstar Partners had paid Hicks
Muse Partners approximately $819,000 of monitoring and oversight fees. As of
December 31, 1998, Capstar Partners had no outstanding obligation to Hicks Muse
under the Capstar Partners Monitoring and Oversight Agreement. The Capstar
Partners Monitoring and Oversight Agreement expires on the earlier to occur of
October 16, 2006, or the date on which HM Fund III and its affiliates cease to
own beneficially, directly or indirectly, any securities of Capstar Partners or
its successors. The remainder of the terms of the Capstar Partners Monitoring
and Oversight Agreement are substantially similar to the terms of the Capstar
Broadcasting Monitoring and Oversight Agreement.

Upon the consummation of the merger with Chancellor Media, the Capstar
Broadcasting Monitoring and Oversight Agreement and the Capstar Partners
Monitoring and Oversight Agreement will terminate and Capstar Broadcasting will
pay to Hicks Muse Partners at the closing a one-time cash payment of
approximately $14.2 million.

52
55

FINANCIAL ADVISORY AGREEMENTS

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

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

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

For the year ending December 31, 1998, Capstar Broadcasting has paid Hicks
Muse Partners financial advisory fees of approximately $49.5 million.

Upon the consummation of the merger with Chancellor Media:

- Hicks Muse Partners will receive a fee from Capstar Broadcasting of $17.5
million in satisfaction of its services performed under the Capstar
Partners Financial Advisory Agreement and the Capstar Broadcasting
Financial Advisory Agreement in connection with the Chancellor Merger;
and

- the Capstar Partners Financial Advisory Agreement will terminate.

STOCKHOLDERS AGREEMENTS

Affiliate Stockholders Agreement. R. Steven Hicks, five of his children,
Capstar BT Partners, L.P. and Capstar Boston Partners, L.L.C. and Capstar L.P.
(the "Affiliate Stockholders") have entered into a stockholders agreement with
Capstar Broadcasting and Hicks Muse that provides, among other things, that the
Affiliate Stockholders may require Capstar Broadcasting, subject to certain
registration volume limitations, to effect up to three demand registrations of
their Common Stock under the Securities Act of 1933. The stockholders agreement
also provides that if Capstar Broadcasting proposes to register any shares of
its Common Stock under the Securities Act, whether or not for its own account,
the Affiliate Stockholders will be entitled, with certain exceptions, to include
their shares of Common Stock in such registration.

53
56

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

Management Stockholders Agreement. Certain stockholders of Capstar
Broadcasting are parties to a stockholders agreement with Capstar Broadcasting
and Hicks Muse that provides, among other things, that if Capstar Broadcasting
proposes to register any shares of its Common Stock under the Securities Act of
1933, whether or not for its own account, the stockholders that are parties to
the stockholders agreement will be entitled, with certain exceptions, to include
their shares of Common Stock in such registration.

GulfStar Stockholders Agreement. Certain stockholders of Capstar
Broadcasting are parties to a stockholders agreement with Capstar Broadcasting
and Hicks Muse that provides, among other things, that such persons may require
Capstar Broadcasting, subject to certain registration volume limitations, to
effect up to three demand registrations of their Common Stock under the
Securities Act of 1933. The stockholders agreement also provides that if Capstar
Broadcasting proposes to register any shares of its Common Stock under the
Securities Act of 1933, whether or not for its own account, the parties will be
entitled, with certain exceptions, to include their shares of Common Stock in
such registration.

INDEBTEDNESS OF MANAGEMENT

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

Each of Paul D. Stone and John D. Cullen acquired shares of common stock of
GulfStar Communications, Inc. prior to its acquisition by Capstar Broadcasting
in exchange for non-recourse promissory notes payable and recourse promissory
notes to GulfStar, which notes had aggregate outstanding principal amounts of
approximately $548,943, and $1,018,783, respectively, as of March 1, 1999.
Before the GulfStar acquisition, the notes were secured by the common stock of
GulfStar. In connection with the GulfStar acquisition, the common stock of
GulfStar was exchanged for Common Stock. The Common Stock held of record by Mr.
Stone and Mr. Cullen now secures such person's obligation under the notes. Two
notes of Mr. Stone with an aggregate principal balance of approximately $39,552
as of December 31, 1998 bear interest at a rate of 9% per annum, and Mr. Stone's
other notes and Mr. Cullen's note bear interest at 7.6% per annum, each with
principal and interest payments payable annually in arrears or, at the option of
the holder, such interest payments may be deferred and added to the outstanding
principal balance of the note. Each of the notes matures 10 years after the date
thereof.

CHANCELLOR MEDIA TRANSACTIONS

Capstar Broadcasting has retained Katz Media Group, Inc. ("Katz") as its
media representative to sell national spot advertising air time. Katz is a
wholly-owned subsidiary of Chancellor Media, which is an affiliate of Hicks
Muse. In 1998, Capstar Broadcasting paid Katz $4.4 million for media
representation services of which $1.6 million and $2.3 million was paid by
Capstar Communications for the five months ended May 31, 1998 and the seven
months ended December 31, 1998, respectively.

Capstar Broadcasting broadcasts advertising over Capstar Broadcasting's
portfolio of stations from The AMFM Radio Networks. The AMFM Radio Networks is a
national radio network owned and operated by Chancellor Media. For the year
ended December 31, 1998, Capstar Broadcasting recorded approximately $8.3
million in revenue from the AMFM Radio Networks, of which $2.1 million is
allocable to Capstar Communications.

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57

In May 1998, Capstar Communications also entered into a loan for
approximately $441.4 million with Capstar Radio, which is payable on the earlier
of demand or May 31, 2005. The loan consists of a $1.4 billion revolver.
Borrowings under the loan bear interest at the per annum interest rate available
to Capstar Radio under its credit facility for revolving loans that are
Eurodollar loans with a three month interest period applicable thereto. Interest
is payable quarterly commencing on August 31, 1998, and thereafter on the last
day of each November, February, May and August during the term of the loan and
at maturity. Advances under the loan may be made only if, among other things, at
the time such advance is made (both before and after giving effect thereto) such
additional indebtedness is permitted pursuant to the terms of the indenture
governing the 10 3/4% CCI Notes and the certificate of designation governing the
CCI Series E Preferred Stock. Capstar Communications as of March 1, 1999 had
borrowings of approximately $347.0 million outstanding under the loan with a
weighted average effective interest rate of 7.5% per annum. During 1998, Capstar
Communication incurred $17.5 million in interest due to Capstar Radio, which was
added to the principal balance of the loan.

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58

PART IV

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

(a)(1) and (2) Consolidated Financial Statements

The financial statements and schedules are listed under Item 8 herein and
are hereby incorporated herein by reference.

(a)(3) Exhibits:

EXHIBIT
NO. DESCRIPTION
------- -----------

2.1.1 -- Agreement and Plan of Merger, dated August 26, 1998,
among Chancellor Media, Capstar Broadcasting and CBC
Acquisition Company, Inc.(1)
2.1.2 -- Voting Agreement, dated August 26, 1998, among Chancellor
Media, Capstar Broadcasting Partners, L.P., Thomas O.
Hicks and Steven R. Hicks.(1)
3.1 -- Amended and Restated Certificate of Incorporation of
Capstar Communications.*
3.2 -- By-laws of Capstar Communications.(25)
4.5.1 -- Certificate of Designation of the Powers, Preferences and
Relative, Participating, Optional and Other Special
Rights of Preferred Stock and Qualifications, Limitations
and Restrictions Thereof of 12 5/8% Series E Cumulative
Exchangeable Preferred Stock of SFX Broadcasting, Inc.
("SFX"), due October 31, 2006 ("SFX Certificate of
Designation").(6)
4.5.2 -- Certificate of Amendment to SFX Certificate of
Designation.(7)
4.6 -- Indenture, governing SFX's 12 5/8% Subordinated Exchange
Debentures due 2006.(8)
4.7.1 -- Indenture, dated May 31, 1996, between SFX, the
guarantors named therein and Chemical Bank, governing
SFX's 10 3/4% Senior Subordinated Notes due 2006 (the
"10 3/4% SFX Notes Indenture").(9)
4.7.2 -- First Supplement to 10 3/4% SFX Notes Indenture.(8)
4.7.3 -- Second Supplement to 10 3/4% SFX Notes Indenture.(8)
4.7.4 -- Third Supplement to 10 3/4% SFX Notes Indenture.(8)
4.7.5 -- Fourth Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.6 -- Fifth Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.7 -- Sixth Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.8 -- Seventh Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.9 -- Eighth Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.10 -- Ninth Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.11 -- Tenth Supplement to 10 3/4% SFX Notes Indenture.(10)
4.8.1 -- Indenture, dated October 7, 1993, between SFX and
Chemical Bank, as trustee, governing SFX's 11 3/8% Senior
Subordinated Notes due 2000 (the "11 3/8% SFX
Indenture").(11)
4.8.2 -- First Supplement to 11 3/8% SFX Indenture.(9)
10.1.1 -- Credit Agreement, dated May 29, 1998, among Capstar
Radio, Capstar Partners, Capstar Broadcasting and the
financial institutions party thereto.(12)
10.1.1 -- First Amendment to Credit Agreement.(26)
10.2 -- Financial Advisory Agreement, dated as of July 1, 1997,
between Capstar Broadcasting and Hicks, Muse & Co.
Partners, L.P. ("HMCo").(5)

56
59

EXHIBIT
NO. DESCRIPTION
------- -----------

10.3 -- Financial Advisory Agreement, dated as of October 16,
1996, between Capstar Partners and HMCo.(3)
10.4 -- Monitoring and Oversight Agreement, dated as of July 1,
1997, between Capstar Broadcasting and HMCo.(5)
10.5 -- Monitoring and Oversight Agreement, dated as of October
16, 1996, between Capstar Partners and HMCo.(3)
10.6 -- Form of Indemnification Agreement between Capstar
Broadcasting and each of its directors and officers.(5)+
10.7.1 -- Employment Agreement, dated February 14, 1997, between
Capstar Partners and R. Steven Hicks.(3)+
10.7.2 -- First Amendment to Employment Agreement, effective July
1, 1997, between R. Steven Hicks, Capstar Partners, and
Capstar Broadcasting.(13)+
10.7.3 -- Second Amendment to Employment Agreement.(26)+
10.8 -- Employment Agreement, dated July 1, 1997, between Capstar
Broadcasting and Paul D. Stone.(5)+
10.8.2 -- First Amendment to Employment Agreement.(26)+
10.9 -- Employment Agreement dated July 1, 1997, between Capstar
Broadcasting and William S. Banowsky, Jr.(5)+
10.9.2 -- First Amendment to Employment Agreement.(26)+
10.10.1 -- Employment Agreement between GulfStar Communications,
Inc. and John D. Cullen.(14)+
10.10.2 -- First Amendment to Employment Agreement between GulfStar
Communications, Inc. and John D. Cullen.(4)+
10.11 -- Not used.
10.12.1 -- Amended and Restated Capstar Broadcasting Corporation
1998 Stock Option Plan.(16)+
10.12.2 -- First Amendment to Amended and Restated Capstar
Broadcasting Corporation 1998 Stock Option Plan.(26)+
10.13.1 -- Form of Incentive Stock Option Agreement.(5)+
10.13.2 -- Form of Non-Qualified Stock Option Agreement for
Employees.(5)+
10.13.3 -- Form of Non-Qualified Stock Option Agreement for
Non-Employees.(14)+
10.14.1 -- Affiliate Stockholders Agreement, dated October 16, 1996,
among Capstar Partners, Hicks Muse, R. Steven Hicks and
the security holders listed therein.(3)
10.14.2 -- First Amendment and Supplement to Affiliate Stockholders
Agreement, dated January 27, 1997, by and among Capstar
Partners, the security holders listed therein and Hicks
Muse.(3)
10.14.3 -- Second Amendment to Affiliate Stockholders Agreement,
dated February 20, 1997, by and among Capstar Partners,
the security holders listed therein and Hicks Muse.(17)
10.14.4 -- Third Amendment to Affiliate Stockholders Agreement,
dated June 20, 1997, by and among Capstar Broadcasting,
Capstar Partners, the security holders listed therein and
Hicks Muse.(5)
10.14.5 -- Fourth Amendment to Affiliate Stockholders Agreement,
dated May 18, 1998, by and among Capstar Broadcasting,
Capstar Partners, the security holders listed therein and
Hicks Muse.(2)

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60

EXHIBIT
NO. DESCRIPTION
------- -----------

10.15.1 -- Management Stockholders Agreement, dated November 26,
1996, among Capstar Partners, the securityholders listed
therein and Hicks Muse.(3)
10.15.2 -- First Amendment to Management Stockholders Agreement,
dated January 27, 1997, by and among Capstar Partners and
the security holders listed therein.(3)
10.15.3 -- Second Amendment to Management Stockholders Agreement,
dated June 20, 1997, by and among Capstar Broadcasting,
Capstar Partners, the security holders listed therein and
Hicks Muse.(5)
10.15.4 -- Third Amendment to Management Stockholders Agreement,
dated May 18, 1998, by and among Capstar Broadcasting,
Capstar Partners, the security holders listed therein and
Hicks Muse.(2)
10.16 -- Amended and Restated GulfStar Stockholders Agreement,
dated May 18, 1998, by and among Capstar Broadcasting,
the security holders listed therein, and Hicks Muse.(2)
10.17 -- Amended and Restated Warrant, dated April 1, 1998, issued
to R. Steven Hicks for 323,120 shares of Class C Common
Stock.(12)+
10.17.2 -- Amendments to Warrants of R. Steven Hicks.(26)+
10.18 -- Amended and Restated Warrant, dated April 1, 1998, issued
to R. Steven Hicks for 255,317 shares of Class C Common
Stock.(12)+
10.19 -- Amended and Restated Warrant, dated April 1, 1998, issued
to R. Steven Hicks for 930,000 shares of Class C Common
Stock.(12)+
10.23.1 -- Letter Agreement, dated February 20, 1998 between
Chancellor Media Corporation of Los Angeles and Capstar
Broadcasting ("Chancellor Letter Agreement").(21)
10.23.2 -- Amendment to Chancellor Letter Agreement.(24)
10.24 -- Form of Time Brokerage Agreement with Chancellor Media
Corporation.(24)
10.26 -- Warrant, dated April 1, 1998, issued to R. Steven Hicks
for 187,969 shares of Class C Common Stock.(12)
10.27 -- Warrant, dated April 1, 1998, issued to R. Steven Hicks
for 500,000 shares of Class C Common Stock.(12)
10.28.1 -- Letter of Credit Agreement, dated February 12, 1998
between R. Steven Hicks and Banker's Trust Company.(22)
10.28.2 -- Guaranty and Purchase Agreement, dated February 12, 1998
made by Capstar Radio in favor of Banker's Trust
Company.(23)
10.28.3 -- Letter Agreement between R. Steven Hicks and the
Company.(26)
10.29.1 -- Warrant, dated April 1, 1998, issued to Paul D. Stone for
150,000 shares of Class A Common Stock.(12)+
10.29.2 -- First Amendment to Warrant.(26)+
10.30.1 -- Warrant, dated April 1, 1998, issued to William S.
Banowsky, Jr. for 150,000 shares of Class A Common
Stock.(12)+
10.30.2 -- First Amendment to Warrant.(26)+
10.31 -- Agreement and Plan of Merger, dated July 23, 1998, among
Capstar Radio, TBC Radio Acquisition Corp. and Triathlon
Broadcasting Company.(15)
10.32 -- Letter Agreement, dated January 2, 1998, between Capstar
Broadcasting and Chancellor Media Corporation of Los
Angeles regarding The AMFM Radio Networks.(26)

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61

EXHIBIT
NO. DESCRIPTION
------- -----------

10.33 -- Master Agreement, dated March 6, 1997, between Katz
Communications Inc., Capstar Partners and GulfStar
Communications.(26)
10.34 -- Stock Purchase Agreement, dated as of May 26, 1998, by
and among Capstar Radio, Patterson Broadcasting, Inc. and
SBI Radio Acquisition Corporation.(27)
10.35 -- Revolving Credit Note, dated May 29, 1998, made payable
by Capstar Communications to Capstar Radio.(27)
21.1 -- List of Subsidiaries.*
27.1 -- Financial Data Schedule.*

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

+ Management contract or compensatory plan or arrangement.

* Filed herewith.

(1) Incorporated by reference to Schedule 13D/A filed by Thomas O. Hicks, et
al. on September 3, 1998, File No. 000-54151.

(2) Incorporated by reference to Capstar Broadcasting's Amendment No. 3 to
Registration Statement on Form S-1, dated May 19, 1998, File No. 333-48819.

(3) Incorporated by reference to Capstar Partner's Registration Statement on
Form S-1, dated April 16, 1997, File No. 333-25263.

(4) Incorporated by reference to Capstar Partners' and Capstar Radio's Annual
Report on Form 10-K for the year ended December 31, 1997, File No.
333-25638.

(5) Incorporated by reference to Capstar Partner's Amendment No. 1 to
Registration Statement on Form S-4, dated July 8, 1997, File No. 333-25638.

(6) Incorporated by reference to SFX's Current Report on Form 8-K, dated
January 27, 1997, File No. 000-22486.

(7) Incorporated by reference to SFX's Annual Report on Form 10-K for the year
ended December 31, 1997, File No. 000-22486.

(8) Incorporated by reference to SFX's Current Report on Form 8-K, dated
January 17, 1997, File No. 000-22486.

(9) Incorporated by reference to SFX's Registration Statement on Form S-4,
dated June 21, 1996, File No. 333-06553.

(10) Incorporated by reference to SFX's Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 000-22486.

(11) Incorporated by reference to SFX's Amendment No. 3 to Registration
Statement on Form S-1, dated September 29, 1993, File No. 33-66718.

(12) Incorporated by reference to Capstar Broadcasting's Current Report on Form
8-K, dated May 29, 1998, File No. 333-48819.

(13) Incorporated by reference to Capstar Partner's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, File No. 333-25638.

(14) Incorporated by reference to Capstar Partner's Amendment No. 2 to
Registration Statement on Form S-4, dated August 5, 1997, File No.
333-25638.

(15) Incorporated by reference to Capstar Broadcasting's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, File No. 333-48819.

(16) Incorporated by reference to Capstar Broadcasting's Amendment No. 2 to
Registration Statement on Form S-1, dated May 11, 1998, File No. 333-48819.

(17) Incorporated by reference to Capstar Partner's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997, File No. 333-25638.

59
62

(18) Incorporated by reference to Capstar Radio's Current Report on Form 8-K,
dated February 13, 1998, File No. 333-25683.

(19) Incorporated by reference to SFX's Current Report on Form 8-K, dated August
26, 1997, File No. 000-22486.

(20) Incorporated by reference to SFX's Current Report on Form 8-K, dated
February 17, 1998, File No. 000-22486.

(21) Incorporated by reference to Capstar Broadcasting's Registration Statement
on Form S-1, dated March 27, 1998, File No. 333-48819.

(22) Incorporated by reference to Capstar Broadcasting's Registration Statement
on Form S-8, dated July 27, 1998, File No. 333-59937.

(23) Incorporated by reference to Capstar Broadcasting's Amendment No. 4 to
Registration Statement on Form S-1, dated May 21, 1998, File No. 333-48819.

(24) Incorporated by reference to Capstar Broadcasting's Amendment No. 3 to
Registration Statement or Form S-1, dated May 19,1998, File No. 333-48819.

(25) Incorporated by reference to SFX's Registration Statement on Form S-3,
filed November 21, 1996, File No. 333-15469.

(26) Incorporated by reference to Capstar Broadcasting's Annual Report or Form
10-K, dated March 31, 1999, File No. 001-14107.

(27) Incorporated by reference to Capstar Communications' Quarterly Report on
Form 10-Q, dated August 14, 1998, File No. 0-22486.

(b) Reports on Form 8-K

Capstar Communications did not file any Form 8-Ks during the last quarter
of 1998.

60
63

SIGNATURES

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

CAPSTAR COMMUNICATIONS, INC.

By: /s/ PAUL D. STONE
----------------------------------
Paul D. Stone
Executive Vice President and
Chief Financial Officer

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

SIGNATURE TITLE DATE
--------- ----- ----

/s/ R. STEVEN HICKS Chief Executive Officer and March 31, 1999
- ----------------------------------------------------- Director (Principal
R. Steven Hicks Executive Officer)

/s/ PAUL D. STONE Executive Vice President and March 31, 1999
- ----------------------------------------------------- Chief Financial Officer
Paul D. Stone (Principal Financial and
Accounting Officer)

/s/ JACK A. MORGAN Director March 31, 1999
- -----------------------------------------------------
Jack A. Morgan

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES

PAGE
----

Report of Independent Accountants........................... F-2
Report of Independent Accountants........................... F-3
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-4
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997, the five months ended May 31,
1998 and the seven months ended December 31, 1998......... F-5
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1996, 1997, the five months ended
May 31, 1998 and the seven months ended December 31,
1998...................................................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997, the five months ended May 31,
1998 and the seven months ended December 31, 1998......... F-7
Notes to Consolidated Financial Statements.................. F-8

INDEX TO FINANCIAL STATEMENT SCHEDULES
CAPSTAR
Report of Independent Accountants........................... F-31
Schedule II -- Valuation and Qualifying Accounts............ F-32

F-1
65

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Capstar Communications, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of Capstar
Communications, Inc. and its subsidiaries (formerly known as SFX Broadcasting,
Inc. and Subsidiaries) at December 31, 1998 and the results of their operations
and their cash flows for the five month period ended May 31, 1998 and the seven
month period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Austin, Texas
February 26, 1999, except as to Note 2,
which is as of March 15, 1999

F-2
66

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Capstar Communications, Inc.

We have audited the accompanying consolidated balance sheet of Capstar
Communications, Inc. and Subsidiaries (formerly known as SFX Broadcasting, Inc.
and Subsidiaries) as of December 31, 1997 and the related consolidated
statements of operations, shareholder's equity and cash flows for each of the
two years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These
consolidated financial statements and the schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Capstar Communications, Inc. and Subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

ERNST & YOUNG LLP

New York, New York
March 5, 1998 except for Note 1
as to which the date is April 27, 1998.

F-3
67

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

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

PREDECESSOR COMPANY
------------ ------------
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------

Current assets:
Cash and cash equivalents................................. $ 24,686 $ 11,391
Accounts receivable, net of allowance for doubtful
accounts of $2,264 and $4,511 at December 31, 1997 and
1998, respectively..................................... 71,241 71,314
Assets under contract for sale............................ 42,883 --
Prepaid and other current assets.......................... 3,109 1,660
Receivable from SFX Entertainment......................... 11,539 --
---------- ----------
Total current assets.............................. 153,458 84,365
Property and equipment, net............................... 74,829 118,163
Intangibles and other, net................................ 1,039,394 3,323,486
Net assets to be distributed to shareholders.............. 102,144 --
Other assets.............................................. 5,790 627
---------- ----------
Total assets...................................... $1,375,615 $3,526,641
========== ==========

LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities:
Accounts payable.......................................... $ 8,665 $ 3,303
Accrued expenses.......................................... 19,246 13,398
Payable to former national sales representative........... 23,025 471
Accrued interest.......................................... 6,675 4,136
Income taxes payable...................................... -- 35,140
Current portion of long-term debt......................... 610 372,903
---------- ----------
Total current liabilities......................... 58,221 429,351
Long-term debt, net of current portion.................... 764,092 325,686
Deferred income taxes..................................... 102,681 1,008,385
---------- ----------
Total liabilities................................. 924,994 1,763,422
---------- ----------
Redeemable Preferred Stock, aggregate liquidation
preference of $390,300 and $133,944, respectively...... 375,796 148,669
---------- ----------
Commitments and contingencies
Shareholder's equity:
Class A Voting Common Stock, $.01 par value; 100,000,000
and 200,000 shares authorized; 614 and 1,006 shares
issued; 612 and 1,006 shares outstanding at December
31, 1997 and 1998, respectively........................ 1 1
Class B Voting Convertible Common Stock, $01 par value,
10,000,000 shares, authorized; 77 shares issued and 68
shares outstanding at December 31, 1997................ 1 --
Additional paid-in capital................................ 185,642 1,613,967
Treasury stock; 11 shares at December 31, 1997............ (6,523) --
Retained earnings (deficit)............................... (104,296) 582
---------- ----------
Total shareholder's equity........................ 74,825 1,614,550
---------- ----------
Total liabilities and shareholder's equity........ $1,375,615 $3,526,641
========== ==========

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

F-4
68

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

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

PREDECESSOR COMPANY
--------------------------------------------------------- ------------------
YEAR ENDED YEAR ENDED FIVE MONTHS ENDED SEVEN MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 MAY 31, 1998 DECEMBER 31, 1998
----------------- ----------------- ----------------- ------------------

Gross broadcast revenue.......................... $162,011 $306,842 $ 141,369 $254,286
Less: agency commissions......................... (18,950) (36,478) (16,692) (25,325)
-------- -------- --------- --------
Net broadcast revenue.......................... 143,061 270,364 124,677 228,961
-------- -------- --------- --------
Station operating expenses....................... 92,816 167,063 78,235 114,000
Depreciation, amortization, duopoly integration
costs and acquisition related costs............ 17,311 38,232 17,668 55,685
Corporate expenses, net of $2,206 and $2,420
allocated to SFX Entertainment in 1997 and
during the five months ended May 31, 1998...... 6,261 6,837 3,069 5,676
LMA fees......................................... -- -- 697 289
Settlement of Options and Warrants............... 52 624 74,199 --
Non-recurring and unusual charges, including
adjustments to broadcast rights agreement...... 28,994 20,174 35,318 107
-------- -------- --------- --------
Total operating expenses................. 145,434 232,930 209,186 175,757
-------- -------- --------- --------
Operating income (loss).......................... (2,373) 37,434 (84,509) 53,204
Investment income................................ 4,017 2,821 352 339
Interest expense................................. (34,897) (64,506) (30,867) (36,205)
Loss on sale of radio station.................... (1,900) -- -- --
-------- -------- --------- --------
Income (loss) from continuing operations before
income taxes and extraordinary item............ (35,153) (24,251) (115,024) 17,338
Income tax expense............................... 480 810 210 6,977
-------- -------- --------- --------
Income (loss) from continuing operations before
extraordinary item............................. (35,633) (25,061) (115,234) 10,361
-------- -------- --------- --------
Discontinued operations:
Income (loss) from operations to be distributed
to shareholders, net of taxes.................. -- 3,814 (86,382) --
-------- -------- --------- --------
Income (loss) before extraordinary item.......... (35,633) (21,247) (201,616) 10,361
Extraordinary loss on debt retirement............ 15,219 -- -- --
-------- -------- --------- --------
Net income (loss)................................ (50,852) (21,247) (201,616) 10,361
Dividends and accretion on preferred stocks...... 6,061 38,510 17,264 9,779
-------- -------- --------- --------
Net income (loss) attributable to common stock... $(56,913) $(59,757) $(218,880) $ 582
======== ======== ========= ========

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

F-5
69

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

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

CLASS A CLASS B
COMMON STOCK COMMON STOCK
----------------- ----------------- ADDITIONAL RETAINED TOTAL
NUMBER OF PAR NUMBER OF PAR PAID-IN TREASURY EARNINGS SHAREHOLDER'S
SHARES VALUE SHARES VALUE CAPITAL STOCK (DEFICIT) EQUITY
--------- ----- --------- ----- ---------- -------- --------- -------------

Balance at January 1, 1996
(Predecessor)....................... 609 $ 1 64 $ 1 $ 115,256 $ -- $ (32,197) $ 83,061
Dividends and accretion on preferred
stock............................... -- -- -- -- (6,061) -- (6,061)
Issuance upon exercise of stock
options............................. -- -- -- -- 370 -- 370
Issuance of warrants to SCMC.......... -- -- -- -- 8,905 -- 8,905
Issuance of equity securities for MMR
merger.............................. 3 -- 13 -- 71,541 -- 71,541
Repurchase of common stock............ -- -- -- -- -- (6,393) (6,393)
Net loss.............................. -- -- -- -- -- -- (50,852) (50,852)
----- --- -- --- ---------- ------- --------- ----------
Balance, December 31, 1996
(Predecessor)....................... 612 1 77 1 190,011 (6,393) (83,049) 100,571
Issuance upon exercise of stock
options............................. 1 -- -- -- 21,143 -- -- 21,143
Issuance upon exercise of Class B
Warrants............................ -- -- -- -- 2,476 -- 2,476
Issuance of stock for acquisitions.... 1 -- -- -- 9,522 -- 9,522
Payment from shareholder.............. -- -- -- -- 1,000 -- 1,000
Dividends and accretion on preferred
stock............................... -- -- -- -- (38,510) -- (38,510)
Repurchase of common stock............ -- -- -- -- -- (130) (130)
Net loss.............................. -- -- -- -- -- -- (21,247) (21,247)
----- --- -- --- ---------- ------- --------- ----------
Balance, December 31, 1997
(Predecessor)....................... 614 1 77 1 185,642 (6,523) (104,296) 74,825
Dividends and accretion on preferred
stock............................... -- -- -- -- (17,264) -- (17,264)
Settlement of Options and Warrants.... -- -- -- -- 74,061 -- -- 74,061
Spin-Off of SFX Entertainment......... -- -- -- -- 34,329 -- -- 34,329
Other, principally shares issued
pursuant to stock option plan....... 23 -- -- -- 13,418 -- 13,418
Net loss.............................. -- -- -- -- -- (201,616) (201,616)
----- --- -- --- ---------- ------- --------- ----------
Balance at May 31, 1998
(Predecessor)....................... 637 $ 1 77 $ 1 $ 290,186 $(6,523) $(305,912) $ (22,247)
===== === == === ========== ======= ========= ==========
Balance at June 1, 1998 (Company)..... 1,000 $ 1 -- $-- $1,287,948 $ -- $ -- $1,287,949
Issuance of common stock.............. 6 -- -- -- 314,510 -- 314,510
Capital contributions by Parent....... -- -- -- -- 11,509 -- -- 11,509
Dividends and accretion on preferred
stock............................... -- -- -- -- -- -- (9,779) (9,779)
Net income............................ -- -- -- -- -- -- 10,361 10,361
----- --- -- --- ---------- ------- --------- ----------
Balance at December 31, 1998
(Company)........................... 1,006 $ 1 -- $-- $1,613,967 $ -- $ 582 $1,614,550
===== === == === ========== ======= ========= ==========

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

F-6
70

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Operating Activities:
Net income (loss)................................ $ (50,852) $ (21,247) $(201,616) $ 10,361
Loss (income) from operations distributed to
shareholders................................... -- (3,814) 86,382 --
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation................................... 5,972 10,955 4,919 5,637
Amortization................................... 10,202 26,406 12,628 50,048
Noncash interest............................... -- -- -- (1,545)
Noncash settlement of options and warrants..... -- -- 74,061 --
Noncash portion of non-recurring and unusual
charges...................................... 9,878 4,712 4,497 --
Extraordinary loss on debt repayment........... 15,219 -- -- --
Loss on sale of radio station and other noncash
items........................................ 1,900 -- -- --
Deferred income taxes.......................... (710) -- 22,195 (21,919)
Changes in assets and liabilities, net of amounts
acquired:
Accounts receivable.......................... (13,839) (22,189) (5,729) 16,850
Prepaid and other assets..................... (1,704) 2,599 4,238 2,478
Accounts payable, accrued expenses and other
liabilities................................ 10,487 6,620 (24,279) (22,276)
Income taxes payable......................... -- -- -- (60,578)
--------- --------- --------- ---------
Cash provided by (used in) continuing
operations..................................... (13,447) 4,042 (22,704) (20,944)
Cash from operating activities of SFX
Entertainment.................................. -- 1,005 10,988 --
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities..................................... (13,447) 5,047 (11,716) (20,944)
--------- --------- --------- ---------
Investing activities:
Purchase of stations and related businesses,
net of cash
acquired..................................... (493,433) (408,788) -- (239,022)
Proceeds from sales of stations and other
assets....................................... 56,943 1,836 4,692 109,091
Deposits and other payments for pending
acquisitions................................. (30,799) (3,594) -- --
Purchase of property and equipment............. (3,224) (12,409) (5,179) (11,911)
Loans and advances to related parties.......... -- (2,800) -- --
Income tax liability indemnity payments........ -- -- -- 92,968
Other investing activities..................... -- -- (215) 184
--------- --------- --------- ---------
Net cash used in investing activities............ (470,513) (425,755) (702) (48,690)
Cash used in investing activities of SFX
Entertainment................................ -- (73,296) (397,640) --
--------- --------- --------- ---------
Net cash used in investing activities............ (470,513) (499,051) (398,342) (48,690)
--------- --------- --------- ---------
Financing activities:
Payments on long-term debt and credit
facilities................................... (110,396) (73,863) (141) (677,583)
Additions to debt issuance costs............... (19,505) (3,006) -- --
Proceeds from issuance of long-term debt and
credit
facilities................................... 501,500 356,500 -- 572,955
Proceeds from sales of preferred stock......... 143,445 215,258 -- --
Redemption of preferred stock.................. -- -- -- (135,207)
Purchase of treasury stock..................... (6,393) (130) -- --
Proceeds from issuance of common stock......... -- 24,619 17,177 314,510
Preferred stock dividends...................... (4,983) (23,487) (2,459) (9,507)
Other.......................................... (1,000) (1,000) -- --
--------- --------- --------- ---------
Net cash provided by financing activities........ 502,668 494,891 14,577 65,168
Cash provided by (used in) financing activities
of
SFX Entertainment.............................. -- (823) 467,874 --
--------- --------- --------- ---------
Net cash provided by financing activities........ 502,668 494,068 482,451 65,168
--------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents.................................... 18,708 64 72,393 (4,466)
Cash and cash equivalents at beginning of
period......................................... 11,893 30,601 24,686 15,857
Net (increase) decrease in cash of SFX
Entertainment.................................. -- (5,979) (81,222) --
--------- --------- --------- ---------
Cash and cash equivalents at end of period....... $ 30,601 $ 24,686 $ 15,857 $ 11,391
========= ========= ========= =========

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

F-7
71

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1 -- ORGANIZATION AND BUSINESS

Capstar Communications, Inc. and Subsidiaries ("CCI" or "the Company")
(formerly known as SFX Broadcasting, Inc. and Subsidiaries "SFX") is an indirect
wholly-owned subsidiary of Capstar Radio Broadcasting Partners, Inc. ("Capstar
Radio") which is indirectly wholly-owned by Capstar Broadcasting Corporation
("Capstar Broadcasting"). At December 31, 1998, the Company owned and operated
114 and programmed 3 radio stations throughout the United States. In addition,
the Company owned eleven radio stations which were operated by third parties,
ten of which were operated by Chancellor Media Corporation ("Chancellor Media").

On May 29, 1998, SBI Holding Corporation, a Delaware corporation ("SFX
Parent"), acquired SFX Broadcasting, Inc., which has been renamed CCI. The
acquisition was effected through the merger (the "SFX Merger") of SBI Radio
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of
SFX Parent, with and into SFX, with SFX as the surviving corporation. The
acquisition of SFX by SFX Parent resulted in a change of control of SFX. As a
result of the SFX Merger, SFX became an indirect wholly-owned subsidiary of
Capstar Radio. The total consideration paid in the SFX Merger for all of the
outstanding common equity interest was approximately $1,300,000, including
direct costs of the acquisition.

In connection with the SFX Merger and other related transactions, the
Company (i) acquired and disposed of certain assets and stock as described in
Note 4 and (ii) borrowed approximately $441,400 in cash from Capstar Radio under
a revolving credit note with Capstar Radio ("the Capstar Radio Note"). In
connection with certain asset divestiture transactions occurring immediately
after the SFX Merger, CCI incurred an income tax liability to Capstar
Broadcasting of approximately $25,000. The Capstar Radio Note is a $1,400,000
revolving credit agreement with interest payable quarterly at an annual floating
rate equal to the per annum interest rate available to Capstar Radio under its
credit facility for revolving loans that are Eurodollar loans with a three month
interest period applicable thereto.

On April 27, 1998, SFX distributed the net assets (the "Spin Off") of its
live entertainment business ("SFX Entertainment") pro-rata to its stockholders
and the holders of certain warrants, options and stock appreciation rights.

The Company estimates that in connection with (i) the Spin-Off and (ii)
certain other intercompany transactions engaged in by SFX Entertainment prior to
the Spin-Off, SFX incurred a federal income tax liability of approximately
$88,000. SFX Entertainment has agreed to fully indemnify CCI from and against
such tax liability (Note 10), including any tax liability of CCI arising from
such indemnification payments, which full indemnity payments are presently
estimated to be approximately $93,000. On June 30, September 30, and December
31, 1998, respectively, CCI received approximately $52,500, $26,300 and $14,200
in cash from SFX Entertainment in payment of SFX Entertainment's estimated
indemnity obligation.

The operations of SFX Entertainment have been presented in the financial
statements as discontinued operations pursuant to the Spin-Off. During the five
month period ended May 31, 1998, revenue and loss from operations for SFX
Entertainment were $122,700 and $5,307, respectively. Included in operating
expenses is $2,420 of allocated corporate expenses. Additionally, interest
expense relating to the debt that was distributed to the stockholders pursuant
to the Spin-Off of $7,300 has been allocated to SFX Entertainment. Included in
the loss from operations to be distributed to shareholders for the five months
ended May 31, 1998 is income tax expense of $75,700, which includes $93,000 of
current income tax expense offset by a tax benefit resulting from reduction of
the Company's deferred tax asset valuation allowance. During the year ended
December 31, 1997, revenue and income from operations for SFX Entertainment were
$96,100 and $5,100, respectively. Included in operating expenses is $2,200 of
allocated corporate expenses. Additionally, interest expense

F-8
72
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

relating to the debt to be distributed to the shareholders pursuant to the
Spin-Off of $1,600 has been allocated to SFX Entertainment. The Company provided
various administrative services to SFX Entertainment. It is the Company's policy
to allocate these expenses on the basis of direct usage. In the opinion of
management, this method of allocation is reasonable and allocated expenses
approximate what SFX Entertainment would have incurred on a stand-alone basis.

The Company accounted for the SFX Merger under the purchase method of
accounting, following the accounting treatment in accordance with push-down
accounting, whereby the Company recorded the purchase price allocation in its
financial statements. For financial reporting purposes, the Company accounted
for the transaction effective June 1, 1998. As of June 1, 1998, the Company made
a preliminary allocation of the purchase price to the net assets required. The
purchase price was allocated to assets and liabilities based on their respective
fair values at June 1, 1998, as adjusted, as listed in the table below which
represents the components of the opening balance sheet.

Cash........................................................ $ 15,857
Accounts receivable......................................... 73,701
Other current assets........................................ 2,693
Receivable from SFX Entertainment........................... 92,968
Receivable from Capstar Radio............................... 8,293
Land........................................................ 7,248
Buildings and improvements.................................. 14,337
Broadcasting equipment and other............................ 68,252
FCC licenses................................................ 3,193,074
Goodwill.................................................... 1,670
Other assets................................................ 222
Accounts payable............................................ (11,850)
Accrued expenses............................................ (13,342)
Payable to former national sales representative............. (7,014)
Accrued interest............................................ (6,782)
Income taxes payable........................................ (95,718)
Long-term debt.............................................. (812,436)
Capital lease obligations................................... (619)
Deferred income taxes....................................... (959,000)
Redeemable preferred stock.................................. (283,605)
----------
Shareholder's net equity.................................... $1,287,949
==========

NOTE 2 -- CHANCELLOR MERGER AGREEMENT

On August 26, 1998, Capstar Broadcasting and Chancellor Media, an affiliate
of the Company, entered into an agreement to merge (the "Chancellor Merger") in
a stock-for-stock transaction that will create the nation's largest radio
broadcasting entity. Under the merger agreement:

- Chancellor Media will acquire Capstar Broadcasting in a reverse merger in
which Capstar Broadcasting will be renamed Chancellor Media Corporation;

- each share of Class A Common Stock and Class C Common Stock will
represent 0.4955 shares of voting common stock in the combined entity;

F-9
73
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

- each share of Class B Common Stock will represent 0.4955 shares of
nonvoting common stock of the combined entity;

- each share of Chancellor Media common stock will represent one share of
the combined entity; and

- each share of Chancellor Media preferred stock will represent one share
of preferred stock of the combined entity.

The completion of the merger depends upon the satisfaction of a number of
conditions. There can be no assurance that all of the conditions to the merger
will be satisfied. Either company may waive compliance with the conditions at
its discretion if permitted by law.

On September 9, 1998, Capstar Broadcasting was notified of an action filed
on behalf of all owners of securities of Chancellor Media against Chancellor
Media, Hicks Muse and the individual directors of Hicks Muse in the Court of
Chancery of the State of Delaware in and for New Castle County, Delaware. While
the complaint does not name Capstar Broadcasting as a defendant, the complaint
alleges that Chancellor Media and its directors breached their duties to the
alleged class by entering into an "overly generous offer for Capstar assets."
The action is relevant to Capstar Broadcasting because inter alia, the plaintiff
seeks an injunction prohibiting the proposed Chancellor Merger with Capstar
Broadcasting. As Capstar Broadcasting is not a defendant in this action, Capstar
Broadcasting has no obligation to appear or participate.

NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its direct and indirect subsidiaries. All significant inter-company accounts
and transactions have been eliminated in consolidation. The Company accounts for
investments in which it has a 50% or less and 20% or greater ownership interest
under the equity method.

Cash and Cash Equivalents.

All highly liquid investments with a maturity at date of purchase of less
than three months are classified as cash equivalents. The carrying amounts of
cash and cash equivalents reported in the balance sheet approximate their fair
values.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization is
provided on the straight-line method over the estimated useful lives of the
assets. The costs of assets retired or otherwise disposed of and the related
accumulated depreciation and amortization balances are removed from the accounts
and any resulting gain or loss is included in income.

Leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets.

Intangible Assets

FCC licenses and goodwill represent the excess of cost over the fair values
of the identifiable tangible and other intangible net assets acquired. Other
intangible assets comprise costs incurred for pending acquisitions, noncompete
agreements and deferred financing costs. Pending acquisition costs are deferred
and capitalized as

F-10
74
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

part of completed acquisitions or expensed in the period in which the pending
acquisition is terminated. Deferred financing costs are amortized under the
interest method over the life of the related debt.

The Company periodically evaluates intangible and other long-lived assets
for potential impairment in accordance with the provisions of Accounting
Principles Board ("APB") Opinion 17, "Intangible Assets," and Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," by analyzing
the operating results, future cash flows on an undiscounted basis, trends and
prospects of the Company's stations, as well as by comparing them to their
competitors. The Company also takes into consideration recent acquisition
patterns within the broadcast industry, the impact of recently enacted or
potential FCC rules and regulations and any other events or circumstances which
might indicate potential impairment. At this time, in the opinion of management,
no impairment has occurred.

Exchange of Radio Stations

The Company records the exchange of radio stations in accordance with APB
Opinion No. 16, "Business Combinations". The net book value of the station given
up is removed from the accounts and the station received is recorded at fair
value, with any resulting gain or loss included in results of operations.

Income Taxes

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

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

The Company barters unsold advertising time for products and services. Such
transactions are recorded at the estimated fair value of the products or
services received or used. Barter revenue is recorded when commercials are
broadcast and related expenses are recorded when the product or service is
received or used. For the years ended December 31, 1996 and 1997 and the five
month period ended May 31, 1998 and the seven month period ended December 31,
1998, the Company recorded barter revenue of $8,029, $11,995, $5,469 and $7,980,
respectively, and expenses of $7,476, $11,281, $5,337 and $7,535, respectively.

Uncertainties and Use of Estimates and Assumptions

The radio broadcasting industry is subject to federal regulation by the
Federal Communications Commission ("FCC"). These governmental regulations and
policies could change over time and there can be no assurance that such changes
would not have a material impact upon the Company.

F-11
75
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The Company's pending acquisition, exchange and merger agreements are
subject to various governmental approvals, including the Department of Justice
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the FCC under the Communications Act of 1934, as amended.

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

Local Marketing Agreements ("LMA")/Joint Sales Agreements ("JSA")

From time to time, the Company enters into LMAs and JSAs with respect to
radio stations owned by third parties including radio stations which it intends
to acquire. Terms of the agreements generally require the Company to pay a
monthly fee in exchange for the right to provide station programming and sell
related advertising time in the case of an LMA or sell advertising in the case
of a JSA. The agreements terminate upon the acquisition of the stations. It is
the Company's policy to expense the fees as incurred as a component of operating
income (loss). The Company accounts for payments received pursuant to LMAs of
owned stations as net revenue to the extent that the payment received represents
a reimbursement of the Company's ownership costs.

Advertising Costs

Advertising and promotional costs are expensed as incurred and approximated
$5,068, $9,789, $7,141 and $12,618 for the years ended December 31 1996 and
1997, the five months ended May 31, 1998 and the seven months ended December 31,
1998, respectively.

Intercompany Matters

The Company is charged by its Parent for corporate services through a
monthly corporate overhead allocation charge. Such charge is based on factors of
direct usage and in the opinion of management, is reasonable and approximates
what the Company would have incurred on a stand-alone basis.

Subsequent to the SFX Merger, the Company's operating results are included
in the consolidated federal income tax return of its parent. Tax provisions in
the accompanying consolidated financial statements have been prepared on a
stand-alone basis with any net current tax liability due to taxing authorities
resulting from inclusion of the Company's activities in its parent's
consolidated tax return being reflected as due to its parent under the Capstar
Radio Note.

Concentration of Credit Risk

It is the Company's policy to place its cash with high credit quality
financial institutions, which, at times, may exceed federally insured limits.
Management believes that credit risk in these deposits is minimal and has not
experienced any losses in such accounts.

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

F-12
76
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Segment Information

In 1998, the Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 superseded SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 does not affect results of operations or financial position. The
Company operates within a single radio broadcasting segment within the
continental United States.

New Accounting Pronouncements

Reclassification

Certain amounts in 1996 and 1997 have been reclassified to conform to the
1998 presentation.

NOTE 4 -- ACQUISITIONS AND DISPOSITIONS

1998 Radio Broadcasting Acquisitions and Dispositions

On February 20, 1998, Capstar Broadcasting and Chancellor Media entered
into an exchange agreement pursuant to which Chancellor Media would acquire
stations KTXQ-FM and KBFB-FM in Dallas/Ft. Worth, Texas, KODA-FM, KKRW-FM and
KQUE-AM in Houston, Texas, KPLN-FM and KYXY-FM in San Diego, California, and
WVTY-FM, WJJJ-FM, WXDX-FM and WDVE-FM in Pittsburgh, Pennsylvania (collectively,
the "Chancellor Exchange Stations") for an aggregate purchase price of
approximately $637.5 million in a series of purchases and exchanges over a
three-year period. The Chancellor Exchange Stations were acquired by Capstar
Broadcasting in connection with the acquisition of SFX Broadcasting, Inc. in May
1998. On May 29, 1998, as part of the SFX acquisition, Chancellor Media
exchanged stations WAPE-FM and WFYV-FM in Jacksonville, Florida in exchange for
station KODA-FM in Houston, Texas and cash placed with a qualified intermediary
(discussed below). In the case of the remaining Chancellor Exchange Stations,
Capstar Broadcasting will identify mid-sized radio stations for exchange with
Chancellor Media. The purchase price for the remaining ten Chancellor Exchange
Stations will be approximately $494.3 million. Capstar Broadcasting and
Chancellor Media are currently assessing whether the terms of the exchange
agreement will be modified upon consummation of the merger with Chancellor
Media. During the pendency of the Chancellor Merger, the Company does not
anticipate effecting any exchanges with Chancellor Media.

Chancellor Media is providing services to the Chancellor Exchange Stations
(other than KODA-FM) pursuant to separate LMAs until such stations are
exchanged. Chancellor Media will retain the advertising revenues it generates
while it provides services to the Chancellor Exchange Stations under such LMAs.
During 1998, the Company received approximately $28.8 million in LMA fees from
Chancellor Media. The LMA fees will decrease as each Chancellor Exchange Station
is exchanged.

F-13
77
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

In January 1998, the Company sold one radio station operating in Richmond,
Virginia for $4.3 million.

On May 21, 1998, SFX completed the acquisition of three radio stations (two
FM and one AM) in the Nashville, Tennessee market from Sinclair Broadcasting
Group for an aggregate purchase price of approximately $35,000 in cash. Cash for
the purchase was provided by Capstar Radio.

On May 29, 1998, the Company exchanged station KODA-FM in Houston, Texas
for Chancellor Media radio stations WAPE-FM and WFYV-FM in Jacksonville, Florida
and approximately $90,250 in cash (the "KODA Exchange"). In an exchange under
Section 1031 of the Code, indirect, wholly-owned subsidiaries of CCI, through a
qualified intermediary, used the $90,250 in cash received from Chancellor Media
to acquire radio stations KASE-FM, KVET-AM and KVET-FM in Austin, Texas. The
deemed value of the KODA Exchange was $143,250.

On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of one FM radio station
in the Daytona Beach, Florida market for consideration of approximately $11,500
in cash to Clear Channel Metroplex, Inc. and Clear Channel Metroplex Licensee,
Inc.

On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of four radio stations
(three FM and one AM) in the Long Island, New York market for an aggregate sale
price of $46,000 in cash to Cox Radio, Inc.

On May 29, 1998, due to governmental restrictions on multiple station
ownership, the Company completed the sale of the assets of one FM radio station
in the Houston, Texas market for $54,000 in cash to HBC Houston, Inc. and HBC
Houston License Corporation. Pursuant to an agreement with Chancellor Media, the
Company paid 50% of the sale proceeds in excess of $50,000, approximately $1,700
to Chancellor Media.

On May 29, 1998, Capstar Radio sold all of the outstanding capital stock of
Patterson Broadcasting, Inc. (the "Patterson Broadcasting Acquisition") (which
then owned and operated or programmed 22 FM and 12 AM stations) to the Company.
In addition, Pacific Star Communications, Inc., a wholly-owned subsidiary of
Capstar Radio, sold radio stations KJSN-FM, KFIV-FM, KJAX-AM and KFRY-FM in the
Modesto/ Stockton, California market to the Company. Total consideration for the
foregoing purchases was approximately $223,000 in cash and approximately $11,500
due under the Capstar Radio Note. The Company funded the acquisition of
Patterson Broadcasting, Inc., and certain stations of Pacific Star
Communications, Inc. with proceeds from a loan by Bankers Trust Company, which
loan was refinanced with borrowings under the Capstar Radio Note.

For financial reporting purposes, the transaction in the preceding
paragraph has been treated as a transaction between entities under common
control. Accordingly, the assets and liabilities so acquired have been recorded
by the Company at historical cost in a manner similar to that in
pooling-of-interests accounting. The operating results of these businesses have
been included in the Company's financial statements from the date of the
Patterson Broadcasting Acquisition, the earliest date for which common control
of both entities existed.

On August 10, 1998, the Company exchanged one AM station in Pittsburgh,
Pennsylvania for another AM station in Cleveland, Ohio. On September 30, 1998,
the Company exchanged one FM station in Jackson, Mississippi for another FM
station in Jackson, Mississippi. The $5.0 million and $11.75 million,
respectively, carrying value of the station's net assets exchanged approximate
the fair value of the net assets received.

On October 5, 1998, the Company's parent contributed one FM station in
Albany, New York with a fair value and historical book value of $2.7 million to
the Company.
F-14
78
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1997 Radio Broadcasting Acquisitions and Dispositions

In August 1997, the Company acquired two radio stations operating in
Pittsburgh, Pennsylvania and two radio stations in Milwaukee, Wisconsin for
$35.0 million.

In August 1997, the Company exchanged one radio station in Pittsburgh,
Pennsylvania and $20.0 million in cash for one radio station in Charlotte, North
Carolina. The Company operated the radio station in Charlotte, North Carolina
pursuant to a local market agreement during July 1997.

In July 1997, the Company acquired substantially all of the assets of four
radio stations operating in Richmond, Virginia for approximately $46.5 million
in cash, including payments made to buy out minority equity interests which the
Company had originally agreed to provide to certain of the sellers.

In April 1997, the Company acquired substantially all of the assets of
three radio stations in Indianapolis, Indiana and in June 1997 the Company
acquired substantially all of the assets of four stations in Pittsburgh,
Pennsylvania from Secret Communications for a total purchase price of $255.0
million in cash.

Also in April 1997, the Company sold one radio station operating in Little
Rock, Arkansas to Triathlon Broadcasting Company, a related party. The station
was sold for $4.1 million, of which $3.5 million had been held as a deposit by
the Company since 1996. No gain or loss was recorded on the transaction as the
radio station was acquired in connection with the MMR Merger, as defined below.

In March 1997, the Company acquired two radio stations operating in
Houston, Texas, for a purchase price of approximately $43.0 million in cash,
exclusive of certain additional contingent liabilities which may become payable.
The acquisition increased the number of stations the Company owns in the Houston
market to four.

In March 1997, the Company exchanged one radio station operating in
Washington D.C./Baltimore, Maryland, for two radio stations operating in Dallas,
Texas (the "CBS Exchange") and completed the sale of two radio stations
operating in the Myrtle Beach, South Carolina market for $5.1 million payable in
installments over a five year period (present value approximately $4.3 million).
The CBS Exchange was structured as a substantially tax free exchange of
like-kind assets. The contract for the sale of the Myrtle Beach stations was in
place prior to the merger with Multi-Market Radio, Inc. ("MMR"). No gain or loss
was recognized on the Myrtle Beach stations that were recently acquired in the
MMR Merger, as defined below.

Costs of $871 related to the reformatting of the Dallas stations was
included in depreciation, amortization, duopoly integration costs and
acquisition related costs in 1997.

In February 1997, the Company purchased WWYZ-FM, operating in Hartford,
Connecticut, for a purchase price of $25.9 million in cash. The acquisition
increased the number of stations the Company owns in the Hartford market to
five.

In January 1997, the Company purchased one radio station operating in
Albany, New York, for $1.0 million in cash.

1996 Radio Broadcasting Acquisitions and Dispositions

In December 1996, the Company acquired substantially all of the assets of
WHSL-FM, operating in Greensboro, North Carolina, for a purchase price of $6.0
million in cash and exchanged radio station KRLD-AM, Dallas, Texas and the Texas
State Networks for radio station KKRW-FM, Houston, Texas. The exchange was
structured as a substantially tax free exchange of like kind assets. No gain or
loss was recorded

F-15
79
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

on the exchange as the book values of KRLD-AM and the Texas State Networks
approximated the fair value of the assets of KKRW-FM.

In November 1996, the Company consummated its merger with MMR (the "MMR
Merger"), pursuant to which it acquired MMR in exchange for 105 shares of Class
A Common Stock, 13 shares of Class B Common Stock both valued at $526,381 per
share and other equity securities with a total market value for all securities
issued of approximately $71.5 million in cash. Concurrently with the
consummation of the MMR Merger, the Company paid approximately $43.0 million in
cash to satisfy outstanding indebtedness of MMR. MMR was organized in 1992 by
the Company's executive chairman and another officer and director of the
Company. The Company's executive chairman owned a substantial equity interest in
MMR which was exchanged for Class B Common Stock of the Company upon the
consummation of the MMR Merger. MMR owned and operated, provided programming to
or sold advertising on behalf of thirteen FM stations and one AM station located
in eight markets: New Haven, Connecticut; Hartford, Connecticut; Springfield/
Northampton, Massachusetts; Daytona Beach, Florida; Augusta, Georgia; Biloxi,
Mississippi; Myrtle Beach, South Carolina and Little Rock, Arkansas. Prior to
the MMR Merger, MMR had entered into agreements to sell two stations operating
in Myrtle Beach, South Carolina and one station operating in Little Rock,
Arkansas (the "MMR Dispositions"). The Company also terminated a JSA with one
station operating in Augusta, Georgia and its LMA with one station operating in
Myrtle Beach, South Carolina in December 1996.

In October 1996, the Company sold radio station KTCK-AM, Dallas, Texas for
approximately $13.4 million in cash, net of certain sale expenses. The Company
acquired the assets of KTCK-AM in Dallas, Texas in September 1995 from a third
party for $8,633 in cash (including $133 in transaction costs) and $2,000 of 6%
current coupon Series C Redeemable Preferred Stock (Note 9). The purchase
agreement contains a provision for a contingent payment not to exceed $7,500
payable in 1998 if the Company's Dallas properties achieve certain ratings and
financial goals. In 1996, the Company recorded a loss of $1.9 million on the
disposition, based on its estimate of the ultimate resolution of the
contingency. During 1997, the company paid $3,000 to the Seller in connection
with this provision. During 1998, the Company paid $3,100 in final settlement of
this provision.

In July 1996, the Company acquired Liberty Broadcasting, Inc. for a
purchase price of approximately $239.7 million in cash, including $10.4 million
for working capital. Liberty Broadcasting Inc. was a privately-held radio
broadcasting company which owned and operated, provided programming to or sold
advertising on behalf of fourteen FM and six AM radio stations located in six
markets: Washington, DC/Baltimore, Maryland; Nassau-Suffolk, New York;
Providence, Rhode Island; Hartford, Connecticut; Albany, New York and Richmond,
Virginia.

In July 1996, the Company sold three stations operating in the Washington,
DC/Baltimore, Maryland market for $25.0 million. No gain or loss was recognized
on the dispositions.

In July 1996, the Company acquired from Prism Radio Partners, L.P.
("Prism"), substantially all of the assets used in the operation of eight FM and
five AM radio stations located in four markets: Jacksonville, Florida; Raleigh,
North Carolina; Tucson, Arizona and Wichita, Kansas. In September 1996, the
Company also acquired from Prism substantially all of the assets of three radio
stations operating in Louisville, Kentucky (the "Louisville Stations"), upon
renewal of the FCC licenses of such stations (collectively the "Prism
Acquisition"). The total purchase price for the Prism Acquisition was
approximately $105.3 million in cash. In October 1996, the Company sold the
Louisville Stations for $18.5 million in cash. The Company recognized no gain or
loss on the disposition.

In July 1996, the Company acquired substantially all of the assets of
WJDX-FM, Jackson, Mississippi for a purchase price of approximately $3.2
million. In addition, in August 1996, the Company acquired

F-16
80
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

substantially all of the assets of WSTZ-FM and WZRX-AM, each operating in
Jackson, Mississippi, for approximately $3.5 million in cash.

In June 1996, the Company acquired substantially all of the assets of
WROQ-FM, Greenville, South Carolina, for approximately $14.0 million in cash and
WTRG-FM and WRDU-FM, both operating in Raleigh, North Carolina, and WMFR-AM,
WMAG-FM and WTCK-AM (formerly WWWB-AM), each operating in Greensboro, North
Carolina for approximately $36.8 million in cash.

In February 1996, the Company acquired radio stations WTDR-FM and WLYT-FM
(formerly WEZC-FM), both operating in Charlotte, North Carolina, for an
aggregate purchase price of $24.3 million in cash. Costs of $785 related to the
integration and reformatting of the Charlotte stations were included in
depreciation, amortization, duopoly integration costs and acquisition related
costs in 1996.

For financial statement purposes, all of the acquisitions described above,
with the exception of the Patterson Broadcasting Acquisition, were accounted for
using the purchase method of accounting, with the purchase price allocated to
the assets acquired (principally intangible assets) and the liabilities assumed
based on their estimated fair values at the dates of acquisition. Certain of the
recent transactions are based on preliminary estimates of the fair value of the
net assets acquired and are subject to final adjustment. The excess purchase
price over the estimated fair value of the net assets acquired has been recorded
as FCC licenses and goodwill. The assets and liabilities of these acquisitions
and the results of their operations and cash flows for the period from the date
of acquisition are included in the accompanying consolidated financial
statements. The following unaudited pro forma summary presents the consolidated
results of operations for the years ended December 31, 1997 and 1998 as if the
foregoing transactions for any given year and the subsequent year had occurred
at the beginning of such year after giving effect to certain adjustments,
including amortization of FCC licenses and goodwill and interest expense on the
acquisition debt. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisition been made as of that date or of results which may occur in
the future.

1997 1998
-------- ---------

Net revenue (unaudited)................................ $340,818 $ 371,573
Loss from continuing operations (unaudited)............ $(22,491) $ (67,248)
Net loss (unaudited)................................... $(18,677) $(153,630)

Concert Promotion Acquisitions. During 1997 and 1998, the Company also
acquired the following concert promotion companies, which were contributed to
SFX Entertainment at the Spin-Off date.

In January 1997, the Company purchased Delsener/Slater for an aggregate
consideration of approximately $26.6 million, including $2.9 million for working
capital and the present value of deferred payments of $3.0 million to be paid,
without interest, over five years and $1.0 million to be paid, without interest,
over ten years. The deferred payments are subject to acceleration in certain
circumstances.

In March 1997, Delsener/Slater consummated the acquisition of certain
companies which collectively own and operate the Meadows for $900 in cash, 16
shares of SFX Class A Common Stock with a value of approximately $7.5 million
and the assumption of approximately $15.4 million of debt.

Also in March 1997, the Company, in partnership with Pavilion Partners,
entered into a twenty-two year lease to operate the PNC Bank Arts Center, a
10,800 seat complex located in Holmdel, New Jersey. The lease also granted
Pavilion Partners the right to expand the capacity to 17,500 prior to the 1998
season.

In June 1997, the Company acquired Sunshine Promotions for $53.9 million in
cash at closing, $2.0 million in cash payable over 5 years, 4 shares of Class A
Common Stock issued and issuable over a two

F-17
81
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

year period with a value of approximately $4.0 million and the assumption of
approximately $1.6 million of debt. The assets to be acquired include Deer Creek
Music Center, a 21,000 seat complex located in Indianapolis, Indiana, the
Polaris Amphitheater, a 20,000 seat complex located in Columbus, Ohio and a 99
year lease to operate Murat Centre, a 2,700 seat theater and 2,200 seat
ballroom, located in Indianapolis, Indiana.

In February and March 1998, SFX Entertainment acquired the following live
entertainment businesses.

PACE Entertainment Corporation ("PACE"), one of the largest diversified
producers and promoters of live entertainment in the United States, having what
SFX Entertainment believes to be the largest distribution network in the United
Sates in each of its music, theater and specialized motor sports businesses (the
"PACE Acquisition"), for total consideration of approximately $156,056. In
connection with the PACE Acquisition, SFX Entertainment acquired 100% of
Pavilion Partners, a partnership that owns interest in 10 venues ("Pavilion"),
through the PACE Acquisition and directly from PACE's various partners for
$90,627, The Company has guaranteed the performance of SFX Entertainment's
obligation to PACE until PACE is issued the SFX Entertainment stock it is
entitled to under the acquisition agreement.

The Contemporary Group, a fully-integrated live entertainment and special
event promoter and producer, venue owner and operator and consumer marketer, for
total consideration of approximately $101,402.

The Network Magazine Group, a publisher of trade magazines for the radio
broadcasting industry, and SJS Entertainment, an independent creator, producer
and distributor of music-related radio programming, services and research which
it exchanges with radio broadcasters for commercial air-time sold, in turn, to
national network advertisers, for total consideration of approximately $66,784.

BG Presents, one of the oldest promoters of, and owner-operators of venues
for, live entertainment in the United States, and a leading promoter in the San
Francisco Bay area, for total consideration of approximately $80,327.

Concert/Southern Promotions, a promoter of live music events in the
Atlanta, Georgia metropolitan, for total consideration of approximately $16,600.

Westbury Music Fair, a theater located in Westbury, New York for aggregate
consideration of $3.0 million in cash and an agreement to issue 75,019 shares of
Class A Common Stock of SFX Entertainment.

In order to facilitate certain concert promotion acquisitions, the Company
and/or SFX Entertainment undertook the following financing activities.

On February 11, 1998, SFX Entertainment completed the private placement of
$350.0 million of 9 1/8% Senior Subordinated Notes (the "Notes") due 2008.
Interest is payable on the Notes on February 1 and August 1 of each year.

On February 26, 1998, SFX Entertainment executed a Credit and Guarantee
Agreement (the "Credit Agreement") which established a $300.0 million senior
secured credit facility comprised of (i) a $150.0 million eight-year term loan
(the "Term Loan") and (ii) a $150.0 million seven-year reducing revolving credit
facility. Borrowings under the Credit Agreement are collateralized by
substantially all of the assets of SFX Entertainment, including a pledge of the
outstanding stock of substantially all of its subsidiaries and guaranteed by all
of SFX Entertainment's subsidiaries. On February 27, 1998, SFX Entertainment
borrowed $150.0 million under the Term Loan. Together with the proceeds from the
Notes, the proceeds from the Term Loan were used to finance the 1998
acquisitions discussed above.

F-18
82
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

For financial statement purposes, all of the acquisitions described above
were accounted for using the purchase method of accounting, with the purchase
price allocated to the assets acquired (principally intangible assets) and the
liabilities assumed based on their estimated fair values at the dates of
acquisition. Certain of the recent transactions are based on preliminary
estimates of the fair value of the net assets acquired and are subject to final
adjustment. The excess purchase price over the estimated fair value of the net
assets acquired has been recorded as goodwill. The assets and liabilities of
these acquisitions and the results of their operations and cash flows for the
period from the date of acquisition are included in the accompanying
consolidated financial statements.

NOTE 5 -- PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

DEPRECIABLE PREDECESSOR COMPANY
DEPRECIATION LIFE ----------- --------
METHOD (YEARS) 1997 1998
------------- ----------- ----------- --------

Buildings and improvements............. Straight-line 5-20 $ 18,295 $ 22,460
Broadcasting and other equipment....... Straight-line 3-20 67,821 92,398
-------- --------
86,116 114,858
Accumulated depreciation and
amortization......................... (17,456) (5,637)
-------- --------
68,660 109,221
Land................................... 6,169 8,942
-------- --------
$ 74,829 $118,163
======== ========

NOTE 6 -- INTANGIBLES

Intangibles consists of the following:

AMORTIZABLE PREDECESSOR COMPANY
AMORTIZATION LIFE ----------- ----------
METHOD (YEARS) 1997 1998
--------------- ----------- ----------- ----------

FCC licenses..................... Straight-line 40 $ 913,887 $3,360,522
Goodwill......................... Straight-line 40 131,601 2,372
Deferred financing costs......... Interest Method -- 22,250 --
Other............................ Straight-line 3-5 5,406 1,915
---------- ----------
1,073,144 3,364,809
Less accumulated amortization.... (39,580) (50,116)
---------- ----------
1,033,564 3,314,693
Pending acquisition costs........ 5,830 8,793
---------- ----------
$1,039,394 $3,323,486
========== ==========

F-19
83
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7 -- LONG-TERM DEBT

Long-Term Debt consists of the following:

PREDECESSOR COMPANY
----------- ---------
1997 1998
----------- ---------

Capstar Radio Note.................................... $ -- $ 372,703
10 3/4% Senior subordinated notes..................... 450,000 323,473
11 3/8% Senior subordinated notes..................... 566 566
Senior credit facility................................ 313,000 --
Capital lease obligations and other notes payable at
various interest rates.............................. 1,136 1,847
-------- ---------
764,702 698,589
Less: current portion................................. (610) (372,903)
-------- ---------
$764,092 $ 325,686
======== =========

The aggregate contractual maturities of long-term debt for the years ending
December 31 are as follows: 1999 -- $372,903; 2000 -- $1,169; 2001 -- $378;
2002 -- $353; 2003 -- $313; thereafter -- $323,473.

The Capstar Radio Note is a $1,400,000 revolving credit agreement with
Capstar Radio, due on demand, with interest payable quarterly at an annual
floating rate equal to the per annum interest rate available to Capstar Radio
under its credit facility for revolving loans that are Eurodollar loans with a
three month interest period applicable thereto (7.7% at December 31, 1998).

Incidental to the SFX Merger, the Company repaid its senior credit
facility. No amounts are available under this facility.

On July 3, 1998, pursuant to the terms of the indenture governing the
Company's 10 3/4% Senior Subordinated Notes due 2006, the Company redeemed
$154,000 aggregate principal amount of the 10 3/4% senior subordinated notes for
an aggregate purchase price of $172,800 including a $16,600 redemption premium
and $2,200 of accrued interest. (The carrying value of the 10 3/4% senior
subordinated notes approximated their fair value at the date of redemption).

The SFX Merger resulted in a change of control under the indentures
governing the 10 3/4% senior subordinated notes and the Company's 11 3/8% Senior
Subordinated Notes due 2000 (in which case the Company is required to offer to
repurchase all outstanding notes at a specified price). Pursuant to change of
control offers to acquire all of the outstanding 10 3/4% senior subordinated
notes and 11 3/8% senior subordinated notes, each of which commenced on June 8,
1998, the Company purchased on July 10, 1998 $1,866 aggregate principal amount
of the 10 3/4% senior subordinated notes for an aggregate purchase price of
$1,915, including an $18 purchase premium and $31 of accrued interest (The
carrying value of the 10 3/4% senior subordinated notes approximated their fair
value at the date of redemption). No 11 3/8% senior subordinated notes were
tendered for repurchase.

To fund these purchases, Capstar Radio contributed $314,510 in cash to the
Company in exchange for stock of the Company.

To facilitate the Spin-Off, SFX Entertainment's 1998 acquisitions and its
financing thereof, the Company sought and obtained consents from the holders of
the 10 3/4% senior subordinated notes, holders of the 11 3/8% senior
subordinated notes and the holders of the Company's 12 5/8% Series E Cumulative
Exchangeable Preferred Stock. In connection with these consents, the Company
modified certain covenants. Fees and

F-20
84
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

expenses of approximately $18,000 were incurred by the Company in connection
with the consent solicitations and were reimbursed by SFX Entertainment. Such
charges are included in non-recurring and unusual charges.

In May 1996, the Company completed the placement of $450.0 million in
aggregate principal amount of its 10 3/4% senior subordinated notes (the "Note
Offering"). Interest is payable semi-annually on May 15 and November 15. The
notes are uncollateralized obligations of the Company and are subordinate to all
senior debt of the Company. The Company incurred issuance costs totaling $15.3
million related to the Note Offering which were recorded as deferred financing
costs. The effective interest rate on the notes is approximately 9.1% after
giving effect to revaluation at June 1, 1998.

Concurrently with the closings of the Note Offering, the Company completed
a tender offer (the "Tender Offer") and related consent solicitation with
respect to its 11 3/8% senior subordinated notes. SFX repurchased approximately
$79.4 million in principal amount of the $80.0 million in principal amount of
the 11 3/8% senior subordinated notes outstanding in the Tender Offer. The
Company also entered into a supplemental indenture amending the terms of the
indenture pursuant to which the remaining 113/8% senior subordinated notes were
issued.

In March 1995, the Company entered into a $50.0 million senior credit
facility (the "Old Credit Facility"). On May 31, 1996 all amounts outstanding
under the Old Credit Facility were repaid.

In connection with the repurchase of the 11 3/8% senior subordinated notes
and the repayment of the Old Credit Facility, the Company recorded an
extraordinary loss on debt retirement of approximately $15.2 million to reflect
the cost of prepayment premiums and the write-off of debt issuance costs.

The 10 3/4% CCI Notes indenture contains restrictive provisions that, among
other things, limit the ability of CCI to incur additional indebtedness, pay
dividends or make certain other restricted payments, or merge or consolidate
with or sell all or substantially all of their assets to any other person.
Substantially, all of the assets of CCI are restricted.

The Company's 10 3/4% senior subordinated notes and 11 3/8% senior
subordinated notes are guaranteed by every direct and indirect subsidiary of the
Company. There are no non-guarantor subsidiaries. The guarantees by the
guarantor subsidiaries are full, unconditional, and joint and several. All of
the guarantor subsidiaries are wholly-owned. The Company is a holding company
with no assets, liabilities or operations other than its investment in its
subsidiaries.

NOTE 8 -- SHAREHOLDER'S EQUITY

Common Stock

In connection with the SFX Merger, the Company amended its charter to
provide for 10,210,000 shares of authorized stock consisting of 200,000 shares
of Class A Common Stock and 10,010,000 shares of preferred stock, par value
$0.01. Upon the filing of the new amendment all existing outstanding common
shares were immediately converted to .000064592 new Class A common shares. All
share information included in the accompanying consolidated financial statements
and notes thereto (with the exception of authorized shares) has been
retroactively adjusted to reflect the reverse split.

In May 1996, 2 shares of Class A Common Stock and 9 shares of Class B
Common Stock were repurchased from the Company's former President. In July 1997,
the Company repurchased .2 shares of Class A Common for $111. In addition, in
September 1997, the Company repurchased .03 shares of Class A Common Stock for
$19.

F-21
85
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Stock Options

The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to employees" and related interpretations in accounting for its employee
stock options, as opposed to the fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation."

Under stock option plans adopted annually since 1993, stock options to
acquire Class A Common were granted to certain officers, key employees and other
key individuals who performed services for the Company. Options granted under
these plans were generally granted at option prices equal to the fair market
value of the Class A Common Stock on the date of grant. As such, under APB
Opinion No. 25, no expense was recorded in the statement of operations. Terms of
the options, determined by the Company, provided that the maximum term of each
options shall not exceed ten years and the options become fully exercisable
within five years of continued employment with the exception of certain options
granted to executives which were fully vested upon issuance.

Capstar Radio purchased and settled all outstanding options and warrants of
SFX resulting in SFX recording approximately $74,000 in expense and a
corresponding credit to paid-in capital.

The table below does not include the options issued in the MMR acquisition.

1996 1997 1998
----------------- ----------------- -----------------

Options outstanding at beginning of
year.............................. 48.31 58.78 39.01
Option price........................ $201,263-$328,988 $201,263-$522,511 $201,263-$445,102
Options granted..................... 22.54 27.13 --
Options price....................... $421,879-$522,511 $433,490 --
Options exercised................... -- 46.90 9.91
Option price........................ -- $201,263-$522,511 $201,263-$445,102
Options repurchased or settled...... 12.08 -- 29.10
Option price........................ $201,263-$328,988 -- $201,263-$445,102
Options expired or canceled......... -- -- --
Options outstanding at end of
year.............................. 58.78 39.01 --
Option price........................ $201,263-$522,511 $201,263-$445,102 --
Options exercisable at end of
year.............................. 29.79 28.40 --

F-22
86
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 9 -- REDEEMABLE PREFERRED STOCK

Preferred stock consists of the following:

PREDECESSOR COMPANY
----------- --------
1997 1998
----------- --------

Preferred Stock of the Company, $.01 par value, 10,010,000
shares authorized:
Series C Redeemable, 2,000 shares issued and outstanding in
1997, including accreted dividends of $197................ $ 1,730 $ --
Series D Cumulative Convertible Exchangeable Preferred
Stock, 2,990,000 shares issued and outstanding in 1997,
including accreted issuance costs of $878................. 145,149 --
Series E Cumulative Exchangeable Preferred Stock, 2,250,000
and 1,266,176 shares issued and 2,250,000 and 1,266,176
shares outstanding in 1997 and 1998, respectively, net of
issuance costs, includes accreted issuance costs of $951
in 1997................................................... 228,917 148,669
-------- --------
$375,796 $148,669
======== ========

The Series C Redeemable Preferred Stock and Series D Cumulative Convertible
Exchangeable Preferred Stock were redeemed coincidental with the SFX Merger.

The shares of Series E Cumulative Exchangeable Preferred Stock (the "Series
E Preferred Stock") receive cumulative dividends equal to the rate of 12 5/8%
per annum which are paid by the Company on January 15 and July 15 of each year.
Dividends may be paid, at the Company's option, on any dividend payment date
occurring on or before January 15, 2002, either in cash or in additional shares
of Series E Preferred Stock having a liquidation preference equal to the amount
of such dividend. Subject to certain conditions, the shares of Series E
Preferred Stock are exchangeable in whole or in part, on a pro rata basis, at
the option of the Company, on any dividend payment date, for the Company's
12 5/8% Senior Subordinated Exchangeable Debentures due 2006 ("CCI Exchange
Notes"), provided that immediately after giving effect to any partial exchange,
there shall be outstanding Series E Preferred Stock with an aggregate
liquidation preference of not less than $50,000 and not less than $50,000 in
aggregate principal amount of CCI Exchange Notes. The Company is required,
subject to certain conditions, to redeem all of the Series E Preferred Stock
outstanding on October 31, 2006.

On July 3, 1998, pursuant to the terms of the certificate of designation
that governs the Series E Preferred Stock (the "CCI Certificate of
Designation"), the Company redeemed $119,600 aggregate liquidation preference,
or 1,196,011 shares, of the Series E Preferred stock for an aggregate purchase
price of $141,700, including a $15,100 redemption premium and $7,000 of accrued
dividends. (The carrying value of the Series E Preferred Stock approximated its
fair value at the date of redemption).

The SFX Merger resulted in a change of control under the CCI Certificate of
Designation (in which case the Company is required to offer to repurchase all
outstanding shares at a specified price). Pursuant to change of control offers
to acquire all of the outstanding Series E Preferred Stock, which commenced on
June 8, 1998, the Company purchased on July 10, 1998 $500 aggregate liquidation
preference, or 5,004 shares, of the Series E Preferred Stock for an aggregate
purchase price of $536, including a $5 purchase premium and $31 of accrued
dividends.

F-23
87
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

To fund these purchases, Capstar Radio contributed $314,510 in cash to the
Company in exchange for stock of the Company.

The CCI Certificate of Designation contains restrictive provisions that,
among other things, limit the ability of CCI to incur additional indebtedness,
pay dividends or make certain other restricted payments, or merge or consolidate
with or sell all or substantially all of their assets to any other person.
Substantially all of the CCI assets are restricted.

NOTE 10 -- INCOME TAXES

The provisions for income taxes for the years ended December 31, 1996 and
1997 and the five and seven month periods ended May 31, 1998 and December 31,
1998, respectively are summarized as follows:

PREDECESSOR COMPANY
---------------------------------- ------------------
FIVE MONTHS ENDED SEVEN MONTHS ENDED
MAY 31, DECEMBER 31,
1996 1997 1998 1998
------ ----- ----------------- ------------------

Current
Federal.................................. $ -- $ -- $ -- $ 24,896
State.................................... 1,190 990 310 4,000
------ ----- ----- --------
1,190 990 310 28,896
------ ----- ----- --------
Deferred
Federal.................................. -- -- -- (19,323)
State.................................... (710) (180) (100) (2,596)
------ ----- ----- --------
(710) (180) (100) (21,919)
------ ----- ----- --------
$ 480 $ 810 $ 210 $ 6,977
====== ===== ===== ========

Prior to the SFX Merger, the Company filed a consolidated tax return for
federal income tax purposes. Subsequent to the SFX Merger, the Company is
included in the consolidated federal income tax return of its parent. As a
result of current losses, the benefit for which realization was not reasonably
assured, no federal tax provision was recorded for the years ended December 31,
1996 and 1997. The current income tax expense recorded during 1996, 1997 and
1998 is a result of current state and local income taxes in certain states where
subsidiaries file separate tax returns and state and federal income tax expense
for the seven months ended December 31, 1998 resulting primarily from taxable
gains on asset sales.

At December 31, 1998, the Company had total net operating loss
carryforwards of approximately $21,300 that will expire from 2007 through 2013,
which all result from net operating losses of acquired subsidiaries. The
acquired net operating losses are SRLY to the acquired subsidiaries that
generated the losses. Management considers that it is more likely than not that
a portion of these loss carryforwards will not ultimately be realized, and has
recorded a related valuation allowance as of December 31, 1998.

F-24
88
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The significant components of the Company's deferred tax assets and
liabilities as of December 31, 1997 and 1998 are as follows:

PREDECESSOR COMPANY
----------- -----------
1997 1998
----------- -----------

Deferred tax assets:
Accounts receivable......................................... $ 860 $ 1,776
Net operating loss carryforwards............................ 23,965 8,123
Unamortized discount on long term debt...................... -- 11,719
Management service contract................................. 2,356 --
Other reserves.............................................. 113 --
National sales representative contract settlement........... 8,740 --
Accrued bonuses and other compensation...................... 1,563 --
--------- -----------
Total deferred tax assets................................... 37,597 21,618
Valuation allowance......................................... (21,876) (2,856)
--------- -----------
Net deferred tax assets........................... 15,721 18,762
Deferred tax liabilities:
Property and equipment and intangible asset basis
differences and related depreciation and amortization..... (118,402) (1,027,147)
--------- -----------
Total deferred tax liabilities.................... (118,402) (1,027,147)
--------- -----------
Net deferred tax liabilities...................... $(102,681) $(1,008,385)
========= ===========

The 1996, 1997 and 1998 effective tax rates varied from the statutory
federal income tax rate as follows:

PREDECESSOR COMPANY
--------------------------------------- ------------------
FIVE MONTHS ENDED SEVEN MONTHS ENDED
1996 1997 MAY 31, 1998 DECEMBER 31, 1998
-------- -------- ----------------- ------------------

Income taxes at the statutory rate.... $(16,924) $ (8,488) $(40,258) $6,068
Effect of non-recurring and unusual
charges............................. 6,875 6,781 11,325 --
Valuation allowance................... 9,859 13,977 -- --
Effect of nondeductible amortization
of intangibles...................... 264 295 -- --
Options and warrants.................. -- (12,380) 10,628 --
Utilization of net operating losses
through Spin-Off.................... -- -- 18,450 --
State and local income taxes (net of
federal benefit).................... 317 535 65 913
Other................................. 89 90 -- (4)
-------- -------- -------- ------
Total....................... $ 480 $ 810 $ 210 $6,977
======== ======== ======== ======

In connection with the Spin-Off of SFX Entertainment (Note 1), the Company
entered into a tax sharing agreement with SFX Entertainment. Under the tax
sharing agreement, the parties have agreed to indemnify each other for any net
tax consequences resulting from inclusion of SFX Entertainment's tax attributes
in the consolidated federal income tax returns of the Company including any tax
liability to the Company resulting from the Spin-Off of SFX Entertainment (Note
1). The term of the tax sharing

F-25
89
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

agreement is indefinite and includes provisions which consider the consequences
to the parties of future adjustments to tax liabilities, if any, which may be
required by taxing authorities related to past tax filings.

NOTE 11 -- COMMITMENTS AND CONTINGENCIES

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

On July 13, 1998, Noddings Investment Group, Inc. and Noddings Warrant
Limited Partnership ("Noddings") filed Civil Action No. 16538 in the Court of
Chancery of the State of Delaware in and for New Castle County against CCI.
Noddings alleges that CCI breached a Warrant Agreement that Noddings contends
requires CCI to permit Noddings to exercise warrants in exchange for cash and
shares of stock of SFX Entertainment, Inc. Specifically, Noddings alleges that
CCI has violated the Warrant Agreement by permitting Noddings to receive cash in
exchange for its warrants, but refusing to convey shares of stock of SFX
Entertainment. In addition to suing on its own behalf, Noddings is seeking to
prosecute the action on behalf of a putative class comprised of all persons who
owned equivalent warrants on April 21, 1998 (the date immediately following the
record date of the distribution of the stock of SFX Entertainment to holders of
the stock of SFX) and their transferees and successors in interest. Noddings has
requested that the court (i) declare that on the exercise of its warrants CCI
transmit to plaintiffs and members of the class that it seeks to represent
$22.3725 in cash per warrant and 0.2983 shares of common stock of SFX
Entertainment per warrant, (ii) require CCI to pay 0.2983 shares of common stock
of SFX Entertainment per warrant and (if not previously paid) $22.3725 in cash,
to any putative class member that has exercised or exercises warrants after
April 20, 1998, (iii) in the alternative, award plaintiffs and members of the
putative class monetary damages in an amount to be determined at trial, and (iv)
award costs and attorney's fees.

In March 1999, the court issued an opinion dismissing two of Nodding's
counts and granting summary judgment in favor of Noddings on one count. The
court held that Noddings is entitled to 0.2983 shares of SFX Entertainment stock
per warrant. Capstar Communication intends to continue to defend this action
through a motion for reargument and if necessary an appeal.

The Company is subject to various other legal proceedings and claims that
arise in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will

F-26
90
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

not have a material impact on the consolidated financial position or results of
operations or cash flows of the Company.

The Company has entered into various operating leases, broadcast rights
agreements and employment agreements. Total rent expense was $2,903, $5,403,
$2,251 and $2,442 for the years ended December 31, 1996 and 1997, the five
months ended May 31, 1998 and the seven months ended December 31, 1998,
respectively. The Company has historically entered into employment agreements
with certain officers and other key employees. Expenses under the contracts
approximated $19,748 for the year ended December 31, 1997 and $8,228 for the
five months ended May 31, 1998.

Future aggregate minimum payments under noncancelable operating leases
including broadcast rights agreements with initial terms of one year or more are
as follows as of December 31, 1998:

1999........................................................ $10,857
2000........................................................ 8,341
2001........................................................ 5,394
2002........................................................ 4,698
2003........................................................ 3,560
2004 and thereafter......................................... 10,503

NOTE 12 -- RELATED PARTY TRANSACTIONS

Chancellor Media Transactions

Beginning in 1998, the Company retained Katz Media Group, Inc. ("Katz") as
its media representative to sell national spot advertising air time. Katz is a
wholly owned subsidiary of Chancellor Media. For the five months ended May 31,
1998 and the seven months ended December 31, 1998, the Company incurred $1.6
million and $2.3 million, respectively, for media representation services from
Katz.

Beginning in 1998, the Company broadcasts advertising over the Company's
portfolio of stations from the AMFM Radio Networks. The AMFM Radio Networks are
owned and operated by Chancellor Media. For the seven months ended December 31,
1998, the Company recorded $2.1 million in revenue relating to the AMFM Radio
Networks.

As stated in Note 4, in 1998, the Company began earning LMA revenue from
Chancellor Media under the Chancellor Exchange Agreement. For the seven months
ended December 31, 1998, the Company earned LMA fees of approximately $28,800
from the Chancellor Exchange Stations.

Prior to April 1996, SCMC, where Robert F.X. Sillerman, the Company's
former Executive Chairman, serves as Chairman of the Board of Directors and
Chief Executive Officer, had been engaged by the Company from time to time for
advisory services with respect to specific transactions. In April 1996, the
Company and SCMC entered into the SCMC Termination Agreement, pursuant to which
SCMC assigned to the Company its rights to provide services to, and receive fees
payable by each of, MMR and Triathlon in respect of such consulting and
marketing services to be performed on behalf of such companies, except for fees
related to certain transactions pending at the date of such agreement. In
addition, the Company and SCMC terminated the arrangement pursuant to which SCMC
performed financial consulting services for the Company. Upon consummation of
the MMR Merger, SCMC's agreement with MMR was terminated. Prior to consummation
of the MMR Merger, MMR paid an annual fee of $500 to SCMC and Triathlon paid
SCMC an annual fee of $300 (which increased to $500 effective January 1, 1997).
In addition, Triathlon has agreed to advance to SCMC an amount of $500 per year
in connection with transaction-related services to be rendered by SCMC. However,
if the agreement between SCMC and Triathlon is terminated or if an unaffiliated
person acquires a majority of the capital stock of Triathlon the unearned fees
must be repaid. Pursuant to the SCMC
F-27
91
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Termination Agreement, the Company has agreed to continue to provide consulting
and marketing services to Triathlon until the expiration of their agreement on
June 1, 2005, and not to perform any consulting or investment banking services
for any person or entity other than Triathlon in the radio broadcasting industry
or in any business which uses technology for the audio transmission of
information or entertainment. Pursuant to the SFX Merger, the Company
transferred the Triathlon consulting contract to SFX Entertainment. In
consideration of the foregoing agreements, the Company issued to SCMC warrants
to purchase up to 39 shares of Class A Common Stock at an exercise price,
subject to adjustment, of $522,511 per share (the market price at the time the
financial consulting arrangement was terminated). The Company also forgave a
$2.0 million loan made by the Company to SCMC, plus accrued and unpaid interest
thereon. Pursuant to such agreement, the former Chairman agreed with the Company
that he would supervise, subject to the direction of the Board of Directors, the
performance of the financial consulting and other services previously performed
by SCMC for the Company. During 1996, the Company received fees of $292 from MMR
and $511 from Triathlon. During 1997, the Company received fees of $1,794 from
Triathlon. In connection with this agreement, the Company had a $44 receivable
from Triathlon at December 31, 1997.

In 1996, the Company paid to SCMC advisory fees of $4,000 in connection
with the Liberty acquisition, the Prism acquisition, the Greenville acquisition,
the Jackson acquisitions, the Greensboro acquisition and the Raleigh-Greensboro
acquisition. In addition, the Company paid SCMC, on behalf of MMR, a
non-refundable fee of $2,000 for investment banking services provided to MMR in
connection with the MMR Merger.

Prior to June 1996, the Company held a non-recourse note receivable from
the Company's former President in the amount of $2,000 which was secured by 9
shares of Class B Common Stock. The note bore interest at 6% per annum. Interest
income of $60 was accrued in 1996 on the loan. The loan and interest accrued
were forgiven in June 1996 pursuant to an agreement with the former President
and are included in non-recurring and unusual charges.

During the last quarter of 1996, the Company consolidated all of its
corporate office functions in New York. Prior to such time, the Company had an
agreement with the Company's former Chairman related to the maintenance of the
Company's New York Office whereby the Company reimbursed SCMC for certain office
expenses and salaries for certain employees of SCMC who provided services on
behalf of the Company. In addition certain of the Company's employees performed
certain services for other entities affiliated with SCMC. In connection with
SCMC Termination Agreement and the consolidation of the Company's Corporate
Office in New York, SCMC employees who provided services on behalf of the
Company became employees of the Company. Total reimbursements paid to SCMC for
office expenses and salaries totaled approximately $1,082 for the year ended
December 31, 1996. The reimbursements paid to SCMC in 1996 included $292 and
$261 of fees paid by MMR and Triathlon, respectively, directly to SCMC following
the effective date of the SCMC Termination Agreement. The timing of these
payments during the year were such that the Company had advanced amounts to SCMC
of up to $230 during the period.

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

The Company's former Executive Vice President, General Counsel and Director
is Of Counsel to the law firm of Baker & McKenzie. Baker & McKenzie served as
counsel to the Company in certain matters up to the date of the SFX Merger.
Baker & McKenzie compensates the executive based, in part, on the fees it
receives from providing legal services to the Company and other clients
originated by the executive. The Company paid Baker & McKenzie $4,886, $6,813
and $3,915 for legal services during 1996, 1997 and the five months ended May
31, 1998, respectively.
F-28
92
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments for which the estimated fair value of the
instrument differs significantly from its carrying amount at December 31, 1997
and 1998. The fair value of a financial instrument is defined as the amount at
which the instrument could be exchanged in a current transaction between willing
parties.

PREDECESSOR COMPANY
------------------- -------------------
1997 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------

Long-term debt -- Senior Subordinated
Notes.................................... $450,566 $493,313 $324,039 $355,733
Redeemable preferred stock................. 375,796 521,620 148,669 152,891

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:

Cash, short-term debt and accounts receivable and payable: the
carrying amount approximates fair value because of the short maturity of
these instruments.

Long-term debt: The fair value of the Company's senior subordinated
notes is based on quoted market prices. As amounts outstanding under the
Company's Capstar Radio Note bear interest at current market rates, their
carrying amounts approximate fair market value.

Redeemable preferred stock: The fair value is estimated based on
quoted market prices.

NOTE 14 -- NON-RECURRING AND UNUSUAL CHARGES, INCLUDING ADJUSTMENTS TO BROADCAST
RIGHTS AGREEMENT

The Company recorded non-recurring and unusual charges of $35,318 in the
five months ended May 31, 1998 which consisted primarily of (i) $5,554 of
compensation expense related to bonuses and options issued, (ii) $1,420 relating
to the settlement of lawsuits, (iii) $489 relating to the increase in value of
certain Stock Appreciation Rights, (iv) $16,600 relating to the consent
solicitations from the holders of its Senior Subordinated Notes due 2006 and the
holders of its Series E Preferred Stock in connection with the Spin-Off, (v)
$6,255 of expenses, primarily legal, accounting and regulatory fees associated
with the SFX Merger and the consent solicitations in connection with the
Spin-Off and (vi) $5,000 related to a brokers contract due upon a change in
control.

The Company recorded non-recurring and unusual charges related to the SFX
Merger and the Spin-Off of SFX Entertainment of $20,174 in 1997 which consisted
primarily of (i) $12,140 related to bonuses paid to officers of the Company (ii)
a write-off of a $2,500 loan made to the Company's then Executive Chairman (iii)
$1,713 relating to an increase in value of certain Stock Appreciation Rights and
(iv) $3,821 of other expenses, primarily legal, accounting and regulatory fees.

The Company recorded non-recurring and unusual charges of $28,994 in 1996
which consisted primarily of (i) payments in excess of the fair value of stock
repurchased totaling $12,461 to the company's former President and the write-off
by the Company of $2,330 relating to a loan and accrued interest to the
Company's former President, (ii) $5,586 related to the SCMC Termination
Agreement (Note 12), (iii) $4,575 for the repurchase of options and rights to
receive options held by the former Chief Operating Officer and (iv) a charge of
$1,600 related to the termination of the Company's contractual four-year
broadcast rights of Texas Rangers baseball and an adjustment in the value of the
contract for the 1996 season.

F-29
93
CAPSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS SFX BROADCASTING, INC. AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 15 -- DEFINED CONTRIBUTION PLAN

The Company participates in a 401(k) defined contribution plan in which
most of its employees were eligible to participate. The Plan presently provides
for discretionary employer contributions. The Company made contributions of
approximately $672 in 1998. The Company made no contributions in 1996 or 1997.

NOTE 16 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

PREDECESSOR COMPANY
------------------------------- ------------
FIVE MONTHS SEVEN MONTHS
ENDED ENDED
MAY 31, DECEMBER 31,
1996 1997 1998 1998
------- ------- ----------- ------------

Cash paid during the year for:
Interest........................................ $30,898 $65,184 $30,760 $40,397
Income taxes.................................... $ 81 $ 1,059 $ 1,200 $89,625

Supplemental schedule of noncash investing and financing activities:

During 1998, the Company's parent contributed certain radio stations
and rights to the Company with an aggregate historical book value and fair
value of approximately $11,509.

Issuance of equity securities, including deferred equity security
issuance, and assumption of debt in connection with certain acquisitions
(Note 4)

Agreements to pay future cash consideration in connection with certain
acquisitions (Note 4)

Exchange of radio stations (Note 4)

Issuance of warrants in connection with SCMC termination agreement
(Note 12).

F-30
94

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Capstar Communications, Inc.

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

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

PRICEWATERHOUSECOOPERS LLP

Austin, Texas
February 26, 1999

F-31
95

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
DESCRIPTION PERIOD EXPENSES DEDUCTIONS ACQUISITIONS OF PERIOD
- ----------- ------------ ---------- ---------- ------------ --------------

Allowance for doubtful accounts:
Year ended December 31, 1996............ $ 922 $ 922 $ 528 $ 304 $1,620
Year ended December 31, 1997............ 1,620 2,331 3,164 1,477 2,264
Five months ended May 31, 1998.......... 2,264 793 837 -- 2,220
Seven months ended December 31, 1998.... 2,220 1,142 1,598 2,747 4,511

F-32
96

INDEX TO EXHIBITS

EXHIBIT
NO. DESCRIPTION
------- -----------

2.1.1 -- Agreement and Plan of Merger, dated August 26, 1998,
among Chancellor Media, Capstar Broadcasting and CBC
Acquisition Company, Inc.(1)
2.1.2 -- Voting Agreement, dated August 26, 1998, among Chancellor
Media, Capstar Broadcasting Partners, L.P., Thomas O.
Hicks and Steven R. Hicks.(1)
3.1 -- Amended and Restated Certificate of Incorporation of
Capstar Communications.*
3.2 -- By-laws of Capstar Communications.(25)
4.5.1 -- Certificate of Designation of the Powers, Preferences and
Relative, Participating, Optional and Other Special
Rights of Preferred Stock and Qualifications, Limitations
and Restrictions Thereof of 12 5/8% Series E Cumulative
Exchangeable Preferred Stock of SFX Broadcasting, Inc.
("SFX"), due October 31, 2006 ("SFX Certificate of
Designation").(6)
4.5.2 -- Certificate of Amendment to SFX Certificate of
Designation.(7)
4.6 -- Indenture, governing SFX's 12 5/8% Subordinated Exchange
Debentures due 2006.(8)
4.7.1 -- Indenture, dated May 31, 1996, between SFX, the
guarantors named therein and Chemical Bank, governing
SFX's 10 3/4% Senior Subordinated Notes due 2006 (the
"10 3/4% SFX Notes Indenture").(9)
4.7.2 -- First Supplement to 10 3/4% SFX Notes Indenture.(8)
4.7.3 -- Second Supplement to 10 3/4% SFX Notes Indenture.(8)
4.7.4 -- Third Supplement to 10 3/4% SFX Notes Indenture.(8)
4.7.5 -- Fourth Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.6 -- Fifth Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.7 -- Sixth Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.8 -- Seventh Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.9 -- Eighth Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.10 -- Ninth Supplement to 10 3/4% SFX Notes Indenture.(2)
4.7.11 -- Tenth Supplement to 10 3/4% SFX Notes Indenture.(10)
4.8.1 -- Indenture, dated October 7, 1993, between SFX and
Chemical Bank, as trustee, governing SFX's 11 3/8% Senior
Subordinated Notes due 2000 (the "11 3/8% SFX
Indenture").(11)
4.8.2 -- First Supplement to 11 3/8% SFX Indenture.(9)
10.1.1 -- Credit Agreement, dated May 29, 1998, among Capstar
Radio, Capstar Partners, Capstar Broadcasting and the
financial institutions party thereto.(12)
10.1.2 -- First Amendment to Credit Agreement.(26)
10.2 -- Financial Advisory Agreement, dated as of July 1, 1997,
between Capstar Broadcasting and Hicks, Muse & Co.
Partners, L.P. ("HMCo").(5)
10.3 -- Financial Advisory Agreement, dated as of October 16,
1996, between Capstar Partners and HMCo.(3)
10.4 -- Monitoring and Oversight Agreement, dated as of July 1,
1997, between Capstar Broadcasting and HMCo.(5)
10.5 -- Monitoring and Oversight Agreement, dated as of October
16, 1996 between Capstar Partners and HMCo.(3)

EXHIBIT
NO. DESCRIPTION
------- -----------

10.6 -- Form of Indemnification Agreement between Capstar
Broadcasting and each of its directors and officers.(5)+
10.7.1 -- Employment Agreement, dated February 14, 1997, between
Capstar Partners and R. Steven Hicks.(3)+
10.7.2 -- First Amendment to Employment Agreement, effective July
1, 1997, between R. Steven Hicks, Capstar Partners, and
Capstar Broadcasting.(13)+
10.7.3 -- Second Amendment to Employment Agreement.(26)+
10.8 -- Employment Agreement, dated July 1, 1997, between Capstar
Broadcasting and Paul D. Stone.(5)+
10.8.2 -- First Amendment to Employment Agreement.(26)+
10.9 -- Employment Agreement dated July 1, 1997, between Capstar
Broadcasting and William S. Banowsky, Jr.(5)+
10.9.2 -- First Amendment to Employment Agreement.(26)+
10.10.1 -- Employment Agreement between GulfStar Communications,
Inc. and John D. Cullen.(14)+
10.10.2 -- First Amendment to Employment Agreement between GulfStar
Communications, Inc. and John D. Cullen.(4)+
10.11 -- Not used.
10.12.1 -- Amended and Restated Capstar Broadcasting Corporation
1998 Stock Option Plan.(16)+
10.12.2 -- First Amendment to Amended and Restated Capstar
Broadcasting Corporation 1998 Stock Option Plan.(26)+
10.13.1 -- Form of Incentive Stock Option Agreement.(5)+
10.13.2 -- Form of Non-Qualified Stock Option Agreement for
Employees.(5)+
10.13.3 -- Form of Non-Qualified Stock Option Agreement for
Non-Employees.(14)+
10.14.1 -- Affiliate Stockholders Agreement, dated October 16, 1996,
among Capstar Partners, Hicks Muse, R. Steven Hicks and
the security holders listed therein.(3)
10.14.2 -- First Amendment and Supplement to Affiliate Stockholders
Agreement, dated January 27, 1997, by and among Capstar
Partners, the security holders listed therein and Hicks
Muse.(3)
10.14.3 -- Second Amendment to Affiliate Stockholders Agreement,
dated February 20, 1997, by and among Capstar Partners,
the security holders listed therein and Hicks Muse.(17)
10.14.4 -- Third Amendment to Affiliate Stockholders Agreement,
dated June 20, 1997, by and among Capstar Broadcasting,
Capstar Partners, the security holders listed therein and
Hicks Muse.(5)
10.14.5 -- Fourth Amendment to Affiliate Stockholders Agreement,
dated May 18, 1998, by and among Capstar Broadcasting,
Capstar Partners, the security holders listed therein and
Hicks Muse.(2)
10.15.1 -- Management Stockholders Agreement, dated November 26,
1996, among Capstar Partners, the securityholders listed
therein and Hicks Muse.(3)
10.15.2 -- First Amendment to Management Stockholders Agreement,
dated January 27, 1997, by and among Capstar Partners and
the security holders listed therein.(3)

EXHIBIT
NO. DESCRIPTION
------- -----------

10.15.3 -- Second Amendment to Management Stockholders Agreement,
dated June 20, 1997, by and among Capstar Broadcasting,
Capstar Partners, the security holders listed therein and
Hicks Muse.(5)
10.15.4 -- Third Amendment to Management Stockholders Agreement,
dated May 18, 1998, by and among Capstar Broadcasting,
Capstar Partners, the security holders listed therein and
Hicks Muse.(2)
10.16 -- Amended and Restated GulfStar Stockholders Agreement,
dated May 18, 1998, by and among Capstar Broadcasting,
the security holders listed therein, and Hicks Muse.(2)
10.17 -- Amended and Restated Warrant, dated April 1, 1998, issued
to R. Steven Hicks for 323,120 shares of Class C Common
Stock.(12)+
10.17.2 -- Amendments to Warrants.(26)+
10.18 -- Amended and Restated Warrant, dated April 1, 1998, issued
to R. Steven Hicks for 255,317 shares of Class C Common
Stock.(12)+
10.19 -- Amended and Restated Warrant, dated April 1, 1998, issued
to R. Steven Hicks for 930,000 shares of Class C Common
Stock.(12)+
10.23.1 -- Letter Agreement, dated February 20, 1998 between
Chancellor Media Corporation of Los Angeles and Capstar
Broadcasting ("Chancellor Letter Agreement").(21)
10.23.2 -- Amendment to Chancellor Letter Agreement.(24)
10.24 -- Form of Time Brokerage Agreement with Chancellor Media
Corporation.(24)
10.26 -- Warrant, dated April 1, 1998, issued to R. Steven Hicks
for 187,969 shares of Class C Common Stock.(12)
10.27 -- Warrant, dated April 1, 1998, issued to R. Steven Hicks
for 500,000 shares of Class C Common Stock.(12)
10.28.1 -- Letter of Credit Agreement, dated February 12, 1998
between R. Steven Hicks and Banker's Trust Company.(22)
10.28.2 -- Guaranty and Purchase Agreement, dated February 12, 1998
made by Capstar Radio in favor of Banker's Trust
Company.(23)
10.28.3 -- Letter Agreement between R. Steven Hicks and the
Company.(26)
10.29.1 -- Warrant, dated April 1, 1998, issued to Paul D. Stone for
150,000 shares of Class A Common Stock.(12)+
10.29.2 -- First Amendment to Warrant.(26)+
10.30.1 -- Warrant, dated April 1, 1998, issued to William S.
Banowsky, Jr. for 150,000 shares of Class A Common
Stock.(12)+
10.30.2 -- First Amendment to Warrant.(26)+
10.31 -- Agreement and Plan of Merger, dated July 23, 1998, among
Capstar Radio, TBC Radio Acquisition Corp. and Triathlon
Broadcasting Company.(15)
10.32 -- Letter Agreement, dated January 2, 1998, between Capstar
Broadcasting and Chancellor Media Corporation of Los
Angeles regarding The AMFM Radio Networks.(26)
10.33 -- Master Agreement, dated March 6, 1997, between Katz
Communications Inc., Capstar Partners and GulfStar
Communications.(26)
10.34 -- Stock Purchase Agreement, dated as of May 26, 1998, by
and among Capstar Radio, Patterson Broadcasting, Inc. and
SBI Radio Acquisition Corporation.(27)

EXHIBIT
NO. DESCRIPTION
------- -----------

10.35 -- Revolving Credit Note, dated May 29, 1998, made payable
by Capstar Communications to Capstar Radio.(27)
11.1 -- Statement re computation of historical and pro forma
historical per share earnings.*
11.2 -- Statement of computation of pro forma per share
earnings.*
21.1 -- List of Subsidiaries.*
27.1 -- Financial Data Schedule.*