SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(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, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT Of 1934
For the transition period from to

COMMISSION FILE NUMBER: 333-43287
----------------

SFX ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 13-3977880
(State or other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)

650 MADISON AVENUE, 16TH FLOOR 10022
NEW YORK, NEW YORK (Zip Code)
(Address of Principal Executive Offices)

(212) 838-3100
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE

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 [ ] No [ X ]

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

Aggregate market value as of the close of business on March 16, 1998 of
the common equity held by non-affiliates of the registrant was $0. As of such
date, all of the registrant's common equity was held by SFX Broadcasting, Inc.,
the parent of the registrant.

The number of shares of the registrant's Class A Common Stock, $.01 par
value, and Class B Common Stock, $.01 par value, outstanding as of March 16,
1998 was 1,000 and 1,000, respectively.

DOCUMENTS INCORPORATED BY REFERENCE
None

PART I

ITEM 1. BUSINESS.

GENERAL

SFX Entertainment, Inc. (the "Company") was formed as a wholly-owned
subsidiary of SFX Broadcasting, Inc. ("SFX Broadcasting") in December 1997 and
as the parent company of SFX Concerts, Inc. ("Concerts"). Concerts was formed
in January of 1997 to acquire and hold SFX Broadcasting's live entertainment
operations.

The Company is a leading promoter of, and operator of venues for, live
entertainment events. Management believes that the Company is the largest
diversified promoter and producer of live entertainment, including music
concerts, theatrical shows and specialized motor sports events. The Company
believes that it owns and/or operates the largest network of venues used
principally for music concerts and other live entertainment events in the
United States, with 39 venues either directly owned or operated under lease or
exclusive booking arrangements in 21 of the top 50 markets, including 9
amphitheaters in 6 of the top 10 markets. Through its large number of venues,
its strong market presence and the long operating histories of the Company and
the businesses acquired pursuant to the Recent and Completed Acquisitions (as
defined herein), the Company operates an integrated franchise that promotes and
produces a broad variety of live entertainment events locally, regionally and
nationally. During 1997, approximately 1.4 million people attended
approximately 210 events promoted and/or produced by the Company, including
approximately 200 music concerts. During the same year, approximately 25
million people attended 9,100 events promoted and/or produced by the Company
and the businesses acquired in the Recent Acquisitions (the "Acquired
Businesses"), including approximately 3,880 music concerts, 4,850 theatrical
shows and 188 specialized motor sports events. These events included: (a) music
concerts featuring artists such as The Rolling Stones, Phish, Fleetwood Mac,
Ozzy Osbourne and Alanis Morissette, (b) music festivals such as Lollapalooza
and the George Strait Country Music Festival, (c) touring theatrical
productions such as The Phantom of the Opera, Jekyll & Hyde, Rent and The Magic
of David Copperfield, and (d) specialized motor sports events, such as Truck
Fest and American Motorcycle Association Supercross racing events.

The Company's core business is the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by the Company and in third-party
venues. As promoter, the Company typically markets events and tours, sells
tickets, rents or otherwise provides event venues and arranges for local
production services (such as stage, set, sound and lighting). As producer, the
Company (a) creates tours for music concert, theatrical, specialized motor
sports and other events, (b) develops and manages Broadway-style touring
theatrical shows ("Touring Broadway Shows") and, (c) develops specialized motor
sports and other live entertainment events. In connection with its live
entertainment events, the Company also derives related revenue streams,
including from the sale of corporate sponsorships and advertising, the sale of
concessions and the merchandising of a broad range of products. On a pro forma
basis giving effect to the Recent Acquisitions, the Company's music and
ancillary businesses would have comprised approximately 78%; theater would have
comprised approximately 16%; and specialized motor sports would have comprised
approximately 6% of the Company's total net revenues for the 12 months ended
December 31, 1997.

SFX MERGER AND THE SPIN-OFF

SFX Broadcasting was formed in 1992 principally to acquire and operate
radio broadcasting stations. SFX Broadcasting currently operates in two lines
of business: radio broadcasting and live entertainment. In August 1997, SFX
Broadcasting agreed to merge (the "SFX Merger") its radio business with a
subsidiary of SBI Holdings Corporation ("SFX Buyer"). In connection with the
proposed Spin-Off (as defined herein), SFX Broadcasting (a) has contributed
its concert and other live entertainment operations to the Company and
(b) intends to distribute all of the outstanding shares of common stock of
the Company to the holders of common stock, Series D preferred stock,
interests in SFX Broadcasting's director deferred stock ownership plan and
certain warrants of SFX Broadcasting in a spin-off (the "Spin-Off").
The receipt of shares by stockholders of SFX Broadcasting pursuant to the
Spin-Off will be a taxable transaction. SFX Broadcasting intends to consummate
the Spin-Off on or prior to the consummation of the SFX Merger. The Spin-Off
is subject to certain conditions, including (a) the acceptance for listing or
trading of the Class A Common Stock, subject to official notice of issuance,
on a national exchange or The Nasdaq Stock Market and (b) approval of the
Spin-Off as presently contemplated by the stockholders of SFX Broadcasting at
a special meeting of SFX Broadcasting scheduled to be held on March 26, 1998.
There can be no assurance that the conditions to the Spin-Off will be
satisfied. However, the Spin-Off is not conditioned on the consummation of
the SFX Merger. Management believes that the Spin-Off is likely
to be consummated in the second quarter of 1998, although there can be no
assurance that the Spin-Off will be consummated on the terms described herein
or at all. See "-- Agreements Relating to the Spin-Off."

1997 ACQUISITIONS

Delsener/Slater

In January 1997, SFX Broadcasting acquired Delsener/Slater Enterprises,
Ltd. ("Delsener/Slater"), a leading concert promotion company, for an aggregate
consideration of approximately $27.6 million, including $2.9 million for
working capital and the present value of deferred payments of $3.0 million to
be paid without interest over five years and $1.0 million to be paid without
interest over ten years. Delsener/Slater has long-term leases or is the
exclusive promoter for seven of the major concert venues in the New York City
metropolitan area, including the Jones Beach Amphitheater, a 14,000-seat
complex located in Wantagh, New York, and the PNC Bank Arts Center (formerly
known as the Garden State Arts Center), a 17,500-seat complex located in
Holmdel, New Jersey.

Meadows

In March 1997, the Company acquired the stock of certain companies which
own and operate the Meadows Music Theater ("Meadows"), a 25,000-seat
indoor/outdoor complex located in Hartford, Connecticut for $900,000 in cash,
250,838 shares of SFX Broadcasting Class A Common Stock with a value of
approximately $7.5 million and the assumption of approximately $15.4 million in
debt.

The shares are subject to a put provision between the second and seventh
anniversary of the closing whereby the holder can put each share back to SFX
Broadcasting for the per share value of SFX Broadcasting as of the acquisition
closing date, as defined, less 10%. Additionally the shares may be called by
SFX Broadcasting at any time after the merger date and before the seventh
anniversary of the closing for an aggregate purchase price of $8.3 million
(the "Meadows Repurchase"). If the option is not exercised, the Company will be
required to pay approximately $10.5 million. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Liquidity and
Capital Resources--Meadows Repurchase."

Sunshine Promotions

The acquisitions of Delsener/Slater, Meadows, and Sunshine Promotions are
collectively referred to herein as the "Completed Acquisitions." The cash
portion of the Completed Acquisitions was financed through capital
contributions from SFX Broadcasting.

1998 ACQUISITIONS

In February and March of 1998, the Company completed its acquisitions of
PACE Entertainment Corporation ("PACE"); Contemporary Group ("Contemporary");
BG Presents, Inc. ("BGP"); Album Network, Inc., SJS Entertainment Corporation
and The Network 40 (collectively, "Network"); Concert/Southern Promotions
("Concert/Southern") and certain related entities. The aggregate purchase price
of such acquisitions was approximately $506.1 million, consisting of
approximately $442.1 million in cash, repaid debt and payments for working
capital, $7.8 million in assumed debt and the agreement to issue, or the
issuance of securities convertible into, an aggregate of approximately 4.2
million shares of the Company's Class A Common Stock (the "Class A Common
Stock") with an attributed negotiated value of $56.2 million. Following is a
brief description of the Acquired Businesses. The following descriptions are
not intended to be complete descriptions of the terms of the acquisition
agreements and are qualified by reference to the acquisition agreements, copies
of which are attached hereto as exhibits and are incorporated herein by
reference.

BGP

On February 24, 1998, the Company acquired BGP for total consideration
of $80.3 million comprised of $60.8 million in cash, $12.0 million in repayment
of debt, which amount was at least equal to BGP's working capital (as defined
in the acquisition agreement) and options to purchase 562,640 shares of Class A
Common Stock upon consummation of the Spin-Off valued by the parties at $7.5
million. BGP is one of the oldest promoters and producers of live entertainment
in the United States and is the principal promoter of live entertainment in the
San Francisco Bay area. During 1997, more than 2.3 million

people attended approximately 1,450 events promoted and/or produced by BGP.
Events recently promoted or produced by BGP include: (a) music concerts
featuring artists such as Alanis Morissette, Bruce Springsteen, Dave Matthews,
Gloria Estefan, James Taylor, Jimmy Buffett, Metallica, Neil Diamond, Phish and
The Who; and (b) theatrical shows such as Lord of the Dance and The Magic of
David Copperfield. In 1997, BGP promoted (a) 124 amphitheater events and (b)
1,199 non-amphitheater events in over 20 markets. Divisions of BGP also produce
and promote national gymnastic and ice-skating tours and events as well as
major corporate events for San Francisco and Silicon Valley corporate
customers. In 1997, BGP presented a total of 133 gymnastic, ice-skating and
major corporate events for clients such as Adobe Systems, Charles Schwab,
Banana Republic, Oracle, PowerBar, Sterling Software and Excite. BGP also acts
as a talent manager for national acts including the Neville Brothers, the Gin
Blossoms, Taj Mahal and Cracker.

PACE

On February 25, 1998, the Company acquired all of the outstanding capital stock
of PACE for a total purchase price of $150.1 million comprised of $109.5
million in cash, the repayment of $20.6 million of debt and the issuance upon
the Spin-Off of 1.5 million shares of Class A Common Stock valued by the
parties at approximately $20.0 million. PACE is one of the largest diversified
promoters and producers of live entertainment in the United States, having what
the Company believes to be the largest distribution network in each of its
music concerts, theatrical shows and motor sports events business segments. As
part of its distribution network for music concerts, PACE owns interests in and
manages the largest network of amphitheaters in the United States. During 1997,
more than 15 million people attended approximately 5,700 events produced or
presented by PACE. These events included: (a) music concerts featuring artists
such as Rod Stewart, Jimmy Buffett and Ozzy Osbourne; (b) theatrical shows such
as The Phantom of the Opera, Jekyll & Hyde, Rent and The Magic of David
Copperfield; and (c) specialized motor sports events featuring AMA Supercross
racing, monster trucks, demolition derbies and thrill acts. In 1997, PACE's
music division, PACE Music, presented 491 amphitheater events in the United
States, and 348 non-amphitheater events in over 40 markets. Its recently formed
touring division, PACE Touring, produces national tours of music events, having
produced two national music tours in 1997. In 1997, PACE's theatrical division,
PACE Theatrical, (a) presented approximately 300 weeks of theater in over 30
markets, including 31 subscription markets with approximately 220,000
subscribers, and (b) produced or had significant investments in the production
of 19 Broadway Shows and Touring Broadway Shows. In 1997, PACE Motor Sports
presented over 188 events in over 70 markets. In connection with the
acquisition of PACE, the Company has obtained 100% of Pavilion Partners, a
partnership that owns interests in 10 of the 41 venues to be owned by the
Company, by acquiring one-third of Pavilion Partners through the acquisition of
PACE and the remaining two-thirds of Pavilion Partners from YM Corp. ("Sony
Sub") and The Westside Amphitheater Corporation and Charlotte Amphitheater
Corporation, (collectively "Blockbuster Sub"), for a combined consideration of
$90.6 million (comprised of cash of $41.4 million, the repayment of $43.1
million of debt related to the two-thirds interest and the assumption of $6.1
million of debt related to a capital lease).

Under certain circumstances, the Company may be required to sell either
its motor sports or theatrical lines of business. See "Executive Compensation--
Employment Agreements and Arrangements with Certain Officers and Directors."

The agreement governing the partnership through which PACE holds its
interest in the Lakewood Amphitheater in Atlanta, Georgia contains a provision
that purports to restrict PACE and its affiliates from directly or indirectly
owning or operating another amphitheater in Atlanta. In management's view, this
provision will not materially affect the business or prospects of the Company.
However, the Company acquired an interest in the Chastain Park Amphitheater,
also in Atlanta, in the Concert/Southern acquisition described below. The
Company intends to seek a waiver of the restrictive provision; however, it is
possible that the Company will be unable to obtain the waiver.

Contemporary

On February 27, 1998, the Company acquired by merger and asset
acquisition, the music concert, live entertainment, event marketing,
computerized ticketing and related businesses of Contemporary and the 50%
interest in the Riverport Amphitheater Joint Venture not owned by Contemporary
for approximately $101.4 million comprised of $72.8 million in cash, a payment
for working capital of $9.9 million, and the issuance of preferred stock of the
Company which, upon consummation of the Spin-Off, will convert into 1,402,850
shares of Class A Common Stock valued by the parties at approximately $18.7
million. Contemporary is a vertically-integrated live entertainment and special
event promoter and producer, venue operator and consumer marketer. Contemporary
is also the leading promoter, producer and tour developer of Christian
performers (including Amy Grant and Michael W. Smith) and is a major promoter
and producer of comedy tours (including those of Jerry Seinfeld, Tim Allen,
Chris Rock and HBO's Def Comedy Jam). Contemporary (through its Capital Tickets
subsidiary) sells tickets for its own events and events at its venues through a
wide distribution of retail outlets and a state-of-art interactive voice
response phone system (operated by its Dialtix affiliate) that permits
automated ticket orders and credit card payment. In addition to the venues
controlled by Contemporary, clients of Capital Tickets and Dialtix include the
Kiel Center, a 20,000 seat arena in St.

Louis, Missouri (home arena of the National Hockey League's St. Louis Blues),
and Trans World Dome, a 60,000 seat stadium in St. Louis, Missouri (home
stadium of the National Football League's St. Louis Rams).

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

Network

On February 27, 1998, the Company acquired Album Network, Inc., SJS
Entertainment, Inc. ("SJS") and The Network 40 for a total purchase price of
$66.8 million comprised of cash of $52.0 million, a payment for working capital
of $1.8 million, reimbursed seller's costs of $500,000, the purchase of an
office building and related property for $2.5 million and the issuance upon the
Spin-Off of 750,188 shares of Class A Common Stock upon consummation of the
Spin-Off valued by the parties at approximately $10.0 million. The $2.5 million
purchase of the office building and related property consists of cash of
$700,000 and the assumption of debt of $1.8 million. Network is engaged in
music marketing, research and artist development activities and is a publisher
of trade magazines for radio broadcasters, music retailers, performers and
record industry executives. Each magazine is focused on research and insight
common to a specific contemporary radio format. These publications, Album
Network, Network 40, Urban Network, Virtually Alternative, Totally Adult,
AggroActive and Educated Guess, derive revenue from advertising sales and
subscriptions. Network also publishes The Yellow Pages of Rock, which is a
reference book popular with people and companies doing business in the
broadcast music industry. Network is currently developing a consumer music
magazine that will be distributed free to customers at music retail locations.
Network also provides radio airplay and music retail research services to
record labels, artist managers, retailers and radio broadcasters. Network
gathers its information directly from nearly 1,100 radio programmers and
product buyers and, in 1996, had more than 300 clients for these services.
Annual fees during this period ranged from $2,500 to $250,000 per corporate
client.

Network and SJS are both creators and distributors of network radio
special events and live concert programming for over 400 music radio stations
in the top 200 United States radio markets. Additionally, SJS is an independent
creator, producer and distributor of music related programming, services and
research. SJS produces eight daily radio "show prep" services that stations use
to supplement in-house content production. In 1996, SJS delivered these
services to approximately 1,100 radio stations. Together, Network and SJS
barter or exchange these programs and services to radio broadcasters for
commercial inventory or airtime, which is in turn sold by SJS to national
network advertisers. Network also provides consulting and entertainment
marketing services to corporate clients with music business interests.

Concert/Southern

On March 4, 1998, the Company acquired Concert/Southern for a total cash
purchase price of $16.9 million (including a working capital payment of
$300,000). Concert/Southern is a promoter of live entertainment in the Atlanta
metropolitan area. During 1997, more than 555,000 people attended approximately
370 events promoted or produced by Concert/Southern. These events included
concerts featuring artists such as Celine Dion, James Taylor, Alanis
Morissette, ZZ Top, Bruce Springsteen, Bob Dylan, Harry Connick, Jr. and Gregg
Allman, in addition to a week-long engagement of the Broadway Show Stomp.
Concert/Southern also owns the rights to the Music Midtown Festival in downtown
Atlanta. This three day multi-stage music festival presents over 80 bands, and
in 1997 drew approximately 200,000 people to the downtown Atlanta area.
Concert/Southern is currently developing a Music Midtown Festival for June 1998
in Charlotte, North Carolina and has plans to export this festival to other
sites in future years.

The acquisitions of BGP, PACE, Contemporary, Network and Concert/Southern
are collectively referred to as the "Recent Acquisitions."

If the Spin-Off does not occur, the Company would be unable to issue
shares of its Class A Common Stock to the sellers in the Recent Acquisitions
and the aggregate cash purchase of the Recent Acquisitions would increase by
approximately $56.2 million. See "-- Risks Related to Recent Acquisitions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."

The approximately 4.2 million shares of the Class A Common Stock expected
to be issued in connection with certain of the Recent Acquisitions have been
valued by the applicable parties at $13.33 per share for purposes of
calculating the consideration to be given for the Recent Acquisitions. This
valuation is based on financial projections developed jointly by the Company
and the relevant sellers. There can be no assurance that the assumptions
underlying the valuation will, in

fact, be correct or that the valuation will approximate the actual trading
price of the Class A Common Stock upon consummation of the Spin-Off.

The live entertainment businesses acquired by the Company pursuant to
the Recent Acquisitions are summarized in the following table:

- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SELECTED
COMPANY CONSIDERATION VENUES(2)
($ IN MILLIONS)(1) BUSINESS(ES)
-------------------------------------------------------------------------------------------------------------------------------

PACE (INCLUDING $240.7 Music, theater and specialized motor sports American Theater
PAVILION PARTNERS) event promotion and production. PACE is one of Bayou Place Performance Hall
the largest diversified promoters and producers Blockbuster/SONY Music Entertainment
of live entertainment in the United States, Centre on the Waterfront
having what the Company believes is the largest Charlotte Blockbuster Pavilion
U.S. distribution network in each of its music, Cynthia Woods Mitchell Pavilion
theater and specialized motor sports businesses. Desert Sky Blockbuster Pavilion
Pavilion Partners is one of the leading owners Glen Helen Blockbuster Pavilion
of amphitheaters in the United States. Irvine Meadows Amphitheater
Lakewood Amphitheater
PNC Bank Arts Center
SONY Music/Blockbuster Coral Sky
Amphitheater
Star Lake Amphitheater
Starplex Amphitheater
Starwood Amphitheater
Walnut Creek Amphitheater
- --------------------------------------------------------------------------------------------------------------------------------
CONTEMPORARY $101.4 A fully-integrated live entertainment and Memorial Hall
special event promoter and producer, venue owner Riverport Amphitheater
and operator, ticket distributor and consumer Sandstone Amphitheater
marketer. Starlight Theater
West Fair Amphitheater
Westport Playhouse
Zoo Amphitheater
- --------------------------------------------------------------------------------------------------------------------------------
BGP $80.3 One of the oldest producers and promoters of, Concord Pavilion
and owner-operators of venues for, live Fillmore West Auditorium
entertainment in the United States, and a Greek Theater
leading promoter of live entertainment in the Punchline Comedy Club (Sacramento)
San Francisco Bay area. Punchline Comedy Club
(San Francisco)
Seattle, WA--Under construction.
Shoreline Amphitheater
Warfield Theater
- --------------------------------------------------------------------------------------------------------------------------------
NETWORK $66.8 Network, a leading publisher of trade magazines N/A
for the radio broadcasting industry, and
SJS, a leading independent creator,
producer and distributor of
music-related programming, services and
research.

- --------------------------------------------------------------------------------------------------------------------------------
CONCERT/ SOUTHERN $16.9 A promoter of live music events in the Atlanta, Chastain Park Amphitheater
Georgia metropolitan area. Cotton Club
Roxy Theater
- --------------------------------------------------------------------------------------------------------------------------------

(1) Includes the cash portion of purchase price, the negotiated value of the
Class A Common Stock, if any, to be issued, and debt or other liabilities,
if any, which was assumed or repaid. Excludes certain potential contingent
consideration. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Recent Acquisitions."

(2) Includes venues owned and/or operated under lease or under exclusive
booking arrangements.

THE COMPANY'S LIVE ENTERTAINMENT ACTIVITIES

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

Booking and Promotion

The Company books and promotes music concert, theatrical, specialized
motor sports and other live entertainment events and tours such as music
festivals, comedy tours, figure skating shows, gymnastics tours, motivational
speaking tours and other special events. The Company books and promotes events
in a number of types of venues (including amphitheaters, theaters, clubs,
arenas and stadiums) that are owned and/or operated by the Company or by third
parties. See "-- Venue Operations." The Company primarily promotes concerts
performed by newer groups having widespread popularity (e.g., Phish, Dave
Matthews and Hootie & the Blowfish) and by more established groups having
relatively long-standing and more stable bases of popularity (e.g., James
Taylor and Jimmy Buffett). The Company believes that its large distribution
network will enable it to set an aggregate guarantee for a series of shows,
mitigating the risk of loss associated with a single show. The Company also
believes that the market research and audience demographics database that it
acquired in the Recent Acquisitions, when combined with its existing audience
data collection efforts, will permit highly-effective, targeted marketing, such
as direct-mail and subscription series campaigns, which the Company believes
will increase ticket pre-sales and overall sales in a cost-efficient manner. In
addition, the Company's Capital Tickets retail distribution outlets and Dialtix
interactive, voice-response automated phone ticket order system are currently
operating in three markets. The Company believes that expanding the markets
where it can utilize its own ticketing sources will permit the Company to
promote its live entertainment events more effectively. The following table
identifies artists whose events were recently promoted by the Company or the
Acquired Businesses:

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

Production

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

The Touring Broadway Show production and promotion industry is highly
fragmented. The Company believes it is the largest of six multiple-market
promoters of Touring Broadway Shows in the United States, and that the
remainder of the industry is made up of single-market promoters. The Company
competes with other producers and promoters to obtain presentation arrangements
with venues and performing arts organizations in various markets, including in
markets that have more than one venue suitable for presenting a Touring
Broadway Show. The Company's competitors, some of whom have also been partners
of PACE in certain theater investments from time to time, include a number of
New York-based production companies that also promote Touring Broadway Shows
and a number of regional promoters. On a pro forma basis giving effect to the
Recent Acquisitions, the Company would have had a producing interest or
investment in the following shows for 1997 and/or 1998:

- ------------------------------------------------------------------------------------------------------------------------------
SHOW TITLE TYPE THE COMPANY'S INVOLVEMENT
- ---------- ---- -------------------------

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

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

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

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

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

Subscriptions historically have covered two-thirds of PACE's break-even
point for Touring Broadway Shows. In 1997,

PACE had approximately 220,000 subscribers for its Touring Broadway Shows.

The Company also produces motor sports events such as monster truck
events, tractor pulls, mud races, demolition derbies and motocross races, and
design tracks and other elements for those events. Competition among producers
in the specialized motor sports industry is between three large companies and a
number of smaller regional companies. The Company believes that it is the
largest participant in the industry, on a pro forma basis having produced 188
events in over 70 markets in 1997. The Company's two major specialized motor
sports competitors produce approximately 40 and 55 events each year,
respectively. The Company also competes with several regional specialized motor
sports companies, which each present only a small number of events, as well as
a number of local promoters that present only one or two events per year. See
"--Risk Factors--Control of Motor Sports and Theatrical Business."

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

Venue Operations

The Company's revenues from its venue operations are derived primarily
from corporate sponsorships and advertising, concessions, merchandise, parking
and other related items. A venue operator will typically receive for each event
it hosts a fixed fee or percentage of ticket sales for use of the venue, as
well as a fee representing between 40-50% of total concession sales from the
vendors and 10-25% of total merchandise sales from the performer. As a venue
owner, the Company typically receives 100% of sponsorship and advertising
revenues. Since few artists will play in every available market during a tour,
the Company competes with venues in other markets for dates of popular national
tours. The favorable cost structure of amphitheaters and their ability to draw
fans is often an important factor in the decision of a performer to choose to
perform in an amphitheater market. In certain cities, the Company also competes
with other venues to promote an artist in that city. The Company believes that
it owns and/or operates the largest network of venues used principally for
music concerts and other live entertainment events in the United States, with
39 venues either directly owned or operated under lease or exclusive booking
arrangements in 21 of the top 50 markets, including 9 amphitheaters in 6 of the
top 10 markets. The following chart sets forth certain information with respect
to the venues that are owned and/or operated by the Company:

New York--Northern New 1
Jersey--
Long Island:
PNC Bank Arts Center
(formerly Garden State Arts amphitheater 22-year lease 17,500(2) 6,512 48 312,595
Center)(Holmdel, NJ)........ (expires October 31, 2017)

Jones Beach Marine
Amphitheater (Wantagh, amphitheater 10-year license agreement 14,000(2) 8,712 44 383,314
NY)..................... (expires December 31, 1999)

Roseland theater exclusive booking agent 3,200 2,765 57 157,605
Theater..................
Westbury Music theater 43-year lease (expires 2,870 2,026 190 384,917
Fair(Westbury, NY)...... December 31, 2034)

Los Angeles--Riverside--Orange 2
County:
Glen Helen Blockbuster
Pavilion (San Bernardino, amphitheater 50% partnership interest in 25,000(3) 9,842 25 246,039
CA)....................... 25-year ease (expires July 1, 2018)
Irvine Meadows Amphitheater
(Irvine, CA) ............. amphitheater 50% partnership interest in 20-year 15,500 8,505 32 272,162
20-year lease (expires
February 28, 2017)

TOTAL AVG. NO. OF TOTAL SEATS
MARKET TYPE OF THE COMPANY'S SEATING ATTENDANCE EVENTS SOLD IN
MARKET AND VENUE RANK(1) VENUE INTEREST CAPACITY IN 1996 IN 1996 1996
---------------- -------- ----- -------- -------- ------- --------- ----------

San Francisco--Oakland--San 5
Jose:

Shoreline
Amphitheater...................... amphitheater facility owned; land leased for 35 25,000 10,306 37 381,315
years (expires November 30, 2021)

Concord
Pavilion.......................... amphitheater 10-year exclusive outside booking 12,500 6,002 42 252,070
agent (expires December 31, 2005)

Greek
Theater........................... theater 4-year lease (expires October 31, 8,500 5,572 10 55,718
1998)
Warfield
Theatre........................... theater 10-year lease (expires May 31, 2008) 2,250 1,727 56 96,726
Fillmore
Auditorium....................... theater 10-year lease (expires August 31, 1,249 913 146 133,279
2007)
Punchline Comedy
Club.......................... club 5-year lease (expires September 15, N/A N/A N/A N/A
2001)
Philadelphia--Wilmington-- 6
Atlantic City:
Blockbuster/SONY Music
Entertainment Centre on the
Waterfront(2).................... amphitheater 31-year lease (expires February 9, 25,000 7,111 48 341,319
2025)

Dallas--Ft. Worth: 9
Starplex
Amphitheater.................... amphitheater 32.5% partnership interest in 31 20,100 9,479 33 312,806
year lease (expires December 31,
2028)

Houston--Galveston--Brazoria: 10
Cynthia Woods Mitchell
Pavilion............ amphitheater 15-year management contract 13,000 9,178 36 258,364
(expires December 31, 2009)

Bayou Place Performance
Hall................. theater 50% partnership interest in 10-year 2,800 N/A N/A N/A
lease (expires December 31, 2007)

Atlanta: 12
Lakewood
Amphitheater.................... amphitheater 32.5% partnership interest in 19,000 9,768 22 214,896
35-year lease (expires January 1,
2019)
Chastain Park
Amphitheater..................... amphitheater 10-year lease (expires December 31, 7,000 5,732 28 160,492
2000)

Roxy
Theater.......................... theater 7-year lease (expires March 31, 1,600 673 92 61,960
2004)

Cotton
Club............................. theater 5-year lease (expires June 12, 2000) 650 321 152 48,751

St. Louis: 17
Riverport
Amphitheater..................... amphitheater facility owned 21,000 8,782 44 386,399

American
Theater.......................... theater 10-year lease (expires July 31, 2,000 1,485 22 32,662
2004)

Westport
Playhouse....................... theater 1-year lease (expires May 31, 1998) 1,100 897 22 19,724

Phoenix--Mesa: 18
Desert Sky Blockbuster
Pavilion(2).................... amphitheater 60-year.lease (expires June 30, 2049) 20,000 8,165 32 261,284

Pittsburgh: 19
Star Lake
Amphitheater................... amphitheater 45-year lease (expires December 31, 22,500 9,471 44 416,733
2034)

Kansas City: 24
Sandstone Amphitheater
(Kansas City,
KS)........................... amphitheater 10-year lease (expires December 31, 18,000 7,150 36 257,395
2002)

Starlight
Theater....................... theater annual exclusive booking agent 9,000 2,908 10 29,083
contract (1998 renewal under
negotiation)

Memorial
Hall.......................... theater 1998 contract renewal under 3,000 2,169 17 36,874
negotiation

Sacramento--Yolo: 26
Punchline Comedy
Club.......................... club 9-year lease (expires December 17, N/A N/A N/A N/A
1999)

Murat
Centre................. theater and 50-year lease (expires August 31, 2,700 1,900 85 161,500(4)
ballroom 2045)

Columbus: 30
Polaris amphitheater owned 20,000 6,751 38 256,553
Amphitheater...........

Charlotte--Gastonia--Rock 32
Hill:

Charlotte Blockbuster
Pavilion............... amphitheater owned 18,000 6,185 39 241,233

Hartford: 36
Meadows Music
Theater................ amphitheater facility owned; land leased for 37 25,000 6,914 38 262,741
years (expires September 13, 2034)

Rochester: 39
Finger Lakes
Amphitheater............ amphitheater co-promotion 12,700 4,203 15 63,044

Nashville: 41
Starwood
Amphitheater............ amphitheater one-half ownership 20,100 6,970 27 188,187

Oklahoma City: 43
Zoo
Amphitheatre............ amphitheater year-to-year exclusive booking agent 9,000 4,510 6 27,061

Raleigh--Durham--Chapel Hill: 50
Walnut Creek
Amphitheater............ amphitheater 66 2/3% partnership interest in 20,000 8,476 43 364,489
40-year lease (expires October 31,
2030)

West Palm Beach--Boca Raton: 50
SONY Music/Blockbuster Coral

Sky
Amphitheater............ amphitheater 75% partnership interest in 20,000 9,417 26 244,835
10-year lease (expires January 4,
2005)

Reno: 119
Reno Hilton
Amphitheater............. amphitheater operating agreement (renewal under 8,500 3,977 21 83,509
negotiation)

TOTAL.................... 490,319 5,829(5) 1,701 7,798,753

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

(1) Based on the July 1994 population of metropolitan statistical areas as set
forth in the 1996 Statistical Abstracts of the United States. Does not
include venues where PACE sells subscriptions for Touring Broadway Shows.

(2) Assumes completion of current expansion projects, which are anticipated to
be completed by summer 1998.

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

(4) Numbers shown are for 1997. Numbers for 1996 are unavailable.

(5) Represents average attendance by venue. Average attendance in 1996 by
event was 4,585.

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

Sponsorships and Advertising; Marketing and Other Services

In order to maximize revenues, the Company actively pursues the sale of
local, regional and national corporate sponsorships, including the naming of
venues (e.g., the PNC Bank Arts Center) and the designation of "official" event
or tour sponsors, concessions providers (e.g., beer and soda), credit card
companies, phone companies, film manufacturers and radio stations, among
others. Sponsorship arrangements can provide significant additional revenues at
negligible incremental cost, and

many of the Company's venues currently have no sponsorship arrangements in many
of the available categories (including naming rights). The Company believes
that the national venue network assembled through the Recent Acquisitions will
likely (a) attract a larger number of major corporate sponsors and (b) enable
the Company to sell national sponsorship rights at a premium over local or
regional sponsorship rights. The Company also pursues the sale of corporate
advertising at its venues, and believes that it has substantial advertising
space available (e.g., billboard space) that it has not yet begun to utilize.
The Company also believes that (a) its relationships with advertisers will
enable it to better utilize available advertising space and (b) the aggregation
of its audiences nationwide will create the opportunity for advertisers to
access a nationwide market.

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

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

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

OPERATING STRATEGY

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

Own and/or Operate Leading Live Entertainment Venues in Nation's Top 50
Markets

A key component of the Company's strategy is to own and/or operate a
network of leading live entertainment venues in the nation's top 50 markets.
The Company believes that this strategy will enable it to (a) utilize its
nationwide venue footprint, significant industry expertise and access to a
large aggregate audience to secure more events and distribute content on a
national scale, (b) sell additional products and maximize numerous other
related revenue sources, (c) position itself to produce national tours by
leading music performers in order to capture a greater percentage of revenues
from those tours and (d) encourage wider use by performers of the Company's
venues by providing centralized access to a nationwide network of venues. The
Company believes that it owns and/or operates the largest network of venues
used principally for music concerts and other live entertainment events in the
United States, with 39 venues either directly owned or operated under lease or
exclusive booking arrangements in 21 of the top 50 markets, including 9
amphitheaters in 6 of the top 10 markets.

Maximize Related Revenue Opportunities

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

Exploit Synergies of the Acquired Businesses

The Company plans to maximize revenues by exploiting synergies among its
existing businesses and the Acquired Businesses. The Company believes that it
can utilize the best business practices of the respective Acquired Businesses
on a national scale. For example, the Atlanta-based regional Music Midtown
Festival, created and promoted by Concert/Southern (one of the Acquired
Businesses), is a highly successful music festival concept that drew
approximately 200,000 attendees in 1997; the Company believes that it can use
the event as a model for other markets. In addition, the Company believes that
the radio industry trade publications of Network (another of the Acquired
Businesses) will enable the Company to introduce new acts and new musical
releases to radio programming directors nationwide. This exposure can enhance
recorded music sales and, in turn, music concert attendance, particularly for
artists having relationships with the Company.

Increase Use of Venues; Diversification of Acts and Venues

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

Innovative Event Marketing

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

Strict Cost Controls; Nationally Coordinated Booking, Marketing &
Accounting

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

Pursue Complementary Acquisition Opportunities

The live entertainment business is characterized by numerous participants,
including booking agents, promoters, producers, venue owners and venue
operators, many of which are entrepreneurial, capital-constrained local or
regional businesses that do not achieve significant economies of scale from
their operations. The Company believes that the fragmented nature of the
industry presents attractive acquisition opportunities, and that its larger
size will provide it with improved access to the capital markets that will give
it a competitive advantage in implementing its acquisition strategy. Through
consolidation, the Company will be better able to coordinate negotiations with
performer and talent agents, addressing what the Company believes is a growing
desire among performers and talent agents to deal with fewer, more
sophisticated promoters. The Company intends to pursue additional strategic
acquisitions of (a) amphitheater and other live entertainment venues and (b)
local and regional promoters and producers of music concert, theatrical,
specialized motor sports and other live entertainment events. The Company may
also pursue acquisitions of other related or complementary venues or
businesses.

EMPLOYEES

As of March 3, 1998, the Company has approximately 950 full-time
employees. The Company will also, from time to time, hire or contract for
part-time or seasonal employees or independent contractors, although its
staffing needs will vary. Pursuant to the agreement relating to the SFX Merger
(the "SFX Merger Agreement"), the Company has agreed to assume all obligations
arising under any employment agreements or arrangements between SFX
Broadcasting or any of its subsidiaries and the employees identified in the
merger agreement. These employees include the members of senior management and
all other employees currently employed in SFX Broadcasting's corporate
headquarters in New York. Management believes that its relations with its
employees are good. A number of the employees to be retained by the Company are
covered by collective bargaining agreements. See "Executive Compensation."

POTENTIAL CONFLICTS OF INTEREST

The Marquee Group, Inc. ("Marquee") is a publicly-traded company that,
among other things, acts as booking agent for tours and appearances for
musicians and other entertainers. Messrs. Sillerman and Tytel have an aggregate
equity interest of approximately 9.2% in Marquee; Mr. Sillerman is the chairman
of its board of directors, and Mr. Tytel is one of its directors. The Company
anticipates that, from time to time, it will enter into transactions and
arrangements (particularly, booking arrangements) with Marquee and Marquee's
clients, and it may compete with Marquee for specific concert promotion
engagements. In any transaction or arrangement with Marquee, Messrs. Sillerman
and Tytel are likely to have conflicts of interest as officers and directors of
the Company. These transactions or arrangements will be subject to the approval
of the independent committees of the Company and Marquee, except that booking
arrangements in the ordinary course of business will be subject to periodic
review but not the approval of each particular arrangement. Marquee also acts
as a promoter of various sporting events and sports personalities and the
Company produces ice skating and gymnastics events that may compete with events
in which Marquee is involved. See "Certain Relationships and Related
Transactions-- Potential Conflicts of Interest."

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

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

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

"Executive Compensation."

SEASONALITY

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

COMPETITION

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

REGULATORY MATTERS

The business of the Company is not generally subject to material
governmental regulation. However, if the Company seeks to acquire or construct
new venue operations, its ability to do so will be subject to extensive local,
state and federal governmental licensing, approval and permit requirements,
including, among other things, approvals of state and local land-use and
environmental authorities, building permits, zoning permits and liquor
licenses. Significant acquisitions may also be subject to the requirements of
the Hart-Scott-Rodino Act Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). Other types of licenses, approvals and permits from governmental or
quasi-governmental agencies might also be required for other opportunities that
the Company may pursue in the future. There can be no assurance that the
Company will be able to obtain the licenses, approvals and permits it may
require from time to time in order to operate its business.

AGREEMENTS RELATING TO THE SPIN-OFF

Prior to the Spin-Off, the Company will amend and restate its certificate
of incorporation to, among other things, increase its authorized capital stock
and will issue to SFX Broadcasting, in exchange for the issued and outstanding
shares of the Company's Common Stock held by SFX Broadcasting, the number of
shares of the Company's Common Stock necessary to consummate the Spin-Off.

For the purpose of effecting the Spin-Off and governing certain of the
relationships between the Company and SFX Broadcasting after the Spin-Off, the
Company, SFX Broadcasting and SFX Buyer have entered or will enter into the
various agreements described below. The material features of the distribution
agreement to be entered into among the Company' SFX Broadcasting and SFX Buyer
(the "Distribution Agreement"), the tax sharing agreement to be entered into
among the Company' SFX Broadcasting and SFX Buyer (the "Tax Sharing Agreement")
and the employee benefits agreement to be entered into among the Company, SFX
Broadcasting and SFX Buyer (the "Employee Benefits Agreement"), are summarized
below. These agreements have been filed with the Securities and Exchange
Commission (the "SEC") as exhibits to the Company's Registration Statement on
Form S-1, File No. 333-43287 (as amended, the "SFX Entertainment Registration
Statement") and the following

descriptions are qualified in their entirety by reference to the actual
agreements.

Distribution Agreement

Manner of Effecting the Spin-Off

The Distribution Agreement provides for the distribution of shares of
the Company's Common Stock to the holders of record on the record date for the
Spin-Off (the "Spin-Off Record Date") of SFX Broadcasting's common stock,
Series D preferred stock, interests in SFX Broadcasting's director deferred
stock ownership plan and, upon exercise, Warrants (as defined below) as
follows:

o holders of SFX Broadcasting's Class A common stock will receive 1
share of the Class A Common Stock per share held;

o holders of SFX Broadcasting's Class B common stock will receive 1
share of the Company's Class B Common Stock per share held

o holders of SFX Broadcasting's Series D preferred stock will receive
the number of shares of Class A Common Stock obtained by multiplying
the number of shares held by 1.0987 (rounded down to the next whole
share)

o SFX Broadcasting will place in escrow with Chase Mellon Shareholder
Services, L.L.C. as escrow agent an aggregate of 609,858 shares of
Class A Common Stock for delivery to the holders of the warrants
granted by SFX Broadcasting to Sillerman Communications Management
Corporation (the "SCMC Warrants") and to the underwriters of
Multi-Market Radio, Inc.'s ("MMR's") initial public offering (the
"IPO Warrants" and together with the SCMC Warrants, the "Warrants"),
upon exercise of the Warrants (see "Certain Relationships and Related
Transactions- The Company's Common Stock to be received in the
Spin-Off"); and

o Messrs. Dugan, Kramer and O'Grady will receive an aggregate of 2,766
shares of the Class A Common Stock as adjustments to their interests
under SFX Broadcasting's director deferred stock ownership plan.

Transfer and Assumption of Assets and Obligations

The Distribution Agreement provides that, at the time of the Spin-Off, the
Company will assume (a) certain of SFX Broadcasting's leases and employment
agreements, (b) debt and liabilities incurred by the Company or its
subsidiaries after the date of the SFX Merger Agreement in connection with
acquisitions and capital expenditures, (c) liabilities under an airplane lease,
(d) liabilities under an agreement pursuant to which TSC, a consulting company
of which Mr. Sillerman is the Chairman of the Board of Directors and Chief
Executive Officer, and of which Mr. Tytel is the Executive Vice President,
General Counsel and a Director, provides services to Triathlon and the right to
receive fees for such services provided to Triathlon and (e) any other debt and
liabilities that the Company deems appropriate. SFX Broadcasting is obligated
to use its commercially reasonable efforts to release the Company and its
subsidiaries from all other debt and accrued liabilities prior to the effective
time of the SFX Merger.

The Company will be entitled to all of SFX Broadcasting's accounts
receivable relating to SFX Broadcasting's live entertainment business. SFX
Broadcasting will transfer to the Company, prior to the Spin-Off:

o an airplane lease;

o fees payable by Triathlon for services provided by TSC;

o two real estate leases and assets located on the leased property;

o a note receivable relating to the sale of SFX Broadcasting's radio
stations operating in Myrtle Beach;

o the employment agreements of certain employees of SFX Broadcasting;
and

o all other assets used primarily by the Company.

The Company will assume all of SFX Broadcasting's and its subsidiaries'
obligations accruing after the date of the Spin-Off under the above agreements
and in connection with the transfer of assets and employees.

Transferred Employees

If the Spin-Off occurs prior to the closing date of the SFX Merger, SFX
Broadcasting's senior management and certain other employees of SFX
Broadcasting will devote as much time as they deem reasonably necessary to
conduct the operations of the Company, while continuing to serve in their
present capacities with, and consistent with their obligations to, SFX
Broadcasting. At the time of consummation of the SFX Merger, the Company will
assume all obligations arising under any employment agreement or arrangement
between SFX Broadcasting or any of its subsidiaries and the employees who are
transferred to the Company other than rights, if any, under those employment
agreements to receive options after a change of control and all existing rights
of indemnification. Messrs. Dugan, Kramer and O'Grady have indicated that, if
the SFX Merger Agreement is terminated, they will promptly resign from their
position as directors of the Company, and the Board will appoint three new
independent directors to serve until the next annual meeting of the Company's
stockholders. See "Executive Compensation."

Working Capital

Pursuant to the Distribution Agreement (and as required by the SFX Merger
Agreement), the Company and SFX Broadcasting have agreed to allocate funds
between them for working capital. If the Spin-Off occurs prior to the
consummation of the SFX Merger, then, immediately after the Spin-Off, SFX
Broadcasting's management will allocate working capital between the Company and
SFX Broadcasting, and SFX Broadcasting will pay to the Company any positive
amount allocated to the Company. In any event, at least five business days
before the consummation of the SFX Merger, SFX Broadcasting must provide the
Company with a good faith estimate of Working Capital (as defined below) as of
the date of consummation of the SFX Merger (the "Estimated Working Capital").
If the Estimated Working Capital is a positive number, then SFX Broadcasting
must pay to the Company an amount equal to the Estimated Working Capital at the
time of consummation of the SFX Merger. On the other hand, if the Estimated
Working Capital is a negative number, then the Company must pay to SFX
Broadcasting an amount equal to the Estimated Working Capital at the time of
consummation of the SFX Merger.

As soon as practicable (and in any event within ninety days) after the SFX
Merger is consummated, SFX Broadcasting must deliver to the Company an audited
statement of Working Capital as of the date of consummation of the SFX Merger.
If the Company does not object to SFX Broadcasting's Working Capital statement
within fifteen days following delivery thereof, then the Working Capital
reflected on SFX Broadcasting's Working Capital statement will be the "Final
Working Capital." If the Company does so object, then the issues in dispute
will be submitted to a major national accounting firm for resolution and to
determine the "Final Working Capital."

On the third business day after the Final Working Capital is determined,
SFX Broadcasting or the Company, as the case may be, must pay to the other an
amount equal to the Final Working Capital, less the Estimated Working Capital
previously paid, together with interest on the absolute value of the difference
at an annual rate of 10% beginning on the date of consummation of the SFX
Merger and ending on the date of payment of the amount (the "Working Capital
Adjustment Amount"). However, if the Company notifies SFX Broadcasting prior to
the payment date that it wishes to have all or any portion of the Final Working
Capital (the "SFX Merger Consideration Adjustment") treated as an adjustment to
the consideration payable in connection with the SFX Merger, then the
consideration payable in connection with the SFX Merger will be increased by an
amount equal to the quotient of the SFX Merger Consideration Adjustment divided
by the fully diluted number of shares of SFX Broadcasting's common stock
outstanding immediately prior to the consummation of the SFX Merger, and SFX
Broadcasting must promptly distribute (a) the appropriate amount to the
appropriate holders, immediately prior to the consummation of the SFX Merger,
of SFX Broadcasting's common stock and Series D preferred stock, (b) upon
exercise, the appropriate amount to holders of options, warrants and unit
purchase options of SFX Broadcasting unexercised immediately prior to the
consummation of the SFX Merger and (c) the appropriate amount to holders of
options, warrants and unit purchase options of SFX Broadcasting who exercised
their securities on and after the consummation of the SFX Merger and prior to
the final payment date. If the Company elects to treat any portion of the Final
Working Capital as an SFX Merger Consideration Adjustment, then the Company
must pay SFX Broadcasting the difference, if any, between the SFX Merger
Consideration Adjustment and the Working Capital Adjustment Amount so that the
aggregate net amount to be paid or received (as the case may be) by SFX
Broadcasting is equal to the amount that would have been paid or received if
the SFX Merger Consideration Adjustment had not been made.

"Working Capital" means the sum of all current assets of SFX Broadcasting
and its consolidated subsidiaries minus the sum of all current liabilities of
SFX Broadcasting and its consolidated subsidiaries, as of the point in time
immediately prior to the consummation of the SFX Merger, adjusted (without
duplication) by:

(a) increasing Working Capital by 50% (up to $1.0 million) of all fees
and expenses incurred by SFX Broadcasting in connection with
acquiring consents from holders of SFX Broadcasting's Series E
preferred stock and certain of its outstanding notes in connection
with the transactions contemplated by the SFX Merger Agreement;

(b) increasing (if a positive number) or decreasing (if a negative
number) Working Capital by the product of (A) $75.00 (or any other
amount payable to holders of SFX Broadcasting's Class A common stock)
and (B) the difference between 15,589,083 less the sum of the fully
diluted number of shares of SFX Broadcasting common stock outstanding
immediately prior to the time of consummation of the SFX Merger
(excluding up to 250,838 shares of SFX Broadcasting's common stock
subject to a right of repurchase granted by SFX Broadcasting in
connection with an acquisition);

(c) reducing Working Capital by the difference between $84,554,649 less
the sum of (A) the aggregate exercise price of all options, warrants
and unit purchase options of SFX Broadcasting outstanding immediately
prior to the SFX Merger consummation plus (B) the aggregate exercise
price of all warrants underlying unit purchase options of SFX
Broadcasting outstanding immediately prior to the SFX Merger
consummation plus (C) the aggregate base price of all SARs of SFX
Broadcasting outstanding immediately prior to the SFX Merger
consummation;

(d) reducing Working zCapital by the product of (A) $42 and (B) up to
250,838 shares of SFX Broadcasting's common stock subject to a right
of repurchase by SFX Broadcasting granted in connection with an
acquisition (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Liquidity and Capital
Resources--Meadows Repurchase");

(e) increasing Working Capital by all permitted radio-related capital
expenditures paid by SFX Broadcasting and its subsidiaries after June
30, 1997 and immediately prior to the SFX Merger consummation;

(f) decreasing Working Capital by all accrued capital expenditures of SFX
Broadcasting as of immediately prior to the SFX Merger consummation
(to the extent not reflected in current liabilities);

(g) increasing Working Capital by accrued but not yet payable dividends;

(h) except as required by clause (i) below, excluding from Working
Capital any liabilities attributable to indebtedness of SFX
Broadcasting;

(i) excluding from Working Capital any liabilities included in clauses
(i) through (iv) of clause (k) below;

(j) reducing Working Capital by unpaid costs, fees and expenses of SFX
Broadcasting arising out of, based on or that will arise from the
transactions contemplated by the SFX Merger Agreement (other than as
a result of actions taken by SFX Buyer Sub) (including amounts
relating to the termination of any employees, broker fees, legal
fees, accounting fees, advisory fees and fees incurred in connection
with third party consents, waivers and amendments of creditors or
holders of SFX Broadcasting's preferred stock);

(k) reducing Working Capital by the amount of SFX Broadcasting's Excess
Debt (as defined below), if a positive number, or increasing Working
Capital by the amount of the Excess Debt, if a negative number.
"Excess Debt" means, as of immediately prior to the consummation of
the SFX Merger, the difference between the sum of the following and
$899.7 million:

(i) the difference between (A) indebtedness of SFX Broadcasting and its
subsidiaries, less (B) the difference between $70.0 million and any
amounts (other than the reimbursement of expenses) actually received
by SFX Broadcasting and its consolidated subsidiaries after August
24, 1997, under agreements relating to the sale or local marketing
arrangement (the local marketing payments may not exceed $30,000 per
month) of its WVGO-FM and the sale or local marketing arrangement of
its Jackson/Biloxi radio stations, less (C) any indebtedness incurred
to finance acquisitions approved by Buyer of stock of or
substantially all of the assets of radio stations, less (D) interest
accrued as of immediately prior to the consummation of the SFX Merger
that is not then due and payable,

(ii) the aggregate merger consideration payable to holders of SFX
Broadcasting's Series C preferred stock (which SFX Broadcasting
anticipates will be $2.0 million),

(iii) the aggregate liquidation preference amount of SFX Broadcasting's
Series E preferred stock, and

(iv) environmental costs or liabilities accrued and not paid after June
30, 1997, to the extent they exceed $100,000 in the aggregate; and

(l) reducing Working Capital by the difference between (i) 142,032 times
the higher of (A) the average of the last sales price of SFX
Broadcasting's Series E preferred stock during the 15 business days
ending on the date of consummation of the SFX Merger, or (B) the
average of the last sales price of SFX Broadcasting's Series E
preferred stock during the 15 business days preceding February 9,
1998 ($115.08), and (ii) $14,203,200 (the "Series E Adjustment").

Working Capital will not include any asset transferred to the Company or
any of its subsidiaries, any liability assumed by the Company or any liability
to which none of SFX Broadcasting or any of its subsidiaries is a party
immediately after the consummation of the SFX Merger. Any computation of
Working Capital should assume that the Spin-Off has been consummated. As of
December 31, 1997, Working Capital payable by SFX Broadcasting to the Company
would have been approximately $3.0 million (excluding the Series E Adjustment).
The actual amount of Working Capital as of the closing of the SFX Merger may
differ substantially from the amount in existence as of December 31, and will
be a function of, among other things, the operating results of SFX Broadcasting
through the date of the SFX Merger, the actual cost of consummating the SFX
Merger and the related transactions and other obligations of SFX Broadcasting,
including the payment of dividends and interest on SFX Broadcasting's debt, the
Meadows Repurchase and the amount of any settlement paid by SFX Broadcasting in
connection with the SFX Merger shareholder litigation. Moreover, Working
Capital will be reduced by at least $2.1 million pursuant to the Series E
Adjustment. See "-Risk Factors--Working Capital Adjustments and Repayment of
Advances" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources-- Spin-Off."

Acquisitions and Capital Improvements

SFX Broadcasting and the Company have agreed that the Company may, from
time to time, (a) acquire additional businesses engaged in the same line of
business as the Company or (b) make capital improvements on assets owned or
leased by it or its subsidiaries. In each case, SFX Broadcasting must loan the
Company the funds with which to consummate the acquisitions and capital
improvements. However, all amounts so borrowed by the Company must be repaid on
the date of the Spin-Off. SFX Broadcasting may increase the borrowing
availability under its credit agreement for these purposes, and must use its
best efforts to obtain any required or desirable waivers, consents or
modifications under any financing or other agreement of SFX Broadcasting in
connection with the acquisitions or capital improvements.

If the Company makes such additional acquisitions or capital improvements
by borrowing funds from SFX Broadcasting, it will be required to obtain
financing to repay the amounts that it borrows from SFX Broadcasting , which
financing may take the form of public or private sales of debt or equity
securities, bank credit or other financing. See "--Working Capital." However,
there can be no assurance that the Company will be able to obtain such
financing on advantageous terms, or at all.

In February 1998, the Company reimbursed SFX Broadcasting approximately
$25.3 million for consent fees, capital expenditures, and other acquisition
related fees paid by SFX Broadcasting on behalf of the Company. SFX
Broadcasting may advance additional amounts to the Company prior to the
consummation of the Spin-Off.

Release and Indemnification

Pursuant to the Distribution Agreement, SFX Broadcasting has agreed to
release the Company and its subsidiaries and affiliates (other than SFX
Broadcasting and its subsidiaries) and all persons who at any time prior to the
date of the distribution of the Company's common stock in the Spin-Off (the
"Spin-Off Distribution Date") were stockholders, directors, agents or employees
of the Company or its subsidiaries from any and all claims arising from any
acts or events occurring or failing to occur or any conditions existing on or
before the Spin-Off Distribution Date (other than claims arising from
transactions contemplated by the Distribution Agreement, the SFX Merger
Agreement and certain related agreements). Similarly, the Company has agreed to
release SFX Broadcasting, its affiliates (other than the Company and its
subsidiaries) and all persons who at any time prior to the date of the Spin-Off
were stockholders, directors, agents or employees of SFX Broadcasting or its
subsidiaries from any and all claims arising from any acts or events occurring
or failing to occur or any conditions existing on or before the date of the
Spin-Off (other than claims arising from transactions contemplated by the
Distribution Agreement, the SFX Merger Agreement and certain related
agreements).

The Distribution Agreement requires the Company to indemnify, defend and
hold SFX Broadcasting and its subsidiaries (other than the Company and its
subsidiaries) and each of its directors, officers, employees and agents
harmless from and against any liabilities (other than income tax liabilities)
to which SFX Broadcasting or any of its subsidiaries (other than the Company
and its subsidiaries) may be or become subject that (a) relate to the assets,
business, operations, debts or liabilities of the Company and its subsidiaries
(including liabilities to be assumed by the Company as contemplated in the
Distribution Agreement and any liabilities arising under certain guarantees of
SFX Broadcasting in connection with the Recent Acquisitions), whether arising
prior

to, concurrent with or after the Spin-Off or (b) result from a breach by
the Company or its subsidiaries of any representation, warranty, or covenant
contained in the Distribution Agreement or any related agreements.

The Distribution Agreement requires SFX Broadcasting to indemnify, defend
and hold the Company and its subsidiaries and each of its directors, officers,
employees and agents harmless from and against any liabilities (other than
income tax liabilities) to which the Company and its subsidiaries may be or
become subject that (a) relate to the assets, business, operations, debts or
liabilities of SFX Broadcasting or its subsidiaries (other than the Company and
its subsidiaries), whether arising prior to, concurrent with or after the
Spin-Off or (b) result from a breach by SFX Broadcasting or its subsidiaries
(other than SFX Entertainment) of any representation, warranty, or covenant
contained in the Distribution Agreement or any related agreements.

The release and indemnification obligations contained in the Distribution
Agreement will survive the Spin-Off for a period of six years (and thereafter
as to any claims for indemnification asserted prior to the expiration of that
period).

SFX Entertainment Registration Statement and Consent Solicitation
Documents

The Company has represented to SFX Broadcasting that the SFX Entertainment
Registration Statement and the consent solicitation documents sent to the
holders of certain of SFX Broadcasting's securities did not, at the time it
became effective or was mailed, contain any untrue statement of a material fact
or omit to state a material fact required to be stated in order to make the
statements in the SFX Entertainment Registration Statement and the consent
solicitation documents, in light of the circumstances under which they were
made, not misleading.

Related Agreements

SFX Broadcasting and the Company have agreed that any tax sharing
agreement to which they are parties must be terminated as of the effective date
of the Spin-Off. In addition, the Distribution Agreement requires SFX
Broadcasting and the Company to enter into the Tax Sharing Agreement and
Employee Benefits Agreement (as described below) on or before the date of the
Spin-Off.

Use of Names; Intellectual Property

At the closing of the SFX Merger, SFX Broadcasting will assign to the
Company or its designee the name "SFX," together with all causes of action and
the right to recover for past infringements of that name. As soon as
commercially practicable, but no later than six months from the consummation of
the SFX Merger, SFX Broadcasting must cease all use of the name "SFX" or other
trademarks, trade names or their identifiers owned by, licensed to, or
transferred pursuant to the Distribution Agreement to the Company.

Conditions to the Spin-Off

Pursuant to the Distribution Agreement, the obligations of the Company
and SFX Broadcasting to consummate the Spin-Off will be subject to the
fulfillment or waiver of each of the following conditions:

o SFX Broadcasting's board of directors must be satisfied that SFX
Broadcasting's surplus (as defined under Delaware law) would be
sufficient to permit the Spin-Off under Delaware law and must
formally approve the Spin-Off;

o the SFX Entertainment Registration Statement must be declared
effective by the SEC, and no stop order may be issued or pending with
respect thereto;

o the Class A Common Stock must be accepted for listing or trading,
subject to official notice of issuance, on a national exchange or The
Nasdaq Stock Market;

o all necessary third party consents to the Spin-Off must be obtained;

o the necessary stockholder approvals must be obtained to consummate
the Spin-Off as presently contemplated;

o there must not be in effect any temporary restraining order,
preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the

Spin-Off;

o the Company and SFX Broadcasting must enter into the Tax Sharing
Agreement and the Employee Benefits Agreement; and

o each of the covenants and provisions in the Distribution Agreement
required to be performed or complied with prior to the Spin-Off must
be performed or complied with.

SFX Broadcasting's board of directors is entitled to waive any of the above
conditions prior to the Spin-Off.

Expenses of Spin-Off

Pursuant to the Distribution Agreement, all fees and expenses incurred in
connection with the Spin-Off will be paid by the party incurring them.

Termination of the SFX Merger Agreement

If the SFX Merger Agreement is terminated in accordance with its terms for
any reason, the boards of directors of SFX Broadcasting and the Company will
each appoint a committee of independent directors (none of whom will serve on
both boards of directors) to negotiate in good faith with respect to all
matters that they deem necessary to effectuate the separation of the affairs of
SFX Broadcasting and the Company, including the employment of employees to be
transferred to the Company pursuant to the Distribution Agreement. No
adjustments will be made to the initial allocation of working capital between
SFX Broadcasting and the Company if the SFX Merger Agreement is terminated in
accordance with its terms.

Amendment or Modification

SFX Broadcasting and the Company can only amend the Distribution Agreement
by written agreement with the consent of SFX Buyer (which may not be
unreasonably withheld).

Termination

The Distribution Agreement may be terminated and the Spin-Off abandoned at
any time before the date of the Spin-Off by, and in the sole discretion of, SFX
Broadcasting . In the event of such a termination, no party will have any
liability to any other party.

Tax Sharing Agreement

Prior to the Spin-Off, SFX Broadcasting and the Company will enter into
the Tax Sharing Agreement. Under the Tax Sharing Agreement, the Company will
agree to pay to SFX Broadcasting the amount of the tax liability of SFX and the
Company combined, to the extent properly attributable to the Company for the
period up to and including the Spin-Off, and will indemnify SFX Broadcasting
for any tax adjustment made in subsequent years that relates to taxes properly
attributable to the Company during the period prior to and including the
Spin-Off. SFX Broadcasting , in turn, will indemnify the Company for any tax
adjustment made in years subsequent to the Spin-Off that relates to taxes
properly attributable to the SFX Broadcasting during the period prior to and
including the Spin-Off. The Company also will be responsible for any taxes of
SFX Broadcasting resulting from the Spin-Off, including any income taxes but
only to the extent that such income taxes result from gain on the distribution
that exceeds the net operating losses of SFX Broadcasting and the Company
available to offset such gain (including net operating losses generated in the
current year prior to the Spin-Off).

The actual amount of the gain will be based on the excess of the value
of the Company's Common Stock distributed on the date of the Spin-Off over
the tax basis of that stock. The Company believes that the value of the
Company's Common Stock for tax purposes will be determined by no later
than the first trading date following the date the stock is distributed in
the Spin-Off. Increases or decreases in the value of the Company's Common
Stock subsequent to such date will not effect the tax liability. If the
Company's Common Stock had a value of approximately $15 per share at the
time of the Spin-Off, management believes that no material indemnification
payment would be required. Such indemnification obligation would be
approximately $4.0 million at $16 per share and would increase by
approximately $7.7 million for each $1.00 increase above the per share
valuation of $16. If the Company's Common Stock was valued at $22 1/2 per
share, (the last sales price of the Class A Common Stock (trading on a
when-issued basis) on the over the counter market on March 13, 1998),
management estimates that the Company would have been required to pay
approximately $54.0 million pursuant to such indemnification obligation. The
Company expects

that such indemnity payment will be due on or about June 15, 1998. See "-Risk
Factors-- Indemnification Arrangements."

EMPLOYEE BENEFITS AGREEMENT

Prior to the Spin-Off, SFX Broadcasting and the Company will enter
into an Employee Benefits Agreement. Pursuant to the Employee Benefits
Agreement, SFX Broadcasting and the Company will agree to take all actions
necessary or appropriate so that, as of the Spin-Off, the Company and its
subsidiaries will no longer be participating employers and sponsors of the
401(k), health, group term life insurance, long term disability insurance and
cafeteria plans maintained by SFX Broadcasting (collectively, the "SFX Employee
Benefit Plans"). The Employee Benefits Agreement will also provide for the
treatment of the benefits under the SFX Employee Benefit Plans of employees
being transferred from SFX Broadcasting to the Company or who are otherwise
employed by the Company upon the Spin-Off. With respect to employees
transferred from SFX Broadcasting to the Company or who are otherwise employed
by the Company upon the Spin-Off, SFX Broadcasting will have sole
responsibility for retaining and discharging any claims that are incurred on or
prior to the date of their transfer under SFX Employee Benefit Plans that are
not 401(k) plans. On or prior to the Spin-Off, the Company will continue to pay
premiums and contributions under the SFX Employee Benefit Plans in accordance
with its past practices and procedures, except that any premiums and
contributions for the month in which the Spin-Off occurs shall be paid as soon
as practicable after that month and pro-rated. To the extent the account
balances under the 401(k) plan maintained by SFX Broadcasting of employees
being transferred from SFX Broadcasting to the Company or who are otherwise
employed by the Company upon the Spin-Off are not distributed, SFX Broadcasting
and the Company must take all actions necessary or appropriate to effect their
transfer to a 401(k) plan established by the Company.

RISK FACTORS

Many of the statements, estimates, predictions and projections contained
in this "Business" section and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of this Annual Report on
Form 10-K, in addition to certain statements contained elsewhere herein, are
"forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. These forward-looking
statements are prospective, involving risks and uncertainties. While these
forward-looking statements, and any assumptions on which they are based, are
made in good faith and reflect the Company's current judgment regarding the
direction of its business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections, assumptions or other
future performance suggested herein. The following risk factors should be
considered carefully in evaluating the Company and its business by investors in
the Company. The Company does not undertake to release publicly any revisions
to forward-looking statements that may be made to reflect events or
circumstances after the date of this Annual Report on Form 10-K or to reflect
the occurrence of unanticipated events.

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

The business of the Company has been developed principally through the
acquisition of established live entertainment businesses, which have all been
acquired since January 1997. The Company consummated all of the Completed
Acquisitions in 1997 and the Recent Acquisitions in February and March of 1998.
Prior to their acquisition by the Company, these acquired companies operated
independently. In addition, each of the Acquired Businesses has significantly
increased the size and operations of the Company. The Company's prospects
should be considered in light of the numerous risks commonly encountered in
business combinations. Although the anticipated management of the Company has
significant experience in other industries, there can be no assurance that the
Company's management group will be able to effectively integrate the Acquired
Businesses. The Company's business, financial condition and results of
operations could be materially adversely affected if the Company is unable to
retain the key personnel that have contributed to the historical performances
of the Acquired Businesses or the Company. See "-- Dependence on Key Personnel"
and "Business."

RISKS RELATED TO RECENT ACQUISITIONS

Although management believes that the consummation of the Recent
Acquisitions was in the best interests of the Company, it involves substantial
risks on the part of the Company. There can be no assurance that the Recent
Acquisitions will yield the expected benefits to the Company or will not
materially adversely affect the Company's business, financial condition or
results of operations.

PACE Acquisition

The PACE acquisition agreement provides that each PACE seller will have an
option (the "Fifth Year Put Option"), exercisable for 90 days after the fifth
anniversary of the closing of the PACE Acquisition, to require the Company to

repurchase up to one-third of the Class A Common Stock received by that seller
(representing 500,000 shares in the aggregate) for $33.00 in cash per share.
With certain limited exceptions, these option rights are not assignable by the
sellers. In certain circumstances, if the selling price of the Class A Common
Stock is less than $13.33 per share, the Company may be required to make an
offer to the sellers to provide an additional cash payment or additional shares
of the Class A Common Stock, which each seller will have the option of taking.

The agreement governing the partnership through which PACE holds its
interest in the Lakewood Amphitheater in Atlanta, Georgia contains a provision
that purports to restrict PACE and its affiliates from directly or indirectly
owning or operating another amphitheater in Atlanta. In management's view, this
provision will not materially affect the business or prospects of the Company.
The Company intends to seek a waiver of the restrictive provision; however, it
is possible that the Company will be unable to obtain the waiver.

Contemporary Acquisition

In addition, in the Contemporary acquisition agreement, the Company agreed
to make payments to any Contemporary sellers who own shares of the Class A
Common Stock on the second anniversary of the closing of the Contemporary
acquisition. These payments will be due only if the average trading price of
the Class A Common Stock during the 20-day period ending on the anniversary
date is less than $13.33 per share. There can be no assurance that the average
trading price of the Class A Common Stock will be $13.33 per share at that
time.

Network Acquisition

Pursuant to the Network Acquisition Agreement, the Company has agreed to
increase the purchase price for Network Magazine and SJS based on actual 1998
EBITDA (as defined therein) as follows: (a) by $4.0 million if the 1998 EBITDA
equals or exceeds $9.0 million; (b) by an additional $4 for each $1 of
additional 1998 EBITDA between $9.0 million and $10.0 million; and (c) by an
additional $6 for each $1 of additional 1998 EBITDA between $10.0 million and
$11.0 million. This contingent consideration of up to $14.0 million is payable
in stock or, in certain circumstances, in cash no later than March 20, 1999.

Although the Company and SFX Broadcasting have conducted a due diligence
investigation of the Acquired Businesses, the scope of their investigation was
limited. Although the agreements governing the Recent Acquisitions generally
provide for indemnification from the seller for a limited period of time with
respect to certain matters, the indemnification is subject to thresholds and
limitations, and it is possible that other material matters not identified in
due diligence will subsequently be identified or that the matters heretofore
identified will prove to be more significant than currently expected.

In addition, if the Company is unable to issue shares of its capital stock
to certain of the sellers prior to certain time periods, by virtue of having
failed to consummate the Spin-Off or for any other reason, the aggregate cash
consideration that would be owed to the sellers in the Recent Acquisitions
would increase by approximately $56.2 million, resulting in a corresponding
increase in debt and decrease in stockholders' equity. Although management
believes that the Spin-Off is likely to occur, the Spin-Off is subject to
certain conditions, some of which are outside of management's control, and
there can be no assurance that the Spin-Off will be consummated on the terms
presently contemplated or at all. In addition, the agreements relating to the
Recent Acquisitions provide for certain other purchase price adjustments and
future contingent payments in certain circumstances. There can be no assurance
that the Company will have sufficient sources of available capital to pay any
material increases in cash consideration or satisfy future contingent cash
payment obligations in connection with the Recent Acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Acquisitions" and "-- Liquidity and Capital Resources" and
"Certain Relationships and Related Transactions-- Indemnification of Mr.
Sillerman."

FINANCING MATTERS

The Company will require additional financing in order to make all of the
payments described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations- Liquidity and Capital Resources",
including the anticipated tax indemnification obligation to SFX Broadcasting
(approximately $54.0 million based on the trading price (on a when-issued
basis) of the Class A Common Stock on March 13, 1998)), planned capital
expenditures (approximately $38.0 million), fees and expenses related to the
Spin-Off (estimated to be approximately $18.0 million), certain change of
control payments to executive officers ($5.0 million) and the Meadows
Repurchase (at least $8.3 million). See "Indemnification Arrangements." The
Company's ability to issue preferred stock or debt securities or to borrow
under its senior secured credit facility (the "Credit Facility") may be
significantly impacted by the covenants in the Credit Facility and/or the
indenture (the

"Indenture") relating to its 9 1/8% Senior Subordinated Notes due 2008 (the
"Notes"). To the extent that available borrowings are insufficient under the
Credit Facility, debt financing is not available or management determines that
debt financing or the issuance of preferred stock is inadvisable in view of the
Company's capital structure, management currently anticipates that upon
consummation of the Spin-Off, such obligations will be financed through a
public offering of not less than $125.0 million in value of Class A Common
Stock. If the Class A Common Stock were valued at $22 1/2 per share (the last
sales price of the Class A Common Stock (trading on a when-issued basis) on the
over-the-counter market on March 13, 1998), approximately 5.6 million shares of
Class A Common Stock would be issued in such offering. There can be no
assurance that the Company will be able to complete the offering or obtain
alternate financing on acceptable terms or at all. Any offering of Class A
Common Stock would be dilutive to the ownership interests of the Company's
then-existing stockholders and the trading price of the Class A Common Stock
may be adversely affected. Any debt financing would require payments of
principal and interest and would adversely impact the Company's cash flows.

Furthermore, certain agreements of the Company, including the Distribution
Agreement, the Tax Sharing Agreement, certain employment agreements and the
agreements relating to the Recent Acquisitions provide for tax and other
indemnities, purchase price adjustments and future contingent payments in
certain circumstances. There can be no assurance that the Company will have
sufficient sources of funds to make such payments should they come due. In
addition, consistent with its operating strategy, SFX Entertainment intends to
pursue additional expansion opportunities and expects to continue to identify
and negotiate with respect to substantial acquisitions in the live
entertainment business, certain of which may be consummated prior to the
Spin-Off. See "-- Risk Related to Recent Acquisitions" and "Management
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

SUBSTANTIAL LEVERAGE

The Company is a highly leveraged company. As of December 31, 1997, on a
pro forma basis giving effect to the private placement of the Notes and $150.0
million in borrowings under the Credit Facility (the "Financing"), the Recent
Acquisitions and the Spin-Off, the Company's consolidated indebtedness would
have been approximately $517.6 million (of which $350.0 million would have
consisted of the Notes, and the balance would have consisted of $150.0 million
in debt under the Credit Facility and $17.6 million in pre-existing senior
debt), its temporary equity would have been approximately $16.5 million, and
its stockholders' equity would have been approximately $148.1 million. If the
Company is unable to issue shares of capital stock, and thus is obligated to
pay cash to the sellers in the Recent Acquisitions in lieu of issuing shares of
its common stock, then its total pro forma indebtedness would increase by $56.2
million, and its pro forma stockholders' equity would decrease by a similar
amount. Although management believes that the Spin-Off is likely to occur, the
Spin-Off is subject to certain conditions, some of which are outside of
management's control. The Spin-Off might not be consummated on the terms
presently contemplated, or at all. Certain of the agreements relating to the
Recent Acquisitions provide for other purchase price adjustments and future
contingent payments in certain circumstances. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Recent
Acquisitions." In addition, the Company may incur substantial additional
indebtedness from time to time to finance future acquisitions, for capital
expenditures or for other purposes. See "--Financing Matters."

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

The degree to which the Company is and will be leveraged could have
material consequences to the holders of shares of the Company's Common Stock,
including, but not limited to, (a) increasing the Company's vulnerability to
general adverse economic and industry conditions, (b) limiting the Company's
ability to obtain additional financing to fund future acquisitions, working
capital, capital expenditures and other general corporate requirements, (c)
requiring the dedication of a substantial portion of the Company's cash flow
from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of the cash flow to fund
working capital, capital expenditures or other general corporate purposes, (d)
limiting the Company's flexibility in planning for, or reacting to, changes in
its business and the industry and (e) placing the Company at a competitive
disadvantage to less leveraged competitors. In addition, the Indenture and the
Credit Facility

contain, financial and other restrictive covenants that limit the ability of
the Company to, among other things, borrow additional funds. Failure by the
Company to comply with these covenants could result in an event of default
that, if not cured or waived, could have a material adverse effect on the
Company's business, financial condition and results of operations. The
indebtedness incurred under the Credit Facility is secured by a pledge of the
stock of its subsidiaries and by liens on substantially all of its and its
subsidiaries' tangible assets. In addition, the Notes and borrowings under the
Credit Facility are guaranteed by the Company's subsidiaries.

FUTURE CHARGES TO EARNINGS

Consummation of the Recent Acquisitions will result in substantial charges
to earnings relating to interest expense and the recognition and amortization
of goodwill; these charges will increase the Company's losses or reduce or
eliminate its earnings, if any. As of December 31, 1997 the Company had
goodwill of approximately $60.3 million. This balance will substantially
increase in 1998 due to the recent acquisitions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources."

The Company anticipates entering into employment agreements with certain
of its executive officers before the Spin-Off. In connection with these
agreements, the Board, on the recommendation of its Compensation Committee,
agreed to sell the executive officers an aggregate of 650,000 shares of the
Company's Class B Common Stock and 190,000 shares of the Class A Common Stock
at a purchase price of $2.00 per share. The shares will be issued on or about
the Spin-Off Distribution Date. The Company will record a non-cash compensation
charge at the date of the grant equal to the fair market value of the shares
less the aggregate purchase price paid. See "Executive Compensation--
Employment Agreements and Arrangements with Certain Officers and Directors."

In addition, the Board, on the recommendation of its Compensation
Committee, also has approved the issuance of stock options exercisable for an
aggregate of 245,000 shares of the Class A Common Stock. The options will vest
over five years and will have an exercise price of $5.50 per share. The Company
will record non-cash compensation charges over the five-year exercise period to
the extent that the fair value of the underlying the Class A Common Stock
exceeds the exercise price.

FUTURE ACQUISITIONS

The Company expects to pursue additional acquisitions of live
entertainment businesses in the future, although the Company has no present
understandings, commitments or agreements with respect to any such
acquisitions. Future acquisitions by the Company could result in (a)
potentially dilutive issuance of equity securities, (b) the incurrence of
substantial additional indebtedness and/or (c) the amortization of expenses
related to goodwill and other intangible assets, any or all of which could
materially adversely affect the Company's business, financial condition and
results of operations. Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, technologies, services and
products of the acquired companies and the diversion of management's attention
from other business concerns. If any acquisition occurs, the Company's
business, financial condition and results of operations may be materially
adversely affected.

INDEMNIFICATION ARRANGEMENTS

In the Distribution Agreement, the Company will agree to indemnify, defend
and hold SFX Broadcasting and its subsidiaries harmless from and against
certain liabilities to which SFX Broadcasting or any of its subsidiaries may be
or become subject. These liabilities relate to the assets, business,
operations, employees (including under any employment agreement assumed by the
Company in the Spin-Off), debts or liabilities of the Company and its
subsidiaries (collectively, the "SFX Entertainment Group"). Although the
Company does not anticipate that any material liabilities for which it has
agreed to indemnify SFX Broadcasting and its subsidiaries will arise, it is
possible that the Company will become subject to these liabilities. Any of
these liabilities may have a material adverse effect on the Company's business,
financial condition or results of operations. See "-- Agreements Relating to
the Spin-Off-- The Distribution Agreement."

In addition, pursuant to the Tax Sharing Agreement, the Company also will
be responsible for certain taxes resulting from the Spin-Off, including income
taxes but only to the extent that such income taxes result from gain on the
distribution that exceeds the net operating losses of SFX Broadcasting
available to offset such gain (including net operating losses generated in
the current year prior to the Spin-Off). See "Agreements Relating to the
Spin-Off--Tax Sharing Agreement." The actual amount of the gain will be based
on the excess of the value of the Company's Common Stock distributed in the
Spin-Off over the tax basis of that stock.

The Company believes that the value of the Company's Common Stock for tax
purposes will be determined by no later than the first trading day following
the date on which the Company's Common Stock is distributed in the Spin-Off.
Increases or decreases in the value of the Company's Common Stock subsequent to
such date will not effect the tax liability. If the Company's Common Stock
had a value of approximately $15 per share at the time of the Spin-Off,
management believes that no material indemnification payment would be
required. Such indemnification obligation would be approximately $4.0 million
at $16 per share and would increase by approximately $7.7 million for each
$1.00 increase above the per share valuation of $16. If the Company Common
Stock were valued at $22 1/2 per share (the last price of the Class A Common
Stock (trading on a when issued basis) on the over-the-counter market on
March 13, 1998), management estimates that the Company would have been
required to pay approximately $54.0 million pursuant to such indemnification
obligation. The Company expects that such indemnity payment will be due on
or about June 15, 1998.

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

FAILURE TO APPROVE SPIN-OFF PROPOSAL

If a proposal that will allow holders of shares of SFX Broadcasting's
Class B Common Stock to receive shares of the Company's Class B Common Stock in
the Spin-Off (the "Spin-Off Proposal") is not approved at SFX Broadcasting's
upcoming stockholders' meeting scheduled to be held on March 26, 1998, that
failure could result in a "Change of Control" pursuant to the terms of the
Credit Facility. In that event, there can be no assurance that the Company
would be able to obtain a waiver of that provision, and there can be no
assurance of the terms, if any, under which such a waiver could be obtained.
The failure to obtain such a waiver could result in a material adverse effect
to the Company's business, results of operations and financial condition. The
Company's ability to borrow under the Credit Facility or to obtain other
financing is restricted by the terms of the Indenture.

CONTROL OF MOTOR SPORTS AND THEATRICAL BUSINESSES

Pursuant to the employment agreement entered into between Brian Becker and
the Company in connection with the PACE acquisition, Mr. Becker has the option,
exercisable within 15 days after February 25, 2000 to acquire the Company's
then existing motor sports line of business (or, if that line of business has
previously been sold, the Company's then existing theatrical line of business)
at its then fair market value. Mr. Becker's exercise of this option could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, Mr. Becker also has the right under certain
circumstances to acquire the theatrical or motor sports line of business at a
price equal to 95% of the proposed purchase price. See "Executive Compensation-
Employment Agreements and Arrangements with Certain Officers." On a pro forma
basis giving effect to the Recent Acquisitions, specialized motor sports would
have comprised approximately 6%, and theater would have comprised approximately
16%, of the Company's total net revenues for the 12 months ended December 31,
1997.

BGP RIGHT OF FIRST REFUSAL

The Company has agreed that it will not sell all, or substantially all, of
BGP's assets prior to February 24, 2001 without offering the BGP sellers the
opportunity to purchase the assets on the same terms as those included in any
bona fide offer received by the Company from any third party.

CONTROL OF CONCERTS

After the consummation of the Spin-Off or the SFX Merger, the senior
management of Concerts may have the right pursuant to their employment
agreements (a) to purchase the outstanding capital stock of Concerts (a
subsidiary of the Company holding a significant amount of the assets of the
Company) for Fair Market Value (as defined in their employment

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

EXPANSION STRATEGY; NEED FOR ADDITIONAL FUNDS

The Company intends to pursue additional expansion opportunities. However,
it may be unable to identify and acquire additional suitable businesses or
obtain the financing necessary to acquire the businesses. Each acquisition may
also be subject to the prior approval of the Company's lenders. Any debt
financing would require payments of principal and interest and would adversely
impact the Company's cash flow. Additional financing for future acquisitions
may be unavailable and, depending on the terms of the proposed acquisitions and
financing, may be restricted by the terms of the Credit Facility and the
Indenture. See "-Financing Matters" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources." Furthermore, future acquisitions may result in potentially dilutive
issuances of equity securities as well as charges to operations relating to
interest expense or the recognition and amortization of goodwill; these charges
would increase the Company's losses or reduce or eliminate its earnings, if
any. Acquisitions also involve numerous risks, including difficulties in the
assimilation of operations, technologies, services and products of the acquired
companies and the diversion of management's attention from other business
concerns. If any additional acquisition occurs, the Company's business,
financial condition and results of operations might be materially adversely
affected.

ECONOMIC CONDITIONS AND CONSUMER TASTES

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

AVAILABILITY OF ARTISTS AND EVENTS

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

CONTROL OF VENUES

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

RESTRICTIONS IMPOSED BY THE COMPANY'S INDEBTEDNESS

The Indenture and the Credit Facility contain a number of significant
covenants that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, repay other
indebtedness, pay

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

In addition, if the Spin-Off Proposal is not approved and the Spin-Off or
an alternative disposition of the Company is nevertheless consummated, then
these events would likely result in a "Change of Control" pursuant to the terms
of the Credit Facility. Furthermore, Mr. Sillerman has pledged certain shares
of SFX Broadcasting's Class B Common Stock that, if sold, could result in such
a "Change of Control." See "Security Ownership of Certain Beneficial Owners and
Management Possible Change of Control." In the event of such a "Change of
Control," the Company might be unable to obtain a waiver of that provision of
the Credit Facility, or might be required to make substantial concessions to
the lenders under the Credit Facility in order to obtain such a waiver. The
failure to obtain such a waiver could result in a material adverse effect to
the Company's business, results of operation and financial condition.

WORKING CAPITAL ADJUSTMENTS AND REPAYMENT OF ADVANCES

Pursuant to the Distribution Agreement, the Company must pay SFX
Broadcasting any net negative Working Capital at the time of consummation of
the SFX Merger. Alternatively, SFX Broadcasting must pay to the Company any net
positive Working Capital. Therefore, the capitalization of the Company will
depend, to a large extent, on the operating results of SFX Broadcasting through
the date of the SFX Merger. As of December 31, 1997, the Company estimates that
Working Capital to be received by the Company would have been approximately
$3.0 million (excluding the Series E Adjustment). The actual amount of Working
Capital as of the closing of the SFX Merger may differ substantially from the
amount as of December 31, 1997, and will be a function of, among other things,
the operating results of SFX Broadcasting through the date of the SFX Merger,
the actual cost of consummating the SFX Merger and the related transactions.
SFX will also incur certain other significant expenses prior to the
consummation of the SFX Merger that could reduce Working Capital, including the
payment of dividends and interest on SFX Broadcasting's debt, the Meadows
Repurchase and the amount of any settlement paid by SFX Broadcasting in
connection with the SFX Merger shareholder litigation. Moreover, Working
Capital will be reduced by at least $2.1 million pursuant to the Series E
Adjustment. If the Company is required to make Working Capital payments to SFX
Broadcasting, there can be no assurance that the Company will have the funds to
do so or that it will have sufficient funds to conduct its operations after
making the required payments.

In addition, at the time of the Spin-Off, the Company must repay sums
advanced to it by SFX Broadcasting for certain acquisitions or capital
expenditures after August 25, 1997 and not repaid at or before the closing of
the Spin-Off. In February 1998, the Company reimbursed SFX Broadcasting
approximately $25.3 million for consent fees, capital expenditures and other
acquisition related expenses funded by SFX Broadcasting. SFX Broadcasting may
advance additional amounts to the Company for these purposes before the
consummation of the Spin-Off. See "Agreements Relating to the Spin-Off--
Distribution Agreement" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Liquidity and Capital Resources."

CONTROL BY MANAGEMENT; STOCK ISSUED TO MANAGEMENT

At the time of completion of the Spin-Off (assuming that the Spin-Off
Proposal is approved), and after the grant of additional shares as described in
"Executive Compensation--Employment Agreements and Arrangements with Certain
Officers and Directors" and "Certain Relationships and Related
Transactions--Issuance of Stock to Holders of SFX Broadcasting's Options and
SARs," it is anticipated that Mr. Sillerman will beneficially own approximately
45.7% of the total voting power of the Company's Common Stock, and that all
directors and executive officers together will beneficially own approximately
52.2% of the total voting power of the Company's Common Stock. Accordingly,
these persons will have substantial influence

over the affairs of the Company, including the ability to control the election
of a majority of the board of directors of the Company (the "Board"), the
decision whether to effect or prevent a merger or sale of assets (except in
certain "going private transactions") and other matters requiring stockholder
approval. In addition, the issuance of these shares of the Company's Common
Stock to certain members of senior management of the Company in connection with
their employment with the Company will result in substantial non-cash charges
to operations, which could increase the Company's losses or reduce or eliminate
its earnings, if any. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Executive Compensation" and "Security
Ownership of Certain Beneficial Owners and Management."

DEPENDENCE ON KEY PERSONNEL

The success of the Company depends substantially on the abilities and
continued service of certain of its (and its subsidiaries') executive officers
and directors. In particular, the Company will depend on the continued services
of Robert F.X. Sillerman, Michael G. Ferrel, Brian Becker, Geoffrey Armstrong,
Howard J. Tytel and Thomas P. Benson. Although these individuals generally have
greater experience in the radio broadcasting business than the live
entertainment industry, they do have significant expertise in selecting,
negotiating and financing acquisitions and in operating and managing public
companies. In addition, most of the Company's directors and executive officers
are also currently acting as directors and executive officers of SFX
Broadcasting. Until the consummation of the SFX Merger, these directors and
executive officers can be anticipated to expend substantial time and effort in
managing the business of SFX Broadcasting (which may detract from their
performance with respect to the Company). If the SFX Merger is not consummated,
there can be no assurance that the Company will be able to retain the services
of these directors and executive officers. See "Executive Compensation." The
Company and Messrs. Sillerman and Ferrel have reached agreements in principle
that those individuals will serve as officers and directors of the Company.
However, if the Spin-Off Proposal is not approved, there can be no assurance
that they will serve in that capacity, in which event SFX Broadcasting intends
to pursue alternative means of disposing of the Company.

Messrs. Sillerman and Tytel are also officers and directors of, and have
an aggregate equity interest of approximately 9.2% in Marquee, a company
involved in various aspects of the sports, news and other entertainment
industries, and own a substantial equity interest in Triathlon, a company that
owns and operates radio stations. In addition, they provide consulting services
to both companies through an affiliated entity. Messrs. Sillerman and Tytel
devote time to both Marquee and Triathlon, and the amount of time they continue
to devote to those companies could detract from their duties as officers and
directors of the Company. However, neither Mr. Sillerman nor Mr. Tytel has an
employment agreement with Marquee or Triathlon, and they do not anticipate
devoting significant amounts of time to Marquee or Triathlon. See "Business--
Potential Conflicts of Interest."

Furthermore, the operations of each of the Acquired Businesses are local
in nature and depend to a significant degree on the continued services of
between one to three individuals at each business. See "Executive Compensation"
and "Certain Relationships and Related Transactions." The loss of any of these
individual's services could have a material adverse effect on the Company's
business, financial condition and results of operations.

ENVIRONMENTAL MATTERS

The Company has real property relating to its business, consisting of fee
interests, leasehold interests and other contractual interests. The Company's
properties are subject to foreign, federal, state and local environmental laws
and regulations regarding the use, storage, disposal, emission, release and
remediation of hazardous and non-hazardous substances, materials or wastes,
including laws relating to noise emissions (which may affect, among other
things, the hours of operation of the Company's venues). Further, under certain
of these laws and regulations, the Company could be held strictly, jointly and
severally liable for the remediation of hazardous substance contamination at
its facilities or at third-party waste disposal sites, and could also be held
liable for any personal or property damage related to any contamination. The
Company believes that it is in substantial compliance with all of these laws
and regulations, and has performed preliminary environmental assessments of all
of the properties that are wholly-owned, without identifying material
environmental hazards. Although the level of future expenditures cannot be
determined with certainty, the Company does not anticipate, based on currently
known facts, that its environmental costs are likely to have a material adverse
effect on the Company's business, financial condition and results of
operations.

FRAUDULENT CONVEYANCE

The Board of Directors of SFX Broadcasting does not intend to consummate
the Spin-Off unless it is satisfied that SFX Broadcasting is solvent before and
will be solvent following the Spin-Off and that the Spin-Off is otherwise
permissible under applicable law. There is no certainty, however, that a court
would find the facts relied on and the judgments made by the

Board of Directors of SFX Broadcasting to be binding on creditors of SFX or
that a court would reach the same conclusions as the Board of Directors of SFX
Broadcasting in determining that SFX Broadcasting is solvent at the time of,
and after giving effect to, the Spin-Off. If a court in a lawsuit filed by an
unpaid creditor or representative of unpaid creditors, such as a trustee in
bankruptcy, were to find that, at the time the Spin-Off is consummated or after
giving effect thereto, SFX Broadcasting (a) was insolvent, (b) was rendered
insolvent by reason of the Spin-Off, (c) was engaged in a business or
transaction for which the remaining assets of SFX Broadcasting constituted
unreasonably small capital or (d) intended to incur, or believed it would
incur, debts beyond its ability to pay as the debts matured, then the court
might void the Spin-Off (in whole or in part) as a fraudulent conveyance and
require SFX Broadcasting's stockholders to return the shares of the Company
distributed in the Spin-Off (in whole or in part) to SFX Broadcasting or
require the Company to fund certain liabilities of SFX Broadcasting for the
benefit of SFX Broadcasting's creditors. If the assets of the Company were
recovered as fraudulent transfers by a creditor or trustee of SFX
Broadcastings, the relative priority of right to payment between any financing
and any fraudulent transfer claimant would be unclear, and the Company could be
rendered insolvent. In addition, under applicable corporate law, a corporation
generally makes distributions to its stockholders only out of its surplus (net
assets minus capital) and not out of capital. The foregoing consequences would
also apply were a court to find that the Spin-Off was not made out of SFX
Broadcasting's surplus. Indebtedness of the Company was incurred to finance the
Recent Acquisitions, to refinance certain indebtedness of the Company and the
Recent Acquisitions, to pay related fees and expenses, and for general
corporate purposes. Management believes that the indebtedness of the Company
incurred in the Financing was incurred for proper purposes and in good faith,
and that, based on present forecasts and other financial information, after the
consummation of the Spin-Off, the Company will be solvent, will have sufficient
capital for carrying on its business and will be able to pay its debts as they
mature.

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

ANTI-TAKEOVER EFFECTS

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

ITEM 2. PROPERTIES.

The Company's executive offices are located at 650 Madison Avenue, 16th
Floor, New York, New York 10022. Pursuant to the Distribution Agreement, SFX
Broadcasting has agreed to transfer certain leases relating to its offices to
the Company prior to the Spin-Off. In addition to the properties described in
"--The Company's Live Entertainment Activities-- Venue Operations," the Company
leases office space in New York, New York Austin and Houston, Texas; Atlanta,
Georgia; Chicago, Illinois; Indianapolis, Indiana; Miami, Florida;
Gaithersburg, Maryland; Santa Monica, California; Seattle, Washington; London,
England; and St. Louis, Missouri and owns office buildings in Burbank and San
Francisco, California. These properties are generally leased for terms of 1 to
10 years. See "Business-- Agreements Relating to the Spin-Off."

ITEM 3. LITIGATION.

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

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

No matters were submitted to the Company's stockholders during the fourth
quarter.

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

UPON THE CONSUMMATION OF THE SPIN-OFF

The Company has applied to list the Class A Common Stock upon the
consummation of the Spin-Off on the Nasdaq National Market but may seek listing
on an exchange even if such application is approved. A when-issued trading
market (one in which shares can be traded before certificates are actually
available or issued) has developed in the Class A Common Stock on the
over-the-counter market (symbol SFXV). However, such trading prices may not
necessarily be indicative of the trading price of the Class A Common Stock
subsequent to the Spin-Off. The Company's Class B Common Stock is not expected
to be publicly traded.

On the Spin-Off Distribution Date, SFX Broadcasting will distribute
approximately 13,400,000 shares to approximately 150 holders of record of the
SFX Broadcasting 's Class A common stock, Series D preferred stock and
interests in SFX Broadcasting's director deferred stock ownership plan,
assuming the exercise of outstanding warrants of SFX Broadcasting before the
Spin-Off Record Date and based on the number of holders of record of SFX
Broadcasting 's Class A common stock, Series D preferred stock and interests in
SFX Broadcasting's director deferred stock ownership plan on March 10, 1998.
The Transfer Agent and Registrar for the Class A Common Stock will be Chase
Mellon Shareholder Services, L.L.C. In addition, the board of directors of the
Company has approved the grant of up to 793,633 shares of the Class A Common
Stock to holders as of the Spin-Off Record Date of stock options or SARs of SFX
Broadcasting, whether or not vested. It is anticipated that the Company will
grant an aggregate of 190,000 shares of the Class A Common Stock pursuant to
employment agreements. See "Executive Compensation-- Employment Agreements and
Arrangements with Certain Officers and Directors" and "Certain Relationships
and Related Transactions-- Issuance of Stock to Holders of SFX Broadcasting's
Options and SARs."

Shares of the Class A Common Stock distributed to SFX Broadcasting
stockholders in the Spin-Off will be freely transferable, except for shares
received by persons who may be deemed to be "affiliates" of the Company under
the Securities Act. See "Security Ownership of Certain Beneficial Owners and
Management." Persons who may be deemed to be affiliates of the Company
generally include individuals or entities that control, are controlled by or
are under common control with the Company, and may include certain officers and
directors of the Company as well as principal stockholders of the Company, if
any. Persons who are affiliates of the Company may sell their shares of the
Company's Common Stock only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act, such as the exemptions afforded by Section 4(2) of the
Securities Act and Rule 144 thereunder.

DIVIDEND POLICY

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

RECENT SALES OF UNREGISTERED SECURITIES

On February 11, 1998, the Company sold $350.0 million in aggregate
principal amount of its 9 1/8% Senior Subordinated Notes dues 2008. Lehman
Brothers, Goldman Sachs, & Co., BNY Capital Markets, Inc. and ING Barings (the
"Initial Purchasers") were the purchasers of the Notes and resold the Notes (i)
to certain "qualified institutional buyers," as defined in Rule 44A of the
Securities Act of 1933, as amended (the "Securities Act") and (ii) outside the
United States to certain persons in reliance upon Regulation S promulgated
under the Securities Act. The aggregate cash offering price of the Notes was
$350.0 million and the aggregate discounts and commissions related to the sale
were $10.5 million. The Company relied upon an exemption from registration
under Section 4(2) of the Securities Act as a transaction not involving a
public offering. The

Company has agreed to register the Notes (or a new series of securities
identical in all respects to the Notes) under the Securities Act within a
certain time period.

On February 24, 1998, the Company consummated its acquisition of BGP. In
connection with such acquisition, the Company issued to the sellers of BGP
options to purchase an aggregate of 562,640 shares of Class A Common Stock upon
consummation of the Spin-Off.

On February 25, 1998, the Company consummated its acquisition of PACE. In
connection with such acquisition, the Company has agreed to issue to the
sellers of PACE 1.5 million shares of Class A Common Stock upon consummation of
the Spin-Off.

On February 27, 1998, the Company consummated its acquisition of
Contemporary. In connection with such acquisition, the Company issued to the
sellers of Contemporary shares of the Company's series A redeemable convertible
preferred stock which will automatically convert into 1,402,850 shares of Class
A Common Stock upon consummation of the Spin-Off.

On February 27, 1998, the Company consummated its acquisition of Network.
In connection with such acquisition, the Company has agreed to issue to the
sellers of Network 750,188 shares of Class A Common Stock upon consummation of
the Spin-Off.

The sales of securities to the sellers of BGP, PACE, Contemporary and
Network were private transactions not involving a public offering and were
exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof. Each of these sales was made without the use of an
underwriter.

ITEM 6. SELECTED COMBINED FINANCIAL DATA OF THE COMPANY

SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
(in thousands, except per share amounts)

The Selected Consolidated Financial Data of the Company includes the
historical financial statements of Delsener/Slater and affiliated companies,
the predecessor of the Company, for each of the four years ended December 31,
1996 and the historical financial statements of the Company for the year ended
December 31, 1997. The statement of operations data with respect to
Delsener/Slater for the year ended December 31, 1993 and the balance sheet data
as of December 31, 1993 and 1994 is unaudited. The financial information has
been derived from the audited and unaudited financial statements of the Company
and Delsener/Slater, and should be read in conjunction therewith,

YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
Predecessor
-------------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----

STATEMENT OF OPERATIONS DATA:
Revenue.......................... $46,526 $92,785 $47,566 $50,362 $96,144
Operating expenses............... 45,635 90,598 47,178 50,686 83,417
Depreciation & amortization...... 762 755 750 747 5,431
Corporate expenses (1)........... -- -- -- -- 2,206
-------------- ---------- --------- --------- ----------

Operating income (loss).......... 129 1,432 (362) (1,071) 5,090
Interest expense................ (148) (144) (144) (60) (1,590)
Other income, net................ 85 138 178 198 295
Equity income (loss) from investments -- (9) 488 524 509
-------------- ---------- --------- --------- ----------

Income (loss) before income taxes.. 66 1,417 160 (409) 4,304
Income tax (provision) benefit..... (57) (5) (13) (106) 490
-------------- ---------- --------- --------- ----------

Net income (loss).................. $ 9 $ 1,412 $ 147 $ (515) $ 3,814
============== ========== ========= ========= ==========
OTHER OPERATING DATA:
EBITDA (2)........................ $ 2,187 $ 388 $ (324) $10,521
============== ========== ========= ========= ==========

CASH FLOW FROM:
Operating activities............. $ 2,959 $ (453) $ 4,214 $ 1,005
Investing activities............. -- -- (435) (73,296)
Financing activities............. (477) (216) (1,431) 78,270

BALANCE SHEET DATA:
Current assets..................... $1,823 $4,453 $3,022 $6,191 $11,220
Property and equipment, net........ 4,484 3,728 2,978 2,231 59,685
Intangible assets, net............. -- -- -- -- 60,306
Other assets....................... 113 41 37 458 15,731
-------------- ---------- --------- --------- ----------
Total assets....................... 6,420 8,222 6,037 8,880 146,942
============== ========== ========== ========= ==========

Current liabilities................ 4,356 3,423 3,138 7,973 22,437
Long-term debt, including current
portion....................... -- 1,830 -- -- 16,178
Temporary equity................... -- -- -- -- --
Stockholders' equity............... 6,420 2,969 2,900 907 102,144

(1) Corporate expenses were reduced by $1,794,000 for fees earned from
Triathlon Broadcasting Company ("Triathlon") for the year ended December
31, 1997. The right to receive such fees in the future is to be assigned
to the Company by SFX Broadcasting in connection with the Spin-Off. Future
fees

may vary, above the minimum fee of $500,000, depending upon the level
of acquisition and financing activities of Triathlon. See "Certain
Relationships and Related Transactions-- Triathlon Fees."

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

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

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to the differences
include, but are not limited to, risks and uncertainties relating to the
Company's absence of a combined operating history, its potential inability to
integrate the Acquired Businesses and other risks related to the Recent
Acquisitions, control of the motor sports and theatrical businesses, future
acquisitions, inability to obtain future financings, inability to successfully
implement operating strategies (including the achievement of cost savings), the
Company's expansion strategy, its need for additional funds, its control of
venues, working capital adjustments, control by management, dependence on key
personnel, potential conflicts of interest, indemnification agreements,
seasonality, competition, regulatory matters, environmental matters, economic
conditions and consumer tastes and availability of artists and events. See
"Business--Risk Factors." The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances.

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

The Company's core business is the promotion and production of live
entertainment events, most significantly for concert and other music
performances in venues owned and/or operated by the Company and in third-party
venues. In connection with all of its live entertainment events, the Company
seeks to maximize related revenue streams, including the sale of corporate
sponsorships, the sale of concessions and the merchandising of a broad range of
products. On a pro forma basis giving effect to the Recent Acquisitions, the
Company's music and ancillary businesses comprised approximately 78%, theater
comprised approximately 16% and specialized motor sports comprised
approximately 6% of the Company's total net revenues for the year ended
December 31, 1997.

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

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

COMPLETED ACQUISITIONS

The Company entered the live entertainment business with SFX
Broadcasting's acquisition of Delsener/ Slater, a New York-based concert
promotion company, in January 1997 for aggregate consideration of $27.6
million. Delsener/Slater has long-term leases or is the exclusive promoter for
many of the major concert venues in the New York City metropolitan area,
including the Jones Beach Amphitheater, a 14,000-seat complex located in
Wantagh, New York, and the PNC Bank Arts Center (formerly known as the Garden
State Arts Center), a 17,500-seat complex located in Holmdel, New Jersey. In
March 1997, Delsener/Slater acquired, for aggregate consideration of $23.8
million, a 37-year lease to operate the Meadows Music Theater, a 25,000-seat
indoor/outdoor complex located in Hartford, Connecticut. In June 1997, SFX
Broadcasting acquired Sunshine Promotions, a concert promoter in the Midwest,
and certain other related companies for an aggregate consideration of $61.5
million. As a result of the acquisition of Sunshine Promotions, the Company
owns the Deer Creek Music Theater, a 21,000-seat complex located in
Indianapolis, Indiana, the Polaris Amphitheater, a 20,000-seat complex located
in Columbus, Ohio, and has a long-term lease to operate the Murat Centre, a
2,700-seat theater and 2,200-seat ballroom located in Indianapolis, Indiana.
See "Certain Relationships and Related Transactions-- Delsener/Slater
Employment Agreements."

RECENT ACQUISITIONS

In February 1998, the Company acquired BGP, PACE, Pavilion Partners,
Contemporary, and the Network Group and in March 1998, the Company acquired
Concert/Southern. See "Business-- Recent Acquisitions."

Acquisition of BGP

On February 24, 1998, the Company, through the Company's wholly-owned
subsidiary, BGP Acquisition, LLC acquired all of the outstanding capital stock
of BGP, for a total consideration of $80.3 million, including $60.8 million in
cash, $12.0 million in repayment of debt, which amount was at least equal to
BGP's working capital (as defined in the acquisition agreement), and options to
purchase 562,640 shares of Class A Common Stock of the Company. Such shares
were valued by the parties at $13.33 per share, for a total share value of $7.5
million (the "BGP Acquisition"). The options shall become exercisable for no
additional consideration upon consummation of the Spin-Off. If the Spin-Off
shall not have occurred by June 30, 1998, the option holders may elect to sell
the options to the Company at $13.33 per option plus interest from the closing
date. The purchase price was financed from the proceeds of an offering exempt
from the registration requirements of the Securities Act of the Notes, which
was consummated on February 11, 1998 (the "Offering").

Acquisition of PACE

On February 25, 1998, the Company acquired all of the outstanding capital
stock of PACE (the "PACE Acquisition"). In connection with the PACE
Acquisition, the Company acquired 100% of Pavilion Partners, a partnership that
owns interests in 10 venues ("Pavilion"), one-third through the acquisition of
PACE and two-thirds through separate agreements between PACE and Viacom Inc.
and certain of its affiliates ("Blockbuster") and between PACE and YM Corp.
("Sony") (the acquisition of such two-thirds interest, the "Pavilion
Acquisition"). The total consideration for the PACE Acquisition was
approximately $150.1 million, comprised of $109.5 million in cash, the
repayment of approximately $20.6 million of debt and the issuance of 1.5
million shares of the Class A Common Stock. Such shares were valued by the
parties at $13.33 per share for a total shares value of $20 million and will be
issued upon consummation of the Spin-Off. The total consideration for the
Pavilion Acquisition was approximately $90.6 million, comprised of $41.4
million in cash and the repayment of $43.1 million of debt and the assumption
of approximately $6.1 million of debt related to a capital lease. The purchase
price was financed from the proceeds of the Offering. In the event that the
Spin-Off has not been consummated on or before July 1, 1998 and each third
month thereafter, each selling stockholder in the PACE Acquisition will have
the option to require the Company to pay $13.33 per share in cash in lieu of
each share of the Class A Common Stock (the "PACE Option"). SFX Broadcasting
has guaranteed the full and timely performance of all of the Company's
obligations under the agreement relating to the PACE Acquisition until the
shares of Class A Common Stock have been delivered or the PACE Option shall
have been exercised by each selling stockholder in the PACE Acquisition.

Acquisition of Contemporary

On February 27, 1998, the Company acquired Contemporary Group (the
"Contemporary Acquisition"). The Contemporary Acquisition involved the merger
of Contemporary International Productions Corporation with and into the
Company, the acquisition by a wholly-owned subsidiary of the Company of
substantially all of the assets, excluding certain cash and receivables, of the
remaining members of Contemporary and the acquisition of the 50% interest in
the Riverport Amphitheatre Joint Venture not owned by Contemporary. The total
consideration of the Contemporary Acquisition was approximately $101.4 million,
comprised of $72.8 million in cash, a payment for working capital of $9.9
million, and $18.7

million in aggregate liquidation preference of shares of the Company's series A
redeemable convertible preferred stock (the "Series A Preferred Stock") which,
upon consummation of the Spin-Off, will automatically convert into 1,402,850
shares of the Class A Common Stock. Such shares of Class A Common Stock were
valued by the parties at $13.33 per share. In the event that the Spin-Off is
not consummated by July 1, 1998 the shares of Series A Preferred Stock will be
redeemed by the Company for $18.7 million. SFX Broadcasting has guaranteed the
repayment of the $18.7 million redemption price, which guarantee will terminate
upon consummation of the Spin-off. The purchase price was financed by the
borrowings under the Credit Facility and with the proceeds of the Offering.

Acquisition of Network

On February 27, 1998, the Company and its wholly-owned subsidiary, SFX
Network Group, LLC ("SFX Network") acquired Network (the "Network
Acquisition"). In the Network Acquisition, the Company, through SFX Network,
acquired all of the outstanding capital stock of each of The Album Network,
Inc. and SJS Entertainment Corporation and purchased substantially all of the
assets and properties and assumed substantially all of the liabilities and
obligations of The Network 40, Inc. The total purchase price was approximately
$66.8 million, comprised of $52.0 million cash, a payment for working capital
of $1.8 million, reimbursed seller's costs of $500,000, the purchase of an
office building and related property for approximately $2.5 million and the
issuance of approximately 750,188 shares of the Class A Common Stock upon
consummation of the Spin-Off. Such shares were valued by the parties at $13.33
per share, for a total share value of $10 million. If the Spin-Off does not
occur prior to June 30, 1998, at the option of the selling stockholders in the
Network Acquisition, the Company may be required to pay $ 10 million (plus
interest at a rate of 10% per annum from the date of closing) in lieu of
issuance of the Class A Common Stock. In addition, the purchase price is
subject to increase based on actual 1998 EBITDA (as defined) by $4.0 million if
such EBITDA equals or exceeds $9.0 million to $14 million if EBITDA is greater
than $11 million, and is payable in stock, or in certain circumstances in cash,
no later than March 20, 1999. The $2.5 million purchase of the office building
and related property used in connection with Network's business was comprised
of cash of $700,000 and the assumption of debt of $1.8 million. The purchase
price was financed by the borrowings under the Credit Facility. In connection
with the Network Acquisition, the selling stockholders were reimbursed working
capital (as defined in the acquisition agreement) in excess of $500,000. SFX
Broadcasting has guaranteed the payment to the Network sellers of any such
excess working capital.

Acquisition of Concert/Southern

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

The foregoing descriptions do not purport to be complete descriptions of
the terms of the acquisition agreements and are qualified by reference to the
acquisition agreements, copies of which are attached hereto as exhibits and
incorporated herein by reference. Pursuant to the acquisition agreements and
the agreements related thereto, the Company, (i) under certain circumstances
may be required to repurchase shares of its Class A Common Stock or make
additional payments in connection therewith, (ii) has granted certain rights of
first refusal certain of which are exercisable at 95% of the proposed purchase
price, and (iii) in connection with the PACE Acquisition, has granted Brian
Becker, the Executive Vice President, of the Office of the Chairman, and a
director of the Company, the option to acquire, after the second anniversary of
the consummation of the PACE Acquisition, the Company's then existing motor
sports line of business (or, if that business has previously been sold, the
Company's then existing theatrical line of business) at its then fair market
value See "Business--Risk Factors--Control of Motor Sports and Theatrical
Business".

The approximately 4.2 million shares of the Class A Common Stock expected
to be issued in connection with these acquisitions have been valued by the
applicable parties at $13.33 per share for purposes of calculating the
consideration to be given for the acquisitions. Such valuation is based upon
certain financial projections developed jointly by the Company and the relevant
sellers. There can be no assurance that the assumptions upon which the
valuation is based will, in fact, be correct or that the valuation will
approximate the actual trading price of the Class A Common Stock upon
consummation of the Spin-Off.

The cash portion of the purchase price for each of the Recent Acquisitions
is subject to increase under certain circumstances, including, in particular,
if the Company is unable to issue shares of its capital stock to certain of the
sellers by virtue of having failed to consummate the Spin-Off or for any other
reason. In that case, the aggregate cash consideration that would be owed to
the sellers in the Recent Acquisitions would increase, in the aggregate, by
approximately $56.2 million (plus interest in certain cases), resulting in a
corresponding increase in debt and decrease in stockholders' equity. Although
management believes

that the Spin-Off is likely to occur, the Spin-Off is subject to certain
conditions, some of which are outside of management's control. There can be no
assurance that the Spin-Off will be consummated on the terms presently
contemplated, or at all. In addition, the agreements relating to the Recent
Acquisitions provide for certain other purchase price adjustments and future
contingent payments in certain circumstances, certain of which could be
material. There can be no assurance that the Company will be able to finance
the payments. See "Risk Factors-- Risks Related to the Recent Acquisitions--
Liquidity and Capital Resources."

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

SPIN-OFF AND SFX MERGER

SFX Broadcasting was formed in 1992 principally to acquire and operate
radio broadcasting stations. SFX Broadcasting currently operates in two lines
of business: radio broadcasting and live entertainment. In August 1997, SFX
Broadcasting agreed to merge its radio business with a subsidiary of SFX Buyer.
Pursuant to the Merger Agreement, SFX Broadcasting (a) has contributed its live
entertainment businesses to the Company and prior to the consummation of the
SFX Merger (b) intends to distribute all of the outstanding shares of common
stock of the Company to the holders of common stock, Series D preferred stock
interest in SFX Broadcasting's director deferred stock ownership plan and
certain warrants of SFX Broadcasting in the Spin-Off. The receipt of shares by
stockholders of SFX Broadcasting pursuant to the Spin-Off will be a taxable
transaction. SFX Broadcasting intends to consummate the Spin-Off on or prior to
the consummation of the SFX Merger. The Spin-Off is subject to certain
conditions, including (a) the acceptance for listing or trading of the Class A
Common Stock, subject to official notice of issuance, on a national exchange or
The Nasdaq Stock Market and (b) approval of the Spin-Off as presently
contemplated by the stockholders of SFX Broadcasting scheduled to be held on
March 26, 1998 There can be no assurance that the conditions to the Spin-Off
will be satisfied. However, the Spin-Off is not conditioned on the consummation
of the SFX Merger. Management believes that the Spin-Off is likely to be
consummated in the second quarter of 1998, although there can be no assurance
that the Spin-Off will be consummated on the terms described herein or at all.
See "Business--Agreements Relating to the Spin-Off."

Pursuant to the SFX Merger Agreement, if SFX Broadcasting fails or is
otherwise unable to consummate the Spin-Off prior to the consummation of the
SFX Merger, then SFX Broadcasting will be entitled to divest its interest in
its live entertainment business in an alternate type of transaction. If SFX
Broadcasting fails to consummate the Spin-Off or any alternate transaction
prior to the SFX Merger, then SFX Buyer may elect either to consummate the SFX
Merger (increasing the amount of cash consideration to be paid to SFX's
stockholders in the SFX Merger by $42.5 million) or to terminate the SFX Merger
Agreement. Additionally, part of the aggregate consideration to be paid to the
sellers in the Recent Acquisitions is intended to consist of shares of the
Class A Common Stock. If the Spin-Off does not occur, the Company would be
unable to issue shares of its common stock to the sellers, and the aggregate
cash consideration to be paid in the Recent Acquisitions would increase by
approximately $56.2 million. Although management believes that the Spin-Off is
likely to occur, the Spin-Off is subject to certain conditions, some of which
are outside of management's control. There can be no assurance that the
conditions to the Spin-Off will be fulfilled or that the Spin-Off will be
consummated on the terms contemplated or at all. See "Business-- Risk Factors--
Risks Related to Recent Acquisitions" and "Business--Agreements Relating to the
Spin-Off."

RESULTS OF OPERATIONS

General

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

Concert Promotion/Venue Operation

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

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

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

Theatrical

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

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

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

Motor Sports

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

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

Under certain circumstances, the Company may be required to sell either
its motor sports or theatrical lines of business. See "Business-- Risk
Factors-- Control of Motor Sports and Theatrical Businesses."

Other Businesses

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

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

Seasonality

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

HISTORICAL RESULTS

The following analysis of the historical operations of the Company,
including the Completed Acquisitions, but excluding the Recent Acquisitions,
includes, for comparative purposes, the historical operations of
Delsener/Slater (the Company's predecessor) for the years ended December 31,
1995, 1996 and 1997.

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

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

Concert promotion operating expenses increased by 65% to $83.4 million for
the year ended December 31, 1997, compared to $50.6 million for the year ended
December 31, 1996, primarily as a result of the acquisitions of Sunshine
Promotions and the Meadows Music Theater, which increased concert operating
expenses revenue by $37.1 million, which was offset in part by decreased
officer salary expense paid to the former owners of Delsener/Slater. On a pro
forma basis, assuming that those acquisitions had been completed as of January
1, 1997, concert operating expenses would have been $96.7 million for the year
ended December 31, 1997.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal need for funds is to fund interest and debt
service payments, future acquisitions, working capital needs, to make certain
payments in connection with the Spin-Off and, to a lesser extent, capital
expenditures. The Company anticipates that its principal source of funds will
be the proceeds from the recent private placement of $350.0 million 9 1/8%
Senior Subordinated Notes, borrowings under the Credit Facility, cash flows
from operations and proceeds from an anticipated equity offering.

Historical Cash Flows

Net cash provided by operations was $1.0 million for the year ended
December 31, 1997.

Net cash used in investing activities for the year ended December 31, 1997
was $73.3 million. Cash used in investing activities in 1997 related primarily
to the acquisitions of Delsener/Slater, Sunshine and the Meadows and capital
expenditures.

Net cash provided by financing activities for the year ended December 31,
1997 was $78.3 million. For the year ended December 31, 1997, cash provided by
financing activities related primarily to the funding of the Completed
Acquisitions by the Company.

Completed Acquisitions

In 1997, SFX Broadcasting consummated the acquisitions of Delsener/Slater
($23.6 million in cash plus $4.0 million of deferred payments), certain
companies which own and operate the Meadows Music Theater ($0.9 million in cash
plus shares of SFX Broadcasting's Class A common stock with a value at that
time of approximately $7.5 million and the assumption of approximately $15.4
million of debt) and Sunshine Promotions ($53.9 million in cash plus $2.0
million in deferred payments, shares of SFX Broadcasting's Class A common stock
with a value of approximately $4.0 million and the assumption of $1.6 million
of debt). The present value of the future payments that the Company is required
to pay in connection with the Completed Acquisitions is approximately $6.2
million.

The foregoing includes a note in the original principal amount of $2.0
million, of which approximately $1.6 million is currently outstanding. Pursuant
to the SFX Merger Agreement, the Company is responsible for the payments owing
under the note, which by its terms accelerates upon the change of control of
SFX Broadcasting resulting from the consummation of the SFX Merger.

Recent Acquisitions

The aggregate purchase price of the Recent Acquisitions was approximately
$506.1 million, consisting of approximately $442.1 million in cash, including
repayment of debt and payments for working capital, $7.8 million of assumed
debt and the issuance of approximately 4.2 million shares of the Company's
Common Stock with an attributed negotiated value of $56.2 million. In addition,
in February 1998, the Company reimbursed SFX Broadcasting approximately $25.3
million for consent fees, capital expenditures, and other expenses related to
the Recent Acquisitions, the Financing and the Spin-Off funded by SFX
Broadcasting. The Company financed the Recent Acquisitions with the proceeds of
the Offering and $150.0 million in borrowings under the Credit Facility. The
Company incurred approximately $6.0 million in fees and expenses related to the
Recent Acquisitions. Each of the agreements relating to the Recent Acquisitions
provides that, if the Spin-Off is not completed on or before July 1, 1998, then
the sellers may require the Company to increase the cash portion of the
consideration by $56.2 million and the Company's stockholders' equity would
decrease, and debt would increase, by a corresponding amount. Although
management believes that the Spin-Off is likely to occur, the Spin-Off is
subject to certain conditions, some of which are outside of management's
control. There can be no assurance that the Spin-Off will be consummated on the
terms presently contemplated, or at all. The price ascribed to the Class A
Common Stock in the acquisition agreements is based on certain financial
projections developed jointly by the Company and the sellers. There can be no
assurance that the assumptions underlying the valuation will, in fact, be
correct or that the valuation will approximate the actual trading price of the
Class A Common Stock.

In addition, the agreements relating to the Recent Acquisitions provide
for certain other purchase price adjustments and future contingent payments.
The Company granted the current owners of PACE the right to require the Company
to repurchase up to one-third of the shares of stock to be issued to them in
the PACE Acquisition during a specified period beginning five years after the
closing date at a price of $33.00 per share for an estimated maximum obligation
of $16.5 million. In certain circumstances, if the selling price of the Class A
Common Stock is less than $13.33 per share, the Company may be required to make
an offer to the sellers to provide an additional cash payment or additional
shares of the Class A Common Stock, which each seller will have the option of
taking. Pursuant to the terms of the Becker Employment Agreement, during the
period between December 12, 1999 and December 27, 1999, Mr. Becker will have
the option to, among other things, require the Company to purchase any stock or
portion thereof (including vested and unvested options) granted to him by the
Company and/or pay him an amount equal to the present value of the compensation
payable during the remaining term of his employment agreement. See "Executive
Compensation-- Employment Agreements and Arrangements with Certain Officers and
Directors." In addition, in the Contemporary Acquisition agreement, the Company
agreed to make payments to any Contemporary sellers who own shares of the Class
A Common Stock on the second anniversary of the closing of the Contemporary
Acquisition. These payments will be due only if the average trading price of
the Class A Common Stock during the 20-day period ending on the anniversary
date is less than $13.33 per share. There can be no assurance that the average
trading price of the Class A Common Stock will be $13.33 per share at that
time. In addition, the Company may be required to issue up to an additional
$14.0 million of shares of the Class A Common Stock or, at the Company's option
in certain circumstances, cash, if Network attains certain EBITDA targets (as
defined in the Network Agreement) for the year ended December 31, 1998. No
assurance can be given that the Spin-off will be completed on or before July 1,
1998 or at all, or that the Company will have sufficient cash or other
available sources of capital to make any or all of the future or contingent
payments described above. See " Business-- Risk Factors-Risks Related to Recent
Acquisitions."

Future Acquisitions

The Company intends to pursue additional expansion opportunities and
expects to continue to identify and negotiate with respect to substantial
acquisitions in the live entertainment business and related business, certain
of which may be consummated prior to the Spin-Off.

Spin-Off

Pursuant to the Tax Sharing Agreement, the Company will be responsible for
any taxes of SFX Broadcasting resulting from the Spin-Off, including any income
taxes but only to the extent that the income taxes result from gain on the
distribution that exceeds the net operating losses of SFX Broadcasting
available to offset such gain (including net operating losses generated in the
current year prior to the Spin-Off). See "Business-- Agreements Relating to the
Spin-Off." The actual amount of the indemnification gain will be based on the
excess of the value of the Company's Common Stock distributed in the Spin-Off
over the tax basis of that stock. The Company believes that the value of the
Company's Common Stock for tax purposes will be determined by no later than
the first trading day following the date on which the Company's Common Stock
is distributed in the Spin-Off. Increases or decreases in the value of the
Company's Common Stock subsequent to such date

will not effect the tax liability. If the Company's Common Stock had a value of
approximately $15 per share at the time of the Spin-Off, management believes
that no material indemnification payment would be required. Such
indemnification obligation would be approximately $4.0 million and would
increase by approximately $7.7 million for each $1.00 increase above the per
share valuation of $16. If the Company's Common Stock was valued at $22 1/2 per
share, (the last sales price of the Class A Common Stock (trading on a
when-issued basis) on the over the counter market on March 13, 1998),
management estimates that the Company would have been required to pay
approximately $54.0 million pursuant to such indemnification obligation. The
Company expects that such indemnity payment will be due on or about June 15,
1998.

The Company also expects to incur approximately $18.0 million in fees and
expenses in connection with the Spin-Off. In addition, pursuant to the SFX
Merger Agreement, the Company has agreed to assume SFX Broadcasting's
obligations under the employment agreements of certain employees and senior
management, including the obligation to make change of control payments to
Messrs. Sillerman, Ferrel and Benson aggregating approximately $3.3 million,
$1.5 million and $0.2 million, respectively. The assumed obligations will also
include the duty to indemnify Messrs. Sillerman and Ferrel for one-half of any
excise taxes that may be assessed against them in connection with the change of
control payments. It is also anticipated that Mr. Sillerman's employment
agreement with the Company will provide for certain indemnities relating to the
SFX Merger. See "Certain Relationships and Related Transactions--Assumption of
Employment Agreements; Certain Change of Control Payments" and
"--Indemnification of Mr. Sillerman." In addition, pursuant to the Distribution
Agreement, the Company will be required to indemnify SFX Broadcasting and each
of its directors, officers and employees for any losses relating to the
Company's assets and liabilities.

In addition, pursuant to the Distribution Agreement, the Company will
assume certain obligations of SFX Broadcasting, including two real estate
leases on its executive offices. Such leases provide for annual rent of
approximately $1.4 million. See "Agreements relating to the Spin-Off--
Distribution Agreements."

Working Capital

As required by the Distribution Agreement, by the time of the Spin-Off,
SFX Broadcasting will contribute to the Company all of its concert and other
live entertainment assets. At that time, the Company will assume all of SFX
Broadcasting 's liabilities pertaining to the live entertainment businesses,
along with certain other liabilities. Immediately after the Spin-Off, SFX
Broadcasting will contribute to the Company an allocation of working capital in
an amount estimated by SFX Broadcasting's management to be consistent with the
proper operation of SFX Broadcasting. At the time of the SFX Merger, SFX
Broadcasting will pay its positive Working Capital (if any) to the Company. If
Working Capital is negative, then the Company must pay the amount of the
shortfall to SFX Broadcasting. As of December 31, 1997, the Company estimates
that Working Capital to be received by the Company would have been
approximately $3.0 million (excluding the Series E Adjustment and the tax
liability on the Spin-Off). The actual amount of Working Capital as of the
closing of the SFX Merger may differ substantially from the amount as of
December 31, 1997, and will be a function of, among other things, the operating
results of SFX Broadcasting through the date of the SFX Merger, the actual cost
of consummating the SFX Merger and the related transactions. SFX Broadcasting
will also incur certain other significant expenses prior to the consummation of
the SFX Merger that could reduce Working Capital, including the payment of
interests and dividends on SFX Broadcasting's debt, approximately $8.3 million
payable in connection with the Meadows Repurchase and the amount of any
settlement paid by SFX Broadcasting in connection with the SFX Merger
shareholder litigation. Working Capital will also be reduced by at least $2.1
million pursuant to the Series E Adjustment. In addition, prior to or at the
time of the Spin-Off, the Company must repay sums advanced to it by SFX
Broadcasting for certain acquisitions or capital expenditures after August 24,
1997 and which have not been repaid. In February 1998, the Company reimbursed
SFX Broadcasting approximately $25.3 million for consent fees, capital
expenditures and other acquisition related fees previously funded by SFX
Broadcasting. The Company intends to repay these amounts from the proceeds of
the Financing. SFX Broadcasting may advance additional amounts to the Company
for these purposes before the consummation of the Spin-Off. See "Business--
Risk Factors--Working Capital Adjustments and Repayment of Advances,"
"Business--Agreements Relating to the Spin-Off-- Distribution Agreement" and
"-- Meadows Repurchase."

Meadows Repurchase

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

Interest on Notes and Borrowings Under the Credit Facility

On February 11, 1998, the Company completed the private placement of
$350.0 million of 9 1/8% Senior Subordinated Notes. Interest is payable on the
Notes on February 1 and August 1 of each year. In addition, the Company
borrowed $150.0 million under the Credit Facility at an interest rate of
approximately 8.07%. See "-- Sources of Liquidity."

The degree to which the Company is leveraged will have material
consequences to the Company. The Company's ability to obtain additional
financing in the future for acquisitions, working capital, capital
expenditures, general corporate or other purposes are subject to the covenants
contained in the instruments governing its indebtedness. A substantial portion
of the Company's cash flow from operations will be required to be used to pay
principal and interest on its debt and will not be available for other
purposes. The Indenture and the credit agreement with respect to the Credit
Facility (the "Credit Agreement") contain restrictive financial and operating
covenants, and the failure by the Company to comply with those covenants would
result in an event of default under the applicable instruments, which in turn
would permit acceleration of the debt under the instruments (and in some cases
acceleration of debt under other instruments that contain cross-default or
cross-acceleration provisions). The Company will be more vulnerable to economic
downturns and could also be limited in its ability to withstand competitive
pressures and in its flexibility in reacting to changes in its industry and
general economic conditions. These consequences are not exhaustive; the
Company's indebtedness could also have other adverse consequences. See
"Business-- Risk Factors-- Substantial Leverage."

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

Capital Expenditures

Capital expenditures totaled $2.1 million in the year ended December 31,
1997. Capital expenditures in 1997 included cash paid for expansion and
renovations at the Jones Beach Amphitheater, improvements at other venues and
computer and other operating equipment. The Company expects that capital
expenditures in fiscal year 1998 will be substantially higher than current
levels, due to the planned capital expenditures of approximately $26.0 million
for 1998 at existing venues (including $14.0 million initially planned for the
expansion and renovation of the Jones Beach Amphitheater and $12.0 million
planned for the expansion and renovation of the PNC Bank Arts Center) and
capital expenditures requirements of the Acquired Businesses, including $10.0
million for the construction of a new amphitheater serving the Seattle,
Washington market.

Future Charges to Earnings

The Company anticipates entering into employment agreements with certain
of its executive officers before the Spin-Off. In connection with these
agreements, the Board, on the recommendation of its Compensation Committee,
agreed to sell to the executive officers an aggregate of 650,000 shares of the
Company's Class B Common Stock and 190,000 shares of the Class A Common Stock
at a purchase price of $2.00 per share. The shares will be issued on or about
the Spin-Off Distribution Date. The Company will record a non-cash compensation
charge at the date of the grant equal to the fair market value of the shares
less the aggregate purchase price paid for such shares. See "Executive
Compensation-Employment Agreements and Arrangements with Certain Officers and
Directors."

Further, the consummation of the Recent Acquisitions and other future
acquisitions will result in substantial charges to earnings relating to
interest expense and the recognition and amortization of goodwill. As of
December 31, 1997, the Company's goodwill was approximately $60.3 million. This
balance will substantially increase in 1998 due to the Recent Acquisitions.
Goodwill is being amortized using the straight line method over 15 years.

Year 2000 Compliance

The Company has addressed the risks associated with Year 2000 compliance
with respect to its accounting and financial reporting systems and is in the
process of installing new accounting and reporting systems. These systems are
expected to provide better reporting, to allow for more detailed analysis, to
handle both the Recent and the Completed Acquisitions and to be Year 2000
compliant. The Company anticipates that the cost of implementing these systems
will be approximately $2.0 million. The Company is in the process of examining
Year 2000 compliance issues with respect to its vendors and does not anticipate
that it will be subject to a material impact in this area.

Sources of Liquidity

As of December 31, 1997, the Company's cash and cash equivalents totaled $
5.9 million. As a subsidiary of SFX Broadcasting, the Company has incurred and,
as a stand-alone entity, will continue to incur substantial amounts of
indebtedness. In February of 1998, the Company received net proceeds of $339.5
million from its private placement of the Notes and borrowed $150.0 million
under the Credit Facility (the "Financing"). The proceeds from the Financing
were used to consummate the Recent Acquisitions, including the cash purchase
price, debt repayments, and working capital payments of approximately $442.1
million, and to pay approximately $6.0 million of certain fees and expenses
related to the Recent Acquisitions . The Company's cash and cash equivalents as
of March 4, 1998 were $80.8 million.

As of December 31, 1997, the Company's consolidated indebtedness would
have been approximately $517.7 million on a pro forma basis giving effect to
the Spin-Off, the Recent Acquisitions, the Financing and the SFX Merger
(assuming that the Spin-Off and the SFX Merger occur on the terms currently
contemplated). The total amount of the Company's indebtedness could increase
substantially if the Spin-Off does not occur on the terms currently
contemplated as described above. In addition, the Company may incur
indebtedness from time to time to finance acquisitions, for capital
expenditures or for other purposes. See "Business-- Risk Factors-- Substantial
Leverage."

The Credit Facility consists of a $150.0 million seven year reducing
revolving facility (the "Revolver") and a $150.0 million eight year term loan
(the "Term Loan"). The Company's ability to make significant borrowings under
the Credit Agreement will depend upon its ability to increase cash flows or to
acquire assets from its existing operations which generate significant cash
flows. Loans outstanding under the Credit Facility will bear interest, at the
Company's option, at 1.875 to 2.375 percentage points over LIBOR or the greater
of the Federal Funds rate plus 0.50% or BNY's prime rate. The interest rate
spreads on the Term Loan and the Revolver will be adjusted based on the
Company's Total Leverage Ratio (as defined in the Credit Agreement). The
Company will pay a per annum commitment fee on unused availability under the
Revolver of 0.50% to the extent that the Company's Leverage Ratio is greater
than or equal to 4.0 to 1.0, and 0.375% if such ratio is less than 4.0 to 1.0
and a per annum letter of credit fee equal to the Applicable LIBOR Margin (as
defined in the Credit Agreement) for the Revolver then in effect. The Revolver
and Term Loan contain provisions providing that, at its option and subject to
certain conditions, the Company may increase the amount of either the Revolver
or Term Loan by $50.0 million. The Revolver and Term Loan contain usual and
customary covenants, including limitations on (a) line of business, (b)
additional indebtedness, (c) liens, (d) acquisitions, (e) asset sales, (f)
dividends, repurchases of stock and other cash distributions, (g) total
leverage, (h) senior leverage and (i) ratios of Operating Cash Flow (as defined
in the Credit Agreement) to pro forma interest expense, debt service and fixed
charges. The Company's obligations under the Revolver and Term Loan are by
substantially all of its assets, including property, stock of subsidiaries and
accounts receivable and guaranteed by the Company's subsidiaries.

The Company will require additional financing in order to make all of the
payments described above, including the anticipated tax indemnification
obligation to SFX (approximately $54.0 million based on the trading price (on a
when-issued basis) of the Class A Common Stock on March 13, 1998), planned
capital expenditures (approximately $38.0 million), fees and expenses related
to the Spin-Off (estimated to be approximately $18.0 million), certain change
of control payments to executive officers ($5.0 million) and the Meadows
Repurchase (at least $8.3 million). The Company's ability to issue preferred
stock or debt securities or to borrow under its Credit Facility may be
significantly impacted by the covenants in the Credit Facility and/or

the Indenture relating to the Notes. To the extent that available borrowings
are insufficient under the Credit Facility, debt financing is not available or
that management determines that debt financing or the issuance of preferred
stock is inadvisable in view of the Company's capital structure, management
currently anticipates that, upon the consummation of the Spin-Off, such
obligations will be financed through a public offering of not less than $125
million of Class A Common Stock. If the Class A Common Stock were valued at $22
1/2 per share (the last sales price of Class A Common Stock (trading on a
when-issued basis) on the over-the-counter market on March 13, 1998),
approximately 5.6 million shares of Class A Common Stock would be issued in
such offering. There can be no assurance that SFX Entertainment will be able to
complete the offering or obtain alternative financing on acceptable terms or at
all. Any offering of Class A Common Stock would be dilutive to the ownership
interests of the Company's then-existing stockholders and the trading price of
the Class A Common Stock may be adversely affected. Any debt financing would
require payments of principal and interest and would adversely impact the
Company's cash flows.

Furthermore, certain agreements of the Company, including the Distribution
Agreement, the Tax Sharing Agreement, certain employment agreements and the
agreements relating to the Recent Acquisitions provide for tax and other
indemnities, purchase price adjustments and future contingent payments in
certain circumstances. There can be no assurance that the Company will have
sufficient sources of funds to make such payments should they come due. In
addition, consistent with its operating strategy, the Company intends to pursue
additional expansion opportunities and expects to continue to identify and
negotiate with respect to substantial acquisitions in the live entertainment
business, certain of which may be consummated prior to the Spin-Off. See
"Business-- Risk Related to Recent Acquisitions."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Consolidated Financial Statements on page F1.

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

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

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

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

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

Currently, the Board consists of the individuals who are currently serving
as directors of SFX Broadcasting and Brian Becker who was appointed to the
Board upon the consummation of the PACE Acquisition. All of the individuals who
currently serve as directors of SFX Broadcasting will cease to be directors of
SFX Broadcasting at the time of the consummation of the SFX Merger. If the SFX
Merger Agreement is terminated, Messrs. Dugan, Kramer and O'Grady have
indicated that they will promptly resign from their positions as directors of
the Company, and the Board will appoint three new independent directors, to
serve until the next annual meeting of the stockholders of the Company. The
directors of the Company will hold office until the next annual meeting of
stockholders of the Company or until their successors are duly elected and
qualified.

All of the executive officers of the Company other than Mr. Becker (the
"Executive Officers") are currently responsible for the management of SFX
Broadcasting. It is anticipated that, prior to the Spin-Off, such Executive
Officers will enter into five year employment agreements with the Company that
will be similar to their existing employment agreements with SFX

Broadcasting (except that Mr. Armstrong's employment agreement is expected to
provide that he will serve as an executive vice president of the Company but
not as the chief operating officer). See "--Employment Agreements and
Arrangements with Certain Officers and Directors." These employment agreements
will become effective immediately at the time of consummation of the SFX
Merger. During the period following the Spin-Off and prior to the consummation
of the SFX Merger, the Executive Officers who currently serve as officers of
SFX Broadcasting will continue to devote as much time as they deem necessary to
conduct the operations of the Company consistent with their obligations to SFX
Broadcasting. If the Merger Agreement is terminated for any reason, such
Executive Officers will continue to perform services to both SFX Broadcasting
and the Company until SFX Broadcasting is able to hire suitable replacements
for these Executive Officers. If the SFX Merger Agreement is terminated, SFX
Broadcasting intends to seek another buyer for the radio broadcasting business.

SFX Broadcasting and Messrs. Sillerman and Ferrel have reached agreements
in principle that Messrs. Sillerman and Ferrel will serve as officers and
directors of the Company; however, if the Spin-Off Proposal is not approved,
there can be no assurance that they will serve in any such capacity, in which
event SFX Broadcasting intends to pursue alternative means of disposing of the
Company. See "Business-- Risk Factors-- Dependence on Key Personnel."

The following table sets forth information as to the Directors and the
Executive Officers of the Company:

DIRECTOR
NAME OF SFX AGE AS OF
POSITION(S) HELD WITH POSITION(S) HELD WITH SFX BROADCASTING DECEMBER 31,
THE COMPANY BROADCASTING SINCE 1997
- ----------------------------------------------------------------------------------------------------------------------------------

Robert F.X. Sillerman Director, Executive Chairman and Director and Executive 1992 49
Member of the Office of the Chairman Chairman

Michael G. Ferrel Director, President, Chief Director, President and Chief 1996 48
Executive Officer and Member of the Executive Officer
Office of the Chairman

Brian Becker Director, Executive Vice President None -- 41
and Member of the Office of the
Chairman

D. Geoffrey Armstrong Director and Executive Vice Director, Chief Operating 1993 40
President Officer and Executive Vice
President

Howard J. Tytel Director, General Counsel, Director, General Counsel, 1993 50
Secretary and Executive Vice Secretary and Executive Vice
President President

Thomas P. Benson Director, Vice President and Chief Director and Chief Financial 1996 35
Financial Officer Officer

Richard A. Liese Director, Vice President and Director, Vice President and 1995 47
Assistant General Counsel Assistant General Counsel

James F. O'Grady, Jr. Director Director 1993 69

Paul Kramer Director Director 1993 65

Edward F. Dugan Director Director 1996 63

ROBERT F.X. SILLERMAN has served as the Executive Chairman of SFX
Broadcasting since July 1, 1995, and from 1992 through June 30, 1995, he served
as Chairman of the Board of Directors and Chief Executive Officer of SFX
Broadcasting. Mr. Sillerman is Chairman of the Board of Directors and Chief
Executive Officer of SCMC, a private company that makes investments in and
provides financial consulting services to companies engaged in the media
business, and of TSC, a private company that makes investments in and provides
financial advisory services to media-related companies. Through privately held

entities, Mr. Sillerman controls the general partner of Sillerman
Communications Partners, L.P., an investment partnership. Mr. Sillerman is also
the Chairman of the Board and a founding stockholder of Marquee, a
publicly-traded company organized in 1995, which is engaged in various aspects
of the sports, news and other entertainment industries. Mr. Sillerman is also a
founder and a significant stockholder of Triathlon, a publicly-traded company
that owns and operates radio stations in medium and small-sized markets in
mid-western and western United States. For the last twenty years, Mr. Sillerman
has been a senior executive of and principal investor in numerous entities
operating in the broadcasting business. In 1993, Mr. Sillerman became the
Chancellor of the Southampton campus of Long Island University.

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

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

D. GEOFFREY ARMSTRONG has been the Chief Operating Officer and an
Executive Vice President of SFX Broadcasting since November 22, 1996 and has
served as a Director of SFX Broadcasting since 1993. Mr. Armstrong became the
Chief Operating Officer of SFX Broadcasting in June 1996 and the Chief
Financial Officer, Executive Vice President and Treasurer of SFX Broadcasting
in April 1995. Mr. Armstrong was Vice President, Chief Financial Officer and
Treasurer of SFX Broadcasting from 1992 until March 1995. He had been Executive
Vice President and Chief Financial Officer of Capstar, a predecessor of SFX
Broadcasting, since 1989. From 1988 to 1989, Mr. Armstrong was the Chief
Executive Officer of Sterling Communications Corporation.

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

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

RICHARD A. LIESE has been a Director, Vice President and Associate General
Counsel of SFX Broadcasting since 1995. Mr. Liese has also been the Assistant
General Counsel and Assistant Secretary of SCMC since 1988. In addition, from
1993 until April 1995, he served as Secretary of MMR.

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

PAUL KRAMER has been a partner in Kramer & Love, financial consultants
specializing in acquisitions, reorganizations and dispute resolution, since
1994. From 1992 to 1994, Mr. Kramer was an independent financial consultant.
Mr. Kramer was a

partner in the New York office of Ernst & Young LLP from 1968 to 1992, and from
1987 to 1992 was Ernst & Young's designated Broadcasting Industry Specialist.

EDWARD F. DUGAN is President of Dugan Associates Inc., a financial
advisory firm to media and entertainment companies, which he founded in 1991.
Mr. Dugan was an investment banker with Paine Webber Inc., as a Managing
Director, from 1978 to 1990, with Warburg Paribas Becker Inc., as President,
from 1975 to 1978 and with Smith Barney Harris Upham & Co., as a Managing
Director, from 1961 to 1975.

Audit Committee

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

Compensation Committee

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

Compensation Committee Interlocks and Insider Participation

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

Stock Option Committee

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

Stock Option and Restricted Stock Plan

The Board and SFX Broadcasting, as sole stockholder of the Company, have
approved and adopted the Company's 1998 Stock Option and Restricted Stock Plan,
providing for the issuance of up to 2,000,000 shares of the Class A Common
Stock. The purpose of the plan is to provide additional incentive to officers
and employees of the Company. Each option granted under the plan will be
designated at the time of grant as either an "incentive stock option" or a
"non-qualified stock option." The plan will be administered by the Stock Option
Committee. The Board has approved the issuance of stock options exercisable for
an aggregate of 245,000 shares under the plan. See "Executive
Compensation-Employment Agreements and Arrangements with Certain Officers and
Directors."

Compensation of Directors

Directors employed by the Company will receive no compensation for
meetings they attend. Each director not employed by the Company will receive a
fee of $1,500 for each Board meeting he attends, in addition to reimbursement
of travel expenses. Each non-employee director who is a member of a committee
will also receive $1,500 for each committee meeting he attends that is not held
in conjunction with a Board meeting. If the committee meeting occurs in
conjunction with a Board meeting, each committee member will receive an
additional $500 for each committee meeting he attends. In addition, the Company
will pay each director an annual retainer of $30,000, of which one-half will be
paid in cash and one-half will be paid in

shares of the Class A Common Stock.

ITEM 11. EXECUTIVE COMPENSATION

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

It is anticipated that compensation for the Executive Officers and for
other executives will consist principally of base salary, an annual incentive
bonus opportunity and long-term stock-based incentive awards. All direct and
indirect remuneration of all Executive Officers and certain other executives
will be approved by the Compensation and Stock Option Committees.

It is anticipated that the Board will, after the Spin-Off, grant
shares of the Class A Common Stock to holders as of the Spin-Off Record Date of
stock options or SARs of SFX Broadcasting, whether or not vested. See "Certain
Relationships and Related Transactions--Issuance of Stock to Holders of SFX
Broadcasting`s Options and SARs."

EMPLOYMENT AGREEMENTS AND ARRANGEMENTS WITH CERTAIN OFFICERS AND DIRECTORS

The Company anticipates that it will enter into employment agreements with
all of the Executive Officers prior to the consummation of the Spin-Off, and
that the employment agreements (except for Mr. Becker's employment agreement
which is described below) will become effective immediately after the
consummation of the SFX Merger. It is anticipated that the employment
agreements will provide for annual base salaries of $500,000 for Mr. Sillerman,
$350,000 for Mr. Ferrel, $325,000 for Mr. Armstrong, $300,000 for Mr. Tytel and
$235,000 for Mr. Benson. Each executive officer is expected to receive a bonus
to be determined annually in the discretion of the Board, on the recommendation
of the Compensation Committee. Each employment agreement will be for a term of
five years, and unless terminated or not renewed by the Company or the
employee, the term will continue thereafter on a year-to-year basis on the same
terms existing at the time of renewal. It is anticipated that each of the
agreements will provide for payments and other benefits to be mutually agreed
upon, if the employee's employment terminates following a change of control.

In connection with entering into the employment agreements, the Board (on
the review and recommendation of the Compensation Committee) approved the
following sales of restricted stock: 500,000 shares of the Company's Class B
Common Stock to Mr. Sillerman, 150,000 shares of the Company's Class B Common
Stock to Mr. Ferrel, 100,000 shares of the Class A Common Stock to Mr.
Armstrong, 80,000 shares of the Class A Common Stock to Mr. Tytel and 10,000
shares of the Class A Common Stock to Mr. Benson. The shares of restricted
stock are to be sold to the officers at a purchase price of $2.00 per share.
For a period of three years from issuance, the restricted stock may not be
transferred and will be subject to forfeiture if an unwaived event of default
is called on certain indebtedness, including the Notes and the debt to be
incurred under the Credit Facility. In addition, in connection with entering
into the employment agreements, the Board (on the review and recommendation of
the Compensation Committee) also approved the issuance, effective upon
consummation of the Spin-Off, of the following stock options exercisable for
shares of the Class A Common Stock: options to purchase 120,000 shares to Mr.
Sillerman, options to purchase 50,000 shares to Mr. Ferrel, options to purchase
40,000 shares to Mr. Armstrong, options to purchase 25,000 shares to Mr. Tytel
and options to purchase 10,000 shares to Mr. Benson. The options will vest over
five years and will have an exercise price of $5.50 per share.

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

Becker Employment Agreement

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

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

Beginning on the second anniversary of the date of the Becker Employment
Agreement (December 12, 1999), Mr. Becker will have the option (the "Becker
Second Year Option"), exercisable within 15 days thereafter, to elect one or
more of the following: to (a) put any stock or portion thereof (including any
vested and unvested options to purchase stock) and/or any compensation to be
paid to Mr. Becker by the Company; (b) become a consultant to the Company for
no more than an average of 20 hours per week for the remainder of the term and
with the same level of compensation set forth in the Becker Employment
Agreement; or (c) acquire PACE's motor sports line of business (or, if that
line of business was previously sold, PACE's theatrical line of business) at
its fair market value as determined in the Becker Employment Agreement.

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

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

Throughout the term of his employment and for a period of 18 months
thereafter, Mr. Becker has agreed not to, directly or indirectly, engage in any
activity or business that is directly competitive with the Company (or its
affiliates) or solicit any of

its employees to leave the Company (or its affiliates). However, these
restrictions will not apply if Mr. Becker exercises his rights, or the Company
breaches its obligations, with respect to the Becker Right of First Refusal or
the Becker Second Year Option

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

Possible Amendments to Delsener/Slater Employment Agreements

Messrs. Delsener and Slater and the Company are in the process of
negotiating amendments to their employment agreements to reflect, among other
things, the changes to the Company's business as a result of the Recent
Acquisitions and the Spin-Off. Messrs. Delsener and Slater have agreed in
principle to waive any rights to repurchase (or to offer to repurchase)
Concerts, and any rights to receive a portion of the proceeds of a Return Event
(as defined in their employment agreements) that they might otherwise have in
connection with the SFX Merger or the Spin-Off. However, there can be no
assurance that Messrs. Delsener and Slater will waive these rights on terms
acceptable to the Company or that, if not so waived, neither Mr. Delsener nor
Mr. Slater will exercise these rights. These rights may continue to apply in
certain circumstances to transactions after, or unrelated to, the Spin-Off and
the SFX Merger. The Company also expects, in connection with the foregoing, to
negotiate mutually satisfactory amendments to certain of Messrs. Delsener's and
Slater's compensation arrangements, including bonus and profit-sharing
provisions. See "Business-- Risk Factors--Control of Concerts " and "Certain
Relationships and Related Transactions-Delsener/Slater Employment Agreements."

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

ITEM 12. SECURITY OWNNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

All of the outstanding Common Stock of the Company is currently held by
SFX Broadcasting. To the best of the Company's knowledge, the following table
sets forth projected information regarding the beneficial ownership of shares
of the Company Common Stock after the Spin-Off, and after the Spin-Off, and
grants, with respect to (a) each director of the Company, (b) certain executive
officers of the Company, (c) the directors and executive officers of the
Company as a group and (d) each person known by the Company to own beneficially
more than five percent of the outstanding shares of any class of SFX
Broadcasting's common stock. The ownership information presented below with
respect to all persons and organizations is based on record ownership of SFX
Broadcasting's common stock and certain options and warrants to purchase SFX
Broadcasting's common stock as of March 16, 1998 and assumes no change in
record ownership of SFX Broadcasting's common stock and the options and
warrants.

AFTER THE SPIN-OFF AND STOCK GRANTS(1),(2)
---------------------------------------------------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK(3)
--------------------------------------- -------------------------------------
PERCENT
OF TOTAL
NUMBER OF PERCENT NUMBER OF PERCENT VOTING
SHARES OF CLASS SHARES OF CLASS POWER
------ -------- ------ -------- -----

Directors and Executive
Officers:
Robert F.X. Sillerman.... 1,332,630(5), 6.9% 1,524,168(6) 89.9% 45.7%
Michael G. Ferrel......... 179,504(7) * 172,869(8) 10.1% 5.3%
Brian Becker............... -- * -- -- *
D. Geoffrey Armstrong.. 261,800(9) 1.4% -- -- *
Howard J. Tytel(11)...... 137,891(10),(11) * -- -- *
Thomas P. Benson........ 19,000(12) * -- -- *
Richard A. Liese.......... 9,500(13) * -- -- *
James F. O'Grady, Jr....... 14,772(14) * -- -- *
Paul Kramer............... 15,922(15) * -- -- *
Edward F. Dugan......... 5,922(16) * -- -- *
All directors and
executive officers as a
group (10 persons )....... 1,976,941 10.2% 1,697,037 100.0% 52.2%

- ------------------
* Less than 1%

(1) Assumes that (a) all of the outstanding Class B Warrants and Unit Purchase
Options of SFX Broadcasting are exercised prior to the Spin-Off Record
Date and (b) SFX Broadcasting exercises a contractual right to purchase
250,838 shares of SFX Broadcasting's Class A common stock prior to the
Spin-Off Record Date. Does not include 2,000,000 shares reserved for
issuance pursuant to the Company's 1998 Stock Option and Restricted Stock
Plan. In January 1998, the Board approved the issuance of stock options
for an aggregate of 245,000 shares of the Class A Common Stock.

(2) Assumes that (a) an aggregate of 4,216,680 shares of the Class A Common
Stock are issued pursuant to the Recent Acquisitions, (b) an aggregate of
793,633 shares of the Class A Common Stock are issued to the holders of
stock options and SARs issued by SFX Broadcasting and (c) an aggregate of
290,000 shares of the Class A Common Stock and 650,000 shares of the
Company's Class B Common Stock are issued pursuant to certain anticipated
employment agreements. See "Executive Compensation-- Employment Agreements
and Arrangements with Certain Officers and Directors" and "Certain
Relationships and Related Transactions-- Issuance of Stock to Holders of
SFX Broadcasting's Options and SARs."

(3) Assumes that the Spin-Off Proposal to allow holders of SFX Broadcasting's
Class B Common Stock to receive the Company's Class B Common Stock in the
Spin-Off is approved at SFX Broadcasting's stockholders meeting.

(4) Unless otherwise set forth above, the address of each stockholder is the
address of the Company, which is 650 Madison Avenue, 16th Floor, New York,
New York 10022. Pursuant to Rule 13d-3 of the Exchange Act, as used in
this table, (a) "beneficial ownership" means the sole or shared power to
vote, or to direct the disposition of, a security, and (b) a person is
deemed to have "beneficial ownership" of any security that the person has
the right to acquire within 60 days of February 9, 1998. Unless noted
otherwise, (a) information as to beneficial ownership is based on
statements furnished to SFX Broadcasting or the Company by the beneficial
owners, and (b) stockholders possess sole voting and dispositive power
with respect to shares listed on this table. As of February 9, 1998, there
were issued and outstanding 9,517,663 shares of SFX Broadcasting's Class A
common stock

and 1,047,037 shares of SFX Broadcasting's Class B common stock.

(5) Assumes that the Company issues 45,193 shares of the Class A Common Stock
to Mr. Sillerman (or entities controlled by Mr. Sillerman) as a result of
his ownership of options of SFX Broadcasting. See "Certain Relationships
and Related Transactions--Issuance of Stock to Holders of SFX
Broadcasting's Options and SARs." Includes (i) 8,949 shares of the Class A
Common Stock expected to be issued to TSC in the Spin-Off; (ii) 600,000
shares of the Class A Common Stock to be issued to SCMC in the Spin-Off
pursuant to certain warrants held by SCMC and (iii) an option, exercisable
upon consummation of the Spin-Off, to acquire an aggregate of 537,185
shares of the Class A Common Stock from a third party. If the 1,524,168
shares of the Company's Class B Common Stock to be held by Mr. Sillerman
were included in calculating his ownership of the Class A Common Stock,
then Mr. Sillerman would beneficially own 2,856,705 shares of the Class A
Common Stock, representing approximately 14% of the class. Does not
include options to purchase an aggregate of 120,000 shares of the Class A
Common Stock that are expected to be issued to Mr. Sillerman pursuant to
his anticipated employment agreement. See "Executive Compensation--
Employment Agreements and Arrangements with Certain Officers and
Directors."

(6) Includes 500,000 shares of the Company's Class B Common Stock that are
expected to be issued to Mr. Sillerman pursuant to his anticipated
employment agreement. See "Executive Compensation-- Employment Agreements
and Arrangements with Certain Officers and Directors."

(7) Assumes that the Company issues 167,372 shares of the Class A Common Stock
to Mr. Ferrel as a result of his ownership of options of SFX Broadcasting.
See "Certain Relationships and Related Transactions-- Issuance of Stock to
Holders of SFX Broadcasting's Options and SARs." If the 22,869 shares of
Class B Common Stock held by Mr. Ferrel were included in calculating his
ownership of the Class A Common Stock, then Mr. Ferrel would beneficially
own 352,371 shares of the Class A Common Stock, representing approximately
1.9% of the class. Does not include options to purchase an aggregate of
50,000 shares of the Class A Common Stock that are expected to be issued
to Mr. Ferrel pursuant to his anticipated employment agreement. See
"Executive Compensation-- Employment Agreements and Arrangements with
Certain Officers and Directors."

(8) Includes 150,000 shares of the Company's Class B Common Stock that are
expected to be issued to Mr. Ferrel pursuant to his anticipated employment
agreement. See "Management-- Employment Agreements and Arrangements with
Certain Officers and Directors."

(9) Assumes that the Company issues an aggregate of 261,800 shares of the
Class A Common Stock to Mr. Armstrong pursuant to his anticipated
employment agreement and as a result of his ownership of options of SFX
Broadcasting. See "Management-- Employment Agreements and Arrangements
with Certain Officers and Directors" and "Certain Relationships and
Related Transactions-- Issuance of Stock to Holders of SFX Broadcasting's
Options and SARs."

(10) In addition to the shares that Mr. Tytel beneficially owns, he has
economic interests in a limited number of shares beneficially owned by Mr.
Sillerman. These interests do not impair Mr. Sillerman's ability to vote
and dispose of those shares. See "Certain Relationships and Related
Transactions-- Arrangement Between Robert F.X. Sillerman and Howard J.
Tytel."

(11) Assumes that the Company issues an aggregate of 113,614 shares of the
Class A Common Stock to Mr. Tytel pursuant to his anticipated employment
agreement and as a result of his ownership of options of SFX Broadcasting.
Mr. Tytel has an economic interest in SCMC and TSC, which together will
beneficially own an aggregate of 608,949 shares of the Class A Common
Stock, although he does not have voting or dispositive power with respect
to the shares beneficially held by SCMC and TSC. See "Certain
Relationships and Related Transactions-- Arrangement Between Robert F.X.
Sillerman and Howard J. Tytel." Does not include options to purchase an
aggregate of 25,000 shares of the Class A Common Stock that are expected
to be issued to Mr. Tytel pursuant to his employment agreement. See
"Management-- Employment Agreements and Arrangements with Certain Officers
and Directors" and "Certain Relationships and Related Transactions--
Issuance of Stock to Holders of SFX Broadcasting's Options and SARs."

(12) Assumes that the Company issues an aggregate of 19,000 shares of the Class
A Common Stock to Mr. Benson pursuant to his anticipated employment
agreement and as a result of his ownership of options of SFX Broadcasting.
Does not include options to purchase an aggregate of 10,000 shares of the
Class A Common Stock that are expected to be issued to Mr. Benson pursuant
to his employment agreement. See "Executive Compensation** Employment
Agreements and Arrangements with Certain Officers and Directors" and
"Certain Relationships and Related Transactions-- Issuance of Stock to
Holders of SFX Broadcasting's Options and SARs."

(13) Assumes that the Company issues 9,500 shares of the Class A Common Stock
to Mr. Liese as a result of his ownership of options of SFX Broadcasting .
See "Certain Relationships and Related Transactions-- Issuance of Stock to
Holders of SFX Broadcasting's Options and SARs."

(14) Assumes that the Company issues 13,000 shares of the Class A Common Stock
to Mr. O'Grady as a result of his ownership of options and/or SARs of SFX
Broadcasting. See "Certain Relationships and Related Transactions--
Issuance of Stock to Holders of SFX Broadcasting's Options and SARs."
Includes 922 shares issuable pursuant to SFX Broadcasting's director
deferred stock ownership plan.

(15) Assumes that the Company issues 13,000 shares of the Class A Common Stock
to Mr. Kramer as a result of his ownership of options and/or SARs of SFX.
See "Certain Relationships and Related Transactions-- Issuance of Stock to
Holders of SFX Broadcasting's Options and SARs." Includes 922 shares
issuable pursuant to SFX Broadcasting's director deferred stock ownership
plan.

(16) Assumes that the Company issues 3,000 shares of the Class A Common Stock
to Mr. Dugan as a result of his ownership of options and/or SARs of SFX
Broadcasting. See "Certain Relationships and Related Transactions--
Issuance of Stock to Holders of SFX Broadcasting's Options and SARs."
Includes 922 shares issuable pursuant to SFX Broadcasting's director
deferred stock ownership plan.

POSSIBLE CHANGE IN CONTROL

Mr. Sillerman has pledged an aggregate of 793,401 of his shares of SFX
Broadcasting's Class B common stock as collateral for a line of credit, under
which Mr. Sillerman currently has no outstanding borrowings. The pledge extends
to all

dividends payable on the pledged shares; accordingly, if the pledge agreement
is in effect at the time of the Spin-Off, and if the Spin-Off Proposal is
approved, then 793,401 shares of the Company's Class B Common Stock distributed
to Mr. Sillerman will be subject to the pledge agreement. Mr. Sillerman
continues to be entitled to exercise voting and consent rights with respect to
the pledged shares, with certain restrictions. However, if Mr. Sillerman
defaults in the payment of any future loans extended to him under the line of
credit, the bank will be entitled to sell the pledged shares. Although the
Company's Class B Common Stock has 10 votes per share in most matters, the
pledged shares will automatically convert into shares of the Class A Common
Stock upon such a sale. Such a sale of the pledged shares would reduce Mr.
Sillerman's share of the voting power of the Company's Common Stock, and would
therefore be likely to result in a change of control of the Company. See
"Business-- Risk Factors-- Restrictions Imposed by the Company's Indebtedness."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

AGREEMENTS WITH SFX BROADCASTING

The Company and SFX Broadcasting have entered into various agreements
with respect to the Spin-Off and related matters. For a description of the
material terms of these agreements, see "Business- Agreements Related to the
Spin-Off."

THE COMPANY'S COMMON STOCK TO BE RECEIVED IN THE SPIN-OFF

In the Spin-Off, the holders of SFX Broadcasting's Class A common stock,
Series D preferred stock and Warrants (upon exercise) will receive shares of
the Class A Common Stock, whereas Messrs. Sillerman and Ferrel, as the holders
of SFX Broadcasting's Class B common stock (which is entitled to ten votes per
share on most matters), will receive shares of the Company's Class B Common
Stock (assuming approval of the Spin-Off Proposal). The Class A Common Stock
and Class B Common Stock have similar rights and privileges, except that the
Company's Class B Common Stock differs as to voting rights generally to the
extent that SFX Broadcasting's Class A common stock and Class B common stock
presently differ. The issuance of the Company's Class B Common Stock in the
Spin-Off is intended to preserve Messrs. Sillerman's and Ferrel's relative
voting power after the Spin-Off. Mr. Sillerman is anticipated to be deemed to
beneficially own approximately 45.7% of the combined voting power of the
Company after the Recent Acquisitions, Spin-Off and stock grants to management.
Similarly, Messrs. Sillerman and Ferrel are anticipated to be deemed to
beneficially own approximately 51.0% of the combined voting power of the
Company after the Recent Acquisitions, Spin-Off and stock grants to management.
Accordingly, Mr. Sillerman, alone and together with the Company's current
directors and executive officers, will generally be able to control the outcome
of the votes of the stockholders of the Company on most matters. The Company
and Messrs. Sillerman and Ferrel have agreed in principle that Messrs.
Sillerman and Ferrel will serve as officers and directors of the Company;
however, if the Spin-Off Proposal which provides that holders of shares of SFX
Broadcasting's Class B Common Stock will receive shares of the Company's Class
B Common Stock in the Spin-Off is not approved, there can be no assurance that
they will serve in that capacity, in which event SFX Broadcasting intends to
pursue alternative means of disposing of the Company. The Company expects,
however, that in such a case Messrs. Sillerman and Ferrel will assist in an
orderly transition of management.

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

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

The SFX Broadcasting Board has approved the grant of shares of the Class A
Common Stock to holders as of the Spin-Off Record Date of the stock options or
SARs of SFX Broadcasting, whether or not vested. These grants were approved by
the Board to allow holders of these options and SARs to participate in the
Spin-Off in a manner similar to holders of SFX Broadcasting's Class A common
stock. Additionally, many of the option and SAR holders will become officers,
directors or employees of the Company. These grants will result in the issuance
of an aggregate of up to 793,633 shares of the Company Class A Common Stock.
Among those receiving shares will be all members of the Board other than Mr.
Becker.

EMPLOYMENT AGREEMENTS

The Company anticipates that it will enter into employment agreements with
each member of its senior management before consummating the Spin-Off, and that
the employment agreements (except for Mr. Becker's employment agreement) will
become effective immediately after the consummation of the SFX Merger. The
Company anticipates that the employment agreements will provide for annual base
salaries of $500,000 for Mr. Sillerman, $350,000 for Mr. Ferrel, $325,000 for
Mr. Armstrong, $300,000 for Mr. Tytel and $235,000 for Mr. Benson. In
connection with entering into the employment agreements, the Board (on the
review and recommendation of the Compensation Committee) approved the following
sales of restricted stock: 500,000 shares of the Company's Class B Common Stock
to Mr. Sillerman, 150,000 shares of the Company's Class B Common Stock to Mr.
Ferrel, 100,000 shares of the Class A Common Stock to Mr. Armstrong, 80,000
shares of the Class A Common Stock to Mr. Tytel and 10,000 shares of the Class
A Common Stock to Mr. Benson. The shares of restricted stock are to be sold to
the officers at a purchase of $2.00 per share. For a period of three years from
issuance, the restricted stock may not be transferred and will be subject to
forfeiture if an unwaived event of default is called on certain indebtedness,
including the Notes and the debt to be incurred under the Credit Facility. In
addition, the Board, on the recommendation of its Compensation Committee, also
has approved the issuance of stock options exercisable for an aggregate of
245,000 shares of the Company's Class A Common Stock. The options will vest
over five years and will have an exercise price of $5.50 per share. The Company
will record non-cash compensation charges over the five-year exercise period to
the extent that the fair value of the underlying Class A Common Stock of the
Company exceeds the exercise price. See "Executive Compensation-- Employment
Agreements and Arrangements with Certain Officers and Directors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources-- Future Charges to Earnings."

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

DELSENER/SLATER EMPLOYMENT AGREEMENTS

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

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

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

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

ASSUMPTION OF EMPLOYMENT AGREEMENTS; CERTAIN CHANGE OF CONTROL PAYMENTS

Pursuant to the terms of the Distribution Agreement, at the time of the
consummation of the SFX Merger, the Company will assume all obligations under
any employment agreement or arrangement (whether written or oral) between SFX

Broadcasting or any of its subsidiaries and any employee of the Company
(including Messrs. Sillerman and Ferrel), other than obligations relating to
Messrs. Sillerman's and Ferrel's Change of Control Options and existing rights
to indemnification. These assumed obligations include the obligation to pay to
Messrs. Sillerman, Ferrel and Benson, after the termination of their employment
with SFX Broadcasting, cash payments aggregating approximately $3.3 million,
$1.5 million and $0.2 million, respectively. These payments will become due to
Messrs. Sillerman, Ferrel and Benson after the termination of their employment
with SFX Broadcasting following a change of control of SFX Broadcasting,
pursuant to their employment agreements with SFX Broadcasting. In addition, the
Company's assumed obligations will include the duty to indemnify Messrs.
Sillerman and Ferrel (to the extent permitted by law) for one-half of the cost
of any excise tax that may be assessed against them for any change-of-control
payments made to them by SFX Broadcasting in connection with the SFX Merger.

INDEMNIFICATION OF MR. SILLERMAN

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

POTENTIAL CONFLICTS OF INTEREST

Marquee is a publicly-traded company that, among other things, acts as
booking agent for tours and appearances for musicians and other entertainers.
Messrs. Sillerman and Tytel have an aggregate equity interest of approximately
9.2% in Marquee; Mr. Sillerman is the chairman of its board of directors, and
Mr. Tytel is one of its directors. The Company anticipates that, from time to
time, it will enter into transactions and arrangements (particularly, booking
arrangements) with Marquee and Marquee's clients, and it may compete with
Marquee for specific concert promotion engagements. In addition, the Company
could in the future compete with Marquee in the production or promotion of
motor sports or other sporting events. These transactions or arrangements will
be subject to the approval of the independent committees of the Company and
Marquee, except that booking arrangements in the ordinary course of business
will be subject to periodic review, but not approval of each particular
arrangement.

TSC, an entity controlled by Mr. Sillerman and in which Mr. Tytel also has
an equity interest, provides financial consulting services to Marquee and
Triathlon. TSC's services are provided by certain directors, officers and
employees of SFX Broadcasting, who are anticipated to become directors,
officers and employees of the Company at the time of consummation of the SFX
Merger, and who are not separately compensated for their services by TSC.
Messrs. Sillerman and Tytel have substantial equity interests in Triathlon. In
any transaction, arrangement or competition with Marquee or Triathlon, Messrs.
Sillerman and Tytel are likely to have conflicts of interest between their
duties as officers and directors of the Company, on the one hand, and their
duties as directors of Marquee and their interests in TSC, Marquee and
Triathlon, on the other hand.

RELATIONSHIP BETWEEN HOWARD J. TYTEL AND BAKER & MCKENZIE

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

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

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

TRIATHLON FEES

SCMC, a corporation controlled by Mr. Sillerman and in which Mr. Tytel has
an equity interest, has an agreement to provide consulting and marketing
services to Triathlon, a publicly-traded company in which Mr. Sillerman is a
significant stockholder. Under the terms of the agreement, SCMC has agreed to
provide consulting and marketing services to Triathlon until June 1, 2005 for
an annual fee of $500,000, together with a refundable advance of $500,000 per
year against fees earned in respect of transactional investment banking
services. Fees paid by Triathlon for the years ended December 31, 1996 and
December 31, 1997 were $3,000,000 and $1,794,000, respectively. These fees will
vary (above the minimum annual fee of $500,000) depending on the level of
acquisition and financing activities of Triathlon. SCMC previously assigned its
rights to receive fees payable under this agreement to SFX Broadcasting.
Pursuant to the terms of the Distribution Agreement, SFX Broadcasting will
assign its rights to receive these fees to the Company. Triathlon has
previously announced that it is exploring ways of maximizing stockholder value,
including possible sale to a third party. If Triathlon were acquired by a third
party, the agreement might not continue for the remainder of its term.

RELATIONSHIPS AND TRANSACTIONS WITH SFX BROADCASTING

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

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

(a) Item 8 of this report on Form 10-K are incorporated herein by reference.

(b) Reports on Form 8-K.

On March 11, 1998, the Company filed a Report on Form 8-K disclosing,
pursuant to Item 5, the consummation of certain acquisitions, and the execution
of a Credit and Guarantee Agreement with respect to a senior secured credit
facility and the borrowing of $150 million term loan under such facility.

Exhibit
No. Description of Exhibit
- --------- ------------------------

2.1 Form of Distribution Agreement between SFX Entertainment and SFX (4).

2.2 Form of Tax Sharing Agreement between SFX Entertainment and SFX (3).

2.3 Form of Employee Benefits Agreement between SFX Entertainment and SFX (4).
3.1 Certificate of Incorporation of SFX Entertainment (1).

3.2 Bylaws of SFX Entertainment (3).

3.3 Certificate of Amendment to the Certificate of Incorporation of SFX
Entertainment, Inc., as filed with the Secretary of State of Delaware on
February 25, 1998 (5).

3.4 1998 Stock Option and Restricted Stock Plan of SFX Entertainment (3).

3.5 Indenture relating to the 9 1/8% Senior Subordinated Notes due 2008 (5).

3.6 Certificate of Designations relating to the Series A Preferred Stock of
SFX Entertainment, Inc. as filed with the Secretary of State of Delaware
on February 27, 1998 (5).

3.7 Form of Amended and Restated Certificate of Incorporation of SFX
Entertainment, Inc. (6).

10.1 Stock Purchase Agreement, dated as of October 11, 1996, by and among
Delsener/Slater Enterprises, Ltd., Beach Concerts, Inc., Connecticut
Concerts Incorporated, Broadway Concerts, Inc., Arden Productions, Ltd.,
In-house Tickets, Inc., Exit 116 Revisited, Inc., Ron Delsener, Mitch
Slater and SFX Broadcasting, Inc. (1).

10.2 License Agreement, dated January 29, 1990, by and between the State of New
York and Beach Concerts, Inc. (1).

10.3 Amendment to License Agreement of January 29, 1990, dated as of April 11,
1997, by and between the State of New York and Beach Concerts, Inc. (1).

10.4 Lease Agreement, Easement Agreement and Declaration of Restrictive
Covenants dated as of May 1, 1996, by and between New Jersey Highway
Authority and GSAC Partners (1).

10.5 Partnership Agreement, dated as of November 18, 1996, by and between
Pavilion Partners Exit 116 Revisited, Inc. (1).

10.6 Asset Purchase and Sale Agreement, dated June 23, 1997, by and among
Sunshine Concerts, L.L.C., SFX Broadcasting, Inc., Sunshine Promotions,
Inc., P. David Lucas and Steven P. Sybesma (1).

10.7 Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among
Suntex Acquisition, L.P., SFX Broadcasting, Inc., Suntex, Inc., P. David
Lucas, Steven P. Sybesma, Greg Buttrey and John Valant (1).

10.8 Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among
Deer Creek Amphitheater Concerts, L.P., SFX Broadcasting, Inc., Deer Creek
Partners, L.P., Sand Creek Partners, L.P., Sand Creek, Inc., P. David
Lucas and Steven P. Sybesma (1).

10.9 Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and among
Murat Centre Concerts, L.P., SFX Broadcasting, Inc., Murat Centre L.P., P.
David Lucas and Steven P. Sybesma (1).

10.10 Asset Purchase and Sale Agreement, dated June 23, 1997, by and among
Polaris Amphitheater Concerts, Inc., SFX Broadcasting, Inc., Polaris
Amphitheater Limited Partnership and certain of the partners of Polaris
Amphitheater Limited Partnership (1).

10.11 Asset Purchase and Sale Agreement, dated as of June 23, 1997, by and
among Sunshine Design, L.P., SFX

Broadcasting, Inc., Tourdesign, Inc., P. David Lucas and Steven P. Sybesma (1).

10.12 Indenture of Lease, dated as of September 1, 1995, by and between Murat
Temple Association, Inc. and Murat Centre, L.P. (2).

10.13 Agreement of Merger, dated as of February 12, 1997, by and among SFX
Broadcasting, Inc., NOC Acquisition Corp., Cadco Acquisition Corp., QN-
Acquisition Corp., Nederlander of Connecticut, Inc., Connecticut
Amphitheater Development Corporation, QN Corp., Connecticut Performing
Arts, Inc., Connecticut Performing Arts Partners and the Stockholders of
Nederlander of Connecticut, Inc., Connecticut Amphitheater Development
Corporation and QN Corp. (1).

10.14 Agreement of Merger, dated as of February 14, 1997, by and among SFX
Broadcasting, Inc., NOC Acquisition Corp., Cadco Acquisition Corp.,
QN-Acquisition Corp., Nederlander of Connecticut, Inc., Connecticut
Amphitheater Development Corporation, QN Corp., Connecticut Performing
Arts, Inc., Connecticut Performing Arts Partners and the Stockholders of
Nederlander of Connecticut, Inc., Connecticut Amphitheater Development
Corporation and QN Corp. (1).

10.15 Second Amendment of Agreement of Merger, dated as of March 19, 1997, by
and among SFX Broadcasting, Inc., NOC Acquisition Corp., Cadco Acquisition
Corp., QN-Acquisition Corp., Nederlander of Connecticut, Inc., Connecticut
Amphitheater Development Corporation, QN Corp., Connecticut Performing
Arts, Inc., Connecticut Performing Arts Partners and the Stockholders of
Nederlander of Connecticut, Inc., Connecticut Amphitheater Development
Corporation and QN Corp. (1).

10.16 Lease Agreement, dated as of September 14, 1994, by and between The City
of Hartford and Connecticut Performing Arts Partners (1).

10.17 Agreement and Plan of Merger and Asset Purchase Agreement, dated as of
December 10, 1997, by and among SFX Entertainment, Inc., Contemporary
Investments Corporation, Contemporary Investments of Kansas, Inc.,
Continental Entertainment Associates, Inc., Capital Tickets, LP, Dialtix,
Inc., Contemporary International Productions Corporation, Steven F.
Schankman Living Trust, dated 10/22/82, Irving P. Zuckerman Living Trust,
dated 11/24/81, Steven F. Schankman and Irving P. Zuckerman (1).

10.18 Lease Agreement, dated December 13, 1992, by and between Wyandotte
County, Kansas and Wyandotte County Parks Board and Sandstone Amphitheater
Joint Venture (1).

10.19 Stock Purchase Agreement, dated as of December 11, 1997, among each of
the shareholders of BGP Presents, Inc. and BGP Acquisitions, LLC (1).

10.20 Amphitheater Lease and Agreement, dated June 20, 1986, between the City
of Mountain View, the Mountain View Shoreline Regional Park Community and
Shoreline Amphitheater Partners (2).

10.21 Stock and Asset Purchase Agreement, dated December 2, 1997, between and
among SFX Network Group, L.L.C. and SFX Entertainment, Inc., and Elias N.
Bird, individually and as Trustee under the Bird Family Trust u/d/o
11/18/92, Gary F. Bird, individually and as Trustee under the Gary F. Bird
Corporation Trust u/d/o 2/4/94, Stephen R. Smith, individually and as
Trustee under the Smith Family Trust u/d/o 7/17/89, June E. Brody, Steven
A. Saslow and The Network 40, Inc. (1).

10.22 Purchase and Sale Agreement, dated as of December 15, 1997, by and among
Alex Cooley, S. Stephen Selig, III, Peter Conlon, Southern Promotions,
Inc., High Cotton, Inc., Cooley and Conlon Management, Inc., Buckhead
Promotions, Inc., Northern Exposure, Inc., Pure Cotton, Inc., Interfest,
Inc., Concert/Southern Chastain Promotions Joint Venture, Roxy Ventures
Joint Venture and SFX Concerts, Inc. (1).

10.23 Stock Purchase Agreement, dated as of December 12, 1997 by and between
Pace Entertainment Corporation and SFX Entertainment, Inc. (1).

10.24 Agreement and Plan of Merger, dated as of August 24, 1997, as amended on
February 9, 1998, among SFX Buyer, SFX Buyer Sub and SFX (composite
version) (6).

10.25 Reserved

10.26 Non-Negotiable Promissory Note, dated as of June 23, 1997, between SFX
(as maker) and Sunshine Promotions, Inc. (as payee) (1).

10.27 Partnership Agreement, dated as of April 1, 1994, by and among SM/PACE,
Inc., YM Corp., The Westside Amphitheater Corporation, Charlotte
Amphitheater Corporation and Amphitheater Entertainment Partnership (1).

10.28 Purchase Agreement, dated as of December 19, 1997, by and among SM/PACE,
Inc., PACE Entertainment Corporation, Charlotte Amphitheater Corporation,
The Westside Amphitheater Corporation and Viacom Inc. (2).

10.29 Letter Purchase Agreement, dated as of December 22, 1997, by and among
SM/PACE, Inc., YM Corp. and PACE Entertainment Corporation (2).

10.30 Extended Events Management Agreement, dated as of November 21, 1994, by
and between The Woodlands Center for the Performing Arts and Pavilion
Partners (2).

10.31 Operator Lease Agreement, dated as of September 26, 1989, by and between
the City of Phoenix and The Westside Amphitheatre Corp. (2).

10.32 Addendum to Operator Lease Agreement, dated as of September 26, 1989, by
and between the City of Phoenix and Pavilion Partners (2).

10.33 Memorandum of Lease, dated as of April 1, 1994, by and between the City
of Phoenix and Pavilion Partners (2).

10.34 Lease Agreement, dated as of February 9, 1994, by and between New Jersey
Development Authority and Sony Music/Pace Partnership (2).

10.35 First Amendment to Lease Agreement, dated as of March 11, 1994, by and
between New Jersey Economic Development and Sony Music/Pace Partnership
(2).

10.36 Second Amendment to Lease Agreement, dated as of June 7, 1994, by and
between New Jersey Economic Development Authority and Pavilion Partners
(2).

10.37 Third Amendment to Lease Agreement, dated as of March 15, 1995, by and
between New Jersey Economic Development Authority and Pavilion Partners
(2).

10.38 Fourth Amendment to Lease Agreement, dated as of March 11, 1997, by and
between the New Jersey Economic Development Authority and Pavilion
Partners (2).

10.39 Three Way Agreement, dated as of April 28, 1995, by and between New
Jersey Economic Development Authority, South Jersey Performing Arts
Center, Inc. and Pavilion Partners (2).

10.40 Lease Agreement, dated as of December 1, 1989, between Crossroads
Properties, Incorporated and Pace Entertainment Group, Inc. (2).

10.41 Assignment of Ground Lease, dated as of April 6, 1990, by and between
Pace Entertainment Group, Inc. and YM/Pace Partnership (2).

10.42 Partnership Agreement, dated as of July 1, 1991, by and between SM/PACE
Partnership and CDC

Amphitheaters/I, Inc. (2).

10.43 First Amendment to Partnership Agreement, dated as of January 31, 1992,
by and between SM/PACE Partnership and CDC Amphitheaters/I, Inc. (2).

10.44 Lease Agreement, dated as of December 1, 1990, by and between the City of
Raleigh, North Carolina and Sony Music/Pace Partnership (2).

10.45 Amendment to Lease Agreement, dated as of November 15, 1995, by and
between Walnut Creek Amphitheater Partnership and City of Raleigh, North
Carolina (2).

10.46 Mutual Recognition Agreement, dated as of December 1, 1990, by and among
Walnut Creek Amphitheater Financing Assistance Corporation, First Union
National Bank of North Carolina, City of Raleigh, North Carolina and Sony
Music/Pace Partnership (2).

10.47 Mutual Recognition Agreement, dated as of December 1, 1990, by and among
Walnut Creek Amphitheater Financing Assistance Corporation, First Union
National Bank of North Carolina, City of Raleigh, North Carolina and Sony
Music/Pace Partnership (2).

10.48 Partnership Agreement, dated as of February 28, 1986, by and between Belz
Investment Company, Inc., Martin S. Belz and Pace Productions, Inc. (2).

10.49 First Amendment to Partnership Agreement, dated as of June 15, 1986, by
and among Belz Investment Company, Martin S. Belz, Belz-Starwood, Inc. and
Pace Productions, Inc. (2).

10.50 Partnership Agreement, dated as of May 15, 1996, by and between Pavilion
Partners and CDC/SMT, Inc. (2).

10.51 Lease Agreement, Easement Agreement and Declaration of Restrictive
Covenants, dated as of January 4, 1995, by and between South Florida Fair
and Pam Beach County Expositions, Inc. and Pavilion Partners (2).

10.52 First Amendment to Lease Agreement, dated as of June 5, 1995, by and
between South Florida Fair and Pam Beach County Expositions, Inc. and
Pavilion Partners (2).

10.53 Partnership Agreement, dated as of April 4, 1997, by and between Pavilion
Partners and Irvine Meadows Amphitheater (2).

10.54 Amended and Restated Agreement, dated as of October 1, 1991, by and
between The Irvine Company and Irvine Meadows (2).

10.55 Concession Lease, dated as of October 19, 1992, by and between the County
of San Bernardino and Amphitheater Entertainment Corporation (2).

10.56 Partnership Formation Agreement, dated as of January 22, 1988, by and
among MCA Concerts II, Inc. and Pace Entertainment Group, Inc. (2).

10.57 Lease and Use Agreement, dated as of December 9, 1987, by and between
City of Dallas and Pace Entertainment Group, Inc. (2).

10.58 Agreement, dated as of October 10, 1988, by and between the City of
Atlanta and MCA Concerts, Inc. (2).

10.59 Amended Indenture of Lease, February 2, 1984, by and between the City of
Atlanta and Filmworks U.S.A., Inc. (2).

10.60 Amendment to Lease Agreement, dated as of October 10, 1988, between the
City of Atlanta, Georgia and

Filmworks U.S.A., Inc. (2).

10.61 Agreement Regarding Sublease, dated as of January 20, 1988, by and
between Filmworks U.S.A., Inc. and MCA Concerts, Inc. (2).

10.62 First Amendment to Sublease, dated as of January 21, 1988, between
Filmworks U.S.A., Inc. and MCA Concerts, Inc. (2).

10.63 Second Amendment to Sublease, dated as of April 19, 1988, between
Filmworks U.S.A., Inc. and MCA Concerts, Inc. (2).

10.64 Third Amendment to Sublease, dated as of September 15, 1988, between
Filmworks U.S.A., Inc. and MCA Concerts, Inc. (2).

10.65 Memorandum of Agreement, dated as of October 10, 1988, by and between the
City of Atlanta and MCA Concerts, Inc. (2).

10.66 Assignment of Sublease, dated as of June 15, 1989, by Filmworks U.S.A.,
Inc. and MCA Concerts, Inc. (2).

10.67 Assignment of Sublease, dated as of June 23, 1989, by Filmworks U.S.A.,
Inc. and MCA Concerts, Inc. (2).

10.68 Assignment of Agreement, dated as of June 15, 1989, by the City of
Atlanta and MCA Concerts, Inc. (2).

10.69 Assignment of Agreement, dated as of June 23, 1989, by the City of
Atlanta and MCA Concerts, Inc. (2).

10.70 Lease, dated as of June, 1997, by and between 500 Texas Avenue Limited
Partnership and Bayou Place Performance Hall General Partnership (2).

10.71 Master Licensed User Agreement, dated as of February 1, 1996, by and
between Ticketmaster Ticketing Co., Inc. and Pace Entertainment
Corporation (2).

10.72 Joint Venture Agreement, dated as of July, 1995 by and between American
Broadway, Inc. and Gentry & Associates, Inc. (2).

10.73 Amended and Restated Employment Agreement, dated as of December 12, 1997,
by and between SFX Entertainment, Inc. and Brian E. Becker (2).

10.74 Second Amended and Restated Partnership Agreement, dated as of April 1,
1994 by and between The Westside Amphitheatre Corporation, San Bernardino
Amphitheater Corporation and YM Corp. (2).

10.75 Employment Agreement, dated as of January 2, 1997, between
Delsener/Slater Enterprises, Inc., SFX Broadcasting, Inc. and Ron Delsener
(2).

10.76 Employment Agreement, dated as of January 2, 1997, between
Delsener/Slater Enterprises, Inc., SFX Broadcasting, Inc. and Mitch Slater
(2).

10.77 Reserved

10.78 Reserved

10.79 Credit and Guarantee Agreement, dated as of February 26, 1998, by and
among SFX Entertainment, the Subsidiary Guarantors party thereto, the
Lenders party thereto, Goldman Sachs Parnters, L.P., as co-documentation
agent, Lehman Commercial Paper, Inc., as co-documentation agent and the
Bank of New York, as administrative agent (5).

10.80 Purchase Agreement, dated February 5, 1998, relating to the 9_% Senior
Subordinated Notes due 2008 of SFX Entertainment, Inc., by and among SFX
Entertainment, Inc., Lehman Brothers Inc., Sachs & Co., BNY Capital
Markets, Inc. and ING Barings (5).

10.81 Amendment No. 2 to Agreement and Plan of Merger among SBI Holdings
Corporation, SBI Radio Acquisition Corporation and SFX Broadcasting, Inc.,
dated March 9, 1998.

21.1 Subsidiaries of SFX Entertainment.

27.1 Financial Data Schedule.

99.1 Opinion of Lehman Brothers (6).

- -----------------------------
(1) Incorporated by reference to the Registration Statement on Form S-1 (Reg.
No. 333-43287) filed with the Commission on December 24, 1997.

(2) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form S-1 (Reg. No. 333-43287) filed with the Commission on January 22,
1998.

(3) Incorporated by reference to Amendment No. 2 to the Registration Statement
on Form S-1 (Reg. No. 333-43287) filed with the Commission on February 2,
1998.

(4) Incorporated by reference to Amendment No. 3 to the Registration Statement
on Form S-1 (Reg. No. 333-43287) filed with the Commission on February 11,
1998.

(5) Incorporated by reference to Report on Form 8-K (File No. 333-43287) filed
with the Commission March 11, 1998.

(6) Incorporated by reference to Schedule 14A of SFX, filed with the
Commission on February 13, 1998.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

SFX ENTERTAINMENT, INC.

By:_/s/Robert F.X. Sillerman
----------------------------
Name: Robert F.X. Sillerman
Title: Executive Chairman and Member of the
Office of the Chairman

Date: March 17, 1998

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

Signature Title Date
- --------- ----- ----

/s/ Robert F.X. Sillerman Executive Chairman, Member of the
- ------------------------- Office of the Chairman and Director
Robert F.X. Sillerman (principal executive officer) March 17, 1998

/s/ Michael G. Ferrel President, Chief Executive Officer, March 17, 1998
- --------------------- Member of the Office of the Chairman
Michael G. Ferrel and Director

/s/ Brian Becker Executive Vice President, Member of the March 17, 1998
- ----------------- Office of the Chairman and Director
Brian Becker

/s/ D. Geoffrey Armstrong Executive Vice President and Director March 17, 1998
- -------------------------
D. Geoffrey Armstrong

/s/ Thomas P. Benson Chief Financial Officer, Vice President March 17, 1998
- ----------------------- and Director (principal financial and
Thomas P. Benson accounting officer)

/s/ Howard J. Tytel Vice President, General Counsel, March 17, 1998
- -------------------- Secretary and Director
Howard J. Tytel

/s/ Richard A. Liese Vice President, Associate General March 17, 1998
- -------------------- Counsel and Director
Richard A. Liese

/s/ James F. O'Grady, Jr. Director March 17, 1998
- -------------------------
James F. O'Grady, Jr.

/s/ Paul Kramer Director March 17, 1998
- -------------------------
Paul Kramer

/s/ Edward F. Dugan Director March 17, 1998
- -------------------
Edward F. Dugan

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF
THE ACT.

The Company became a reporting company pursuant to Section 15(d) of the
Act in February 1998. Prior to the date of this Annual Report on Form 10-K, the
Company has not delivered an annual report or any proxy material to its
stockholders. The Company intends to deliver such documents to its stockholders
subsequent to the date hereof.

SFX ENTERTAINMENT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

The following consolidated financial statements
are included in Item 8:

Report of Independent Auditors- SFX Entertainment, Inc. F-2

Report of Independent Auditors- Delsener/Slater Enterprises,
Ltd. and Affiliated Companies (Predecessor) F-3

Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4

Consolidated Statements of Operations for each of the
Three Years in the Period Ended December 31, 1997 F-5

Consolidated Statements of Cash Flows for each of the
Three Years in the Period Ended December 31, 1997 F-6

Notes to Consolidated Financial Statements F-7

F-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors
SFX Entertainment, Inc.

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

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of SFX Entertainment, Inc. at December 31, 1997, and the consolidated results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
March 5, 1998

F-2

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Delsener/Slater Enterprises, Ltd.

We have audited the accompanying consolidated balance sheet of
Delsener/Slater Enterprises, Ltd. and Affiliated Companies as of December 31,
1996, and the related consolidated statements of operations and cash flows for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Delsener/Slater Enterprises, Ltd. and Affiliated Companies. at December 31,
1996, and the consolidated results of their operations and their cash flows for
each of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

New York, New York
October 2, 1997

F-3

SFX ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

December 31,
-------------------------------
Predecessor
ASSETS 1997 1996
-------------------------------

Current assets:
Cash and cash equivalents $ 5,979 $5,253
Accounts receivable 3,831 159
Prepaid expenses and other current assets 1,410 779
--------------- --------------
Total current assets 11,220 6,191

Property and equipment, net 59,685 2,231
Deferred acquisition costs 6,213
Goodwill, net 60,306
Investment in unconsolidated subsidiaries 937 458
Note receivable from employee 900
Other assets 7,681
--------------- --------------
TOTAL ASSETS $ 146,942 $8,880
============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,715 $6,078
Deferred revenue 3,603 18
Income taxes payable 1,707
Due to stockholder -- 1,877
Due to SFX Broadcasting 11,539
Current portion of long-term debt 923
Current portion of deferred purchase consideration 1,950
--------------- --------------
Total current liabilities 22,437 7,973

Long-term debt, less current portion 15,255
Deferred purchase consideration, less current portion 4,289
Deferred income taxes 2,817
Commitment and contingencies
Shareholder's equity:
Capital to be contributed by SFX Broadcasting 98,330 --

Preferred Stock, $.01 par value, 1,000 shares authorized,
none issued and outstanding -- --

Class A common stock, $.01 par value, 1,000 shares
authorized, issued and outstanding -- --

Class B common stock, $.01 par value, 1,000 shares
authorized, issued and outstanding -- --

Combined stockholder's equity-predecessor -- 907
Retained earnings 3 ,814 --
--------------- --------------
Total shareholder's equity 102,144 907
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $146,942 $8,880
============== ===============

See accompanying notes.

F-4

SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)

Year Ended December 31,
--------------------------------------------------------
1997 Predecessor Predecessor
1996 1995
-------------- ---------------- ----------------

Concert revenue $ 96,144 $50,362 $47,566
Operating expenses:

Cost of concerts 83,417 50,686 47,178
Depreciation and amortization 5,431 747 750
Corporate expenses, net of Triathlon
fees of $1,794 in 1997 2,206
-------------- ---------------- ----------------
91,054 51,433 47,928
-------------- ---------------- ----------------
Income (loss) from operations 5,090 (1,071) (362)
Investment income 295 198 178
Interest expense (1,590) (60) (144)
Equity in pretax income of unconsolidated iiiisubsidiaries 509 524 488
-------------- ---------------- ----------------
Income (loss) before provision for income taxes 4,304 (409) 160

Provision for income taxes 490 106 13
-------------- ---------------- ----------------
Net income (loss) $ 3,814 $ (515) $ 147
============== ================ ================

See accompanying notes.

F-5

SFX ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

Year Ended December 31,
---------------------------------------------------------------
Predecessor Predecessor
1997 1996 1995
----------------- ----------------- ------------------

Operating activities:
Net income (loss) $ 3,814 $ (515) $ 147
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation of property and equipment 2,686 746 750
Amortization of goodwill 2,745 --
Equity in pretax income of unconsolidated
subsidiaries, net of distributions received (479) 16 2
Deferred income taxes (427) -- --
Changes in operating assets and liabilities, net
of amounts acquired:
Accounts receivable (923) (159) 384
Prepaid expenses and other current assets 419 (649) 374
Other a ssets (275) -- --
Accounts payable and accrued expenses (325) 4,759 (1,326)
Income taxes payable 917 -- --
Deferred revenue (7,147) 16 (784)
------- ------- --------
Net cash provided by (used in) operating activities 1,005 4,214 (453)

Investing activities:
Purchase of concert promotion businesses, net of
cash acquired (71,213) -- --
Investment in GSAC Partnership -- (435) --
Purchase of property and equipment (2,083) -- --
------- ------- --------
Net cash used in investing activities (73,296) (435) --
------- ------- --------
Financing activities:
Capital to be contributed by SFX Broadcasting 79,093 -- --
Payment of debt (823) -- --
Proceeds from issuance of common stock and
capital contributions 152
Loan from stockholder -- 47 --
Distributions paid -- (1,630) (216)
------- ------- --------
Net cash provided by (used in) financing activities 78,270 (1,431) (216)

Net increase in cash and cash equivalents 5,979 2,348 (669)
Cash and cash equivalents at beginning of period -- 2,905 3,574
---------- ------- --------
Cash and cash equivalents at end of period $ 5,979 $ 5,253 $ 2,905
========== ========= ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,504 $ 60 $ 144
========== ========= ==========
Cash paid for income taxes $ -- $ 106 $ 13
========== ========= ==========

Supplemental disclosure of non-cash investing and financing activities:

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

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

o The balance sheet includes certain assets and liabilities which have been
or will be contributed by SFX Broadcasting to the Company prior to the
Spin-Off.

See accompanying notes.

F-6

SFX ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

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

DELSENER/SLATER

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

MEADOWS

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

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

SUNSHINE PROMOTIONS

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

F-7

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

The accompanying consolidated financial statements as of December 31, 1997
include the accounts of Delsener/Slater, Sunshine Promotions, the Meadows, and
certain assets and liabilities which have been or will be contributed by SFX
Broadcasting to the Company prior to the Spin-Off (as defined herein) under the
terms of the Broadcasting Merger (as defined herein) Agreement. Operating
results for the Completed Acquisitions are included herein from their
respective acquisition dates. Operating results associated with the assets
and liabilities to be contributed are included herein. SFX Broadcasting
provides various administrative services to the Company. It is SFX
Broadcasting's policy to allocate these expenses on the basis of direct
usage. In the opinion of management, this method of allocation is reasonable
and allocated expenses approximate what the Company would have incurred on a
stand-alone basis. Intercompany transactions and balances among these companies
have been eliminated in consolidation.

The following unaudited pro forma summary represents the consolidated
results for the years ended December 31, 1997 and 1996 as if the Completed
Acquisitions had occurred at the beginning of such year after giving effect to
certain adjustments, including amortization of goodwill and interest expense on
the acquisition debt. These pro forma results have been included for
comparative purposes only and do not purport to be indicative of what would
have occurred had the acquisition been made as of that date or of results which
may occur in the future (in thousands).

Pro Forma
(unaudited)
Year Ended Year Ended
December 31, 1997 December 31, 1996
Revenues $ 110,387 $ 104,784
Net income $ 734 $ 2,668

F-8

PENDING SPIN-OFF

In August 1997, SFX Broadcasting agreed to the merger (the "Broadcasting
Merger Agreement") among SBI Holdings, Inc. (the "Buyer"), SBI Radio
Acquisition Corporation, a wholly-owned subsidiary of the Buyer, and
SFX Broadcasting (the "Broadcasting Merger") and to the spin-off of the
Company to the shareholders of SFX Broadcasting (the "Spin-Off"). The Spin-Off
is subject to certain conditions, including, among others: (i) the
satisfaction of the Board of Directors of SFX Broadcasting that SFX
Broadcasting's surplus would be sufficient to permit the Spin-Off under
Delaware law, (ii) the acceptance for listing or trading of the Class A Common
Stock of the Company, subject to official notice of issuance, on the American
Stock Exchange or Nasdaq Stock Market, (iii) receipt of all necessary third
party consents to the Spin-Off, and (iv) receipt of necessary SFX Broadcasting
stockholder approvals.

At or prior to the Spin-Off, pursuant to the terms of the Spin-Off, SFX
Broadcasting will contribute to the Company all of its concert and other live
entertainment assets along with an allocation of working capital in an amount
estimated by management of SFX Broadcasting to be consistent with the proper
operation of SFX Broadcasting, and the Company will assume all of SFX
Broadcasting's liabilities pertaining to the live entertainment businesses, as
well as certain other liabilities including the obligation to make change of
control payments to certain employees of SFX Broadcasting of approximately
$5,000,000 as well as the obligation to indemnify one-half of certain of these
employees' excise tax. At the time of the Broadcasting Merger, SFX
Broadcasting will contribute its positive Working Capital (as defined in the
Broadcasting Merger Agreement) to the Company. If Working Capital is negative,
the Company must pay the amount of the shortfall to SFX Broadcasting. As of
December 31, 1997, SFX Broadcasting had advanced approximately $11,539,000 to
the Company for use in connection with certain acquisitions and capital
expenditures. This obligation and other costs subsequently incurred in
connection with the Spin-Off were reimbursed in February 1998 with the
proceeds from the Senior Subordinated Notes (see Note 2). SFX Broadcasting
may advance additional amounts to the Company prior to the consummation of
the Spin-Off.

Prior to the Spin-Off, SFX Broadcasting and the Company will enter into a
tax sharing agreement. Under the tax sharing agreement, the Company will agree
to pay to SFX Broadcasting the amount of the tax liability of SFX Broadcasting
and the Company combined, to the extent properly attributable to the Company
for the period up to and including the Spin-Off, and will indemnify SFX
Broadcasting for any tax adjustment made in subsequent years that relates to
taxes properly attributable to the Company during the period prior to and
including the Spin-Off. SFX Broadcasting, in turn, will indemnify the Company
for any tax adjustment made in years subsequent to the Spin-Off that relates to
taxes properly attributable to the SFX Broadcasting during the period prior to
and including the Spin-Off. The Company also will be responsible for any taxes
of SFX Broadcasting resulting from the Spin-Off, including any income taxes but
only to the extent that the income taxes result from the gain on the
distribution that exceeds the net operating losses of SFX Broadcasting and
the Company available to offset such gain including net operating losses
generated in the current year prior to the Spin-Off.

The actual amount of the gain will be based on the excess of the value
of the Company's Common Stock on the date of the Spin-Off over the tax basis
of that stock. The Company believes that the value of the Company's Common
Stock for tax purposes will be determined by no later than the first trading
day following the date on which the Company's Common Stock is distributed in
the Spin-Off. Increases or decreases in the value of the Company's Common Stock
subsequent to such date will not effect the tax liability. If the Company's
Common Stock had a value of approximately $15 per share at the time of the
Spin-Off, management believes that no material indemnification payment would
be required. Such indemnification obligation would be approximately
$4.0 million at $16 per share and would increase by approximately $7.7 million
for each $1.00 increase above the per share valuation of $16. If the Company's
Common Stock was valued at $22 1/2 per share, (the last sales price of the
Company's Class A Common Stock (trading on a when-issued basis) on the over
the counter market on March 13, 1998), management estimates that the Company
would have been required to pay approximately $54.0 million pursuant to such
indemnification obligation. The Company expects that such indemnity payment
will be due on or about June 15, 1998.

2. RECENT ACQUISITIONS AND FINANCING

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

F-9

On February 26, 1998 the Company executed a Credit and Guarantee Agreement
(the "Credit Agreement") which established a $300.0 million senior secured
credit facility comprised of (i) a $150.0 million eight-year term loan (the
"Term Loan") and (ii) a $150.0 million seven-year reducing revolving credit
facility. Loans outstanding under the Credit Facility bear interest, at the
Company's option, at 1.875 to 2.375 percentage points over LIBOR or the greater
of the Federal Funds rate plus 0.50% or BNY's prime rate. The interest rate
spreads on the Term Loan and the Revolver will be adjusted based on the
Company's Total Leverage Ratio (as defined in the Credit Agreement). The
Company will pay a per annum commitment fee on unused availability under the
Revolver of 0.50% to the extent that the Company's Leverage Ratio is greater
than or equal to 4.0 to 1.0, and 0.375% if such ratio is less than 4.0 to 1.0
and a per annum letter of credit fee equal to the Applicable LIBOR Margin (as
defined in the Credit Agreement) for the Revolver then in effect. The Revolver
and Term Loan contain provisions providing that, at its option and subject to
certain conditions, the Company may increase the amount of either the Revolver
or Term Loan by $50.0 million. Borrowings under the Credit Agreement are
secured by substantially all of the assets of the Company, including a pledge
of the outstanding stock of substantially all of its subsidiaries and
guaranteed by all of the Company's subsidiaries. On February 27, 1998, the
Company borrowed $150.0 million under the Term Loan. Together with the proceeds
from the Notes, the proceeds from the Term Loan were used to finance the Recent
Acquisitions (as defined below.)

On February 24, 1998, the Company acquired all of the outstanding capital
stock of BG Presents ("BGP"), one of the oldest promoters of, and
owner-operators of venues for, live entertainment in the United States, and a
leading promoter in the San Francisco Bay area (the "BGP Acquisition"), for
total consideration of approximately $80,300,000 (including the repayment of
$12,000,000 in BGP debt and the issuance upon the Spin-Off of 562,640 shares of
common stock of the Company valued by the parties at $7,500,000). The sellers
of BGP provided net working capital (as defined in the acquisition agreement)
at the closing in an amount equal to or greater than long-term debt.

On February 25, 1998, the Company acquired all of the outstanding capital
stock of PACE Entertainment Corporation ("PACE"), one of the largest
diversified producers and promoters of live entertainment in the United States,
having what the Company believes to be the largest distribution network in the
United States in each of its music, theater and specialized motor sports
businesses (the "PACE Acquisition"), for total consideration of approximately
$150,100,000 (including issuance upon the Spin-Off of 1,500,000 shares of the
Company's common stock valued by the parties at $20,000,000 and assumption of
approximately $20,600,000 of debt). Under the terms of the agreement,
additional cash consideration would be required if the deemed value of the
Company's common stock was less than $13.33 per share as a result of changes in
the consummation of acquisitions. In related transactions, the Company
acquired, for total consideration of $90,600,000 comprised of $41,400,000 in
cash, the repayment of approximately $43,100,000 of debt and the assumption of
approximately $6,100,000 of debt related to a capital lease, the 66 2/3%
ownership interests of Blockbuster Entertainment Corporation and Sony Music
Entertainment, Inc. in Amphitheater Entertainment Partnership, a partner of
PACE in the Pavilion Partners venue partnership. As a result, the Company owns
100% of Pavilion Partners.

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

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

On February 27, 1998, the Company acquired the Contemporary Group
("Contemporary"), a fully-integrated live entertainment and special event
promoter and producer, venue owner and operator and consumer marketer, for
total consideration of approximately $101,400,000 comprised of $72,800,000 in
cash,

F-10

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

On February 27, 1998, the Company acquired the Network Magazine Group
("Network Magazine"), a publisher of trade magazines for the radio broadcasting
industry, and SJS Entertainment Corporation ("SJS"), an independent creator,
producer and distributor of music-related radio programming, services and
research which it exchanges with radio broadcasters for commercial air-time
sold, in turn, to national network advertisers (the "Network Acquisition"), for
total consideration of approximately $66,800,000 comprised of $52,000,000 in
cash, a payment for working capital of approximately $1,800,000, reimbursed
sellers costs of $500,000, the purchase of an office building and property for
$2,500,000 and the issuance upon the Spin-Off of approximately 750,000 shares
of common stock of the Company valued by the parties at $10,000,000. The
$2,500,000 purchase of the office building and property is comprised of cash of
approximately $700,000 and the assumption of debt of approximately $1,800,000.
The Company is also obligated to pay the sellers an additional payment in
common stock or, at the Company's option, cash based on future operating
results, as defined, generated on a combined basis by Network Magazine and SJS
in 1998, up to a maximum of $14,000,000. In the Network Acquisition, the
Company, through a wholly owned subsidiary, acquired all of the outstanding
capital stock of each of The Album Network, Inc. and SJS Entertainment
Corporation and purchased substantially all of the assets and properties and
assumed substantially all of the liabilities and obligations of the Network 40,
Inc.

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

The PACE Acquisition, the Contemporary Acquisition, the Network
Acquisition, the BGP Acquisition and the Concert/Southern Acquisition are
collectively referred to herein as the "Recent Acquisitions."

Each of the Recent Acquisition agreements other than Concert/Southern
provide that, should the Spin-Off not occur prior to July 1, 1998, the sellers
may require the Company to repurchase the shares of the Company's common stock
issued to the sellers for $13.33 each.

3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

CASH AND CASH EQUIVALENTS

The Company considers all investments purchased with a
maturity of three months or less to be cash equivalents. Included in cash and
cash equivalents at December 31, 1997 is $1,235,000 of cash which has been
deposited in a separate account and will be used to fund committed capital
expenditures at PNC Bank Arts Center.

PROPERTY AND EQUIPMENT

F-11

Land, buildings and improvements and furniture and equipment are stated at
cost. Depreciation is provided on a straight-line basis over the estimated
useful lives of the assets as follows:

Buildings and improvements 7-40 years
Furniture and equipment 5-7 years

Leasehold improvements represent the capitalized costs to renovate the
Jones Beach Theatre. The costs to renovate the theatre included permanent
seats, a new stage and lavatory facilities. These costs are being amortized
over the term of the lease.

GOODWILL

Goodwill represents the excess of the purchase price over the fair market
value of the assets purchased in the Completed Acquisitions and is net of
accumulated amortization of $2,745,000. Goodwill is being amortized using the
straight-line method over 15 years. Management reviews the carrying value of
goodwill against anticipated cash flows on a non-discounted basis to determine
whether the carrying amount will be recoverable.

OTHER ASSETS

Other assets includes $4,928,000 of costs associated with acquiring the
right to receive fees from Triathlon Broadcasting Company ("Triathlon"), an
affiliate, for certain financial consulting, marketing and administrative
services provided by the Company to Triathlon. Under the terms of the
agreement, the Company has agreed to provide consulting and marketing services
to Triathlon for an annual fee of $500,000, together with a refundable advance
of $500,000 per year against fees to be earned in respect of transactional
investment banking services. These fees, which are recorded as a reduction of
corporate, general and administrative expenses, will fluctuate based upon the
level of acquisition and financing activity of Triathlon. The cost of acquiring
the fees is being amortized over the term of the agreement which expires on
June 1, 2005. Triathlon has announced its intention to enhance shareholder
value through a sale. The Company's management believes that the capitalized
cost of acquiring the right to receive fees from Triathlon is recoverable.

REVENUE RECOGNITION

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

Revenue from ticket sales is recognized upon occurrence of the event.
Advance ticket sales are recorded as deferred revenue until the event occurs.

RISKS AND UNCERTAINTIES

Accounts receivable are due principally from ticket companies and venue
box offices. These amounts are typically collected within 20 days of a
performance. Generally, management considers these accounts receivable to be
fully collectible; accordingly, no allowance for doubtful accounts is required.
Certain other accounts receivable, arising from the normal course of business,
are reviewed for collectibility and allowances for doubtful accounts are
recorded as required. Management believes that no allowance for doubtful
accounts is required at December 31, 1996 or 1997.

F-12

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.

F-13

ADVERTISING COSTS

Advertising costs are expensed as incurred and approximated
$7,109,000, $4,896,000 and $2,687,000 in 1997, 1996, and 1995, respectively.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires a company to recognize deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
a company's financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference between the
financial statement carrying amounts and the tax bases of assets and
liabilities.

The Company calculates its tax provision on a separate company basis.

RECLASSIFICATION

Certain amounts in 1995 and 1996 have been reclassified to conform to the
1997 presentation.

4. CONNECTICUT DEVELOPMENT AUTHORITY ASSISTANCE AGREEMENT

On September 12, 1994, the Connecticut Development Authority ("CDA")
entered into a non-recourse assistance agreement with the Meadows whereby the
CDA provided grant funds for the construction and development of the Meadows
through the issuance of State of Connecticut General Fund Obligation Bonds
("GFO Bonds"). The Meadows received bond proceeds of $8,863,000. Pursuant to
such agreement, the annual tax revenues derived from the operation of the
amphitheater are utilized to satisfy the annual service requirements under the
GFO Bonds. In the event that annual tax revenues derived from the operation of
the amphitheater do not equal annual service requirements under the GFO Bonds,
the Company must deposit the lesser of the operating shortfall, as defined, or
10% of the annual service under the GFO Bonds. An operating shortfall has not
existed since the inception of the CDA. The GFO Bonds mature on October 15,
2024 and have an average coupon rate of 6.33%. Annual service requirements,
including interest, on the GFO Bonds for each of the next five years and
thereafter are as follows (in thousands):

1998 $ 739
1999 737
2000 739
2001 740
2002 741
Thereafter 16,399
------------
$20,095
============

The assistance agreement requires an annual Meadows attendance of at least
400,000 for each of the first three years of operations. It will not be
considered an event of default if the annual Meadows attendance is less than
400,000 provided that no operating shortfall exists for that year or if an
operating shortfall exists such amount has been deposited by the Company. If
there is an event of default, the CDA may foreclose on the construction
mortgage loan (see Note 5). If the amphitheater's operations are relocated
outside of Connecticut during the ten year period subsequent to the beginning
of the assistance agreement or during the period of the construction mortgage
loan, the full amount of the grant funds plus a penalty of 5% must be repaid to
the State of Connecticut.

F-14

5. LONG-TERM DEBT

The Predecessor did not have any long-term debt as of December 31, 1996.
As of December 31, 1997, the company's long-term debt, which is recorded at
present value, consisted of the following (in thousands) :

Meadows CDA Mortgage Loan $ 7,411
Meadows Concession Agreement Loans 5,872
Meadows CDA Construction Loan 700
Murat notes payable 790
Meadows note payable 694
Polaris note payable 221
Capital l ease o bligations 490

-------------
16,178

Less current portion 923

--------------
$ 15,255
==============

MEADOWS CDA MORTGAGE LOAN

On September 12, 1994, the CDA entered into a construction mortgage loan
agreement for $7,685,000 with the Meadows. The purpose of the loan was to
finance a portion of the construction and development of the Meadows. The loan
agreement contains substantially the same covenants as the CDA assistance
agreement (see Note 4). The mortgage loan bears interest at 8.73% and is
payable in monthly installments of principal and interest. The mortgage loan
matures on October 15, 2019.

The loan is collateralized by a lien on the Meadows' assets. The loan is
secured by an irrevocable standby letter of credit issued by the Company in the
amount of $785,000.

MEADOWS CONCESSION AGREEMENT LOANS

In connection with the Meadows' concession agreement, the concessionaire
loaned the Meadows $4,500,000 in 1995 to facilitate the construction of the
amphitheater. Principal and interest at the rate of 7.5% per annum on the note
is payable via withholdings of the first $31,299 from each monthly concession
commission payment. As of December 31, 1997, the outstanding balance was
$4,343,000.

During 1995, the concessionaire loaned the Meadows an additional
$1,000,000. This loan bears interest at a rate of 9.75% per annum and is
payable via withholdings of an additional $11,900 of principal, plus interest,
from each monthly concession commission payment through December 20, 2002. As
of December 31, 1997, the outstanding balance was $679,000.

The concession agreement also required the Company to supply certain
equipment to the concessionaire at the Company's expense. The cost of the
equipment purchased by the concessionaire was converted to a note payable for
$884,000. The note bears interest at the rate of 9.25% per annum and provides
for monthly principal and interest payments of $10,185. However, the Company is
not required to make any principal or interest payments to the extent that 5%
of receipts, as defined, in any month are less than the amount of the payment
due. As of December 31, 1997, the outstanding balance was $850,000.

MEADOWS CDA CONSTRUCTION LOAN

In March 1997, the Meadows entered into a $1,500,000 loan agreement with
the CDA of which $1,000,000 was funded in March 1997. Principal payments of
$150,000 are due on July 1 and October 1 of each year commencing July 1, 1997
through October 1, 2001. The note bears interest at the rate of 8.9% per annum
through February 1, 1998, and thereafter at the index rate, as defined, plus
2.5%. In addition,

F-15

the Meadows is required to make principal payments in an amount equal to 10% of
the annual gross revenue, as defined, in excess of $13,000,000 on or before the
March 1 following each calendar year commencing March 1, 1998. In 1997, gross
revenues did not exceed the defined threshold and thus no principal payment was
made on March 1, 1998.

MURAT NOTES PAYABLE

The Company has two loans payable to the Massachusetts Avenue Community
Development Corporation (MAC), an $800,000 non-interest bearing note and a
$1,000,000 note. Principal payments on the non-interest bearing note are the
lesser of $0.15 per Murat ticket sold during fiscal year or remaining net cash
flow, as defined. Interest on the other note is calculated annually and is
equal to the lesser of (1) $0.10 per Murat ticket sold during the fiscal year,
(2) prime plus 1% or (3) remaining net cash flow, as defined. Interest and
principal on the $1,000,000 note is payable at the lesser of $0.10 per Murat
ticket sold during fiscal year or remaining net cash flow, as defined.

Provisions of the $800,000 note payable requires the Murat to continue
making payments after the principal has been paid down equal to the lesser of
$0.15 per Murat ticket sold during the fiscal year or remaining cash flow.
These payments are to be made to a not-for-profit foundation and will be
designated for remodeling and upkeep of the theatre.

MEADOWS NOTE PAYABLE

Under the terms of a Meadows ticket and sales agreement, a vendor loaned
the Company $824,500 and pays the Company an annual fee of $140,000 for nine
years commencing in March 1996. Proceeds from the annual fee are used by the
Company to make the annual principal and interest payments.

POLARIS NOTE PAYABLE

In 1994, a concessionaire advanced Sunshine Promotions $500,000 to be used
in the construction of the Polaris Amphitheater. The advance is interest free
and is payable in annual installments of $25,000 beginning in 1994 for a period
of 20 years.

CAPITAL LEASE OBLIGATIONS

The Company has entered into various equipment leases. Interest on the
leases range from 6.5% to 18.67%.

Principal maturities of the long-term debt, notes payable and capital
lease obligations over the next five years as of December 31, 1997 are as
follows (in thousands):

Long-term Debt And Capital Lease
Notes Payable Obligations

1998 $ 756 $ 167
1999 782 157
2000 611 113
2001 541 53
2002 $ 537 --

6. PROPERTY AND EQUIPMENT

The Company's property and equipment as of December 31, 1997 and 1996
consisted of the following (in thousands):

Predecessor
1997 1996
---- ----
Land $ 8,752 --
Building and improvements 44,364 --
Furniture and equipment 6,503 $ 131
Leasehold improvements 2,676 6,726
------------------ -------------
62,295 6,857
Accumulated depreciation (2,610) (4,626)
------------------ -------------
$ 59,685 $2,231
================== =============

F-17

7. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

The Company is a 49% partner in a general partnership which subleases a
theater located in New York City. Income associated with the promotion of
concerts at this theater is recorded as concert revenue. Any such promotion
revenue recognized reduces the Company's share of the partnership's profits.
The Company is also a one-third partner in GSAC Partners, a general partnership
through which it shares in the income or loss of the PNC Bank Arts Center at
varying percentages based on the partnership agreement. The Company records
these investments on the equity method. In connection with the PACE
Acquisition, the Company agreed to purchase the interest in GSAC Partners that
it did not already own and in 1998 completed the purchase. Thus, the financial
position and operations of GSAC Partners will be consolidated into those of the
Company beginning in 1998.

The following is a summary of the unaudited financial position and results
of operations of the Company's equity investees (GSAC Partners in 1997 and 1996
only) as of and for the years ended December 31, 1997, 1996 and 1995 (in
thousands):

1997 1996 1995
----------------- ------------ -----------

Current assets $ 2,818 $ 756 $ 214
Property, plant and equipment 1,427 239 122
Other assets 239 819 --
----------------- ------------ -----------

Total assets $ 4,484 $ 1,814 $ 336
================= ============ ===========

Current liabilities $ 1,621 $ 1,534 $ 264
Partners' capital 2,863 280 72
\ ----------------- ------------ -----------

Total liabilities and partners' capital $ 4,484 $ 1,814 $ 336
================= ============ ===========

Revenue $20,047 $16,037 $4,058
Expenses 17,074 14,624 2,954
----------------- ------------ -----------

Net income $ 2,973 1,413 $1,104
================= ============ ===========

The equity income recognized by the Company represents the appropriate
percentage of investment income less amounts reported in concert revenues for
shows promoted by the Company at these theaters. Such concert revenues of
unconsolidated subsidiaries was approximately $97,000, $205,000 and $110,000
for the years ended December 31, 1997, 1996 and 1995, respectively.

F-18

8. INCOME TAXES

The provisions for income taxes for the years ended December 31, 1997,
1996 and 1995 are summarized as follows ( in thousands):

Predecessor Predecessor
1997 1996 1995
Current:

Federal -- -- --
State $420 $106 $13

Deferred:

Federal -- -- --
State 70 -- --
------------ ------------- ----------
Total $490 $106 $13
============ ============= ==========

No Federal income taxes were provided in 1997 as a result of the Company's
inclusion in the consolidated federal income tax return with SFX Broadcasting.
If the Company had filed on a stand alone basis, its federal tax provision
would have been approximately $2,050,000, consisting of $1,760,000 in current
taxes and approximately $290,000 of deferred taxes. The Predecessor had no
Federal tax provision in 1996 or 1995 by virtue of the status of its profitable
included companies as S Corporations. State income taxes were provided to the
extent that S Corporation status was not recognized.

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax asset and liabilities as of
December 31, 1997 are as follows (in thousands):

Deferred tax assets:

Deferred compensation $ 783

Deferred tax liabilities:

Depreciable assets $3,600
----------
Net deferred tax liability $2,817
==========

The Predecessor had no deferred tax liabilities as of December 31, 1996.

The acquisition of the Meadows resulted in the recognition of deferred tax
liabilities of approximately $3,200,000 under the purchase method of
accounting. These amounts were based upon the excess of the financial statement
basis over the tax basis in assets, principally fixed assets. The acquisition
of Delsener/Slater resulted in the recognition of deferred tax assets of
approximately $1,200,000 under the purchase method of accounting. These amounts
were based upon the excess of the financial statements basis over the tax basis
in assets, principally deferred compensation.

At December 31, 1997, 1996, and 1995 the effective rate varies from the
statutory Federal income tax rate as follows (in thousands):

F-19

1997 1996 1995
---- ---- ----

Income taxes at the statutory rate $1,463 $(139) $54
Effect of Subchapter S status -- 139 (54)
Nondeductible amortization 800 -- --
Travel and entertainment 20 -- --
Effect of consolidated return loss (2,283) -- --
State and local income taxes
(net of Federal benefit) 490 106 13
----- --- --
Total provision $ 490 $106 $13
===== ==== ===

9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

Pursuant to the terms of the Spin-Off, upon the consummation of the
Broadcasting Merger, the Company will assume all obligations under any
employment agreements or arrangements between SFX Broadcasting and any employee
of the Company.

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

The Company's operating leases includes primarily leases with respect to
venues, office space and land. Total rent expense was $2,753,000 , $875,000 and
$835,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The lease terms range from 3 to 37 years. Prior to the Spin-Off, the Company
will enter into contracts with certain officers and other key employees. No
such contracts existed in 1997. The future minimum payments for all
noncancelable operating leases and employee agreements with initial terms of
one year or more are as follows (in thousands):

Operating Leases Employment Agreements
---------------- ---------------------

1998 $ 3,366 $ 1,900
1999 3,823 1,864
2000 1,648 1,624
2001 1,666 1,534
2002 1,678 300
2003 and thereafter 14,117 --
------ -----
$26,298 $7,222
========= =======

The Company has committed to expansion projects at the Jones Beach Theater
and PNC Bank Arts Center and, in connection with the BGP Acquisition, for the
construction of a new amphitheater in the Seattle, Washington market. The Jones
Beach Theater and PNC Bank Arts Center expansions are expected to be completed
in June 1998 and to cost approximately $15,000,000 and $10,500,000,
respectively. As of December 31, 1997, approximately $1,018,000 and $1,500,000
, respectively, of these costs have been incurred. The new amphitheater in
Seattle is expected to cost $10,000,000 and is expected to be completed in the
s pring of 1999.

As of December 31, 1997 and 1996, outstanding letters of credit for
$1,110,000 and $400,000, respectively, were issued by banks on behalf of the
Company as security for loans and the rental of theaters.

F-20

In connection with the acquisition of Delsener/Slater, SFX Broadcasting
entered into an employment agreement with each of Ron Delsener and Mitch Slater
pursuant to which each of Messrs. Delsener and Slater serve as Co-President and
Co-Chief Executive Officer of Delsener/Slater. Each of the employment
agreements continues until December 31, 2001 unless terminated earlier by the
Company for cause or voluntarily by Mr. Delsener or Mr. Slater.

In certain cases, Messrs. Delsener and Slater have rights to purchase the
outstanding capital stock of Delsener/Slater for fair market value as defined
in their employment agreements.

Additionally, in the case of a return event, as defined, which may be
deemed to include the Spin-Off, the Broadcasting Merger and related
transactions, Messrs. Delsener and Slater have the right to receive a portion
of the excess of the proceeds of the return event over a fixed amount
determined in reference to the original purchase price for Delsener/Slater, all
as calculated pursuant to the Delsener and Slater employment agreements.
Management believes that, with respect to the Spin-Off, the Broadcasting Merger
and related transactions, no payment will accrue to Mr. Delsener or Mr. Slater
pursuant to their employment agreements.

The employment agreements further provide that Messrs. Delsener and Slater
shall be paid annual bonuses determined with reference to Delsener/Slater
profits, as defined, for the immediately preceding year. Management believes
that no such bonus was earned for the year ended December 31, 1997.

Messrs. Delsener and Slater and the Company are in the process of
negotiating amendments to their employment agreements to reflect, among other
things, the changes to the business of the Company as a result of the Recent
Acquisitions and the Spin-Off, and each of Messrs. Delsener and Slater have
agreed in principle to waive any rights which may accrue in connection with the
Broadcasting Merger or the Spin-Off. The Company also expects, in connection
with the foregoing, to negotiate mutually satisfactory amendments to certain of
Messrs. Delsener's and Slater's compensation arrangements, including bonus and
profit sharing provisions.

10. RELATED PARTY TRANSACTIONS

The Company's Executive Vice President, General Counsel and Director is Of
Counsel to the law firm of Baker & McKenzie. Baker & McKenzie serves as counsel
to the Company in certain matters. Baker & McKenzie compensates the executive
based, in part, on the fees it receives from providing legal services to the
Company and other clients originated by the executive. In 1997, the Company
incurred fees of approximately $2,948,000 for legal services related to the
Recent Acquisitions. Such fees were funded by SFX Broadcasting on behalf of the
Company. In February 1998, the Company reimbursed SFX Broadcasting for these
fees.

Due to stockholder represents the balance due to Mr. Delsener on his
advances to renovate the Jones Beach Theatre (the "Jones Beach Loan") and the
PNC Bank Arts Center (the "PNC Loan"). Delsener /Slater paid interest at 8% per
annum on the Jones Beach Loan, which was repaid in May 1996. The PNC Loan,
which was originated in 1996 was repaid in connection with the acquisition of
Delsener/Slater by SFX Broadcasting in 1997 (See Note 1).

11. CAPITAL STOCK

Subject to the approval of shareholders of SFX Broadcasting, holders of
the Company's Class A Common Stock will be entitled to one vote and holders of
the Company's Class B Common Stock will be entitled to ten votes on all matters
submitted to a vote of shareholders except for (a) the election of directors,

F-21

(b) with respect to any "going private" transaction involving the Chairman and
(c) as otherwise provided by law.

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

12. DEFINED CONTRIBUTION PLAN

The Company sponsors a 401(k) defined contribution plan in which most
full-time employees are eligible to participate. The Plan presently provides
for discretionary employer contributions. There were no contributions in 1997.

13. SUBSEQUENT EVENTS

During January 1998, the Board of Directors and SFX Broadcasting, as sole
stockholder, approved and adopted a stock option and restricted stock plan
providing for the issuance of restricted shares of the Company's Class A Common
Stock and options to purchase shares of the Company's Class A Common Stock
totaling up to 2,000,000 shares.

During January 1998, in connection with certain executive officers
entering into employment agreements with the Company the Board of Directors,
upon recommendation of the Compensation Committee, approved the sale of
an aggregate of 650,000 shares of the Company's Class B Common Stock and
190,000 shares of the Company's Class A Common Stock to certain executive
officers for a purchase price of $2.00 per share. Such shares will be issued
on or about the effective date of the Spin-Off. A substantial non-cash charge
to earnings will be recorded by the Company at the time of the Spin-Off
based on the then fair value of such shares.

In addition, the Board, upon recommendation of the Compensation Committee,
has approved the issuance of stock options exercisable for 245,000 shares of
the Company's Class A Common Stock. The options will vest over five years and
will have an exercise price of $5.50 per share. The Company will record
non-cash compensation charges over the five-year period to the extent that the
fair value of the Company's Class A Common Stock exceeds the exercise price.

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

F-22

AMENDMENT NO. 2

AGREEMENT AND PLAN OF MERGER

AMONG

SBI HOLDING CORPORATION,

SBI RADIO ACQUISITION CORPORATION

AND

SFX BROADCASTING, INC.

AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER dated as of
March 9, 1998, among SBI Holding Corporation, a Delaware corporation
("Parent"), SBI Radio Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of Parent ("Sub"), and SFX Broadcasting, Inc., a
Delaware corporation (the "Company").

WHEREAS, Parent, Sub and the Company have entered into an
Agreement and Plan of Merger, dated as of August 24, 1997, which was
subsequently amended by Amendment No. 1 to Agreement and Plan of Merger, dated
as of February 9, 1998 (as amended, the "Merger Agreement"), pursuant to which,
among other things, the parties agreed to the merger of Sub with and into the
Company (the "Merger"), upon the terms and subject to the conditions set forth
in the Merger Agreement;

WHEREAS, the parties to the Merger Agreement desire to amend
certain terms and conditions thereof, as set forth herein; and

WHEREAS, capitalized terms used herein have the meanings
ascribed to them in the Merger Agreement;

NOW, THEREFORE, the parties to the Merger Agreement further
agree as follows:

1. Section 1.02 of the Merger Agreement is hereby amended and restated in its
entirety as follows:

SECTION 1.02. Closing. Subject to the provisions of Article
VI, the closing of the Merger (the "Closing") will take place
at the offices of Baker & McKenzie, 805 Third Avenue, New
York, New York, on the earlier of (i) May 31, 1998 (as such
date may be extended pursuant to Section 5.09) or (ii) such
time, date or place as Parent shall specify by providing
written notice to the Company at least five (5) business days
prior to such date (the "Closing Date"), provided that in no
event shall the Closing take place prior to May 19, 1998.

2. Except to the extent expressly set forth in this Amendment No. 2 to
Agreement and Plan of Merger, no terms and conditions of the Merger Agreement
are amended or modified hereby, and all such terms and conditions shall remain
in full force and effect.

IN WITNESS WHEREOF, Parent, Sub and the Company have caused
this Amendment No. 2 to the Merger Agreement to be signed by their respective
officers thereunto duly authorized, all as of the date first written above.

SBI HOLDING CORPORATION

By: /s/ Eric Neuman
-----------------------
Name: Eric Neuman
Title: Vice President

SBI RADIO ACQUISITION CORPORATION

By: /s/ Eric Neuman
------------------------
Name: Eric Neuman
Title: Vice President

SFX BROADCASTING, INC.

By: /s/ Robert F.X. Sillerman
-------------------------
Name: Robert F.X. Sillerman
Title: Executive Chairman

EXHIBIT 21.1
SUBSIDIARIES OF SFX ENTERTAINMENT, INC.

1. Ardee Festivals N.J., Inc.
2. Ardee Productions, Ltd.
3. Atlanta Concerts, Inc.
4. Beach Concerts, Inc.
5. BGP Acquisition, L.L.C.
6. Broadway Concerts, Inc.
7. Conn Ticketing Company
8. Connecticut Amphitheater Development Corporation
9. Connecticut Concerts Incorporated
10. Connecticut Performing Arts, Inc.
11. Connecticut Performing Arts Partners
12. Contemporary Group Acquisition Corp.
13. Deer Creek Amphitheater Concerts, Inc.
14. Deer Creek Amphitheater Concerts, L.P.
15. Delsener/Slater Enterprises Ltd.
16. Dumb Deal, Inc.
17. Exit 116 Revisited, Inc.
18. FPI Concerts, Inc.
19. In House Tickets, Inc.
20. Irving Plaza Concerts, Inc.
21. Murat Center Concerts, Inc.
22. Murat Center Concerts, L.P.
23. NOC, Inc.
24. Northeast Ticketing Company
25. Polaris Amphitheater Concerts, Inc.
26. QN Corp.
27. SFX Broadcasting of the Midwest, Inc.
28. SFX Concerts, Inc.
29. SFX Network Group, L.L.C.
30. Southeast Ticketing Company
31. Sunshine Concerts, L.L.C
32. Sunshine Designs, Inc.
33. Sunshine Designs, L.P.
34. Suntex Acquisition, Inc.
35. Suntex Acquisition, L.P.
36. Westbury Music Fair, L.L.C.
37. PACE Entertainment Corporation
38. PACE Music Group, Inc.
39. PACE Theatrical Group, Inc.
40. PACE Motor Sports, Inc.
41. PACE Touring, Inc.
42. American Broadway, Inc.
43. PACE Variety Entertainment, Inc.
44. PACE Communications, Inc.
45. PACE Entertainment GP Corp.
46. PEC, Inc.
47. PACE Entertainment Charitable Foundation
48. PACE Entertainment Group, Ltd.
49. PACE Productions, Inc.
50. PACE Concerts GP, Inc.

51. Old PCI, Inc.
52. SM/PACE, Inc.
53. PACE Bayou Place, Inc.
54. PACE Amphitheaters, Inc.
55. PACE Amphitheater Management, Inc.
56. PACE Milton Keynes, Inc.
57. PACE U.K. Holding Corporation
58. Concerts, Inc.
59. PACE Concerts, Ltd.
60. PTG-Florida, Inc.
61. Entertainment Performing Arts, Inc.
62. Touring Productions, Inc. (Dormant Sub)
63. Festival Productions, Inc.
64. Tuneful Company, Inc. (Dormant Sub)
65. Pavilion Partners
66. GSAC Partners
67. BG Presents, Inc.
68. Bill Graham Enterprises, Inc.
69. Bill Graham Presents, Inc.
70. Bill Graham Management, Inc.
71. Shoreline Amphitheatre, Ltd.
72. Fillmore Fingers, Inc.
73. AKG, Inc.
74. Fillmore Corporation
75. Wolfgang Records
76. Shoreline Amphitheatre Partners
77. PACE AEP Acquisition, Inc.
78. PACE UK
79. Walnut Creek Amphitheater Partnership
80. Coral Sky Amphitheater Partnership
81. G123 Corp.
82. Rugrats American Tour, Ltd.
83. PTG Florida, Inc./BSMG Joint Venture
84. The Album Network, Inc.
85. Contemporary Group, Inc.
86. Contemporary Marketing, Inc.
87. Contemporary Productions Incorporated
88. Contemporary Sports Incorporated
89. Cooley and Conlon Management Co.
90. High Cotton, Inc.
91. SJS Entertainment Corporation
92. Southern Promotions, Inc.

[ARTICLE] 5

[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-31-1997
[CASH] 5,979,000
[SECURITIES] 0
[RECEIVABLES] 3,831,000
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 11,220,000
[PP&E] 62,295,000
[DEPRECIATION] 2,610,000
[TOTAL-ASSETS] 146,942,000
[CURRENT-LIABILITIES] 22,437,000
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 102,144,000
[TOTAL-LIABILITY-AND-EQUITY] 146,942,000
[SALES] 0
[TOTAL-REVENUES] 96,144,000
[CGS] 0
[TOTAL-COSTS] 91,054,000
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 1,590,000
[INCOME-PRETAX] 4,304,000
[INCOME-TAX] 490,000
[INCOME-CONTINUING] 3,814,000
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 3,814,000
[EPS-PRIMARY] 0
[EPS-DILUTED] 0